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The rise of the informal economy

Jeremy Hobson Dec 6, 2011

Jeremy Hobson: Well we got news this morning that economic growth across the eurozone was just 0.2 percent last quarter. Now, when we get figures like that, we’re mostly getting a sense of what’s going on in the formal, above-board economy — the one in which people pay taxes, and follow labor laws.

But journalist Robert Neuwirth says there’s a lot more to it than that. He’s just written a book called “Stealth of Nations: The Global Rise of the Informal Economy,” and he joins us now. Good morning.

Robert Neuwirth: Good morning.

Hobson: So first of all, describe the informal economy. What do you mean by that?

Neuwirth: Well it’s all the businesses that fly under the radar of government attention or government control. Businesses that may not get registered, may not get licensed and may not be paying taxes, but are doing business in legal product — just in a quasi-legal way.

Hobson: And you say that half of the workers in the world are working in jobs that are off the books right now?

Neuwirth: Absolutely — it’s 1.8 billion people, and that will rise to two-thirds of the workers in the world by the end of this decade.

Hobson: Why are so many people operating in this informal economy?

Neuwirth: Well, the formal economy is not working for people. It’s very simple; it’s a combination of too many rules and regulations that cost too much for people and people just trying to survive in the difficult economy.

Hobson: So you think that we should embrace this informal economy?

Neuwirth: Absolutely. I think it’s imperative that we embrace it. Totally in the world, about $10 trillion worth of trade is happening in this way, and it’s impossible to squash out, so we need to work with it.

Hobson: But isn’t embracing the informal economy sort of like embracing illegal immigration? It may be easier but it legitimatizes broad swaths of the economy and reduces incentives to follow the rules.

Neuwirth: I don’t think that’s true. I mean, we’re not talking about drug dealers or human traffickers or arms merchants in this. We’re talking about folks who are selling toys and DVDs and shoes. So I don’t think we’re talking about embracing criminality; I think we’re talking about finding an alternate way for people to develop the economy that reaches further into the population so that more people are doing well.

Hobson: Maybe it reaches further into the population, but it also probably doesn’t have labor laws, ways to settle business disputes in court or anything like that.

Neuwirth: Look, I think that’s a canard. Labor laws are not very well developed in most of the world, although they are here. And as far as business disputes, informal marketplaces around the world are creating their own courts to be able to adjudicate and solve disputes between buyers and sellers. So it’s not unsystematic, it’s just happening beneath the radar.

Hobson: Robert Neuwirth’s new book is called “Stealth of Nations: The Global Rise of the Informal Economy.” Thanks so much for joining us.

Neuwirth: Thank you, Jeremy.

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