Black Money in Belize: The Ethnicity and Social Structure of Black-Market Crime

Dominant economic theories of black market research do not sifficiently explain why East Indian merchants in Belize City are particularly active in Belize'sforeign-exchange black market. This article develops a sociological theory depicting black markets as social structures and relates the structure of ethnic trading networks to the demand for "black money" byfocusing on the crime of underinvoicing. I describe the East Indian network, then discuss the evolution of ethnic black markets more generally. Ask people on the street in Belize City where to sell black-market dollars and, chances are, they will send you to East Indian merchants. This raises an intriguing theoretical question. Why should one ethnic group be more inclined to participate in black-market crime than any other ethnic group? Is there something distinctly cultural explaining an ethnic group's criminal involvement? Does the answer lie in the shared values and norms of the ethnic group? Or can it be found in the group's unique social structure? Perhaps the social and economic ties of ethnic solidarity can give a clue to the inner workings of the black market? And indeed, one might begin to ponder the social organization of ethnic black markets and speculate how these structures evolve. These are the questions guiding my study. Putting the focus, as I have, on ethnicity exposes the limitations of an economic perspective on the topic. As I will show, such a perspective tends to be static and not particularly able to solve the problem of differential black-market involvement. A more promising strategy, it seems to me, is to adopt the essential sociological insight of economy and society (cf. Durkheim [1902] 1933; Smelser 1976).1 The premise here is that economic markets are social structures (cf. Baker 1990; Powell 1990a). By seeing * Financial suipport was provided by the Fulibriglit Scholarshlip programt and thle Academic Development Commnittee of the University of Wisconsin-Wlhitewater. A debt of thanks is also owed to the Government of Belize and thle U.S. EmnZbassy in Belize City for thleir cooperation, as well as to Timothy Armstrong, Richard Bennett, Colin Geban, Gilenthter Kraulepl, Jamnes Lynch and iny colleagues in Wisconsin for sharing their thouightts on this suibject. Direct comnmnents to Bruce Wiegand, Departinent of Sociology, University of Wisconsin-Wlhitewater, Whitewvater, Wisconsin 53190. ? The University of North Carolina Press Social Forces, September 1994, 73(1):135-54 This content downloaded from 157.55.39.211 on Mon, 08 Aug 2016 04:25:59 UTC All use subject to http://about.jstor.org/terms 136 / Social Forces 73:1, September 1994 black markets sociologically, one realizes that patterns of criminal involvement reflect the deeper structures of social interaction and shared ethnic identity. The article consists of five parts. In part one I briefly review two literatures pertaining to the research problem. In part two I give empirical evidence to support the claim that East Indian merchants are more involved than other ethnic merchants in Belize's foreign-exchange black market. In part three I describe the social organization of that market in terms of its internal and external structures. I then compare it to another ethnic black market to contrast their structural differences. In part four I broach the topic of structural change. In particular, I speculate as to how ethnic black markets might evolve into nonethnic structures. And finally, in part five I review the theoretical significance of viewing black markets as social structures and offer suggestions for future research. A Review of Two Literatures This study combines two literatures that have thus far developed in isolation of one another. The first focuses explicitly on black markets, usually in the context of underdeveloped countries, and is infused with neoclassical economic assumptions (cf. Wiegand 1992a). The other has its roots in the classics of sociology and examines the interplay between economy and society, often as it relates to crime. Even a cursory review of the economic literature reveals a growing interest in black markets over the past few years.2 This interest is related to issues of economic development (e.g., Jones & Roemer 1989) and coincides with present political efforts to bring free trade to high-tariff, underdeveloped countries (e.g., De Soto 1989; Staubus 1989). Much of the literature balances on the belief that attempts to regulate and protect markets actually create parallel or black markets where higher prices and greater profits can be realized (Lindauer 1989). With specific reference to foreign-exchange black markets, the neoclassical literature argues that official currency exchange rates, for political reasons, typically inflate the true value of an underdeveloped country's currency on the world market (Azam & Besley 1989; Culbertson 1989; Nowak 1985). Culbertson (1989) describes it this way: "Indeed, the very fact that the black market exists is evidence of the inappropriate level of the official rate. Without the black market, there would be little if any guide to indicate just how overvalued the official rate had become" (1915). In simple terms, this inflated value creates a black market where "hard currency" (i.e., internationally traded currency such as the U.S. dollar) obtains a higher price than that offered through legal channels of exchange. The profit margin in the foreign-exchange black market is thus set by the difference between the official rate of exchange and the black-market rate (Greenwood & Kimbrough 1987; McDonald 1985). The incentive to deal in "black money"3 is also the consequence of strict legal controls governing the availability of hard currency in most underdeveloped countries. Currency controls are designed to protect a poor country's stock of foreign exchange which is especially strained in light of chronic balance-of-payment problems (Nowak 1985). The controls assume various forms, This content downloaded from 157.55.39.211 on Mon, 08 Aug 2016 04:25:59 UTC All use subject to http://about.jstor.org/terms Social Structure of Black-Market Crime / 137 such as taxes on the purchase of hard currency or limits on the amount of hard currency that can be taken out of the country. But regardless of form, currency controls invariably create foreign-exchange black markets, as Nowak (1985)