The economy of hope

[nairiporter.livejournal.com]

The shadow economy, or the black market as some call it, could provide a viable option for poor people to make ends meet and save many lives, and not only that. It could stimulate a stagnating economy in times of strife. Such heretic ideas were expressed by one Robert Neuwirth in his book Stealth of Nations, where he urges the reader to look a very neglected truth about global economic life straight in the face.

He claims that the shadow economy should have been looked at as a form of "big business" a long time ago because it already has the revenue and scope of real big business. In principle, the black market mostly includes the illegal street trade and services with fake and contraband goods. It does not contribute to the public budget because it does not pay taxes (or pays very little), and in that it could be viewed as a detriment to the economy. But on the other hand it is often the only means of livelihood for millions of people, and their only chance to have access to these goods and services, and access to jobs which would have been impossible in the regular cycle of entrepreneurship and employment - for various reasons.

This of course is a very bold statement. Moreover, Neuwirth is putting in the category of "shadow economy" a myriad of activities involving over 1.8 billion people around the world, mostly in jobs that are one or another form of fully illegal economic life, with no proper oversight and therefore hiding many risks for the consumers. Sometimes we are merely talking of some industrious vendors who are trading small quantities of stuff like electric gadgets or fashion items, clothes and cosmetics outside the officially established channels and outlets of the big trade chains. Very often this is the only way for a broader array of consumers to access these goods and services in markets that are otherwise widely neglected, bypassed and forgotten by the big firms and trade chains.

Neuwirth also includes a lot of forms of small entrepreneurship in the shadow economy. Ones that are unregistered, stay under the radar and do not pay taxes and do not receive social benefits. All of this he calls the economy of hope and he provides evidence that it is growing much faster than any other segment of economy, and is often the driving engine for economic growth and recovery. It often creates the largest number of jobs, especially in the poorest communities.

One might not agree with all the author's arguments, but this doesn't make the book any less relevant and intriguing. Let alone that it is very easy to read. Neuwirth has traveled a lot around the world and has gathered tremendous amounts of evidence to make his point. At one point he cites the Harvard professor Roberto Unger who recommends informal business as a possibility for a broader democratic participation in the economic cycle. He also uses the ideas of John Cross, an American sociologist and expert on the street markets, who's calling for the legalisation and public acceptance of the shadow economy as a crucial factor for sustained economic and social development, especially in the developing countries.

And of course there are plenty of strong arguments against labeling this segment of economy as the ultimate saviour of the world. Understandably, there are ample reasons for legal sanctions against illegal activities such as the dangerous working practices, for example in manual recycling of waste around the dunhills of the big cities (there was a very informative recent documentary on the subject, referring to India), also the contraband of computer parts, the trade of unsolicited medicines and fake goods of potential danger for people's health.

Neuwirth's book is strongest in those areas where it's apparent that the official economic world of the big corporations and the expensive marketing campaigns is staying away from the poorer segments of the market. And it is exactly this niche that a number of illegal or semi-legal entrepreneurs have discovered and comfortably occupied. The world of the poor and developing societies and communities. And probably it is worth looking into this shadow economy more closely because the legal economy could certainly learn a few lessons from it.

Comments

[badlydrawnjeff.livejournal.com]

That book is sitting on my shelf from the library right now.

[nairiporter.livejournal.com]

You must have a long list of "to-read" books.

[badlydrawnjeff.livejournal.com]

It's kind of ridiculous, to be honest. 7 of my holds showed up at the library yesterday, I'm knee deep in the first Wheel of Time book for a project I'm doing, I had a bunch to read for work this year. My shelf is overflowing right now.

