System D: An Economy that Actually Works
By Josh Grasmick | January 10, 2013 1:32 PM EST
It's been around longer than any official, state sanctioned economy. Call it, if you like, the 'original' economy. It is resilient. It is adaptive. And it will continue to exist and thrive regardless of whatever financial crisis slams the rest of the world in the future.
The French even have a word for the kinds of people who operate within it:débrouillards.
The word describes particularly effective and motivated people. To call someone such is to tell them how resourceful and ingenious he or she is. They are part of the 'l'économie de la débrouillardise.' Or in the slang phrase used on the street, pirated from the French- speaking Africa and Caribbean... these people are a part of 'Systeme D'.
'System D' is the economy of improvisation.
In fact, a number of chefs have appropriated the term to describe the skill and sheer joy necessary to improvise a gourmet meal using only the mismatched ingredients that happen to be at hand in a kitchen.
It's embodied by a meticulously organized chaos.
You probably know it by another name...
The 'informal economy' or...'the black market'.
Nobel Prize-winning economist Joseph Stiglitz points out that this sector of the economy was inhabited by nearly all mom-and-pop businesses in the United States until the spread of credit cards ensured that the majority of purchases were no longer cash transactions and thus had to be reported on the books.
Similarly, Robert Neuwirth had never heard of System D until he started visiting street markets and unlicensed bazaars around the globe. He was eventually enchanted.
In his book, Stealth of Nations, he articulates a startling fact:
'In 2009, the organization for Economic Co-operation and Development (OECD), a think tank sponsored by governments of thirty of the most powerful capitalist countries and dedicated to promoting free-market institutions, concluded that half the workers of the world - close to 1.8 billion people - were working in System D: off the books, in jobs that were neither registered nor regulated, getting paid in cash, and most often, avoiding income taxes.'
Not only is it largest sector of the economy, it's also the fastest growing. He continues...
'In many developing countries - particularly in the developing world - System D is growing faster than any other part of the economy, and it is an increasing force in world trade. What's more, after the financial crisis of 2008/2009, System D was revealed to be an important financial coping mechanism. A 2009 study by Deutsche Bank, the huge German commercial lender, suggested that people in the European countries with the largest portions of their economies that were unlicensed and unregulated - in other words, citizens of countries with the most robust System D - fared better in the economic meltdown of 2008 than folks living in centrally planned and tightly regulated nations. Studies of countries throughout Latin America have shown that desperate people turned to System D to survive the most recent financial crisis.'
Now I know what you have probably been thinking...
As you can imagine, System D maintains legitimate 'employees' of merit and integrity, but these people often cross paths with legitimate criminals.
In the words of Neuwirth, 'Finding a dividing line is not easy... it's very difficult to separate the nice African ladies selling oranges on the street and juggling their babies on their backs from the Indian gangsters who control the fruit trade and who they have to pay rent to'.
The important question is: has it always been this way?
In most ways... yes. But there are differences, and the most important one is globalization.
In particular, the rise of globalization marks the rise in counterfeiting of goods.
In a detailed breakdown of the counterfeit goods industry, the total loss faced by countries around the world is $600 billion, with the United States facing the most economic impact.
While counterfeit money is the most popular product counterfeited, and is most aggressively attacked by governments, the federal crackdown on counterfeit imports has been harsh enough to actually drive an increase in domestic output of fake merchandise from the United States.
But the most nefarious of all these counterfeiting schemes is the fake pharmaceutical industry. The US is an especially attractive market in this area, because 40 percent of worldwide annual prescription drug sales were made in the United States in 2007... and between 2002 to 2010, drug imports to the US more than doubled, with 80 percent of drugs' active ingredients imported, now accounting for 40 percent of finished medicines.
The new technologies that have enabled globalization act as a double-edged sword. Fortunately, there are countless ways to make money off of solving the world's problems. And while counterfeiting has become a more sophisticated problem, there are brilliant minds advancing more sophisticated solutions.
The question remains: can we adopt the ingenuity and improvisation of a System D 'professional', and create solutions as quickly as we created problems?
for The Daily Reckoning Australia
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