Oct 15, 2011

The economy of resourcefulness - or System D

Marc Levinson writes
System D is full of surprises. From Linda Chen, who trades counterfeit auto parts, we learn that China has a hierarchy of fake merchandise: The manufacturers of high-quality fakes offer guarantees and take back defective products, but with low-quality fakes it's caveat emptor. Ogun Dairo buys woodchips from a sawmill and uses them to smoke fish, for sale by street vendors; her unlicensed grill is in an illegal squatter settlement in Lagos, but she buys fish that have been imported from Europe. At the euphemistically named Guangzhou Dashatou Second Hand Trade Center, where Arthur Okafor obtains the pirated mobile phones that he later smuggles into Nigeria, the cash turnover is so high that almost every (unlicensed) kiosk has a battery-powered currency counter.
In short, System D is highly integrated into the global economy. There are global supply chains that stretch from back streets in China to umbrella-stand merchants half a world away. Even giant corporations are getting in on the game. In Morocco, the consumer-goods giant Procter & Gamble has built an entire network of wholesalers and agents and subagents to sell diapers and soap through merchants in villages so remote that they have no retail stores.
Mr. Neuwirth rejects this distinction. In many places, he notes, formality and informality are not opposites: Yusuf Musa purchases a daily permit from the local government for the right to drive his illegal motorcycle taxi through the streets of Lagos's Festac Town. The computer stores serving Brazilian smugglers, which account for much of the economy in Ciudad del Este, Paraguay, thrive with official toleration. Mr. Neuwirth argues that System D fosters entrepreneurship while also meeting governments' needs to encourage employment; in some cases, a modest amount of tax revenue is also generated. Moving into the "formal" sector, he suggests, may not be a goal to which entrepreneurs in poor countries aspire.
There is no more sobering story in "Stealth of Nations" than that of Ugochukwu Eleazars. Mr. Eleazars imports windshields from China into Nigeria. He handles a single container at a time because he cannot obtain the credit required to import on a larger scale. It would be cheaper to manufacture the windshields in Nigeria, he says—if only Nigeria had reliable electricity. Here is where System D hits its limits. Windshields it can come up with, but the lack of credit and the lack of a dependable power grid are problems it cannot solve.
Fascinating! This is from the book Stealth of Nations: The Global Rise of the Informal Economy (for pre-order). Robert Neuwirth is the author, see his TED profile (very impressive!!!).  He is also author of the book Shadow Cities: A Billion Squatters, A New Urban World. See the video of his research on the informal economy of Lagos, Nigeria. 

It is fascinating that within informality there are semi-formal institutions, as if there were layers of formality nested with informality. For example [and I know this only from second hand], in Guatemala informal-illegal vendors of DVDs knock-offs of movies create their own brand, "Evolution," which is respected and enforced within informal-illegal vendors [a paper needs to be written about this]. 
Thanks to Surse Pierpoint for sharing this article.  

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