(EDITORIAL from the Korea Times on Sept. 10) - Underground economy

South Korea is the world's 14th-largest economy. It is already a member of the
Paris-based club of wealthy countries ??? the Organization for Economic
Cooperation and Development (OECD).
It is not an industrializing nation anymore, but it isn't an advanced economy
either. There is no doubt that Korea's foremost economic goal is to join the
ranks of the industrialized nations.
But, people have to realize that the country has a long way to go before
achieving that ambitious goal because its economic structure is still outdated
compared with that of prosperous countries.
One of the nation's intrinsic problems is that it has depended on the underground
economy on a far larger scale than any other members of the OECD. The country
cannot become an advanced economy without phasing out its reliance on shadowy
economic activities.
According to a report by the Budget Office of the National Assembly, the nation's
estimated underground economy accounted for 27.6 percent of its gross domestic
product (GDP) in 2005, the fourth-highest among OECD states.
The figure was slightly down from 28.2 percent in 2004 and 28.8 percent in 2003.
But it was much higher than the 7.9 percent of the U.S., 8.5 percent of
Switzerland, 8.8 percent of Japan and 10.3 percent of Britain. Turkey showed the
highest dependence on the underground economy with 33.2 percent, followed by
Mexico (31.7 percent) and Portugal (28.2 percent).
The report is based on a study by Prof. Friedrich Schneider of the University of
Linz in Austria. South Korea's underground economy ranked 100th among 145
countries. The underground economy, also called the shadow economy or the black
economy, can be defined as production of goods and services, whether legal or
illegal, that escapes detection in official estimates of GDP.
In a broad sense, it refers to economic activities that circumvent government
regulation, taxation or observation. Such activities include smuggling, drug
trafficking, prostitution, bribery, property speculation and unauthorized
business operations.
In a word, the underground economy is likened to cancer as it ultimately
increases the burden on taxpayers and risks for consumers who deal with
businesses operating illegitimately.
The underground economy usually prompts tax evasion which could lead to a budget
deficit. It also distorts distribution of resources, bringing about social costs
for cracking down on shadow economic activities. In addition, it disturbs the
market economy and damages confidence in the government and the nation.
Everyone knows that underground economic activities also provide a breeding
ground for corruption. It has long been a common practice for professionals such
as doctors and lawyers as well as operators of cram schools, golf ranges, wedding
halls and funeral chapels to engage in illicit activities to avoid taxes.
It is urgent for the nation to reduce the scale of the black economy which
hampers its efforts to build a more transparent society.
As long as the shadow economy continues to prevail, Korea is not able to
effectively fight against corruption and ensure the rule of law, which is
essential to democracy and the market economy.
(END)