This article is an interview with the renowned philosopher and activist, Noam Chomsky by Robert Schupp and Richard Ohlemacher on the issue of shadow economies. In the article, Noam Chomsky addresses the issue of shadow economies that has plagued the entire world. These informal economies are accused of enriching some people while impoverishing others in what culminates in the marginalization of the masses. In the article, Chomsky suggests that the problem is that too much attention is been given to the informal economies of the poor and not those of the strong and privileged. The article makes a compelling argument that consumer and corporate power make a major contribution to shadow economies in the globe.
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Chomsky begins by questioning the tendency by literature to focus on the retail rather than the wholesale aspect of shadow economics. While criminal activities of the weak are researched on and reported by the media, the same actions by the rich for example tax havens are seldom discussed. This lack of information results in the impact that crimes by the rich play in the contemporary world being overlooked. The rich who are represented by the huge corporate violate the rules on an even bigger scale thus contributing significantly to the emergence and growth of shadow economies.
The rationale behind poor people engaging in informal economies is also addressed. Chomsky suggests that the underlying factors that cause the poor to engage in “informal economies” ought to be discussed sufficiently. He proposes that the indulgence in informal economies by the poor is as a result of the policies which are put in place by the rich and powerful.
The peasant farmer who turns to coca production is driven to this by the market conditions which make non-drug agricultural production unsustainable for the peasant. While such problems could be solved by mechanisms such as commodity stabilization, the author notes that efforts to introduce these mechanisms were undercut by the rich countries back in the 1970s. As such, the political power of the First world countries is responsible for the growth of shadow economies.
Corporate power of wealthy nations is said to engage in shadow economies on a scale rivaling drug trafficking. This is mostly through tax havens whose scale is yet unknown since there are few studies on the subject. Chomsky however suggests that the scale of these phenomena is beyond drug money laundering. This accusation holds true since the elites primarily seek to avoid taxation or reduce their share in the collective effort to pay for the collective goods provided by the state (Palan et al. 2010).
The article also discusses the differences between the shadow economy in the year 2000 and that of the past decades. A major factor that has had some influence on shadow economies is globalization. The article notes that the globalization phenomenon has evolved over the years with certain important differences emerging. Chomsky contends that there is currently a form of globalization which is geared towards increasing the rights of investors and lenders.
This particular form of globalization has resulted in the concentration of private power with the support of powerful state actors. This mode of globalization is concerned more with maximization of profit and less with social programs that address the welfare of the general population. This assertion is true since as Shaukat and Guo (2005, p.1) document, emerging economies are often forced to offer special tax privileges and economic investment incentives to attract foreign investors. Palan et al. (2010) substantiate this claim by asserting that tax havens are at the very heart of globalization and they favor a small minority of the world’s rich and powerful.
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The term shadow economy is used in a selective manner and it is mostly used to denote the violations carried out by the poor. The economic crimes carried out by the rich are seldom categorized under this class. Specifically, Chomsky argues that a major component of the shadow economy which is tax evasion by major corporations and money laundering is normally excluded in any discussion of “shadow economy”. The reason for this is that such kinds of crimes are the prerogative of the powerful. The media and other actors who are responsible for shaping public perception therefore avoid using such labels on the powerful who own and control this public opinion tools (Parenti 2010).
A key issue addressed by the article is the manner in which the government deals with crime in the society. The author reveals that punishments are not directed at the people who engage in major crime but rather to those who engage in retail crime. New standards that criminalize victimless activities are constantly being devised to target the poor who are referred to as the “dangerous classes”. Chomsky notes that this focus on the weak and defenseless overlooks the fact that majority of the crimes are carried out by the rich and powerful.
Chomsky observes that a major part of the economy relies on devices which ensure that costs and risks are borne by the public. Despite this being the case, the public is marginalized when it comes to benefiting from the profits that are accrued from such operations. Parenti (2010) corroborates this by stating that the capitalist state uses taxation as well as public spending to redistribute money in an upwards direction. The article gives the example of the internet whose development cost was paid for by the public.
However, this invention was given to big corporations which continue to make great profits from this public creation. Another example given is the mobile phone technology which was produced by the military system. This system was developed at a public cost and risk and the public was not consulted on the development of the same. Despite this socialization of risk and cost, the technology is taken up by huge corporations which profit from the public funded inventions.
Chomsky suggests that the state is responsible for the presence of the shadow economy. This is because the government fails to give people opportunities to participate constructively in the legal market. Since people have to seek ways to survive, the poor engage in the informal economies so as to make their ends meet. The article therefore argues that if opportunities were created for people to participate in the formal economy, there would be no need for a black market.
