In Squaring Off, Zócalo invites authors into the public square to answer five questions about the essence of their books. For this round, we pose questions to journalist Robert Neuwirth, author of Stealth of Nations: The Global Rise of the Informal Economy.
As headlines trumpet worldwide financial doom and gloom, Neuwirth brings hope from unlikely corners of Nigeria, Brazil, and China. He reveals how businesses we consider illegitimate-from street vendors to gypsy cab drivers-are providing the majority of the world’s population with the employment and essential services that governments and traditional financial institutions are failing to supply.
1) Has the informal economy (comprised of illegal or unregistered businesses) become a global phenomenon because “legit” corporations and governments have failed to provide nations with sufficient jobs and economic opportunities, and have largely benefitted a fortunate few?
The simple answer is yes. It’s a bit more complex, of course. System D, the informal economy (quick definition: System D includes all businesses that deal in legal products but in a quasi-legal way-without getting registered or licensed and, often, without paying taxes), has been around longer than the government-controlled economy has. System D was, in fact, the first form of trade. In today’s globalized market, System D has moved forward exactly because the “legit” business world has not provided a fair chance for most people to get jobs and access economic opportunity. In textbook economic terms, a System D street market might seem inefficient-a sprawl of small kiosks with overlapping jobs and limited scale-but it creates employment and spreads opportunity to a much greater number of people. It is democratic and entrepreneurial, the economy of ingenuity and resiliency-and that’s why it’s growing all over the world.
2) You believe that System D is a strong alternative to the current failing formal economy. But if System D isn’t an option, for various reasons, what lessons can the formal economy take from the informal?
I’m tempted to say that, if System D didn’t exist, someone would have to invent it. More seriously, we have to return to the idea that economic concerns are subordinate to social and societal concerns. It’s not that the “free market” ideal is completely wrong. It’s that the most important human concerns are not expressed in this corrupted version of economic thought. The words “value” and “worth” indicate something beyond monetary value. If we think of the value of creativity, of sharing, of community, of cooperation, of being humane, of family, of life? Our notion of the market-and our notion of government-needs to be expanded to include these values. Indeed, I would argue that our economic system is failing-and becoming less fair and egalitarian-because our concept of the free market has trashed these values. In today’s terms, this sounds idealistic-but a caring economy is not an oxymoron.
3) What can our government and financial institutions do to create a “caring economy”?
Let’s start with the idea of full employment. We must stop worshiping at the altar of efficiency. In modern society, people need to work to earn money and to be fulfilled. So national policies and business practices ought to be oriented to creating jobs for everyone. We need to create full employment-a system in which everyone who wants a job can have a job-for the good of the people.
Second: the world needs financial transparency. Here’s one idea: a Global Investment Disclosure Act so we can track where banks and other financial institutions are getting their money and where they are putting it.
Third: it’s time to foster cooperative systems. Cooperation is not uneconomical and inefficient. We cooperate in our communities all the time. Indeed, that is how we get things done on a social level. Governments should encourage bringing the cooperative model into the commercial world of exchange and trade. Financial institutions should fund cooperative efforts. Governments should give priority to services being provided by cooperatives and should encourage alternate means of exchange, like barter systems and community currencies.
The modern world has made “the self-regulating free market” a civic religion. But markets are not all-powerful and people secondary. Rather, markets exist to meet human needs. If they don’t meet our needs, we have to find new structures so that they will.
4) How can regular people influence governments and financial institutions toward fostering more transparent and cooperative practices?
First, organize. The free market isn’t going to reinvent itself on its own. Rather, people have to join forces to push for this kind of innovation. Cooperatives of street markets or street market workers should be able to know how much cash a local bank branch takes on deposit from the market, and how much it loans out to the market. This information should be available and public. Governments, too, should be expected to be transparent. If the government says it will pave a road, people have the right to know who is doing the work, how the contract was awarded, and how the money is being spent. These changes will come about through organizing.
Second, be transparent and cooperative ourselves. People cannot expect institutions to transform themselves if we are not willing to transform ourselves. Street markets should organize in publicly accessible bodies-leadership associations, dispute resolution panels, security task forces. Communities should also organize in cooperative, open fashion.
The new free market system can only be built by the people in it.
5) Can you expand on what can be done to curb some of the serious downsides of the informal economy, such as human trafficking and slavery? Without regulation, how can these crimes be combated?
Here’s the most important thing: the authorities have to stop confusing the activities of kids who sell oranges or women who sell shoes in a street market with the crooked enterprises that engage in human trafficking and gun running. The simple street sellers are part of what I call System D. They may be working for cash, under the table, but they are dealing in legal product-just selling it in a quasi-legal way.
The other folks are members of criminal enterprises. This is why authorities should pursue them with all the legal and investigative zeal they can muster. They should concentrate on arresting and prosecuting the people who run these nefarious gangs-because it’s the money at the top that keeps these horrible enterprises in business. Indeed, if governments stop criminalizing System D traders, they may have a better chance of cracking down on the true criminals, because the people in System D will have no more reason to hide their goods from the authorities.
So, by all means, track illegal weapons aggressively and prosecute people who deal in them. Target the organizations that buy and sell human beings or human organs. Go after the higher-ups in drug gangs and the people who force children into work gangs. This is where law enforcement should put its resources, and not into busting a guy who has brought diesel generators into a country without paying the proper customs duties, or who is selling pirated DVDs on the streets.
*Photo courtesy of Magharebia.