Informal businesses disrupt the normal competitive process that leads to greater productivity over time. Companies that operate outside the law save money by avoiding tax and welfare payments, allowing them to compete despite being inefficient, but informality also denies them the possibility of accessing markets for capital and technology that would improve their productivity. Legitimate, productive businesses lose market share to tax-evading competitors, decreasing their incentives to invest.The Journal offers this further black market factoid: "39% of Brazil's productivity gap with the U.S. can be explained by the effects of the shadow economy." (The newspaper cites an unnamed McKinsey study as the source for this stat--but I haven't been able to find it, so I can't say what the number means or how McKinsey's researchers arrived at it.)
So if a company gets a tax abatement from the government, or hides its income by incorporating in the Cayman Islands, doesn't that also distort competition? And, while tapping bank loans to invest in technology might improve efficiency, doesn't it also reduce employment. Are efficiency and productivity really the only economic benchmarks we have? Or can there be a different economic analysis that sees job growth through System D as a good thing because it grows bottom-up businesses and thus reduces inequality?