Fastest growing economy: anarchy of System D

The numbers don’t lie, except they probably do since no one can really peg it down for certain. That’s because by its nature the underground economy is hidden from the government and prying eyes by everyone who no longer wants to fully comply with onerous laws that are often little more than a bureaucratic tax on the backs of entrepreneurs.

Robert Neuwirth writes at Foreign Policy:

Schneider suggests, however, that, in making his estimates, he has this covered. He screens out all money made through “illegal actions that fit the characteristics of classical crimes like burglary, robbery, drug dealing, etc.” This means that the big-time criminals are likely out of his statistics, though those gangsters who control the fruit market are likely in, as long as they’re not involved in anything more nefarious than running a price-fixing cartel. Also, he says, his statistics do not count “the informal household economy.” This means that if you’re putting buckles on belts in your home for a bit of extra cash from a company owned by your cousin, you’re in, but if you’re babysitting your cousin’s kids while she’s off putting buckles on belts at her factory, you’re out.

Schneider presents his numbers as a percentage of the total market value of goods and services made in each country that same year — each nation’s gross domestic product. His data show that System D is on the rise. In the developing world, it’s been increasing every year since the 1990s, and in many countries it’s growing faster than the officially recognized gross domestic product (GDP). If you apply his percentages (Schneider’s most recent report, published in 2006, uses economic data from 2003) to the World Bank’s GDP estimates, it’s possible to make a back-of-the-envelope calculation of the approximate value of the billions of underground transactions around the world. And it comes to this: The total value of System D as a global phenomenon is close to $10 trillion. Which makes for another astonishing revelation. If System D were an independent nation, united in a single political structure — call it the United Street Sellers Republic (USSR) or, perhaps, Bazaaristan — it would be an economic superpower, the second-largest economy in the world (the United States, with a GDP of $14 trillion, is numero uno). The gap is narrowing, though, and if the United States doesn’t snap out of its current funk, the USSR/Bazaaristan could conceivably catch it sometime this century.

In other words, System D looks a lot like the future of the global economy. All over the world — from San Francisco to São Paulo, from New York City to Lagos — people engaged in street selling and other forms of unlicensed trade told me that they could never have established their businesses in the legal economy. “I’m totally off the grid,” one unlicensed jewelry designer told me. “It was never an option to do it any other way. It never even crossed my mind. It was financially absolutely impossible.” The growth of System D opens the market to those who have traditionally been shut out.

Bazaaristan, I like that. Someone should brand that as a website, then people could finally afford to buy unlicensed Guy Fawkes masks by the crateful.

I should also point out that it’s not surprising that a huge swath of this underground economy are also looking hard at bitcoin as the financial bedrock. Although in its infancy and sentiment has been mixed in light of thefts and scams, it will be closely linked to this rapidly emerging economy that is declaring itself free from government constraints.

posted by vforvandyke · tags: , , , ,

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