Big Smoke

'cause it's hard to see from where I'm standin'

The Informal Economy

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I’m at a loss as to figure out the point of Robert Neuwirth’s article on Foreign Policy magazine. It describes “Systeme D,” which is a shortening of “l’economie de la debrouillardise,” which is itself “the economy of resourcefulness.” He describes it as the fastest growing sector in the world economy, and as an interesting – if wild – form of entrepreneurialism (if I may use another French loan word) in the face of failing governments and stymied commercial prospects in the formal market.

I studied City Planning in college, and they spoke of the same concept in the same form of awe and wonderment, as if it was an applicable and acceptable patch on the inability for government to properly execute social services. Neuwirth’s example du jour is a Nigerian businessman’s under-the-tables deal with a Chinese manufacturer to import electric generators as a way of solving grid problems. The example given in Planning 102 was garbage picking in Buenos Aires as an alternative to proper sanitation departments.

As pure news – that is to say, as a report on how people deal with otherwise untenable situations – I see the point of reporting on it. However, there’s always an angle, and my class was how we might make use of that lumpenbourgeoisie to effect policy: Namely, to develop a superstructure around that system and formalize it. To accept it. Which is a weird thing to do, because the people who work in the informal economy tend to be poor and miserable and “it’s better than starving” is a very mercenary way to justify a policy decision.

Nevertheless, Neuwirth’s article mostly plays up individual entrepreneuralism amidst high risk, as well as the lack of taxes due to the grey- and black-market nature of the deals, towards his conclusion that such is being comparatively successful compared to the formal economy. Libertarianism aside – no, wait, that’s the point, isn’t it?

“But the level of competition on the street keeps huge numbers of people employed. It liberates their entrepreneurial energy. And it offers them the opportunity to move up in the world.”

Yes. It keeps them employed at barely subsistence levels and is enforced by pure necessity. This is how people have survived throughout history, because the formal economy has never controlled everything, yet perfectly illustrates exactly why a formal economy is preferable. I’m ashamed I have to point this out, but in the informal economy, the highest risk is carried by the people least able to shoulder it. There are no protections from exploitation, fraud or extortion.

If I were writing the article, the conclusion would be that the world economy, by reverting to more base forms of economic activity, is backsliding. That does not appear to be the tone of his message. He appears to be condoning it because it allows him to ignore the social costs. Starvation? Violence? Bah! It’s the grey market: An Ayn Rand utopia!

I’m reminded of Bloomberg’s efforts to formalize gypsy cabs here in New York. New York’s system of yellow cabs has created a grey market of liveries outside of lower Manhattan: Due to the limited number of medallions that allow yellow cabbies to pick up street hails, the frankly ridiculous cost of them have changed the margins such that cabbies stick downtown at almost all costs. For the black cars, dispatch calls are legal and street hails aren’t, but cops generally turn a blind eye due to social necessity in the outer boroughs. Part of the result of this detente has been an extralegal job sector that beats firefighting in terms of workplace danger. The black car is simultaneously an ATM and getaway vehicle, and the driver has no legal recourse because he shouldn’t have picked up the fare in the first place.

Bloomberg’s response has been to license liveries and then talk of formalizing the process of allowing them to pick up street hails outside of lower Manhattan. The Taxi and Limousine Commission reacted in the only rational way possible: “How dare you devalue the medallions after we paid so much for them,” effectively killing any plans to move forward with the situation. Bloomberg was right in recognizing that such was an untenable situation – which puts him one up on Foreign Policy magazine – but formalizing it as is was also impossible (take that, college professors). The situation needs a sea change, because it’s the result of a plethora of issues, and the informal economy is, there as in all places, the result of bad policy that cannot be quick-fixed.

The medallion system was put in place to ease traffic concerns in lower Manhattan – on the assumption that flooding the area with taxis would cause gridlock – and because of which created a monster what with artificial limitation. The thing is, there are other ways to ease traffic concerns in lower Manhattan.

For one, Bloomberg was certainly on the right track when he sought to implement London-style congestion pricing – which sadly got shot down by a consortium of constituencies claiming to represent working-class Queens commuters – which would have allowed him to justify easing restrictions on medallions, which would further have lowered the running costs of yellow cabs and opened up greater parts of the city to them.

For another, we’re somehow hitting record numbers of mass transit riders yet the MTA is forced to cut services thanks to widespread public defunding. Expanding it would not only work in a Keynesian sense, but relieve the need for said under-served Queens commuters to suffer the Midtown tunnel and city parking. Of course, considering the lack of state support and federal funding, and with idiots across the river like Christie making a policy of killing long-term regional prospects (and in doing so succeeded, albeit briefly, in making Corzine look less disastrous), the problem is clearly indicative of an even larger systemic issue.

But in saying so, I see how far I am in frame of mind from folks like Neuwirth. You can’t propose solutions if you refuse to acknowledge there’s a problem, but then, you can’t acknowledge it if you don’t recognize it as one in the first place.

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