Forget China, 'System D' Is World's Second Largest Economy (Infographic)

EconMatters's picture

By EconMatters

A recent article at Foreign Policy noted that the $10 trillion global black market is now the world’s fastest growing economy, and that in 2009, the OECD concluded that half the world’s workers (almost 1.8 billion people) were employed in the shadow economy.


By 2020, the OECD predicts the shadow economy will employ two-thirds of the world’s workers. This new economy even has a name: ‘System D’.


According to an IMF economic study, black market, also called the shadow, underground, informal, or parallel economy, "includes not only illegal activities but also unreported income from the production of legal goods and services, either from monetary or barter transactions. Hence, the shadow economy comprises all economic activities that would generally be taxable were they reported to the tax authorities."


The IMF study also outlined the the potentially serious consequences of worlds fastest growing economy:

  • The growth of the shadow economy can set off a destructive cycle. Transactions in the shadow economy escape taxation, thus keeping tax revenues lower than they otherwise would be. If the tax base or tax compliance is eroded, governments may respond by raising tax rates—encouraging a further flight into the shadow economy that further worsens the budget constraints on the public sector. (On the other hand, at least two-thirds of the income earned in the shadow economy is immediately spent on the official economy, resulting in a considerable positive stimulus effect on the official economy.)
  • A prospering shadow economy makes official statistics (on unemployment, official labor force, income, consumption) unreliable. Policies and programs that are framed on the basis of unreliable statistics may be inappropriate and self-defeating. 
  • A growing shadow economy may provide strong incentives to attract domestic and foreign workers away from the official economy.


Based on an estimate by BusinessWeek, “[G]iven US GDP of $14.26 trillion, the world’s largest, that could still be as much as $1.2 trillion in taxable income that slips through Uncle Sam’s fingers each year."


In fact, shadow economy is part of the contributory factors to the current Euro crisis in the context of reduced government tax revenue and driving up consumer price levels. The IMF study showed in the 21 OECD countries in 1999–2001, Greece and Italy had the largest shadow economies, at 30% and 27% of GDP, respectively. In the middle group were the Scandinavian countries, and at the lower end were the United States and Austria, at 10% of GDP, and Switzerland, at 9%.


More importantly, the rise of System D highlights the inadequacy of global governments policies, processes, red tapes, and bureaucracies. This infographic lays out everything about the black market, how it affects our economy and our culture.


Further Reading - Debt Crisis 2012: Forget Europe, Check Out Japan

Black Market


Infographic Created by: Business Degree 

© EconMatters All Rights Reserved | Facebook | Twitter | Post Alert | Kindle

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ThisIsBob's picture

Jeeze, its fairly easy to understand.  When you look at what these fucks do with the tax money, who in their right mind would pay taxes, if they could figure out a way not to?

Snidley Whipsnae's picture

It is not all about taxes. A large part of the problem is the bankers pushing the pols to create regulation that forces all transactions through electronic means, ie; credit cards.

If the banks succeed then they will get a slice of every transaction.

Anyone here believe the banks deserve a slice of every transaction?

Long live the underground economy and fuck the bankers and the pols they pay for.

KickIce's picture

Of course they feel it has the potential to be destructive, it prevents them from fleecing and tracking the population.

acaciapuffin's picture

It's kind of obvious what is going on here, the more the government starts clamping down on businesses and people the more people and businesses start acting outside the "legitimate" economy. During prohibition normal people were thinking of breaking the law. When joe tax payer starts thinking about breaking the law you know that the laws are not just anymore. let me end this statement by quoting  a line that really fits this article,"the more you tighten your fist, the more star systems will slip through your fingers."

Bam_Man's picture

Wow, I didn't know that Switzerland has the world's largest prostitution industry AND highest per capita GDP.

Food for thought there.

