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What If the Underground Economy Is Legalised?

Korea is a country in which guns, drugs, prostitution, and gamblings are illegal. However, firearm incidents still occur, drug trafficking and use is still common (we can often hear about celebrities smoking weed or taking other illicit substances), brothels continue to operate (some even next to police stations), firearm incidents still occur, and gambling is rife (illegal betting is becoming common even among elementary school students). All of these form a large part of what is often called the ‘underground economy’, which some countries have subsequently legalised in order to try and regulate and profit from financially. Aside from the aforementioned components of the underground economy, in Korea, real estate speculation and property investment can also sometimes be included when conducted in ways which fall outside the bounds of laws and regulations. According to experts, our country has an underground economy worth 3.7 trillion won per year, which is around 20 to 28 percent of GDP.

 

Legal in some foreign countries, but illegal in Korea

Approximately 30 countries allow the possession of firearms. The United States of America has a gun market estimated at $12 billion annually (15 trillion won). Each state has different laws regarding the process of possessing guns, including the types of guns, volume of bullets, purchasing methods, licenses, and number of guns allowed per person. Usually, having a legal residence in the United States, a record of no more than one year in prison, and no history of mental illness are requirements for gun ownership. Many argue that regulating guns in a legitimate and controlled way is better than potentially having higher numbers of illegally owned guns. In the United States there are also a lot of citizens who wish to defend their “right to keep and bear arms” in accordance with the Second Amendment of the US Constitution. The NRA (National Rifle Association) is at the forefront of defending this constitutional right.

In relation to drugs, a study conducted by NIDA (National Institute on Drug Abuse) found that cannabis is less addictive than caffeine and nicotine; thus, it seems to make little sense that the more addictive drugs found in coffee and cigarettes are legal whereas cannabis is illegal in Korea. In Colorado, USA, cannabis was legalised in 2014, which had the economic effect of generating the equivalent of 2.7 trillion won in 2015. Legalising cannabis also contributed directly or indirectly to the creation of 18,000 jobs (production, retail, wholesale, export, etc.). Crime rates also declined (5.6% decrease in assault, 60% decrease in murder, 10.8% decrease in burglary) six months after the legalisation of cannabis. In addition, Colorado saved more than 40 billion dollars in drug-related bureaucracy (funds that had previously been spent on prosecuting sellers and consumers of cannabis). These economic and social benefits are remarkable.

 

Prostitution can also have various positive social and economic benefits if regulated by appropriate laws. The Netherlands, for example, legalised prostitution in 2000, and after that saw sexual crimes decreased by 40% over the following three years. The Netherlands considers prostitution as labour, applying labour protection laws and requirements to pay tax. Furthermore, the Netherlands also has a union for sex workers which protects their legal rights. On the other hand, Sweden can be seen as an opposite example alongside the Netherlands approach to prostitution. After Sweden criminalised prostitution in 1999, sex crime rates increased by 254% over seven years.

 

Online gambling another thing which if regulated by law may give us huge positive effects. A good example of this is the United Kingdom. In Korea, there is only one betting ‘company’ which is run by the country, whereas the UK has many betting companies such as SkyBet and 188BET. Those legitimate betting companies in the UK have sponsored professional sports teams with some of their profits.

 

Status of the underground economy and legal consequences in Korea

First of all, concerning guns, the Korean government forbids both possession and use of them. Despite the laws, crimes involving illegal guns occur every year. Moreover, there is no relevant penalty or rule related to toy guns which have been modified and converted into working firearms. The number of illegal guns recovered during the self-declaration period from 2010 to 2014 was about 22,000.

In Korea, the possession and use of many drugs, including cannabis, is illegal. However, the volume of smuggled drugs continues to increase, jumping from a total street value of 60 billion won in 2011 to 210 billion won in 2015. According to this, the existing laws of Korea seem to be failing to do that they are intended for.

In 2004, Korea’s Special Act on Prostitution, which prohibits prostitution, was enforced. However, underground prostitution in Korea is still commonplace, often organised and controlled by gangsters. It is currently estimated that prostitution in Korea is worth 37 trillion won annually, and this figure is only increasing. Furthermore, there is no sexually transmitted disease management for sex workers or customers, who total more than 300,000.

Finally, internet sports betting is illegal except for that which is owned by the Korean goverment. However, the reality is that illegal internet betting sites emerged around the year 2010, and their value increased to around 22 trillion won by 2013. Since these betting sites have their servers outside of the country, they are not being properly regulated.

If all of these underground economies were to be legalised, the estimated tax gain could be around 370 trillion won. Also, as proper laws can be made to regulate these activities, this may actually lessen the amount of negative social effects and create a safer environment for those partaking in them.

 

To get more accurate information, The Inha Times interviewed Choi Sunyoung, the researcher of KCMI(Korea Capital Market Institute)

The Inha Times (IT): Mentioned underground economies are still growing in size, and why do you think these are not well regulated?

Choi: Drugs and prostitutions are illegal and it means they are regulated. But unlike underground economies related to finance which is well regulated, there are many reasons why these parts are not well regulated. There might different reasons for each part. However, the common reasons are that the economy is in low growth, employment is not rising, and unemployment is growing. In addition, general social anxiety and conflict can be the cause. Indeed, the difference in underground economy between countries shows that when the economic growth slows or there is not enough opportunity through legal activities, there is a tendency to use illegal methods.

IT: Assuming that the underground economy of the above is legalized, how much do you think is appropriate and how much would it give society a financial value?

Choi: If they are legalized, the government and society will be able to get as much tax and benefits. But before legalizing the underground economy, we need to think about two things. First is "to legalize or not?" And the second is "how to enforce when legalizing and what kind of value will be created". The more important of these is the first one. Because there is a reason why illegal is illegal, it should not be judged merely from an economic point of view, but should be a social criterion or consensus on side effects.
For example, some states in the United States are using cannabis legitimately because of the large number of people who use cannabis, which is one of the reasons for legalization, because the cost or manpower required to punish them requires more money.

IT: What might be some ways to get the underground economy right?

Choi: In the regulatory sense, it is right to implement policies that are currently underway. In addition, governmental efforts to create jobs and generate profits through economic revitalization and legitimate channels are needed too. This is because, as mentioned above, if the legal opportunity is insufficient the underground economy increases. But the most important thing is the consciousness of the people. The underground economy is often expedient or illegal, therefore It is inevitable that if anyone sees the benefits from underground economy, there will be someone who gets a loss as much as benefits or more. Therefore, it should be remembered that the things related to the underground economy that individuals do cause social irrationality, inequality, and it also harms not only strangers, but also their neighbors and family.

 

Implications and Direction
Up until present, Korea has been blindly pursuing a strategy of penalties and laws rather than carefully researching and reconsidering the actual effects and implications of the activities mentioned above. The government’s current laws are not effective, as the underground economy and crimes related to it are only increasing. Legalisation with thorough regulation as outlined in the preceding examples can lower crime rates and make such activities safer for everyone, while also bringing much economic benefits.

 

 

이상민  0530ldsm@naver.com

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