Defining moments

GIVEN its nature, it is no surprise that the black economy has many aliases. Because so much about it is unknown and because there are no universally accepted views on how it should be defined and measured, different people know it by different names.

Substitute black with any word in a long list – hidden, underground, subterranean, irregular, unofficial, submerged, parallel, informal, second, cash, traditional, shadow – and we are talking about largely the same thing.

Says Dr Jeyapalan Kasipillai of the Monash University Sunway Campus’ School of Business: “Essentially, the designation refers to those economic activities that should be reported or measured by the techniques and conventions currently used for measuring economic activity, but are not.”

He adds that these activities are concealed from the authorities because by doing so, those taking part make private gains. These gains may take the form of evaded taxes, non-compliance with costly regulations, income from prohibited and criminal activities, or fraudulent receipt of various government benefits.

However, some definitions exclude the criminal economy, which deals in illegal goods and services.

Arguably, the most widely used term is informal economy, which is interchangeable with the informal sector. However, the popularity of the latter has slipped of late, mainly because it suggests that the informality is confined to a specific sector of economic activity, rather than cutting across many sectors.

Also, “informal economy” is considered a better label because it supports the ideas that the formal and informal parts of the economy are linked, and that the informality encompasses enterprise and employment. English anthropologist Keith Hart claims to have coined the term. In a 1971 conference on urban unemployment in Africa, he argued that many unemployed Africans were in fact working for irregular and often low returns.

“The term I chose is negative, but polite; it names the unnameable, labelling the people by an absence, their lack of ‘form’, as understood by the bureaucracy,” he says in a 2006 paper.

In a 1972, an International Labour Organisation mission to Kenya discovered that the African nation’s traditional sector (comprising petty traders, small producers and casual jobs) had expanded to include profitable and efficient enterprises as well as marginal activities.

Hence, the mission decided that informal sector (instead of traditional sector) is an apt name for the range of small-scale and unregistered economic activities.

With these two developments, the economic and intellectual fraternities realised that the official data did not capture what went on in the black economy. More than three decades later, the experts continue to work on ways to improve the statistics on unregistered economic activities.

This is undoubtedly a major challenge, for how do you properly calculate that which is meant to be hidden?

The Star-Errol Oh