The Role of Social Capital and Power Structure in The Underground Economy of Pasar Maling in Malang City Indonesia

Abstract

The underground economy phenomenon is a part of economic activities. Based on data from the Financial Transaction Reports and Analysis Center in the second quarter of 2021, the estimated lost contribution of the underground economy to GDP ranges between 8.3% and 10%, or equivalent to more than IDR 4,175 trillion. If it continues, it can cause more significant state losses. This research aims to reveal social capital role, power structure, and strategy in overcoming the Pasar Maling underground economy. The research method is qualitative with phenomenological approach through unstructured interviews, using Nvivo12 to process data. It shows Pasar Maling has four main factors of social capital: trust, information, networks, and norms. The existence of social capital reinforces the domination of power structures in the internal community. The Pasar Maling takes place informally, so it has its own rules of the game. This market has a barrier to entry system, and only people of the same ethnicity can enter the market. It is evidenced by the dominance of non-governmental Madura’s ethnic community power that regulates the market. A win-win solution strategy as implementing parking concessions also proves education and business assistance can be some strategies for tackling the underground economy. In this research, the researcher only focuses on the market's internal perspective, which includes sellers and the surrounding community, to determine the role of social capital and power structures in Pasar Maling. In the research process, indications of the government's illegal position in the market can be investigated in future research. Furthermore, the authors hope this research can provide additional knowledge for readers and become a reference for further research.