Underground Economics
In its latest issue, Reason Magazine has an great article by Kerry Howley on Ghetto Capitalists. Howley reviews a new publication by Sudhir Alladi Venkatesh, a sociologist at Columbia University, called Off the Books. Venkatesh’s work explores the illicit (or we might say, “extra legal”) economy in an American, down-town urban sprawl: Marquis Park in Chicago.
Marquis Park’s residents, reports Howley, are
unlicensed hairstylists, ad hoc caterers, tailors, psychics, and accountants, and typically ply more than one trade at a time. They sell clothes, pirated movies, and used kitchen supplies they call “ghettoware.” Others are gypsy cab drivers, janitors, and mechanics. Some make a quick buck taking over abandoned buildings and offering the space for shelter; others make money with promises to keep police patrols away from the same space.
The picture he describes demonstrates that far from the stereotype of lazy delinquents, languishing in poverty due to their own inability or lack of interest in finding gainful employment, the members of America’s lower classes are engaged in ceaseless economic activity to earn a living. And not only that, they are innovating in original ways to increase their yields, such as renting out spaces after dark to protect them from vandalism or hiring employees off the books.
Of course, Marquis Park’s economic life, although “frenetic and buoyant”, is not without its downsides. Police protection is shunned due to the illegality or extra-legality of business, so that residents have little to no help when they fall victim to crime. The informal nature of illicit networks breeds a particular type of insularity, with entrepreneurs and business owners having to rely on familial and communal links for services and supplies. Paranoia rules, as those in the underground economy suppose that all transactions take place along similar lines. And everyone is a potential victim of the drug gangs, operating like a “shadow government”, extorting money from their constituents for security.
So paradoxically, the underground economy is both help and hindrance. It represents authentic economic activity and wealth generation among some of society’s poorest, but at the same time, with every step it removes the participants from the legal economic sector and further ensures their marginalisation. The lack of police protection exemplifies this fact. Residents of Marquis Park cannot call on the police to protect them from crime or from business malpractice because they are outside of the law and many social norms themselves, but equally they cannot step inside the law and society without first pulling themselves from poverty and achieving some kind of personal financial stability, all of which has to be done through extra or non legal means, because they are the only markets within reach.
Hernando De Soto explored the very same situation in the Third World in his famous book, The Mystery of Capital. According to De Soto the legal and institutional frameworks which surround property in the West allow the mobilisation of capital, and without them the poor in the Third World are effectively outside the “bell jar” of western capitalist wealth creation. He notes that vast and vibrant markets exist in all these countries, but that due to the breakdown of the social contract, legal and actual practice rarely meet, meaning that the poor (and even the not-so-poor) are unable to properly exploit their assets in ways which we take for granted.
In these cases, poverty is a self-reinforcing process: the harder one struggles to extricate one’s life from it, the further one is plunged into its depths.
Jambo said,
July 21, 2007 at 8:25 pm
Word up Kwimf, how go those vibrations in the land of mank and stain? Good article man - i reckon you’d be interested in the work of Manuel Castells - The Information Age: Economy, Society and Culture. All three volumes contain interesting analysis but particularly relevant to your discussion on the cycles of poverty and the informal economy is vol 3: End of Millennium where he analyses the rise of what he calls the emergent ‘Fourth World’ - a world of social exclusion, cut-off from the process of informational capitalism. He is fundamentally interested in social change brought on by interaction between networks and identity.
Castells on ghettoisation:
“…there is a systemic relationship between the structural transformations I have analysed as characterisitic of the new, network society and the growing dereliction of the ghetto: the constitution of an informational/global economy, under the conditions of capitalist restructuring; the crisis of the nation-state, with one of its main manifestations in the crisis of the welfare state; the demise of the patriarchal family without being replaced by an alternative form of conviviality and socialization; the emergence of a global, yet decentralized criminal economy, penetrating society and institutions at all levels, and taking over certain territories from which to operate; and the process of political alienation, and communal retrenchment, among the large segments of the population that are poor and feel disenfranchised. Racial discrimination and spatial segregation are still major factors in the formation/reinforcement of ghettos as systems of social exclusion. But their effects take new meaning, and become increasingly devastating, under the conditions of informationalism….”
