For many years, I’ve described black markets not as the evil
danger to economies that governments profess them to be, but as predictable and
sensible reactions to the overregulation of official markets.
Black markets appear whenever an official market has become
overregulated or otherwise unworkable due to governmental interference. They
then thrive in direct proportion to the failure of official markets to function
freely. They are, in fact, both a barometer and a checks-and-balances system
for official markets.
Back in 2008, I commented on the growth of the black market in
Zimbabwe, as that country slid from inflation to hyperinflation. At that time,
the people resorted to the use of other currencies (most notably the US dollar)
as black market currency. The government, desperate to force their people into
the dying Zim dollar, made it illegal to use the US dollar, but this hardly
made a dent in the use of what was clearly a more stable currency. The ban on
the US dollar only succeeded in driving it underground. Commerce did not grind
to a halt, and money did not cease to change hands. The only real change was
that the Zimbabwean government was taken out of the monetary loop.
The
significance here is that when a government corrupts its official market, a
black market arises in equal measure to
recreate a “free” market. Its very illegality assures that it remainsfree of regulations and functions effectively.
In 2008, the Zim dollar crashed through hyperinflation. (At that
time, the largest denomination for a bank note was $100 trillion, and even that
soon became worthless in terms of purchasing power.)
The government then attempted a series of measures that were,
predictably, big on government control but did little to correct the
government-created economic problem.
Bond notes were put forward as a panacea to diminish the flight
of wealth from Zimbabwe, yet the cash crisis continued unabated. Those awaiting
cash transfers at a bank may wait a month to be cleared and, even then, the
transfer may be refused.
Recently, The Standard, Zimbabwe’s leading Sunday newspaper, ran
an article entitled, “Black market thrives, as banks run dry.”
Some highlights from that article:
HARARE’S Road Port has become the unofficial bank of last
resort, never short of cash, no queues and a multicurrency platform. The money
market at this busy bus terminus now plays the role that the formal banking
sector has failed. It is effectively making a mockery of the Reserve Bank of
Zimbabwe (RBZ).
This
points to the nature of black markets. They thrive based upon fulfilling an existing need, not upon government
control. They therefore replace whatever
services the official market fails to provide.
“Top government officials, supermarket owners and service
stations were behind the thriving black market, which is never short of cash.”
As I’ve commented in the past, the most essential commodities
are food and fuel, in that order. Consequently, when an official market begins
to fail, these commodities are always the first to generate a black market. In
such cases, even the most law-abiding citizens will find a means of exchange to
provide food for their families and to buy fuel to keep themselves mobile.
Additionally,
this quote unintentionally reveals the way in which a black market eventually
succeeds over a dysfunctional official market—the top officials eventually join
in its use. This occurs when the leaders realise that it’s easier for them to obtain food and fuel when they
surreptitiously resort to the use of the black market. (When the Minister of
Agriculture finds that his cook routinely buys food on the black market to
place on his table, as his plate would sometimes be empty otherwise, the
minister is likely to realise that the jig is up and the only way forward is to
acknowledge and legalise the black market.)
At present, ministers have gone so far as to purchase pricey
cars and electronic items with black market cash, as even they find their own
official market non-navigable.
“In Harare’s central business district, especially after 5pm,
fuel stations refuse to accept plastic money, forcing motorists to buy in cash,
which they in turn allegedly pour on the black market.”
This
comment provides insight for those who recognise that a “War on Cash” is afoot
in the world today. Zimbabwe has done all it could to make it impossible for
its people to use anything but the official currency in day-to-day
transactions. Instead, the people have turned to the US dollar, the rand, the
pula, and even barter to circumvent the oppressive government currency
restrictions. The reference here to the refusal of credit cards exemplifies the
fact that, as banks increase their stranglehold on deposited funds, the
people increasingly turn to cash—any form of cash—rather than relinquish their
freedom to engage in commerce as they see fit. (This is not done through
courage or patriotism; it’s done through a need for convenience and
simplicity.)
And so, any involvement by banks and government becomes
increasingly avoided, even as regards the acceptance of credit cards for
payment, as they require the acknowledgement of a credit to account by banks.
Many in the Western world—the former “free” world—fear that the
War on Cash will result in their accounts in banks being frozen and possibly
confiscated. They also fear that their safe deposit boxes will be raided.
Finally, they fear that the day will come that they can no longer perform any
monetary transaction without a bank being the middleman, as a result of
electronic currency that’s only available through the banks.
This fear is quite justified, as this is clearly the direction
in which the banks are headed. However, as history attests, human beings
continue to be inventive whenever banks or governments put on the monetary
squeeze. The more arrogant the banks and political leaders are of their
omniscience over the populace, the less likely they are to credit the populace
for finding ways to worm out of this one-sided deal.
At first,
it’s always those who already live on the wrong side of the law who create
black markets. But when we reach that point mentioned above—the point at which
food for the family and fuel for mobility are at stake—the average man will
join the black market. Soon after that point, it becomes ubiquitous and, in
some cases, becomes the primary market,
as it has in Zimbabwe.
Governments
will always oppress their minions if they can. The
greater the pressure, the sooner the minions create a solution.
