A shadow economy is defined as an underground economy or black market. In this market, applicable taxes are not paid and trade regulations are not adhered to. According to the World Bank, which also refers to the shadow economy as a gray economy, this type of economy is characterized by business activities not accounted for by official statistics. By and large, this kind of economy is inclusive of illegal activities such as drug or arms trade. However, though shadow markets largely involve illegal activities they may sometimes involve legal activities that are unreported or underreported for purposes of evading tax (gray economy, 2004).
On the other hand, fair trade refers to a system of exchange that honors producers, communities, the environment and also the consumers. Accordingly, fair trade and shadow economies defer in that whereas in fair trade is rooted in justice, shadow economies are not. In most instances, fair trade makes sure that goods and products are fairly priced; not too high or too low (Fair trade, 2009). Conversely, in shadow/black market economies, the good are often too highly or lowly priced mostly because, no taxes are to be paid and/or the goods are dangerous to handle.
Discuss concepts or explanations that you found interesting or confusing; explain why they interested or confused you.
The concept of gray/shadow economy is somewhat confusing. It is difficult to understand why the governments that advocate for fair trade are unable to control the shadow economies. After all, governments have the power to control their citizens from exploitation by unscrupulous business economies which is what the black market is.
It could be that the same governments are not committed to doing away with shadow economies of they somehow benefit from the economies. For instance, through shady deals and corruption. This then leads to the question, is fair trade the moral economy that it has been branded as? It is interesting to note that individuals who are involved in the advancement of fair trade practices and who are also very vocal against the black market may be benefiting from the black market.
Regulation on the movement of goods and services.
There are inherent advantages in restricting the movement of goods and services across borders. Restriction may be especially crucial on specific goods such as illegal drugs the like of marijuana or opium. Case in point. Afghanistan is known as a narcotics hub. 96% of the world’s opium is produced by Afghanistan.
There is no strong government in place to control the production and transportation of the opium from Afghanistan. Accordingly, the drugs make it to different underground markets in different parts of the world. The proceeds of the drugs are then remitted to Afghanistan where they are again used by the Taliban to train and finance terrorists and terrorist groups (Kavanagh, 2009). This goes to show that unless there is regulation of certain goods and services there will be more problems, in the form of terrorism, to worry about. Again, regulating the movement of goods is a good way of protecting developing economies.
Think about a country that is trying to develop its industries, having the free flow of cheaper imports would only be counterproductive as it would only destroy the up coming industries.
Benefits and drawbacks to certification schemes like Fair Trade. For whom are they benefits or drawbacks?
It has already been established that fair trade is a system of exchange that honors not only the consumers, but also the producers and the environment (Fair trade, 2009). Fair traders are expected to acquire certification that then guarantees their adherence to certain standards, for instance transparency. The benefactors of fair trade are the individuals. Fair traders are expected to provide humane working conditions for their employees in addition to fair wages.
However, one major drawback associated with fair trade is the fact that the certification costs are greatly unaffordable. Consequently, fair traders do not adhere to the standards provided for in the certifications. For that reason, the drawbacks affect the individuals. Without certification to guarantee adherence to set such standards as the revision of safe working conditions, it would then be correct to conclude that individuals are then subjected to inhumane working conditions (Gralton, 2008).
Benefits and drawbacks of regulation of consumer products.
Regulation of consumer product is crucial as it protects consumers from exposure to injuries associated with the use and handling of certain products. In the United States, the Consumer Product Safety Act is applied in the protection of consumers. Thus, by and large, the major benefit associated with the regulation of customer products is the protection of consumers from exposure to potentially harmful products.
Regulations are important as they help countries take appropriate measures so as to control and /or prevent the entry of hazardous products into the market place. For instance, the US may enforce regulations so as to control the entry of lead laden children toys manufactured in China (Health Canada, 2008).
Nevertheless, one major disadvantage of the regulation as to do with the amount of time that it takes to promulgate the desired regulatory changes. Until there is full implementations and commitment to follow up on adherence, it would be correct to sate that consumers may still be at risk of exposure to dangerous goods from other countries. More over, it is important to note that in the event that companies and organizations adhere to the set regulations, regulatory compliance costs are often passed on the to the consumers. As a result, they end up paying much more for goods and services (Health Canada, 2008).