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Posted: July 08, 2011

The underground economy: Part 1

When panic sets in, people get creative

Thomas Frey

As the musical chairs game of unemployment money runs out, and an increasingly large number of people are left without a seat at the jobs table, desperation begins to set in.

For them, it becomes painfully obvious that their lackluster effort to find a job, which often involves playing video games and watching TV interspersed with sending an occasional resume or phone call, has left them with few options as the end of their financial rope draws ever closer.

Panic begins to set in.

Human to human social skills are vastly different than online social skills and their ability to interact with others has atrophied to a point where their entire circle of friends consists of a few relatives and some high school classmates who have somehow turned beer-drinking into a profession.

They have already been suckered into several network marketing get-rich-quick schemes and looked at going back to college but couldn't see a quick enough payback. With few options left, they find themselves slipping into survival mode.

Welcome to the underground economy.

The Global Perspective

There are no good numbers to describe the size and characteristics of the underground economy, but it is most certainly growing.

From the government's standpoint, when there's no crisis, no one worries about it. However, as national debt skyrockets and an even more troubling international debt crisis looms, the declining balance sheet causes many to go into finger-pointing mode.

A recent article in the London-based Financial Times took a close look at this growing problem. Pietro Reichlin is an economics professor at Rome's Luiss University who has studied the underground economy (sometimes refered to as the "black" economy) extensively.

"When wages go down, there is more incentive to move towards the black economy. It is almost a form of insurance, a way out," Reichlin says.
Europe's shift towards an underground economy is happening far faster than in the U.S.

According to Friedrich Schneider, economics professor at Johannes Kepler University in Linz, Austria, the size of the Spanish black economy is equivalent to 19.2 percent of official gross domestic product. That happens to be the same proportion as the average he calculates for 31 European countries, with Bulgaria the highest at 32.6 percent and Switzerland the lowest at 8.1 percent.

Schneider estimates the size of the underground economy in the U.S. is in the range of 7 percent. But that 7 percent represents a far greater dollar amount than most of the other counties combined.

"Among the main causes of the black economy is the level of taxation. The higher the tax and the regulatory burden the bigger the shadow economy of the country," Reichlin says.

The Online Underground

Business is becoming very fluid in how it operates, and the driving force behind this liquefaction is a digital network that connects business or personal needs with solution providers, and buyers with sellers, faster and more efficiently than ever in the past.

But the effect of our flowing digital business world does not stop with how transactions are performed. Instead, it has begun to morph and change virtually every aspect of how business is conducted including the duration and permanency of work assignments, the employer-worker relationship, and the organizing principals around which work assignments and talent coalesce.

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Thomas Frey is the executive director and senior futurist at the DaVinci Institute and currently Google’s top-rated futurist speaker.  At the Institute, he has developed original research studies, enabling him to speak on unusual topics, translating trends into unique opportunities. Tom continually pushes the envelope of understanding, creating fascinating images of the world to come.  His talks on futurist topics have captivated people ranging from high level of government officials to executives in Fortune 500 companies including NASA, IBM, AT&T, Hewlett-Packard, Unilever, GE, Blackmont Capital, Lucent Technologies, First Data, Boeing, Ford Motor Company, Qwest, Allied Signal, Hunter Douglas, Direct TV, Capital One, National Association of Federal Credit Unions, STAMATS, Bell Canada, American Chemical Society, Times of India, Leaders in Dubai, and many more. Before launching the DaVinci Institute, Tom spent 15 years at IBM as an engineer and designer where he received over 270 awards, more than any other IBM engineer.

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