WORKING INFORMALLY

By on September 28, 2012 in Global

College Degrees vs. the Street Smart

They stand on Los Angeles street corners waiting for pickups to take them to construction jobs. They stand in the middle of Mexican intersections breathing fire hoping for a tip. They sit under the Nairobi sun selling toilets and fixing tires.

They are workers in the world’s biggest employment sector – the underground economy. By some estimates, the informal economy contains half the world’s workers and has a gross global product over $10 trillion. Arguably the underground worker is more productive and entrepreneurial than the tax payers above ground. They must know what people want and deliver it at a good price or else they starve. It’s naked capitalism unfettered by red tape and corrupt governments that often stymie business through licensing and bribes.

Gray marketers often toil sunrise to sunset, seven days a week. There are no two-week paid vacations, no coffee breaks, men don’t stand around water coolers talking football. The underground shift doesn’t get a steady paycheck or health insurance and often grinds away in dangerous conditions – unventilated mines, heavy traffic, pesticide-laden fields. These are some of the most desperate entrepreneurs in the world, economic untouchables taping their creativity, savvy and strength to survive in a high tech world that prizes college degrees over street smarts. But there are many underground success stories where working out of an unsanctioned market stall can lead to the middle class.

Slumdog Economist

Today’s lingering global recession has increased unemployment in the official sector swelling the ranks of the subterranean set. Robert Neuwirth, author of “Stealth of Nations: The Global Rise of the Informal Economy,” estimates that two-thirds of the world’s workers will go underground by 2020. Neuwirth, dubbed “the slumdog economist” by the press, said its time to embrace the informal sector because of the opportunities it offers the poor.

It also offers opportunity for the rich to get richer. Unregulated markets in Africa and South America are so busy that goliaths Proctor & Gamble, Unilever, and Colgate hire middle-men to get their products into these markets, Neuwirth reports. Just drive down the main drag of any African city, and watch the droves of “retailers” weaving their way through the traffic, selling everything from razor blades to hard-boiled eggs (they’ll even peel it for you). The above and below ground economies increasingly intersect. Neuwirth’s book portrays underground successes including a woman in Sao Paulo who sells homemade cakes and coffee to the unlicensed vendors in the city’s biggest market. She owns a house, two cars and sends her kids to private schools. “If you work 100 percent legally, you cannot survive,” a Brazilian underground entrepreneur told Neuwirth.

First world countries have seen their underground economies swell as both legal and illegal immigrants become babysitters, dish washers, landscapers, and crop pickers. In America’s richest cities armies of entrepreneurs have found ways to put bread on the table by finding cracks in the system. In the wee hours of foggy San Francisco mornings a battalion of Asian women go through the city’s street side garbage pick-up. They hit the green bins that carry recyclables that they resell. On street corners in Manhattan, sellers of designer knockoffs abound with an eye out for the cops and the other for customers.

China’s rise as a manufacturer of cheap stuff has been a boon to underground marketers who can build an inventory for very little and make margin from sunglasses, t-shirts, and fake designer handbags. It’s easy to get a visa to visit China and many Africans travel there bringing back myriad factory items to resell on the streets of Lagos and Nairobi. These items include windshields, toilets, and cell phones.

Greek Way Drachmas Only

Greece may have invented democracy but it also embraced the underground economy for centuries. It has perfected it to the point of bankrupting the nation and nearly the European Union.

Somewhere between 40 and 50 percent of Greek’s only take cash for their labor. Nearly everybody from souvlaki street vendors to surgeons take cash. Surgeons have been known to hit on their patients as they lay on the operating table for a few extra euros. When a government doles out social benefits, but doesn’t take in taxes, it can only borrow more, hence Greece’s and Europe’s debt crisis soap opera.

Greeks owe over $45 billion in back taxes and good luck trying to collect. When tax inspectors came calling on a gas station owner on Santorini who only takes cash, he pulled out a bullwhip and started cracking it while cursing the tax men. On Naxos, when the tax inspectors arrived, local radio stations broadcast their license plates to warn residents who had time to stash their cash and avoid the dreaded g-men.

