Stealth of Nations: The Global Rise of the Informal Economy by Robert Neuwirth

 


Don't say "informal economy" like it's a dirty word.  

The book in one sentence: A "first look" travelogue-textbook with real-world examples of the importance of the informal economy in so many people's lives. 

I first mentioned this in one of my Friday 56's, a book which I decided to read. I discovered Stealth of Nations by Robert Neuwirth because I watched a video by journalist Christiane Amanpour's video (check it down below at the end of this post).

The premise of the book sounded very intriguing to me, hailing from a developing economy myself (no,  I don't think we say Third World anymore).


Serious synopsis: 

• Thousands of Africans head to China each year to buy cell phones, auto parts, and other products that they will import to their home countries through a clandestine global back channel. 
• Hundreds of Paraguayan merchants smuggle computers, electronics, and clothing across the border to Brazil. 
• Scores of laid-off San Franciscans, working without any licenses, use Twitter to sell home-cooked foods.  
• Dozens of major multinationals sell products through unregistered kiosks and street vendors around the world.

When we think of the informal economy, we tend to think of crime: prostitution, gun running, drug trafficking. Stealth of Nations opens up this underground realm, showing how the worldwide informal economy deals mostly in legal products and is, in fact, a ten-trillion-dollar industry, making it the second-largest economy in the world, after that of the United States.

Having penetrated this closed world and persuaded its inhabitants to open up to him, Robert Neuwirth makes clear that this informal method of transaction dates back as far as humans have existed and traded, that it provides essential services and crucial employment that fill the gaps in formal systems, and that this unregulated market works smoothly and effectively, with its own codes and unwritten rules.

Combining a vivid travelogue with a firm grasp on global economic strategy--along with a healthy dose of irreverence and skepticism toward conventional perceptions--Neuwirth gives us an eye-opening account of a world that is always operating around us, hidden in plain sight. (From the book jacket.)

My thoughts

The title is an extremely witty take on Adam Smith's Wealth of Nations the commonly accepted Economics 101 textbook espousing free market economies. Each chapter opens with an excerpt from Wealth of Nations and is expounded on in throughout the chapter (with rather amusing titles, like "The Global Rummage Sale," "The Culture of the Copy" or "The Honest Con Men").

A few intriguing tidbits that I thoroughly enjoyed, and which got me thinking. And the book is loaded with these:   

The resurgence of an interest in Shakespeare in the 1700s ... because copies of his plays were pirated and sold for a penny a piece.  

"A century after the playwright's death, piracy helped make William Shakespeare a household name, helped promote literacy across the social classes (because even poor people consider coughing up a penny a play) and helped install Shakespeare's writing as the pinnacle of English usage."
- p. 103-104,  Stealth of Nations

Retail giant Proctor and Gamble has adapted their marketing strategy to cater to System D in developing countries, which makes up over 20% of their market base.

"Yes, our biggest customer is Walmart [...] But in reality our largest customer is what we refer to as HFS--high-frequency stores." Indeed more than 20% of the company's business now comes from these tiny, less-than-three-cash-register stores in the developing world. "It is our fastest-growing customer and, in terms of volume, it's our number one customer" [...]
- p. 132, Stealth of Nations

***

After having viewed Christiane Amanpour's interview with the author (see end of post), I knew I had to read this. Coming to a "developed" country like Canada, "informal economy" carries with it a stigma: "When we think of the informal economy, we tend to think of crime: prostitution, gun running, drug trafficking." This is why I feel this book is so important, if but to correct this misconception. While Neuwirth describes the informal economy as an "underground realm," he is clearly coming from a "developed country" perspective.

The stories told here are not uncommon to me. While Neuwirth's encounters hailed from South America, Africa, and China, these could as easily have been transplanted to my homeland, the Philippines. Or anywhere else in Asia for that matter.

Back home, I used to interact with this economy on a daily basis. There's the women who sell clothing at the office during downtime. There's the old lady who comes by during snacktime with her bilao of merienda like pansit, kakanin and other local fare (basically a basket of snacks like home-cooked noodles and coconut-rice cakes etc.). If I want a snack or I've run out of cell phone minutes, I ran over to the guy over at the corner of the street selling balut and phone cards and a hodgepodge under his umbrella. I have been to malls with full floors of branded electronics selling both legit and very good knock offs (your choice), bootleg copies of newly released DVDs, and designer-branded counterfeit bags and clothing.     

This is the informal economy. I grew up with it and I never questioned it. It is systemic, it is commonplace. It met people's needs. Receipts? Don't ask. But if the DVD doesn't work, you can definitely come back and return it. But I am rambling ...

***

The book tackles the rather controversial subject of the “informal economy," an economy untaxed, largely undocumented, and in the strictest definitions of the global economy - illegal. But it not only exists, it is proliferating. And it not only happening in developing nations, but also in so-called developed countries. Going by many other names - including the gray market, the underground economy, the shadow economy - Neuwirth rebrands it lovingly throughout the book as System D, shortened from l'economie de la debrouillardise which is slang from French-speaking Africa which roughly means ingenuity or DIY economy.

And ingenious it is. Neuwirth presents very compelling evidence of the existence of System D, told through his own meetings with the many resourceful and hardworking entrepreneurs who has come to depend upon the system for their survival. Neuwirth comes across as an investigative journalist with a heart, taking the time to live among them and they in turn have made him privy to details of their lives, many of which would be quite damning - including bribing and smuggling out as a matter of course. The book is as much about as these people's lives as it is of Neuwirth's insights.

While I enjoyed the travelogue style which takes up much of this book, it turns partially academic towards the middle. Some out-of-the-box thinking by big multinational in order to gain a slice of the burgeoning market that is System D. It looks at the history and the opposing economic thoughts towards System D (see chapter "Against Efficiency"). It examines the rather loaded question "Why Not Formalize the Informal?" It provides some great material worthy of debate, and some thought-provoking fodder.

All this material in this rather slim book of less then 300 pages. This will put you on a merry little path if you want to delve into the topic further. You can check out pages upon pages of references at the back of the book. Or check out Neuwirth's Stealth of Nations blog.

Extremely readable and engaging, this book reminds me how authors like Stephen Hawking, Malcolm Gladwell and Steven Dubner and Steven Levitt have successfully laymanized academic topics. That being said, don't expect the book to answer all your questions but rather to just get you started asking the questions. It's an eye-opener, not a full-blown economics course.  

***

First line:  These are the products of some people's lives.

Verdict: An engaging, thought-provoking insider look at the informal economy, this book will get you wondering, observing, and asking questions you never thought to ask.