Castells analysis centres on the technological/informational revolution which has res-structured the capitalist system over the last 25/30 years. He argues that this has created a vibrant global economy by linking up valuable people and activities all over the world. However in the same process other people and territories have been bypassed/disconnected from the networks of information, wealth and power because they are seen as irrelevant by the dominant interests. In the ‘advanced’ capitalist societies informationalization has created new jobs in the high skilled sectors of the economy while globalization has seen the out-sourcing of low-skilled manufacturing jobs to newly industrializing countries. To attain employment in the skilled informational sectors generally requires high educational achievement and ‘verbal/relational’ skills less likely to be provided in inner-city comprehensives than elsewhere. At the same time traditional low-skilled manufacturing jobs which in the past provided reliable employment are increasinly re-located overseas. Whilst the service industries and the public sector do provide some alternatives, Castells cites studies conducted in America which suggest that low-educated black males are less likely to be employed in these sectors than other social groups (which he attributes in part to institutionalised racism and also to the unwillingness of black males to accept discriminatory conditions when compared to other immigrant/minority groups). Furthermore, the crisis of family life and the instability surrounding work and living arrangements in the black ghetto lead to an impoverishment of social networks that reduce the chances of finding employment through personal connections when contrasted with the experience of other immigrant/minority groups (particularly Mexican/Latino) where family ties/networks are much stronger. Thus the informal economy, and increasingly the criminal economy, become the dominant forms of economic interaction in these poor inner-city neighbourhoods/ghettos. While this analysis primarily centres on the experience of American ghettos, Castells argues that it is becoming increasingly relevant to European cities.
Castells: “The Fourth World comprises large areas of of the globe, such as much of Sub-Saharan Africa, and impoverished rural areas of Latin America and Asia. But it is also present in literally every country, and every city, in this new geography of social exclusion. It is formed on American inner-city ghettos, Spanish enclaves of mass youth unemployment, French banlieues warehousing North Africans, Japanese Yoseba quarters, and Asian [and Latin American] mega-cities’ shanty towns. And it is populated by millions of homeless, incarcerated, prostitued, criminalized, brutalized, stigmatized, sick and illiterate persons. They are the majority in some areas, the minority in others, and a tiny minority in a few privileged contexts. But, everywhere, they are growing in number, and increasing in visibility, as the selective triage of informational capitalism, and the political breakdown of the welfare state, intensify social exclusion. In the current historical context, the rise of the Fourth World is insperable from the rise of informational global capitalism.”
Pretty compelling stuff really…….
vimothy said,
July 23, 2007 at 3:13 pm
Great to hear from you Jambo,
An interesting post, but as you can probably guess, I’m not sure that I would describe that as compelling!
Firstly, Castells is hardly radical in noting the link between capitalism and exclusion from the capitalist system. That’s entirely circular, because by definition economic exclusion must be linked to economic production.
Secondly, his use of the generic rising world of poverty and inequality trope is too emotive to take seriously and is out of step with reality. The world is getting richer all the time, and rates of absolute poverty have fallen dramatically in the post war period.
Thirdly, I’m not sure how convinced I am by the “crisis of the state” arguments. I know they are ued heavily in 4GW, but I think that really reflects the consevative outlooks of those responsible for producing the theory (Lind, for e.g.). I am working on a post outlining my thoughts on where we are regarding the legitimacy of the nation state, drawing on the work of Daniel Drezner, that I hope to post soon. Basically, I think that rumours of the state’s death may be somewhat over-exagerated.
Fourthly, as Castells kind of notes, many of the problems he describes with regards to “ghetto-isation” are social problems, not economic ones.
