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  • 11.08.11

There Is Big Money In The Underground Economy

Stealth of Nations, a new book about the $10 trillion dollar black market around the world, argues that this “ingenuity economy” is what could save our monetary system.

There Is Big Money In The Underground Economy
The underground economy might look dodgy, but it’s a huge driver of global finance.

It’s the second largest economy in the world. Within the decade, it may sustain two-thirds of the planet’s workers, according to the Organisation for Economic Co-operation and Development (OECD), and even rival the United States. But it’s not China: It’s the bazaars, vendors, and informal markets of the world.

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Robert Neuwirth’s new book, Stealth of Nations, reveals the dealings of back-alley capitalism. And unlike the austerity of the developed world, it’s doing pretty well. After several years living in the slums and cities of Brazil, China, and Africa, Neuwirth argues the world’s governments should embrace informal (and mostly legal) markets as an alternative form of economic organization. That’s not just because they improve the lives of millions of entrepreneurs and their customers, creating upward mobility in otherwise dysfunctional systems, but because we have no choice. Either we cooperate with the off-the-books economic activity exploding in the developing world, or we clash counter-productively with them at every turn.

“This is the do-it-yourself economy of the world. There are 1.8 billion people, half the workers in the world, who are now working off the books, and that number is rising,” said Neuwirth at the 2011 PopTech conference in Camden, ME. “The total value [of this economy] is $10 trillion. That’s astounding. It’s an amazing powerful force of enterprise for the world.”

Neuwirth borrows the term System D, coined from the French-African word débrouillard for a resourceful and motivated person, to describe “the ingenuity economy, the economy of improvisation and self-reliance.” In his book, published last month, Neuwirth chronicles the lives of entrepreneurs who turn trash from the landfills of Lagos into businesses, and pirated DVDs on the streets of São Paulo into a bank account, an apartment and a better life.

“The street markets are the Wal-Marts of the developing world,” says Neuwirth. “On the whole [they] are hugely profitable, hugely entrepreneurial, and this provides a kind of different model of economic development for the developing world.”

He has marshaled an array of stories and statistics to argue for an alliance between the formal and informal economies: Each one serves the other. Consumer goods giants like Colgate-Palmolive and Unilever already recognized that their biggest markets are actually the thousand of tiny stories in the developing world, not big-box retailers, says Neuwirth. This cooperation the Wall Street Journal notes in its book review, is already expanding into big business.

“In short, System D is highly integrated into the global economy. There are global supply chains that stretch from back streets in China to umbrella-stand merchants half a world away. Even giant corporations are getting in on the game. In Morocco, the consumer-goods giant Procter & Gamble has built an entire network of wholesalers and agents and subagents to sell diapers and soap through merchants in villages so remote that they have no retail stores.”

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But not everywhere. Police often harass or arrest street vendors, and governments routinely bulldoze street markets to make way for highway overpasses and or businesses sponsored by the wealthy and well-connected–even as the gap between two grows ever slimmer. And the informal economy can also perpetuate social and environmental ills, from unjust and grueling conditions for millions of workers to ecological havoc from dumping waste or other unregulated activities.

But those those arguments can apply to corrupt and poorly functioning formal sectors as well. The argument, says Neuwirth, is that countries will need to creatively embrace the informal sector as a complement to their own corporations in the formal one. For many countries, off-the-books globalization is already the reality. “System D looks a lot like the future of the global economy,” he writes.

About the author

Michael is a science journalist and co-founder of Publet: a platform to build digital publications that work on every device with analytics that drive the bottom line. He writes for FastCompany, The Economist, Foreign Policy and others on science, economics, and the environment.

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