OFF THE BOOKS: The Rise of the Underground Economy

An earnest, consistently provocative survey of the widening world of off-the-books income--an increasingly important element in the global village's economic equation. While Mattera, a business journalist, has a viewpoint (i.e., that the emergence of an underground sector is ""part of a larger transformation of contemporary capitalism,"" which has to do with the ongoing shift in the balance of power among social classes), he offers generally evenhanded reportage. To illustrate, he credits the Soviet bloc's ""second economy"" with being a stabilizing force that may well keep the socialist system from collapsing. The author concedes that determing the size of the underground economy (exclusive of crime's presumptively handsome rewards) can be a tricky business, owing to lack of trustworthy data. On the basis of IRS studies logging cash in circulation and expenditure levels, however, he accepts as credible the estimate that unreported income approximates 10 percent of GNP. In the market economies of the West, he distinguishes between two kinds of workers--have-nots (blacks, illegal aliens, women, et al.) and moonlighters or others for whom undeclared earnings are more an option than a necessity. Though at pains to provide such sketchy details as are available on beating the system, the author is appreciably more interested in the implications of unregulated, unmeasured, and untaxed enterprise. Informal economic activities are bridging the gap between industrialized powers and less-developed countries, he finds, in large measure through the efforts of multinational corporations that have geographically dispersed their production via subcontracting. Unfortunately, he says, such arrangements are undermining job security in the First World, not enhancing standards of living in LDCs. Along similar lines, he speculates that supply siders view the existence of a subterranean sector as ""a kind of cushion against the full impact of the crisis (mainly underemployment) in the above-ground economy."" Among other things, the author worries the supply-side types in the US and UK may institutionalize the more regrettable attributes of off-the-books ventures (substandard compensation, skimpy benefits, and the like) in central-city enterprise zones, which he dismisses as exploitive enclaves. Nor will progressives find much to like in his closely reasoned critique, which cites the proliferation of small but technically advanced firms in Italy's thriving underground economy as refutation of the Marxian theory that concentration of production resources and centralized control of capital are essential aspects of accumulation. A meticulously documented brief--far superior to Bawley's 1982 tirade against tax evasion, The Subterranean Economy--this promises to challenge the conventional wisdom of would-be reformers on both the Left and Right.