You won’t believe what it is. Friederich Schneider, PhD, an Austrian professor of economics reveals the terrible truth. The shadow economy is about to do us all in.
Paradoxically, as consumers achieve this “modernity,” they still rely primarily on old-fashioned cash for most of their transactions. Dirty and heavy, cash is also easy to hide from authorities, fuelling one of society’s most damaging phenomena: the shadow economy—that blurry area of commerce that includes legal activity hidden deliberately from public authorities.
Of course, that’s from the perspective of Visa, getting 80% of its revenue in Europe from debit cards. Can’t charge people to use cash, you know.
The shadow economy offers questionable individual benefits at the expense of many, resisting the world’s increasing digitalisation and connectivity and hampering the public good.
So, electronic transfers are supposed to benefit the official economy by minimizing the shadow economy. Never mind the real economy. What we’ve got here is an example of form over function.
Based on these criteria, we identified several sectors that would benefit most from electronic payments (see figure 8 on page 14). These sectors include cars and car parts, non-specialised retail stores, restaurants and bars, catering, and transportation (such as taxis). We found a few other sectors specific to individual countries: small corner shops in Turkey and budget hotels in Italy and Spain. By targeting these sectors, governments could address up to €200 billion of the shadow economy. Although fully “transferring” these sectors into the official economy is unrealistic, the potential gains at stake for even a chunk of it are significant enough to call for action.
But, of course, it’s not the sectors that would benefit. Government would be able to better track these sectors. But, in the end, it is Visa that aims to benefit by claiming a share of the currency that gets reported to the state. It’s as if the state were established for the purpose of funneling profit to private enterprise.
The economic crisis has given European governments a powerful impetus to combat the shadow economy. There is a common understanding and agreement that cash fuels shadow activities. We expect initiatives focused on cash displacement to surge in the coming years.
And Visa is salivating at the prospect of having a guaranteed income, just as if it were able to tax.
Reducing the shadow economy requires persistence, dedication, and the collaboration of many stakeholders. But it is achievable. Just in the past several months, we have seen promising signs that Europe has taken steps to move away from the shadow economy. Now Europe needs to keep up the momentum. Even through these tough economic times, the fight against the shadow economy remains particularly important.