Tuesday, March 27, 2012

"The Stealth of Nations": A Book Report

System D, the second largest economy in the world, is covered in the book "The Stealth of Nations: The Global Rise of the Informal Economy" by Robert Neuwirth. An excerpt of the book can be found in this article at Foreign Policy.

If you are wondering how Neuwirth can be a cheerleader for the black market, well, there's a lot to like in this book. Everyone appreciates the virtues of a constructive life, the struggles, the hustles, the triumphs, the setbacks, the inherent dignity of self-sufficiency (such as it can be for social creatures), and most importantly the ingenuity and clever workarounds that are displayed by the more-than-clever-by-half human animal. And there are stories aplenty in this book of people who have made good*, from Sao Paulo to Lagos, from Shanghai to Mumbai.

My chief complaint is not the extensive use of theft, piracy, smuggling, evasion, graft, bribery, corruption, and venality that is endemic throughout System D. This is, after all, business with a big B as usual on Planet Earth, "building a better world, one deal at a time".

Why, I'd be downright disappointed if the private sector types didn't lie, cheat, and steal. We are talking about Commerce after all, which has it's very foundational social contracts well embedded in the concepts of force and fraud.

No, my chief complaint with Mr. Neuwirth's cheerleading is that he presents this system as perhaps something new, perhaps the next big thing. System D is, in fact, old, terribly old, an old and tested system that I suspect goes back possibly 250,000 years, to the first behaviorally modern humans.

Neuwirth himself is not blind to this, but chooses to consistently gloss over the inconvenient parts.

Take, for example, his recognition that one of the pitfalls of the cash-based economy of System D is that it is cash based. There is a twofold problem here. The first being that cash is subject to exchange rates and their fluctuations. The economic underground is dependent upon national currencies. In short, the State and the Market are not conflict with each other, but wholly interdependent. Thus, cannot exist without nation states. The second problem being that, since everything is cash-based, no system of leveraged debt is available to expand a worthwhile enterprise. Unfortunately, the next step after the market, is, so far, capitalism, which, if System D will evolve into if it manages to go "legit". Which sucks, because we are just now finding out the full consequences of this particular item tucked in the Neolithic cultural package, just as we are only now fully understanding the full impact of the lever and fulcrum, the wheel, the pulley, the screw, and the inclined plane.

Furthering my complaint is the depiction of System D as an open source network. System D certainly opens market opportunities to those traditionally shut out, but it does not, by any stretch of the imagination, operate as science does, with (hopefully) unrestricted information dissemination or any form of egalitarian reward sharing. Merchants in System D rely on arbitrage as surely as your average hedge fund scumbag does. Information is jealously guarded, and scheming is an integral part of the game. And workers in System D still operate under a hierarchical labor structure where the lion's share of the profits go to the traders, and only a small slice ends up at the level of the industrious laborer. There are no discussion about wages in System D business meetings.

Nor does System D seem to be any better at capitalism in learning lessons. Take, for example, copyrights and piracy. And long and noble tradition of piracy and counterfeiting extends well past so-called civilized times to some 40,00 years ago when carved stone and ceramic fake seashells were traded. The problem with this version is the ironic complaint among System D merchants that other merchants can copy your pirated goods and undercut you profit. (Indeed, some companies in China, realizing that a race to the bottom results in increasingly razor-thin profits, have opted for the opposite route of creating quality brands). There is a supposed advantage to having a regulatory agency or institution assuring honest quality. True, for the past 10,000 years, the State has offered just such services to the market - quality assurance, arbitration, and universally equitable transactions, but not everyone shares a complete trust of the State (and who can blame them, with the undue influence of those lucky enough to control wealth?). Still, this certainly presents an entrepreneurial niche to System D merchants to provide for such an agency, but then again, you merely head towards the "modern" institutions of capitalism like Sotheby's and Standard Oil.

And speaking of the State, would some form of System D exist in regions of the world where governments actually worked? Take Nigeria, where there is no water system, little electricity, the roads paved first in front of the homes of the rich and well-connected, the government clearly cannot demonstrate its worthiness to the people. Is it any small wonder that taxes are not paid, if the State will not recognized its smallest responsibilities?

I could go, but let's face it, we in America are in no position to play holier than thou.

In summary I say more power to them, maybe they can forge a new better way, but I ain't seeing it.
I really cannot see the difference between the social and economic setup between System D and life in the developed capitalist world. If anything, when it comes to the most vile business practices, coupled with a legal system crafted for the top parasites, we show the inhabitants of System D to be mere pikers.

* "Ralph Makes Good" by Wally Cox. I could not find a worthwhile link to this short and wonderful book, written in 1965 and long out of print, but here's a great summary from Kirkus reviews:
"Ralph is a self-made man, new in town and so happily stupid that he must have come there straight from an eggshell. On the advice of his barber, Ralph began as a lawn mower, shrewdly shifting to leaf raker with the seasonal decline of grass. One glimpse of Sylvia and a vision of bigger things enthralled him. He ran against the mayor, '...a dependable criminal in the old tradition', and emerged as dogcatcher, a political position threatened by impeachment and lynching before Ralph makes good -- and Sylvia, the dime a dance girl. It is the lightest of featherweight satire on local government, among other things, and this form has a banty-sized audience today. The famous comedian author entry may help counteract some of the reader apathy as well as the delight Cox takes in converting the precise use of words into literary wit."

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