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.