/firstworldproblems

[htpcl.livejournal.com]

My mum is by education a construction engineer, but since democracy exploded around these parts, many people have been compelled to work in areas where they were never competent previously. So she has worked at a private patent bureau for more than a decade. The problem is that the owner of the firm prefers to pay a relatively higher wage to her office assistant but spare her the social installments in return, and this way my mum is practically off the radar of the legal economy, and part of the black labor market. It's as if she doesn't exist in that firm. Yes, she's able to get a higher wage this way, because the boss saves some taxes; but on the other hand when the time comes for her to retire, unless she has been putting some money aside in a private pension account of her own, she'd be left with a very low pension and almost no social security. Because she'll be officially considered "long-term unemployed" by the government. And that sucks.

[ddstory.livejournal.com]

I hope she is putting some money aside right now.

[htpcl.livejournal.com]

She is / we are.

[gunslnger.livejournal.com]

Sounds like she'll likely be better off that way. If she trusted on there being a government pension in the end, that very well might not be true and then it would really suck.

[htpcl.livejournal.com]

There will be government pension, as there has been for the last 68 years here. That's not the point. The point is that her salary would've been probably lower if she had opted for that. The problem is that she won't have almost any pension when she retires in a few years.

[nahele-101.livejournal.com]

I have spent much of life in and around the "green triangle" area of The People's Republik of Kalifornia where the pot trade is huge. Since the timber and fishing industries have died off, it has subsidized a huge section of the local economies there. It pays for charter schools. It paid for the start up of a non profit I worked for. It keeps people off welfare.

I gotta say I agree with the author's main point, having seen a huge black market give many, many people "jobs" and provide income to their local economies.

[ashiran.livejournal.com]

Whether it is shadow (which is avoiding paying taxes) or legal , the problem is not with them. The problem must be solved in first place. Avoiding paying taxes is the way to survive for those who are dealing with manufacturing or small sales or services. But the biggest problem is the trade segment. It takes more profit than those who are originially produce products the traders sale.
Do you know how much is the price of goods in terms of exwork you buy in shop? Do you know how much traders (speculators) get from each operation? Founds banks investors buying companies who looking to make a profit raither than keep cuture of the company itself...
So who is the legal or illegal is raither symbolic question. The one who have more power defines the rule - what is illegal and what is not. Somehow the speculation must be stopped and trader's profit must be restricted otherwise the money will rule as it does now. Society must be motivated (by laws etc) for production of quality an sustainable products where each member of society should have its place in the chain starting from production and ending at consumption point.
Planned leftist economy? At least it shold be done for life critical products. The problem must be solved on multinational level.
I did not get the subject of book - the "illegal market" is everywhere where citisens can avoid paying taxes (don't forget - this stimulates bribe corruption within government institutes severily ).

[nairiporter.livejournal.com]

Laws are not a motivation. Laws are a facilitator of already existing motivation. If law becomes the primary motivation then such a society is sick and dysfunctional. The incentive for the production of quality and sustainable products cannot exist within law. It starts from the bottom up, or at least that's how it should be.

I agree that the problem transcends borders, if we should call it a problem at all. The author argues that it could actually be an advantage in many situations, and I think I can see where this argument is coming from.

[ashiran.livejournal.com]

let say - if law enforces to produce product under 10 years warranty term, instead of default (in my country it is 2 years at least), then will it be facilitator or motivator? OK, prosecutor , if it is not obeyed.
Not following the rules is the problem of society , if its ideology is not anarchy. if society is of high level (economic mental and cultural point of view),
the law does not make the sense - even worst law will be interpreted in best way or even not executed either.
In contries i know, the illegal market means - you should give a bribe to governement representatives once per month or whatever period is agreed. That money is accumulated and distributed to higher level in government pyramide , and in some cases till top end (politicians ruling). if rulers get advantage from this situation , are they motivated to change a system? If such society is sustanable and able to develop evolutionary then flawless transition will be to the level of modern european contries such as Germany (i guess the last president was an exception to the rule) . But if it is not? If profit distribution wont be symmetric and rulers will take advantage of it then dictatorship is the result. Shortage of resources will provoke that and vice versa.
imho , the black market could be advantageous if there is good will of power keepers within society. But power is black by its nature.