Dugald's picture

Prostitution... Its a fucking good business, huge growth potential, increasing employment gauranteed, minimal advertising costs, a never ending supply of both customers and staff, and who better than the swiss to recognise such business potential.  And all you feather pluckers thought you were smart, go long pussy.Lol.....


non_anon's picture

don't overlook planet x

Eatabanker's picture

The income tax rate debate is a distraction from the argument against the moral legitimacy of any Federal Income tax whatsoever. Created early 20th c on the heels of the vile Federal Reserve.
If one looks at the charges against Kim Dotcom, who the Feds claim is a RICO perp, amonst other victimless atrocities, you understand " black market" is nothing more than the establishment term for existing beyond their taxing clutches. Like Christians defining their aetheistic counterparts. Similarly, overreaching archaeologists label their non-institutional colleagues as "grave robbers" for engaging in precisely the same activites.

Black markets have done substantially more for me than the dubious rewards garnered over 6 decades toiling under pseudo-democracy. Corruption is the intentional result of invasive, unnecessary and unenforceable laws which only empower bureaucrats and their patrons. Volatility without progress or production. Like a pyromaniac investing in a fire extinguisher company.

azzhatter's picture

Voting doesn't work but collectively starving the beast surely works. 

rosiescenario's picture

From a longer term perspective, it appears that mankind is just reverting back to our original form of trade, long before there were any governments trying to extract their % from each transaction.


When we see the squander of tax dollars in both our Federal and state governments, the lavish life styles of our elected officials, their arrogance and willingness to meddle in our daily lives, there is a sense of accomplishment when making a transaction "off the books" and avoiding the payment of any taxes. It is one of the rare chances we little people get to show our disdain and not feed the beast.



daxtonbrown's picture

When people talk about Going Galt, they should really think in terms of grey market rather than black market. You pay your taxes, just arrange so that you pay the least possible. When you do your own car repairs or have a frind do it, it never shows up in the books. Everything you do for yourself is a way of striking out against the system, but you don't have to be afraid of getting hauled off to the pokey.

Everyone here on zerohedge knows the system is doomed to collapse no matter who becomes president, there is just too much debt overhang and too much inertia. So you have to go off grid as much as posible and weather the storm.

PrintPressPimpin's picture

exactly...  I find it very difficult to make any purchases in stores or even online compared to craigslist.  the ability to barter and negotiate prices without sales tax is great..  I usually try to shoot for at least 50% off retail price when buying on CL and sometimes only pay 10 or 20% of retail.  Whatever you can do to distance yourself from the system helps..  In fact the black market seems like the only market with ease of entry, and growth potential....  fly under the radar as long as possible.. starve the beast!!!!!!

rsnoble's picture

Or this is all pretalk for getting rid of cash.  Here's your new SuperCard, you can keep track of everything including every single penny you owe someone else.

rsnoble's picture

The black market exists originally out of greed, but even more so now because the current gov'ts are so big and need so much $ that is near impossible for many people to survive by following the rules.

I don't see the problem the IMF does when it says they will have to raise taxes and that will force more into System D. Sounds like starving the gov't to me. What's the problem with that? Get rid of the parasites.

Simple.Machine's picture

This "report" is nothing but justification to impose new laws/regulations on the common people. They eventually want to make it so there's nowhere to run where they can't find you and take their "share" out of the transaction.

Banjo's picture

Exaxtly right.


Gee let me see Romney and Buffett paying 15% or less in tax the secretary pays over 40% hmmm...


Then the geniuses sit around scratching their head about why the black economy is expanding. Get of our freaken back already!!

NotApplicable's picture

If it weren't for black markets, there'd be none left at all.

WhiteNight123129's picture

Let the Freedom ring. China understands it, it lets the small merchants breeze without overburden on them and as a result they are able to kick Wal Mart and Carrefour in the balls. 

Davalicious's picture

Africa is rife with aids. Where is that on the charts? 

Matt's picture

Africa isn't a country. African countries likely do not have reliable stats on dollar value of prostitution and HIV.

BTW, I had no idea prostitution was so big in Switzerland.

Diogenes's picture

According to some economists, the grey market or black market kept the Soviet Union going for decades. The creaky state bureaucracy could not even sustain the population. The people survived as best they could.

Example, if you needed a plumber or electrician you went on a waiting list 10 years long. If you "knew someone" he would come over after hours and do the repair for cash. Shoddy crumbling Soviet apartment blocks were kept in use this way for decades.

Another example, all land belonged to the state but individuals were allowed gardens for family use of up to 2 acres. These gardens amounted to less than 1% of the arable land in the country.