Fifthly, the welfare state is itself a means of social exclusion, incentivising unemployment (among other things). Hence the link between welfare state crisis and economic marginalisation is not quite so straightforward as is made to seem.
Finally, any analysis that bemoans a lack of capitalisation whilst simultaneously blaming that lack of capitalisation on thet process of capitalisation is pretty dodgy, IMO. Castells should be able to recognise that the only reason that the globalised economy is doing so much better than the un-globalised extra-legal economy is that it is better, as a system. Castells is really, if he’s honest (& sensible), arguing for greater access to capitalism, but will get nowhere until he lets go of the idea that including more people will necessarily increase the size of his “fourth world”.
Castells looks like he shows too much leftist “ressentiment” for me.
Jambo said,
July 24, 2007 at 12:23 am
No surprise there mate….
Here’s my thoughts:
Firstly, I wonder whether/to what degree it is possible to seperate the realm of ‘economic’ relations from those of the ’social’ and the ‘political’. Taken as a whole they form the fabric of human interconnectivity. Since they are simultaneously shaping and being shaped by one and other, how pertinent would it be to discuss any process affecting ’society’ (such as Ghettoisation) without taking their complex interplay into account . As I’m sure you’d agree, any form of reductionism (be it economic / political / social / cultural) lays itself open to being challenged for presenting too simplistic/narrow an analysis. For this reason, IMO, Castells analysis should be applauded for its multi-disciplinary perspective (even if you don’t share his conclusions).
Certainly, Castells is no radical in his observation that processes of accumulation and dispossession are connected. You may argue that capitalist development is a positive sum game and levels of absolute poverty are falling globally. But even if this were true, because of the interplay between a host of factors, some people are obviously in a position to benefit from the growing wealth of the world far more than others relatively speaking. This is clearly demonstrated by the growth in inequality / polarisation of wealth (and connected to this the opportunities/capabilities which form the human side of poverty) both globally and intra-state. (See UNDP Human Development Report 2005)
Furthermore the suggestion that poverty in absolute terms has ‘fallen dramatically in the post-war period ‘, while true for much of the world, is misguided when sub-Saharan Africa in particular is taken into consideration.
UNDP (2005):
“After two decades of declining average income, Sub-Saharan Africa has posted an increase of 1.2% a year since 2000. It is too early to treat this recovery as a turning point, but there are encouraging signs that growth may be taking root in a growing number of countries in the region.”
While this is positive, the fact still remains that chronic insecurity, prebendalism/predatory rule by corrupt elites, environmental degredation and the AIDS epidemic, alongside the failed(?) structural adjustment programs which attempted to globalize African economies but without ‘informationalising its societies’ (Castells), all contribute to the regions continuing exclusion from the new global ‘informational’ economy. Castells points not only to sub-Saharan Africa’s exclusion from the information technology revolution but equally importantly its lack of the minimum infrastructure required in terms of reliable electricity supplies and telecommunciations networks which thereby deny the majority access to networks of information, wealth and power. For sure there are variations across the region and a wide disparity between urban and rural experience with some financial/informational centres exisiting in large cities. Still as Castells argues, “the disinformation of Africa at the dawn of the Information Age may be the most lasting wound inflicted on this continent by new patterns of dependeny [and] aggravated by the policies of the predatory state.”
His point in such analysis is not to attribute blame but to understand the factors which deny much of Africa (and to a lesser degree other parts of the world) access to the new structures of power. The way I see it, he is arguing that increased capitalisation in these regions is necessary but is seeking to highlight the obstacles which currently prevent/slow down its progress. As you argued poverty ‘is a self-reinforcing process’ and while ever the complex interactions between economic, political and social factors continue to ensure the divergence in wealth (both monetary and human) between localities across the globe (both inter and intra-state), breaking the cycle will become increasingly difficult.
