New Internationalist

The Facts

Issue 173

new internationalist
issue 173 - July 1987

Underground work - The Facts

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Photo: Alfred Gregory / Camera Press

SIZE
The hidden economy is, by its very nature, immeasurable. Estimates are 'guestimates' and results vary widely according to the methods used. But the one thing economists can agree about is that it is growing.

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PEOPLE
More and more people are selling their labour underground - as 'moonlighters' (doing more than one job), 'ghosts' (working exclusively underground), or just making out as 'Informal' workers on the streets, at home, or in illegal workshops.

The figures below refer to the percentage of the labour force engaging in unregistered work

Australia: 14%
Belgium: 15 - 20%7
Brazil: Sao Paulo 43%7
Cameroon: Yaounde 40%7
France: 6%7
India: Bombay 60%8, Calcutta 50%7
Indonesia: Jakarta 45%7
Italy: 25 - 30%8

Kenya: 60%7
Nigeria: Lagos 50%7
Norway: 40%7
Pakistan: urban areas 69%7
Peru: urban areas 60%7
Tunisia: urban areas 34%7
UK: 10%9
US: 10~17%10
West Germany: 7.5%6


WOMEN AND CHILDREN FIRST

WOMEN: Discrimination against women in the job market - because they lack education or are tied to the home by domestic and child-rearing duties - forces many of them to do unpleasant or low-paid jobs in the underground economy.

Indonesia: 30% of households in Jakarta are headed by women, one third of whom work as prostitutes. 11

Italy: 70% of underground workers are women, most of them working at home in the garment and textile industry. 44% work more than eight hours a day, 20% between 10 and 12, and 20% more than 12 hours daily. 7

Philippines: female rural home workers in the garment industry earn about 72 cents a day.12

UK: 72% of female home workers earn less than the statutory minimum wage and three-quarters of those earn £1($1.60) or less an hour.13

CHILDREN: Many poor families can only survive if the children earn too. There are an estimated 52 million children in the world, of which 50 million are in developing countries7. Children as young as five and six wander the streets selling chewing gum or cigarettes, or work on building sites or even down mines. Unluckier still are the children abandoned by their parents. In Bogota, Colombia, alone there are 5,000 such gamines, forced to live by their wits, on the streets.


SWEAT AND SLAVERY

SWEAT: Sweated labour is all too common in Third World countries. But sweatshops - where people work illegally, for long hours, low pay and often in dangerous conditions - are making a comeback in industrialized nations. The examples below represent the tip of an iceberg.

Italy: At least 10,000 illegal workshops are estimated for the city of Naples alone. Sweatshop manufacture accounts for 30 per cent of national output14

US: Raids in New York City in 1983 uncovered 3,000 sweatshops employing 50,000 people working 70 hour weeks in nightmarish conditions15.

France: Crack-downs in Paris, 1980, uncovered 217 clandestine tailoring sweatshops using cheap illegal immigrant labour.7

SLAVERY: Illegal immigrants are convenient, cheap and 'docile' labour for 'informal' bosses. Over 250,000 Latin Americans - a quarter of the US intake of illegal immigrants - are smuggled over the Mexican border each year by profit-making traffickers. One fifth of the 'wet-backs' who get jobs are either fired or handed over to the immigration authorities by their new bosses before payday. 16


BIG USES SMALL

To cut costs and by-pass labour laws large corporations now prefer to contract-out work to small, non-unionized firms, or even sweatshops, which do not guarantee employment and pay their workers much less.

TOYOTA AND NISSAN (Japan): 33% of vehicles sold under these names are manufactured in large part by employees of other smaller firms17.

BENETTON (Italy): has fewer than 2,000 people on its payroll but gives work to 6,000 who work for 200 small makers of semi-finished clothes, often in sweatshops or their own homes.17

International sub-contracting: The value of US subcontracting over its southern border to make use of cheap Mexican labour has increased from less than $1 billion in 1966 to over $18 billion in 1982.18


HIDDEN MONEY

India's private sector is so notorious at hiding its income from the state that the country is described as being 'awash with black money'. Government bids to claw in some of the elusive cash have included declaring an amnesty for tax evaders who reveal their hidden income and recalling large denomination notes to catch those who don't.

But hidden money has at times proved useful to politicians - especially since the ban on direct contributions to political parties. During the 1977 national election, Indira Gandhi's Congress party received 160 million rupees (then about $23 million) from businesses in the form of advertisements in souvenir booklets that were never printed. The money came from 'slush funds' of 'black money' set aside for such occasions.9


DIRTY MONEY

Illegal drugs income:
US: $23.4 billion19
Colombia: $3 billion a year making it the most profitable export and worth almost twice as much as coffee9
Bolivia: $2 - $3 billion or four times the value of all Bolivia's export earnings and equal to the entire official GNP20
Peru: $600 million, the biggest export21

In Colombia the flow of dollars has been so huge that it is the only place in the world where the black market exchange rate has been lower than the official one.

Laundry services: Traditionally Florida banks were used for cleaning 'dirty money'. Corrupt bankers could be bribed to forget to file reports (as required by law) for transactions of $10,000 or more and turn a blind eye to frequent transactions of $9,999. Swiss banks were also popular until they changed their rules to allow disclosure of account information in cases where organized crime might be involved. Today most of the business goes to 'offshore' banks in the Caribbean. The Bahamas, the Dutch Antilles and St Kitts laundered $43 billion of dirty money estimated a US Senate Committee in 1982.9

1. Philip Mattera Off the Books, 1985 using Peter Gutmann's method outlined in the Financial Analysts Journal, 1977
2
.Eastern Economic Review, 1983
3.
Recent Surveys of the Parallel Economy in Italy Pamela de Boca and Francesco Forte
4.
Instituto de Libertad y Democracia, Lima, 1985
5
. Ingemar Hannson The Underground Economy in a High Tax Country, 1982
6.
Allensbach Polling Institute, 1986
7.
International Labour Office, Geneva, 1984
8.
Stuart Henry Can I Have it in Cash?, 1981
9.
Philip Mattera, Off the Books, 1985
10.
Vito Tanzi, The Underground Economy in the US and Abroad, 1983
11.
Papanek, 1975
12.
Journal of Contemporary Asia, 1983
13.
Low Pay Unit, 1984
14.
Financial Times, 1984
15.
New York Times, 1983
16.
Sacha G Lewis Slave Trade Today, 1980
17.
Economist, 1980
18.
Multinational Monitor, 1983
19.
US Inland Revenue Service.
20.
Foro Economico, La Paz, 1985.
21.
The Andean Report, 1985.

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