Experts calculated that 98% of the fresh produce came from these gardens and was sold outside the official economy.

We may see the time when our own economy is kept going by such subterfuges.

Ponzi Unit's picture

And keeping the dough away from kleptocrats is such a bad thing?

WhiteNight123129's picture

Agreed, if the tax rate was as low as it is in Hong-Kong everywhere in the world, there would be little incentives to evade paying taxes to the squandering political idiots who have taken advantage of organized choas create by the electoral cycle, as they see it only as a punch bowl to grab. Regulatory democracy does not work anymore because the sheeple are being asked their opinions, which invariably brings the most outrageous maniac in power specially when the economy is bad. I am not for drug dealing and other activities, but I can understand why merchants in teh street of legit food produces and other retail item want to by-pass all the barriers that are erected for people to make a living without relying on cubicle employment prison or on government unemployment meager hand-outs. All the FDA regulation make sure that people eat regulatory approved garbage. 

steve from virginia's picture


Necessity is the mother of invention. If you cannot 'make it' in the above-ground economy, there are options.

There is always a need for fixers and 'kombinators and organizators' as Primo Levi called them. Get out there and start hustling!

thomcat00's picture

Wasn't Obama a community "organizator" before his current job? :)

Quinvarius's picture

The direct result of government interference in markets.  Taxes too high.  Money too unstable.  Regulation too ridiculous.  It is your patriotic duty to participate in the black market.

eugene12's picture

Many yrs ago, I worked for an electrician.  We'd estimate a job, owner would ask "How much".  Electrician "Cash or check".  There was a price for each and he'd split the tax savings with the owner.  I was in business for myself for several yrs.  All cash went in my pocket.  Never entered my bank account.  Buy a used vehicle, the seller never enters a dollar figure on the title transfer form so buyer can report whatever.  Some of you mock the article but it's right on.  The black market is enormous and it's everywhere.

thomcat00's picture

I travel for work frequently and consequently eat out often. All my expenses get reimbursed when I have receipts. I always tip in cash. What the recipient of the cash does with it, including reporting, is up to that person. Even though it may be fiat, until the house of cards collapses, the currency retains tradeable value.

Bananamerican's picture

"I was in business for myself for several yrs."

aren't you an electrician anymore? Did you not like it?

Quaderratic Probing's picture

The USA has been slow to put in VAT or as in Canada the GST. These taxes on everything bought capture the System D as even they have to buy things as input to crime and underground work. The problem is its an AFTER INCOME tax a tax on our NET so is really higher than face value in terms of Gross wage. It is a penalty on people who don't cheat an as such people move to the very deals you speek of.

57-71's picture

Good on ya man.

Our despots here have found a way around the car pricing. All transactions are reviewed for "fair value". If the gov thinks you have not reported a reasonable market price, they just assess the taxes on what they believe to be the true price range and sent an invoice. There is a formula based on all sales of same and similar vehicles in the past 2 years.

The Bastards!

Joemusashi's picture

Something similar happens here in Italy, with the "Studi di Settore".

flattrader's picture

>>>Never entered my bank account.<<<

Rule no. 2...which suprisingly, a lot of people don't understand.

MachoMan's picture

Yeah, but through even rudimentary forensic accounting, it all falls down if you can get any of the source documents.  Practically speaking, the only way to bust these cases open is with an inside source (even the auditors/accountants want to be told where to look)...  aside from the fact that corroboration testimony is very helpful when trying to explain how particular transactions were accounted for and reported.

Presently about to go to trial on a case where they deposited most all of the checks and very little, if any, of the cash...  pretty common...  but, if you can get your hands on the source documents or an insider, things tend to go a little differently.

Also, FYI, if you do report income in your bank account, your bookkeeper/accountant is going to be required to report it in your income unless you want to put him in an awkward position...  and you don't want to have to figure out whether you have enough money for your accountant to look the other way...  you probably aren't in a good position to haggle at that point.  (remember, the best source for the IRS bounty money is YOUR ACCOUNTANT...  don't think for an instant he won't turn your ass in).

Eugend66's picture

There is no other place to go but grey market. Or black. Those being part of those markets are the only TRUE free marketeers.

