Finding better ways to make a buck

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Finding better ways to make a buck

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Pyramid schemes are disguised as legitimate business models for selling products or services. New members are forced to buy thousands of dollars worth of useless items and told to sell them, and the existing members share the profit.

If new members do not sign up, the pyramid collapses. The person at the top of the pyramid, the “pharaoh,” makes a fortune by luring new members into the scheme. It is not much different from human trafficking.

In his bestselling book “Freakonomics,” American economist Steven Levitt describes a kind of pyramid scheme involving the Black Disciples gang, which is known to engage in drug trafficking. The gang has about 100 leaders in a network that is 5,000 strong. Midlevel dealers make about $100,000 a year, while the 20 bosses at the top earn about $500,000 a year. The rest of the Black Disciples, however, earn just $3.30 an hour, less than the minimum wage, and their jobs are risky. Twenty-five percent of them are killed during operations.

A drug trafficking network is similar to a pyramid scheme in that only the top bosses make money. And, if you do not take into account the harm done by the drugs and instead look only at the business model, pyramid schemes are worse than drug trafficking networks. At least the members of drug networks make money when their product is sold.

In late August, the issue of pyramid schemes came to light in Korea when 15 college students and graduates trapped in such a scheme were found living in a 49-square-meter (527-square -foot) room in Macheon-dong, southeast Seoul, with little food and lots of debt.

Authorities say the number of victims of such schemes is growing, with disastrous consequences for some, including suicide.

According to the Fair Trade Commission, 3.57 million sales agents were involved in illegal multilevel businesses in Korea last year, which earned a total revenue of 2.5 trillion won ($2.2 billion). The sales agents in the top 1 percent made 43 million won per year on average, but the next 5 percent earned considerably less - an average of 3.96 million won. Those in the top 30 percent made 460,000 won.

If you are dreaming of making a fortune by participating in a pyramid scheme, you will be making a foolish choice. Do not let the con artists benefit. No matter how desperate you may be, there are better ways to make a buck.

*The writer is a staff writer of the JoongAng Sunday.


By Kim Chang-woo
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