http://www.wired.com/magazine/2011/12/mf_neuwirth_qa/
Why Black Market Entrepreneurs Matter to the World Economy
Not many people think of shantytowns, illegal street vendors, and unlicensed roadside hawkers as major economic players. But according to journalist Robert Neuwirth, that’s exactly what they’ve become. In his new book, Stealth of Nations: The Global Rise of the Informal Economy, Neuwirth points out that small, illegal, off-the-books businesses collectively account for trillions of dollars in commerce and employ fully half the world’s workers. Further, he says, these enterprises are critical sources of entrepreneurialism, innovation, and self-reliance. And the globe’s gray and black markets have grown during the international recession, adding jobs, increasing sales, and improving the lives of hundreds of millions. It’s time, Neuwirth says, for the developed world to wake up to what those who are working in the shadows of globalization have to offer. We asked him how these tiny enterprises got to be such big business.
Wired: You refer to the untaxed, unlicensed, and unregulated economies of the world as System D. What does that mean?
Robert Neuwirth:There’s a French word for someone who’s self-reliant or ingenious: débrouillard. This got sort of mutated in the postcolonial areas of Africa and the Caribbean to refer to the street economy, which is called l’économie de la débrouillardise—the self-reliance economy, or the DIY economy, if you will. I decided to use this term myself—shortening it to System D—because it’s a less pejorative way of referring to what has traditionally been called the informal economy or black market or even underground economy. I’m basically using the term to refer to all the economic activity that flies under the radar of government. So, unregistered, unregulated, untaxed, but not outright criminal—I don’t include gun-running, drugs, human trafficking, or things like that.
Wired: Certainly the people who make their living from illegal street stalls don’t see themselves as criminals.
Neuwirth: Not at all. They see themselves as supporting their family, hiring people, and putting their relatives through school—all without any help from the government or aid networks.
Wired: The sheer scale of System D is mind-blowing.
Neuwirth: Yeah. If you think of System D as having a collective GDP, it would be on the order of $10 trillion a year. That’s a very rough calculation, which is almost certainly on the low side. If System D were a country, it would have the second-largest economy on earth, after the United States.
Wired: And it’s growing?
Neuwirth: Absolutely. In most developing countries, it’s the only part of the economy that is growing. It has been growing every year for the past two decades while the legal economy has kind of stagnated.
Wired: Why?
Neuwirth: Because it’s based purely on unfettered entrepreneurialism. Law-abiding companies in the developing world often have to work through all sorts of red tape and corruption. The System D enterprises avoid all that. It’s also an economy based on providing things that the mass of people can afford—not on high prices and large profit margins. It grows simply because people have to keep consuming—they have to keep eating, they have to keep clothing themselves. And that’s unaffected by global downturns and upturns.
Wired: Why should we care?
Neuwirth: Half the workers of the world are part of System D. By 2020, that will be up to two-thirds. So, we’re talking about the majority of the people on the planet. In simple pragmatic terms, we’ve got to care about that.
Wired: You talk a lot about wares that are sold through tiny kiosks, street stalls, and little informal markets. Where do those goods come from?
Neuwirth: The biggest flow of goods is from China. It’s no secret that China is the manufacturing engine of the planet. In a lot of ways, they’re more capitalist than we are. If someone wants something made—even if that person isn’t licensed—a Chinese factory will make it. It’s also easy to deal with China. You can go to the local Chinese consulate and get a tourist visa within a couple of hours. You can’t say the same about coming to the US. So African importers, for instance, travel to China and commission Chinese firms to make goods for them to sell in Africa.
Wired: But it’s not all Chinese manufacturers, right? In your book, you write about how huge international corporations want to get their goods into informal markets.
Neuwirth: Sure. Procter & Gamble, Unilever, Colgate-Palmolive: They sell lots of products through the little unregistered and unlicensed stores in the developing world. And they want their products in those stores, because that’s where the customers are.
Wired: How does that work?
Neuwirth: Basically, they hire a middleman. Procter & Gamble, for instance, realized that although Walmart is its single largest customer, System D outposts, when you total them up, actually account for more business. So Procter & Gamble decided to get its products into those stores. In each country, P&G hires a local distributor—sometimes several layers of local distributors—to get the product from a legal, formal, tax-paying company to a company willing to deal with unlicensed vendors who don’t pay taxes. That’s how Procter & Gamble gets Downy fabric softener, Tide laundry detergent, and all manner of other goods into the squatter communities of the developing world. Today, in aggregate, these markets make up the largest percentage of the company’s sales worldwide.
Wired: You write that there are even street-vendor-specific brands.
Neuwirth: Absolutely. A good example is UAC Foods, which is based in Nigeria but active throughout West Africa and traded on the Nigerian Stock Exchange. It’s a highly formal company that was originally incorporated by the British more than 100 years ago. UAC Foods owns hotels and restaurants, but it also has this product called the Gala sausage roll. You never find Gala being sold in normal stores. It’s sold only by unlicensed roadside hawkers and at roadside kiosks. Basically, UAC recognized that this product wasn’t going to sell well in a normal store. But sausage rolls are in demand where people are on the go, when they need a quick snack on the side of the highway or in a traffic jam. So UAC relies on this informal phalanx of thousands of unregulated hawkers who sell Gala sausage rolls all over the streets of African cities. This is UAC’s distribution channel for this one product............
