Thursday, May 17, 2012

out of the megastore and into the parking lot

That's the journey of a former Ikea worker in Spain, who used to deliver and assemble furniture for the mega furniture retailer but now does the same thing as part of the informal economy, offering his services to people who exit the big box store. He was laid off by the massive retailer, and now makes half as much as he used to earn, but it's off the books.

Flea markets are flourishing, too. Patricia Aragon Llamas, 31, shows up every weekend at the Charco de la Pava market to earn about €50 selling second-hand clothing and shoes.“This market has doubled in size in the past year,” she said. “I’ve got a 3-year-old child and an unemployed husband, so I’m really beyond thinking about what’s legal or not, as long as it brings in a bit more money.” 

According to The International Herald Tribune, the amount of tax money the Spanish government may be losing to System D could amount to €37 billion -- or $47 billion US.

But that shouldn't be the major concern. People's survival should be. As I reported a few weeks back, Spain has turned into Europe's developing world economy, with an economic outlook that is worse than Nigeria's. Now the official world is recognizing the fact.

“Without the underground economy, we would be in a situation of probably violent social unrest,” Robert Tornabell, a professor and former dean of the Esade business school in Barcelona, told the IHT. “A lot of people are now staying afloat only thanks to the underground economy, as well as the support of their family network.”

Another professor who has studied the parallel economy in Spain suggests that the government needs to work with it: “Much of the informal economy is nothing but the normal reaction of low-skilled people who have no alternative once they lose their job,” said Michele Boldrin, an economics professor at Washington University in Saint Louis, Missouri, who co-authored a study in May on Spain’s underground economy on behalf of Fedea, an economic research group in Madrid. “What the government should focus on is reforming the formal economy to make it more efficient and competitive rather than focus on pursuing such people.”

But the people in the IHT article are not necessarily low-skilled. And reforming the economy takes a stimulus, not austerity. In the absence of sensible government, System D is the way forward. If the people will lead, the leaders must follow.

[Once again, all hail Zach C for sending this to me]

Monday, May 14, 2012

Greek to me -- a system D opportunity

Some interesting tweets from ITV News Business Editor Laura Kuenssberg, who's been covering developments regarding Greece and the Euro from, I believe, the London Stock Exchange ...

That's interesting: people are already planning for active trade in a former currency that hasn't been reconstituted yet--the Greek drachma. All it would take is a couple of days for the underground to get it started. Talk about a System D opportunity.

They're even projecting the exchange rate.

Wednesday, May 9, 2012

growth without jobs

By the numbers, Ghana's a mind-blowing success. This West African nation's GDP has almost tripled since 2005--an astonishing achievement. Yet this article from The Ghanaian Chronicle (via AllAfrica) points out, workers had little to cheer this past May Day, because, as the country's top labor leader put it, ""The reality is that the unprecedented growth rate has failed to create decent jobs for Ghanaians. Joblessness is on the rise. Nearly all new jobs are being created in the informal economy, where incomes are low and workers have very little protection from the country's labour laws."

The Trade Union Congress blames the government's emphasis on exporting natural resources for creating economic gain without concomitant gains for workers. In other words, Ghana's 1 percent just keeps getting richer.

President John Evans Atta Mills told the paper that the country had met all the fundamental requirements of the International Labour Organisation, and now stands to receive substantial rewards from the international community in Ghana's effort to achieving decent conditions and rights for workers.

But what does that mean? Aid instead of trade?

Robust job creation in the informal economy is not the problem. Indeed, it's the way forward to sustainable growth--economic growth that means jobs for people and a better life for the widest possible swathe of the population.

Tuesday, May 8, 2012

'I am the passenger'

Carpooling laws in Jakarta have spawned a new business -- jockeying, or filling the seats in fancy cars so they meet the multi-passenger requirement. This Australian news dispatch [thanks to eagle-eyed Zach C. for catching it and sending it to me] shows how it works:
Hundreds of men, women and children line the main arteries of the Indonesian capital every weekday, offering to ride in private vehicles during rush hours, when cars are obliged to carry at least three passengers on key stretches. The "jockeys" -- as they are known -- do not stick out their thumbs like typical hitchhikers around the world. Here, one finger signifies a jockey working solo, while two offers a pair, usually a mother with a child in tow or a baby in a batik sling. In a country where millions are struggling to climb out of poverty and into an expanding middle class the jockeys -- who charge about a dollar a ride -- have turned their services into a career.
Meanwhile, the carpooling requirements, meant to cut down on traffic, have had no effect. Indeed, 1,000 additional cars join the cacophony on the city's streets every day--and projections are that in two years time Jakarta's streets could become completely gridlocked, with cars not able to move at all at rush hours.

