Sunday, January 17, 2010

Keep the Economy Underground

Editor's Note: The informal economy is relatively small in the US in relation to its formal economy as compared to less industrialized or "developed" counties. The informal economy is less organized/governed by formal contracts, law, licenses, tax, and use of national currency, and more by relationships, trust, reputation, nonprofit organizations, self-employment, bartering, gifting, and alternative currencies. A large informal network economy provides resiliency in meeting community needs as well as fostering relationships through frequent trading with neighbors. The organization of the formal economy provides some safety in terms of consumer protection and business laws, but generally works against abundant supply of services and goods as well as self-employment and very small business. Also, is it safer to trade with someone you know or to trade with a business that has received a stamp of approval from the system? Perhaps both kinds of economy are needed. For example, energy production is perhaps a good candidate for remaining primarily in the formal economy, as part of a commonly governed entity. However, we could make room for growth of local, organized informal economies to provide much of care-giving needs and some food production.

New York Times
Published: January 16, 2010

The underground economy in places like Haiti is often viewed as a criminal sector, made up of thugs and warlords, that sets back economic growth. But this is a one-sided portrait. Informal trading may be critical for Haiti’s recovery. Citizens in developing countries tend to find creative ways to make ends meet. The sharing of tools and workspaces, collective ownership of property, revolving credit associations and barter systems make up the backbone of the economy.

New customs emerge to settle disputes and enforce contracts. Anyone might be a banker one day (lending small sums of money to others) and a policeman the next (resolving a disagreement between two local traders). This exchange system also brings together diverse groups who learn to interact across religious, ethnic, tribal and other social divides.

During disasters, however, things can turn for the worse, and those with force can take over. Countries now aiding Haiti should ensure that organized crime doesn’t take control of local economies. But they must be careful not to drum out the positives of informal development.

Haitians could benefit from outsiders who help them rebuild the ad hoc relationships that have engendered trust and cooperation. Nongovernmental groups could aid the creation of cooperatives that can be brought into decisions about the distribution of food, medical care and housing in their neighborhoods. We can take a cue from the Grameen “microbank” in South Asia by identifying informal economic leaders with the legitimacy to mobilize others, spread information and coordinate rebuilding efforts.

Sudhir Venkatesh is a professor of sociology at Columbia and author of “Gang Leader for a Day.”

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