Gaza's Underground Economy

One of the enduring lessons that comes from the study of history and economics is that it is extremely difficult to extinguish any market. Guided by political choices that may be legitimate or not, decisions are made that make the operation of markets very difficult but that tends to alter it shape and structure without necessarily extinguishing them. The fascinating example of a market for smuggled goods through the tunnels connecting Egypt and the Palestine through Gaza is one of them.

Harriet Sherwood of the the Guardian reports here that a number of entrepreneurs are taking the risk of constructing tunnels between the two ends in order to transfer tangible goods through. This is interesting to a student of applied economics because the mere political decision to stop trade does not ensure that it disappears. Instead, the ingenuity of the tunnel constructors and their willingness to take risks by conveying motorbikes and other goods is instructive.

To my mind, both the governments of Israel and the Hamas who are in charge of Gaza have created the situation where the smugglers will trade underground if they must. The literal underground economy merely proves that the bans on imports and trade are not well-targeted and they ongoing underground trade shows that there's more to be smuggled than arms. The demand for motorbikes and other goods exists and the tunnels will continue to be expanded in order to satisfy this largely legitimate demand. In the process, a new class of entrepreneurs has emerged and they have little respect for unreasonable laws. Security concerns and safety do not require a wholesale ban on trade. active underground economies prove once more that wholesale bans are a blunt instrument.