bureaucracy and System D

Back in the 80s, in his book The Other Path, Peruvian economist HernandoDe Soto promulgated the idea that what System D/the informal sector needs is for governments to trim the bureaucracy and make it easy to start businesses. If that happened, de Soto opined, businesses would naturally come in from the cold.

But, as this case study of Rwanda from East African Business Week shows, in the real world, things seldom work the way de Soto thought they would. In Rwanda, it only takes 6 hours to register a business--and the process is free if you do it online. Yet these 'free market' reforms have had no impact. The size of the country's informal sector has not declined. It still makes up 90 percent of the nation's economic activity.

To make formalization even more easy, Rwanda has just approved a new plan that allows businesses with a turnover of less than $20,000 to pay $200 or less in taxes. That's an income tax rate of just 1 percent. Even so, the Commissioner General of the Rwanda Revenue Authority, Ben Kagarama, admits that the new rules "might not necessarily kill the culture of tax evasion" and that he doesn't expect most businesses to sign up.

So what gives?

As the article notes, informal merchants are routinely harassed, brutalized, and arrested by the authorities. In other words, their sole experience of government power is repressive and corrupt. Indeed some people argue that many governments in the developing world are little more than officially licensed thuggish protection rackets.

In countries like Rwanda, System D is the most productive sector of the economy. Politicians need to take concrete steps to build partnerships with informal markets and System D merchant associations. That's how government becomes a legitimate player in the business sphere--by working with System D rather than trying to force businesses to conform to some abstract rules of formality. When System D businesspeople--who are the backbone of the economy--see the government provide concrete benefits to their markets, that's when they will get involved in a positive way in social and political change.

Monday, May 7, 2012

flying goods

Junks, faux markets and bend-down boutiques:  The Guardian reports on the Africa's burgeoning trade in European cast-offs. Critics say the billion-dollar trade risks swamping fragile domestic textiles markets--and 12 African nations have banned the trade. But the desire for famous designer clothes is not limited to the west, and in urban Africa's thriving System D stalls, customers rub the hems of Gucci and D&G seconds. Money quote:
"We call our shops 'bend down' boutiques because we have so many clothes we just pour them on the floor and you just bend down and select," explained Mercy Azbuike, surrounded by piles of clothes overflowing from her wooden shack and piled into wheelbarrows outside. "Even those selling clothes in boutiques [proper stores] are buying from us," said Azbuike, who also travels to neighbouring Benin twice a month to replenish her stock."It's the same boutique but you don't have to bend down so it's more expensive."

Wednesday, May 2, 2012

the street food backlash

It's well-heeled residents vs. a single food truck on W. 68th Street in NYC. DNA Info reports that some people living in the tony condos there are so angry that a licensed food truck is doing business legally on their block that they've petitioned the city to install parking meters.

The Pot Luck Cafe food truck--co owned by Korean War Vet Eddie Prokopiak and his Nigerian son-in-law Joseph Okolie--has been doing business near the corner of 68th and Broadway for about year. Prokopiak was on the waiting list for a city street food vending license for a decade before getting the go-ahead to open the truck. He spent perhaps $100,000 to outfit his business.

But this lone outpost of street culture on the block has locals feeling "besieged." According to the report, "residents accuse Pot Luck Cafe of creating litter and flashing a bright neon "Open" sign in its window. They also say the truck takes up too much space and created a dangerously tight squeeze when emergency vehicles responded to an oil spill on the block last year." They also assert that the operators have refilled their generator on the street, in violation of city rules.

Prokopiak is philosophical about the residents who are moving to evict his truck. "They don't want us here," he told DNA Info last year. "It's an upscale neighborhood, supposedly, and this type of vehicle is not supposed to be here."

The parking meter proposal, meanwhile has split the block, with 18 residents opposing the idea at a recent community board meeting.

As Bob Dylan so aptly put it Subterranean Homesick Blues back in 1965: "Don't follow leaders. Watch the parking meters."

[praise b Zach C for the link]