Robert Neuwirth is a writer and investigative reporter; he says the world’s black market economy is worth $10 trillion a year. (By comparison, the world’s largest economy, that of the U.S., is worth $14.5 trillion a year). He says it’s the fastest growing economy on the planet and it’s where future growth will come from.
The Unofficial Market
The French have a word for it, “System D” (okay, that’s almost two words). According to the Urban Dictionary it comes from the word débrouillard, describing a person who is “skilled or resourceful at handling any difficulty,” and cutting a few corners along the way.
Neuwirth writes (Foreign Policy, October 2011) that the word is popular in the former French colonies of Africa: “inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of” System D.
Once scattered islands of enterprise, this unofficial economy is no longer just a few people scratching out a living selling some trinkets or wizened vegetables on the sidewalk.
Survival Struggle Drives Innovation
As the world’s population has exploded, millions of people have moved into squatter communities and shanty towns close to major cities.
In an article in Scientific American Neuwirth notes that, “800 million to 900 million people - one in seven on the planet - live in such places…” They receive no public services such as electricity, water, or sanitation, so they have created, writes Neuwirth, “hives of inventiveness, industry and self-made enterprise.” He calls them “the crucibles of our global future.”
He gives as an example Makoko a slum squeezed onto swampy land beside a lagoon in Lagos, Nigeria. There, entrepreneurial women in canoes deliver food, household items, even beer and pop, to the homes on stilts of people who cannot simply walk to the market.
Underground Economy Spreading Everywhere
Of course, the informal economy is not restricted to the developing world; it exists everywhere in rich, industrialized countries as well. The farmer who sets up a roadside stall selling produce is likely a participant, so is the contractor who does a kitchen renovation for cash.
Those countless lawn and garage sales, and the kids with a lemonade stand outside their house on a hot summer day are also part of the shadow economy. The piano lessons and math tuition for junior can also be paid for under the table.
It’s said the construction industry in many cities could not exist without day labourers working for cash and no questions asked.
Massive Employment in Shadow Economy
Steven Levitt and Stephen Dubner, the co-authors of Freakonomics, write on their blog that, “In 2009, the OECD concluded that half the world’s workers (almost 1.8 billion people) were employed in the shadow economy. By 2020, the OECD predicts the shadow economy will employ two-thirds of the world’s workers.”
The OECD says informal employment, that is work that’s off the books and cash only, already accounts for 60 percent of the world’s jobs. The economic think tank adds that, “Generally, informal workers earn less and their basic rights are more vulnerable and difficult to defend. Informality can be a major cause of poverty as most informal workers are insufficiently protected from illness or health problems, unsafe working conditions and possible loss of earnings due to sudden dismissal.”
And, this isn’t nickel and dime stuff. Here’s a December 2009 report from Germany’s Deutsch Bank: “This year, the shadow economy [in Germany] is set to grow again for the first time since 2003, to as much as 14.6% of GDP according to researchers at the University of Linz.”
That’s not chump change; given that Germany’s annual GDP tops $3 trillion, about $450 billion a year is thought to be changing hands under the radar.
As the Great Recession stubbornly refuses to go away in many places, more people are turning to self-employment to pay the bills and they prefer to keep 100 percent of what they earn if they can find a way to do it.
Robert Neuwirth and others argue this unofficial employment system will only grow in the future.
Sources
- “The Shadow Superpower.” Robert Neuwirth, Foreign Policy, October 28, 2011.
- “System D: The Shadow Economy is the Second Largest in the World.” Steven Levitt and Stephen Dubner, Freakonomics, November 1, 2011.
- “Is Informal Normal? Towards More and Better Jobs in Developing Countries.” OECD, March 2009.
- “Street Markets and Shantytowns Forge the World’s Urban Future.” Robert Neuwirth, Scientific American, August 18, 2011.
- Shadow Economy Defies Crisis – Year-end Note with a Wry Pitch.” Deutsch Bank, December 31, 2009.
Rupert Taylor - Rupert Taylor is the editor of a magazine that provides background to current events.
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