Underground economy causes and particular manifestation.

Neacsu, Razvan ; Dumitrescu, Constantin Dan ; Debelka, Edward 等

1. INTRODUCTION

In literature (Dobrota, 1999) other terms are used that aim to fasten the meaning of underground economy. One of them is the concept of black market. This term doesn't bring anything new. Even more, one can notice that the use of the adjective "black" is meant to underline the opaque character of this particular economy's activity. The use of the noun "market" intends to stress that merchandise transactions are involved. The concept of black market is narrower than the underground economy as it confines to those goods and services interchanged by means of the market.

Another used concept, in antithesis to the official economy, is that of the grey market (Dinu, 2003). This concept does not properly point out the underground economy, but rather a part of it, namely the segment of the economic activities that take place on the edge of the law

2. CAUSES OF UNDERGROUND ECONOMY'S OCCURRENCE.

The causes of occurrence, maintaining and development of underground economy must be sought in three directions: institutional direction, conjunctures and psycho--sociological causes (Enste & Scheneider, 1998).

The following belong to this category:

* the weaknesses of fiscal administration: the government's incapacity to control and collect, on time and entirely, the budgetary debts of the companies

* the weaknesses of the fiscal punishment: the government's incapacity to punish and discourage enough or to impose a penalization large enough for disregarding the strictness of official economy

* the phenomenological obstruction: some special processes or phenomena that disturb the institutional or behavioural transparency during a certain period of time or in a certain economic area (i.e. the mass privatization).

Out of this rather typological presentation one can recognize a series of similarities, even identities, with situations from the Romanian transitional economy (Ciutacu, 2001). The underground economy is an answer of the economic system to the act of governmental management.

The main functions of the underground economy are the following (Dinga, 2001):

1) To mark the allocation of resources;

2) To mark the economic behaviour dilemma: it refers to the contrary effects of the underground economy on some standard economic behaviour;

3) To absorb economic shocks: underground economy often plays the role of absorber of certain economic shocks appeared either on the goods and services market, on the labour market, or on the financial-monetary market.

4) To absorb institutional shocks:

5) To fill the economic "gaps": underground economy, forced to persist in the opaque area,

3. PARTICULAR MANIFESTATIONS OF UNDERGROUND ECONOMY

The easiest definition of corruption can be phrased as follows: a power abuse of the state representatives, with a view to satisfying personal or group interests. If we would use a formula (Lawrence, 1998) to define corruption, then it can be considered that

C = M + Pd - R (1)

where

C is corruption, M is monopolistic position, Pd is discretionary power and R is responsibility. Corruption equals monopolistic position plus discretionary power minus responsibility.

Either an activity is public, private or non-profit, corruption phenomena can be identified where someone has a monopolistic position over any commodity or service, exerts a discretionary power over the distribution or performance and neither any personal responsibility is regulated, nor is he/she held liable for the above distribution or service. Still, such a definition has rather a scholastic utility (Ciutacu, 2001) as any public authority has a certain monopolistic position in the public service area, has a public power and law asserts the responsibility of every public authorities, even if in cases of corruption these responsibilities are evaded.

Different forms of corruption have different consequences. Here are some theories of its manifestation:

Hypothesis I. Embezzlement of budgetary funds for personal interest

The scheme of possible corruption by embezzlement of budgetary funds for personal interest is accomplished in three stages:

1) The budgetary funds are allocated to the artificial persons subordinated to the public administration to pay the salaries, carry out the investments, etc.

2) These public institutions conclude contracts with companies specialized in performing various tasks. The contracts usually are concession contracts, partnerships, and contracts for execution of urban equipment (water supply, heating, roads, sanitation, gas duct network expansion, etc.).

3) These specialized companies, generically named entrepreneurs, conclude themselves sub-enterprise contracts with natural or artificial persons, on certain fields of activity (specialized consultancy, management, marketing, services etc). The mechanism of this type of corruption consists of the fact that some funds meant to achieve public interest projects end up being used for private interest.

Hypothesis II. Political corruption

Since the inception of governing the problem of electing public servants on political criteria has been raised. The political criteria were fundamental because they ensured the loyalty of the functionaries to the person who appointed him/ her. Nowadays all democratic states formally admit the standard of functionary's "professionalism".

Partisanship of a public servant to a political party is not invariably a cause of corruption, just as a politically uninvolved official could be politically corrupted. In the public administration, management positions are always filled with politicians who, on their behalf, appoint in subordinate positions persons from their party or political coalition. Whenever the head of the public administration gives a certain order as a political chief to the subordinate functionary we witness a form of corruption.