Mises, may he rest in peace, wrote about that. Free trade indeed.

CH1's picture

A small poster has started to appear in major US cities, it reads: LEGIT IS DEAD.


Smiddywesson's picture

Honestly, who writes this stuff?

There has always been a black market economy.  I would say in the age of computers that "System D" has shrunken, not expanded, but if it has expanded, take a look around and the cause is immediately apparent.

The three bullet points are ridiculous.  The first one says it's bad for government, but it might be good for government too.  The second point is the shadow economy makes government statistics about the economy unreliable, Hahahahahah, that's a good one.  The third point is a growing shadow economy may draw workers away from the real economy.  Maybe that's evidence that there's something wrong with the real economy, just maybe?

I especially like the attempt to make this some sort of crisis, painting the shadow economy as responsible for bad drugs, sexually transmitted disease, polluting the environment and jock itch.  Didn't we already have these things?  Has something changed about the world's oldest profession?

I grade this article on "System D" as a D (minus).  Here's the bottom line.  Any changes in the shadow economy reflect disfunction in the real economy because politicians and economists are shameless whores that have handed the reigns of government to corporate criminals and banksters.  Spare me your preaching about the shadow economy when the "legitimate" system is utterly destroying us.


TheMerryPrankster's picture

This begs the question what exactly are considered as Systems A,B and C and why are the renaming a known entity like the black market as System D?

In the past the proper authorities only rename a known entity when they want to propagandize it. Good example Cannabis, most folks knew it as hemp, the oligarchy renamed it marijuana and set up a campaign to associate it with it lower class mexicans and negroes, it was called the scourge of youth, and its use would cause insanity and muderous rages where a user would kill his entire family with an axe, it also caused rape.This was reported in the press at the time as the truth, and was also entered into the congressional record when Harry Anslinger brought forth the Marijuana tax axt which began federal cannabis prohibition. By the time it was illegal, most folks didn't even know they were talking about hemp. They began arresting farmers who had grown it all their lives as well as doctors who prescribed it for a variety of ailments.

Watch out for articles warning about the dangers of "System D" and how it is destroying the world.

thomcat00's picture

It is not so much a categorization of 4 (or more) systems but nomenclature.

'System D' is defined in 

Robert Neuwirth:There’s a French word for someone who’s self-reliant or ingenious: débrouillard. This got sort of mutated in the postcolonial areas of Africa and the Caribbean to refer to the street economy, which is called l’économie de la débrouillardise—the self-reliance economy, or the DIY economy, if you will. I decided to use this term myself—shortening it to System D—because it’s a less pejorative way of referring to what has traditionally been called the informal economy or black market or even underground economy. I’m basically using the term to refer to all the economic activity that flies under the radar of government. So, unregistered, unregulated, untaxed, but not outright criminal—I don’t include gun-running, drugs, human trafficking, or things like that.



Citxmech's picture

Thanks - I was wondering about that too!

GMadScientist's picture

Let's just say that I don't begrudge the cash-only lunch places that I frequent.

ebworthen's picture

If banks weren't the money changers for the drug and black market industry it would be smaller and harder to implement.

Of course, the banks are the black marketers for legal theft as well, hand-in-hand wink-and-nod with Governments.

What choice do people have, in a corrupt world where the rule-of-law is swept under the carpet for honest people, but to resort to a black market, barter and trade, and hiding from the crony capitalist banking/government cartel.

Look for much larger black markets in the U.S. and Europe from formerly "good" and otherwise "law abiding" folks after watching their rights and liberties trampled by the skullduggery of TPTB.

sethstorm's picture

While good and responsible people turn them in, and make a business off that.

Snidley Whipsnae's picture

Anyone that turns in their friends and neighbors or even strangers for money or other benefits is a fucking rat.

Once the authorities have no more use for a rat, the rat might find itself in jail with people it ratted on.

End of story for the rat.

Shibumi2's picture

one should pay ones FAIR SHARE

under our voluntary compliance system.


if you see something, say something

loose lips sink ships



GMadScientist's picture

And if you see the IRS:

Warn a brother!

kaiserhoff's picture

Consent of the governed has been dead for some time in Amerika.