6. The Hidden Economy: A Fierce Entity Devouring the Nation’s Wealth While Deluding with Civilizational Development
According to international newspapers, a preliminary campaign was launched a few months before the anti-corruption campaign in Saudi Arabia, led by Crown Prince Mohammed bin Salman. This campaign stirred controversy and many speculations about its scope and limits, especially after the arrest of several princes and officials on charges of corruption and illicit gains. However, that campaign received little media attention. Its goal was to combat what was termed the “hidden economy,” an economy said to be draining more than 90 percent of retail shops in Saudi Arabia, which operate under a system of commercial concealment. At that time, the term “secret economy” re-emerged, once again drawing the attention of researchers.
The secret, hidden, or shadow economy includes all income-generating activities that are not recorded within the national accounts of a given country—either deliberately hidden to evade legal and financial obligations associated with disclosing these activities, or because these activities inherently involve goods and services that are illegal. Due to its secretive nature, this type of economy is referred to by many names that define its main characteristics and mechanisms, with some branches describing specific and more dangerous forms of activity, such as criminal economy or the black economy.
This type of economy covers wide and diverse areas of activities and services that are difficult to monitor and control. Accordingly, hidden economic activities may also include incomes generated through legitimate means but not declared to tax authorities. On the other hand, it also encompasses traditional criminal activities such as human trafficking, organ trade, drugs, prostitution, weapons, antiquities smuggling, money laundering, and much more.
Individuals and families from various social classes, age groups, and nationalities may become involved in the hidden economy: merchants, people in positions of power, army officers, security personnel, as well as ordinary citizens—both men and women, the elderly and the youth. These individuals often organize themselves into mafia-like groups that transcend the geographical borders of neighboring and even distant countries.
Technological acceleration, the internet, and investments in Bitcoin—whose value has exceeded $15,000—are among the factors fueling the growth of the hidden economy and expanding its clientele.
The enormous profits derived from organized crime—such as murder, prostitution, and drug trafficking—surpass the revenues of many countries. These profits do not contribute to reconstruction, human development, economic growth, social development, or scientific advancement; rather, they have a negative impact on all these fronts.
The purpose of highlighting the aspects of the shadow economy, the black economy, and the hidden economy is to stress that building an ideal civilization is impossible while such harmful economic activities persist, as they stand in direct opposition to the official and legitimate economy.
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Unlimited Influence
Through trade that operates outside supervision and regulatory standards, massive forms of power and influence emerge, often overshadowing the official economy. This is the case in countries like Iraq and Syria, where organized networks have formed during periods of social unrest, chaos, wars, famines, and various disasters, exacerbated by stalled development projects, unemployment, lax laws, and corruption.
The economies of Syria, Iraq, Libya, and Yemen have largely transformed during the years of war into shadow economies—or what might be called “war economies”—due to the disruption of production, the instability of import and export operations, and the suspension of official contracts. Although it is no less illegal than other forms, it has expanded to include all conflict zones. Additionally, human smuggling operations have become a lucrative trade during these wars, moving in both directions with high commissions.
It is rare to find a person or family anywhere in the world who has not engaged in some form of these common activities, whether simple or complex, ranging from household tasks (repairs, painting, small workshops, or private lessons in sciences and hobbies) to street vendors offering cheaper and more accessible goods. While the shadow economy varies in how strictly it is regulated and controlled depending on a country’s culture and governing systems, developing countries tend to tolerate and overlook small-scale household or street activities. In contrast, European and developed nations impose strict regulations and pursue violators. Customs authorities target goods entering the country without import licenses or certificates of origin, while tax authorities seek to bring all activities under the official, declared economy. Nevertheless, they have not—and likely never will—fully control it.
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Temptations Without Limits
Since this secret economy operates outside the national economic system, it reduces a large portion of taxes and costs for consumers. Its goods therefore become highly demanded and widely circulated, serving the interests of both sellers and buyers, particularly among large segments of the population. This has made it a heavy burden on public revenues and the provision of essential services and projects for citizens. It is now undermining many economies worldwide to varying degrees due to its lawless nature and its defiance of national and international regulations. This has given it the attributes of mafia-like economies that cross borders and legal systems, leading to increased cooperation between nations—especially via Interpol—to combat its most economically harmful and socially dangerous activities.
Although the secret economy does help reduce unemployment rates, provide self-sufficiency, increase household incomes, and protect low-income earners from bankruptcy, these short-term benefits are outweighed by its grave threats to the future of development projects, the structure of national economies, and the ethical relationship between citizens and institutions.
The shadow economy poses significant risks to national economies, accounting for an estimated 30 percent of the GDP in most Arab countries. During times of war, it feeds off the official economy. If such a percentage of economic activity remains outside the scope of national income accounts and development plans, many projects lose credibility and fail to address related issues. In some countries, this percentage is even higher—estimated at 40 percent of the Syrian economy. In Algeria, the government admitted that 700 informal markets emerged during the 1990s, selling everything from counterfeit car parts to fake gold, and controlling 40 percent of the economy.
Even European and Western countries suffer from a wide hidden economy, as social security systems and welfare payments can sometimes drive citizens to participate in the secret economy.
These examples illustrate economic activities that are not only harmful to systems and societies but also hostile to any vision of a future ideal civilization. It is impossible to build a truly advanced and ethical civilization while a hidden or shadow economy—whose results often undermine values, ethics, and order—continues to exist.