The article demonstrates how huge corporations are able to force the government into granting them special privileges even when it is the public that created them. The corporations do this by threatening to stop operating from a certain geographical location unless their conditions are met. By doing this, the private power system arm-twists the public into granting it subsidies or faces the losses they would come from the corporation shifting. This shows that huge corporations have the power to marginalize the public at will.
From the recognition that the informal economy has a negative influence on the best interest of all nations, certain solutions are proposed. Chomsky suggests enforcing the measure for stabilization of commodity prices which will benefit the small scale farmer. By so doing, drug trade will be reduced significantly. Currently, commodity price stabilization is being carried out internally by major societies such as the US and the EU. However, these major powers are opposed to the same practice being done for the good of the poorer nations.
The problem of shadow economies can also be alleviated if major firms stopped looking for tax loopholes, making demands for subsidies or accepting as free gifts inventions that have cost the public enormous money. While such things can happen, Chomsky asserts that they will not happen because large firms will not allow it. Chomsky reveals that many matters of public importance are not studied carefully by the government since they cut too close to the center of power.
Fundamental issues such as social indicators: health and illiteracy are not investigated by the government. Due to marginalization, informal economies are closer to the model of capitalism than the formal economies since they do not rely on the socialization of risk or involve the interaction of competitors. Informal economies also lack the central administration that is characteristic of some formal economies practiced by large corporations.
Chomsky sees the civil society as the solution to the marginalization problem that our society faces. The means through which this marginalization can be offset is by empowerment which will increase the capacity for people to participate in decision making. In so doing, the civil society will destroy unaccountable private power systems and bring about a just socioeconomic system.
This article by Noam Chomsky is very informative on the socioeconomic aspects of shadow economies. Even so, the paper demonstrates a major weakness by making use of unsubstantiated claims to make inferences. For example, Chomsky states that roughly 40 percent (a figure which he acknowledges is guessed since there is little empirical evidence) of cross-border transfers are intra-firm. He uses this estimate to conclude that a significant portion of trade is centrally managed within a totalitarian structure. However, Parenti (2010) confirms that an in-depth analysis into issues such as tax havens is impossible since powerful interests would prefer that such an analysis does not take place.
Throughout the article, Chomsky accuses the rich of using tax havens to keep their enormous wealth from being tasked hence denying the society a chance to benefit. Chomsky theorizes that corporate power of wealthy nations such as the US led to the emergence and thriving of shadow economies all over the world. The article forcefully states that private companies and state corporations should not have the power to demand for rights from the very society which is responsible for their existence. Parenti (2010) declares that this unaccountable private tyranny is what has harmful effects to the economy and the masses.
The article states that the obligation on the board of directors is to maximize profit and market share for the organization. This statement is backed by Holmstron and Kaplan (2001) who reveal that from the late 1980s, managers in large corporations have been given incentives which include huge pay and bonus packages to ensure that the shareholder interests are their primary focus. As such, managers no longer aim for the growth and stability of the organization and the society around it but rather at the maximization of shareholder wealth.
The article consistently suggests that the informal economy is poorly understood mostly because of the vested interests of the parties involved. Investigations into matters such as the scare of tax havens are never carried out since the subject involves interests that are too powerful. Palan et al. (2010) notes that the tax haven phenomenon is a colossal attempt by the richest to take advantage of socialization risk and cost on a scale rarely seen. All this is against a backdrop of leniency and a forgiving attitude towards tax havens by many governments.
This paper set out to provide a critical review of the article “Marginalizing the Masses” by Noam Chomsky. To this end, a summary of the article has been given and a critique of its strengths and weaknesses given. It has been seen that the article effectively addresses the socioeconomic aspects of shadow economies and shows how corporate power leads to the emergence and growth of shadow economies. Even so, the author is guilty of making a few major assumptions in the paper. However, it can generally be declared that Chomsky presents a compelling argument against big corporations which propagate shadow economics and therefore marginalize the masses.
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Chomsky, N 2000, Marginalizing the Masses, Journal of International Affairs, vol. 53, no. 2.
Holmstron, B & Kaplan, N 2001, Corporate Governance and Takeovers in the U.S.: Making Sense of the ’80s and ’90s, Journal of Economic Perspectives, vol. 34, no.4, 121-144.
Palan, R Murphy, R & Chavagneux, C 2010, Tax havens: how globalization really works, Cornell University Press, Ithaca, NY.
Parenti, M 2010, Democracy for the Few, Cengage Learning, Boston.
Shaukat, A & Guo, W 2005, Determinants of FDI in China, Journal of Global Business and Technology, Vol. 1, No. 2.