Hypothesis III. Bureaucratic hierarchy

Selection and promotion of the employees from administration has always been achieved mainly subjectively: on hereditary criteria, by the means of position purchase. Corruption inside the bureaucratic hierarchy can be directed upwards, from base to top, by means of buying off the leader's one step after another, or downwards through commands, appointment or promotion of a functionary.

4. WORK ON THE BLACK MARKET

Official statistics permanently record two separate generators for black work: an increasing number of unemployed and a significant proportion of people who made low incomes, who can not achieve daily existence. The natural reaction of these people is not to seek a job, but to provide services that allow to be paid to the state but are not registered. A big difference exists between official income and those actually achieved. Under these circumstances work on the black market appears. Work on the black market defines the activity developed without complying to regulations imposed by the labor law, insurance and tax.

Work on the black market can be defined on a very broad range: from household activities/ services (cleaning, household maintenance facilities), through work in agriculture (crop collection, making the earth), construction (laborer or low-skilled, work in construction sites, use of stolen materials, work outside sites), retail (sale of unregistered products in the specific duties for non-commercial activities,) various industries sometimes including high tech (for the manufacture of various software programs). Motivation to work on the black market is equally varied. The specifics in economy, the tradition, the legislation are factors that determine the behavior of citizens.

Concrete economic situations existing at a given moment require immediate response to ensure survival and some traditions still show strong influences of citizens; however, regulations governing the society set the limit of what is acceptable, the conditions for acceptance and what society rejects.

Thus, the law establishes in particular:

* the minimum and maximum age for the exercise of certain trades and, in particular, protects children, prohibiting operation

* the technical rules of protection and labor specific to each area;

* limits working time, rest assured you have conditions of workers;

* Measures to protect labor in each state or to attract labor from other states.

Tradition is a crucial element for the activity of important social groups.

The true monopolies exercised by the inhabitants of certain areas in the pursuit of activities, which is repeated over generations, the habit of learning traditions from very early age, with harsh methods, and seasonal migration or migration from former colonies to the metropolis may be reminded at this point.

The specific to the economy also determines the citizens' behavior; underdeveloped areas, periods of economic recession, economic transition, economic change and shifts require labor-offs to ensure subsistence. The problem becomes exacerbated to forms located at the two extremes of training.

In many underground activities poorly paid people without clear instruction, which in a given situation could give very few relationships and have a low credibility, are used for rough work. At the other extreme are people who, with a high intellectual capacity, are disposed against the measure of reward, to be involved in organizing and carrying out underground activities.

As a conclusion, the reason and income from work on the black market are very diverse.

5. CONCLUSIONS

Particular manifestations of underground economy spread on a very diverse area; from political corruption to business crime that tends to become nowadays an antisocial phenomenon. At the same time, the incidence of corruption is perceived to be higher in poor economies because to a multitude of economic, institutional, politic, social and moral factors.

For the 1st and the 2nd hypothesis, a potential solution to diminish this type of political corruption would be the political cabinet. Thus, between the head of an administrative authority and the executing apparatus will exist a "buffer", a structure composed of politic servants that come and go together with their leader. It is obvious that such a solution must be implemented through a law of the public servant, which should warrant the steadiness of any employee. In this manner, no matter what party or coalition wins the elections, public servants remain unchanged.

All the three specific forms of manifestation of the underground economy action interconnected. The result is reached through the intensity of the form manifestation and through the effects of the existing social, economic and political environment.

This work intends only to point out the existence of these phenomena, which will be thoroughly approach in the future.

6. REFERENCES

Ciutacu, C. (2001). Reforma si metareforma (Reform and metareform), Expert Printing House, Bucharest

Dinga, E. (2001). Economia subterana adversar?... partener?..., (Underground economy- adversary? ... partner?...), Economic Tribune Publishing, no. 21-22/2001, Bucharest

Dinu N. (2003). Economia subterana in Romania (Underground economy in Romania), Economic Printing House, Bucharest

Dobrota, N. (1999). Dictionar de Economie (Economic Dictionary), Economic Printing House, Bucharest

Enste, D. & Scheneider, F. (1998). Increasing Shadow Economies all over the World. Fiction or Reality.A Survey of the Global Evidence of the Size and of their Impact from 1970 to 1995, The Institute for the Study of Labor (Iza), Bonn

Lawrence, A. (1998). The Underground Economy. A Strategic Scan of the Justice Enviroment, Department of Justice, Canada