SHED LIGHT ON THE SHADOW ECONOMY

by Raymond Baker
Monday, January 09, 2012
Inter Press Service

My first encounter with the "shadow" financial system was half a century ago in Nigeria. Fresh out of Harvard Business School, I was starry-eyed with hope that the free-market economy would help this newly independent country thrive. Instead, in only a matter of months, I became witness to a system of financial manipulations so incredible that I still have trouble believing it is real, writes Raymond Baker, director of the Task Force on Financial Integrity and Economic Development.

By "shadow financial system" I am referring to an arrangement as insidious as a pyramid scheme, but much more sophisticated: an unofficial, international financial system functioning in parallel with the honest one I learned about in school. Its purpose is to allow local and foreign "elites" to amass great wealth by tapping into a series of opaque inter-linking deals and system of loopholes, always at the expense of the poor. Today, this system is more abusive than ever and now hurts even the middle-classes of the developed world.

In the developed world theft and death are not normally inter-related, in the developing world they often are. Economists Leonce Ndikumana and James Boyce calculate that the effect on public health of capital flight out of Africa is so great that it is responsible for an additional 75,000 infant deaths annually. They present the example of the main hospital in Congo-Brazzaville, which is so poor that patients have to pay bystanders to carry them up and down stairs.

Despite the suffering it causes in the developing world, the United States and Europe have long paid little attention to this system and its consequences, likely because it did not appear to cause them any harm and might even have appeared to be good business.

(*) Raymond Baker, director of the Task Force on Financial Integrity and Economic Development.

SHED LIGHT ON THE SHADOW ECONOMY

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SHED LIGHT ON THE SHADOW ECONOMY

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