Explaining the Underground Economy: State and Social Structure

Recent developments within western capitalism have stimulated considerable interest in the collective, organized aspects of clandestine production, which form the core of the contemporary underground economy. Although systematic analysis has barely begun, two claims predominate in the international literature: that 'off-thebooks' employment is extensive and rising throughout the advanced capitalist world; and that this is related either to a crisis of capitalism (response to economic uncertainty) or to a crisis of the state (resistance to political regulation). This paper challenges both assumptions, using as its central case the vast and flourishing underground economy of Italy. Two principal arguments are elaborated. First, the development of a significant clandestine sector depends on the combined availability of three structural resources: a dispersed economy, labour market segmentation, and a dense system of social networks. Second, the availability of these resources is largely influenced by the historically developed structure and activities of the state, specifically its forms of legal and organizational closure. From this analysis, the underground economy appears less a phenomenon of crisis than a political creation in so far as it is rooted in features of social structure which has been shaped and sustained by the state.