Need to kip but lets talk about the state and its crisis/changing role in the globalising world soon. Laterz man.
vimothy said,
July 25, 2007 at 2:49 pm
Ok – in my original post, I compared two groups of people: the poor in Marquis Park and the poor in the developing in world and noted that they faced the same problem: a lack of capitalisation/accepted legal system. Maybe I over-egged it; they’re both caused by very different things, and occur in very different contexts.
On Castells:
Dislike the knee-jerk anti-capitalism (it’s def. there), which assumes that the global economic machine has intentionally built the ghettos to keep poor people in. Indeed, I dislike the underlying assumption that there is a the global economic machine to talk about in the first place. Maybe on my wilder, sci-fi days I think that capitalism is an intelligence, but generally I like to think that (free market) capitalism by definition is not normative, i.e. capitalism does not provide a, or even the, directing hand of guidance and so could not be “behind” the creation and maintenance of poverty in any sense that is meaningful. Capitalism facilitates, but it doesn’t dictate. Yet all the destabilising local factors affecting “ghetto-isation” that Castells points to feel like proximate causes obscuring the real culprit in this narrative: “capitalism”, or “infomational capitalism”, as Castells calls it.
Rather than inter-disciplinary, Castells’ work says Sociology to me, and that’s just not good. The Capitalist bogeyman looms.
His run down of the hurdles that face (let’s be honest here) black, poor Americans looking for work, is accurate enough. But the idea that the ghetto is a construct of capitalism is fallacious. As implied by the term “informal economy”, capitalism is underrepresented in the ghetto, and that is entirely the problem. In fact, and as noted, poverty is self-reinforcing. Yes, in the west, there are informal economies, but they are not necessary. They are not there because of structural flaws in globalised capitalism or in any way to sustain it.
For example, despite continuously rising standards of living, crime has increased. Real poverty no longer exists in the United States – at least not “real” poverty in any historically objective sense (black America is richer than Sweden, for instance) – yet, as we can observe, crime remains a huge problem and obviously a chief cause of the trend towards greater ghetto-isation. Wondering about the explanation for the continued collapse of the ghettos, in an article for City Journal, Myren Magnet notes that,
The legacy of slavery and racism isn’t the reason, economist Thomas Sowell has long argued. That legacy didn’t stop blacks from raising themselves up after Emancipation. By World War I, Sowell’s data show, northern blacks scored higher on armed-forces tests than southern whites. After World War II and the GI Bill, black education and income levels rose sharply. It was only in the mid-1960s that a century of black progress seemed to make a sudden U-turn, a reversal that long-past events didn’t cause. Beginning around 1964, the rates of black high school graduation, workforce participation, crime, illegitimacy, and drug use all turned sharply in the wrong direction. While many blacks continued to move forward, a sizable minority solidified into an underclass, defined by self-destructive behavior that all but guaranteed failure.
This is what I meant when I said that Castells mistakes this for an economic problem, when it is a social one. In the developing world, it is an economic issue, but in the west, we already have a framework and all the effective mechanisms for successful economic growth we need. There is not an economic policy imaginable (IMHO) that could reverse the trend of ghetto-isation, though there are social policy contributions to be made, and I think the contrasting experiences of black and Hispanic poor in the US demonstrate this. In the west, poverty is both a mindset and a social identity, and the result, not of capitalism’s inherent contradictions, but of bad choices made either by you or on your behalf, and perpetuated by pretty much the same.
So, global capitalism has created this “Fourth World”, yes, being the world which is outside global capitalism, but only the sense that everything creates a world beyond its edges simply by virtue of existing. The (slightly romantic) idea of a “Fourth World” (which strikes me as a vague-er, fuzz-ier, more inclusive version of neo-Marxist third world-ism), a new class of globalised poor including those from both the developed and developing world, united by their very lack of integration into the global economy, ignores the real differences between the two groups, and the divergent solutions required.
(I’ll cover Africa and the rest of the developing world in more detail next time).