[Prospective] Hidden dangers of Grey Matter

Interesting paper in the last issue of MacKinsley Quaterly about informal economy. The paper criticizes both thesis: the fact that gray market could create jobs and relieve social tensions AND the idea (claimed by academics) that will disappear of its own accord.

Many companies around the world operate in the "informal economy," in which they underreport employment, avoid certain taxes, ignore product quality and worker safety regulations, violate copyright and intellectual-property laws, or even fail to register as legal entities. The problem is particularly acute in developing countries, where companies that operate informally produce as much as 80 percent of the output in some industries. Few policy makers are concerned, but they should be. By avoiding taxes and regulatory obligations, informal companies gain a substantial cost advantage that allows them to stay in business despite their small scale and low productivity and prevents more productive, formal companies from gaining market share. The result is slower economic growth and job creation.