The Rise Of Jua Kali

When Tusker founder Eddie Frank and I were touring Zambia and Tanzania in 1995, I marveled at the various entrepreneurs we encountered. They ranged from the rag tag kids selling trinkets to the jewelry makers and produce sellers in the markets.  The most creative entrepreneurs we found were in a gas station in rural Tanzania.  Garage artisans took discarded drums of gasoline and motor oil cans and fashioned them into miniature trucks, planes and helicopters. All were sleek and polished and could safely go on any child’s dresser.

That kind of resourcefulness has made Africa a center for underground innovation. When street merchants in Lagos saw their clients needed cheaper and more flexible cell phone plans, they got on the phone to China and dual-SIM card phones were invented. In Lagos, a city with undrinkable municipal water, the underground market came up with Pure Water, a system of half liter baggies filled with water that has become a staple throughout Africa.

Jua Kali means “under the hot sun” in Swahili and is also the name of the collective workers movement in Kenya’s informal economy. Jua Kali represents nearly 75 percent of all employment in Kenya, according to government statistics and about 20 percent of GDP. “We’re all Jua Kali nowadays” is a common sentiment heard in Kenya today where there are over five million Jua Kalis.

Their numbers make them a force especially as they organize to form the Jua Kali Association, a collective of 600 registered different markets.  Recognizing the importance of the Jua Kali, the government started to reach out and encourage it in 1988 and has since created a $27 million loan program with its Jua Kali Development Program. Anytime the government gets involved strings are attached. If you get a government Jua Kali loan you must register with the National Taxpayers Association.   According to Dr. Bani Orwa, a Kenyan economist who has studied the rise of the Jua Kali movement, the system is working and growing despite its increasing formal nature.

The Fire Breather

Everybody encounters the underground economy daily in Mexico. Get in your car and the hawkers abound as you stop for a light selling newspapers, Chiclets, and lottery tickets. Go the beach and the heavily laden jewelry salesmen see sunbathers as a business opportunity. Pull into a Pemex station for a fill up and a young guy volunteers to wash your windshield and expects a propina (tip). Walk down the main tourist drag in any coastal city and the timeshare touts are on you like rabid Chihuahuas.

The mobile selling never stops and how could it when the average daily wage in Mexico City for a laborer is $4.30. It is estimated that a third of 100 million people are on the streets hustling. When you consider what they do and what Mexico’s drug cartels make, the shadow market far outpaces the tax paying work efforts of Mexico’s college educated and maquiladora workers.

Mexico has produced sophisticated off the books businessmen who see the government’s failures as opportunities. Mexico’s municipal water system ranks among the world’s worst, and Mexico leads the world in per capital bottled water consumption. Water sellers in Mexico City abound. While multinationals work the middle class and upscale neighborhoods selling in grocery stores, the underground market supplies working class neighborhoods selling water on street corners. They buy well water from outside the megalopolis then run it through carbon and sand filters adding a dash of silver ionization. The water is filled into five gallon jugs that are transported into the city on three wheeled cargo bicycles and sold on the street. A typical water seller can make a profit of $15 a day working seven days a week.

Perhaps the most astonishing underground business is the opposite of the water bottlers – the fire breathers. Metaphorically, they typify life on the edge of the economy. Young men stand in traffic belching fire then ask motorists for tips. Driving through Hermosillo in Northern Mexico I thought I was seeing a performance by Marcel Marceau. Dressed in a clown outfit with his face painted an opaque shade of white, I thought Marceau had morphed into a Mexican street urchin doing a day of the dead routine. He walked stridently to his soapbox threw back his head and expelled his fireball. It was startlingly creative and crazy and only now I realize how entrepreneurial it was. There are many Mexican fire breathers but he was Hermosillo’s most spectacular, a show stopping, veritable one man red light. Some drivers put a peso or two in his bucket and I couldn’t resist his death defying act tipping him a dollar. I marveled what people will do to survive in the underground because the world’s above-ground economy offers them only diminishing returns.

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