Informal Economies

When I worked in U.S. Embassies in various third-world countries, the term “informal economy” was bandied about to describe a market sector that was not submitting to the taxation and regulation of the individual countries.  A term often used in tandem with “informal economy” is “ungoverned space” meaning the geographic area where the activity occurs.

Generally, the more oppressive the government, the larger the presence of the “informal economy.” Ironically, the usual stance of the U.S. (an allegedly free country) in such situations is to prompt the foreign government to capture and regulate the identified informal economy through heavy-handed police action. This informal economy is no secret to the foreign government. Even the foreign government officials make use of, almost entirely, the informal economy to make purchases for their own households.  Why pay full price, including tax and import fees, for the items you need?

Vigilant Supply Co. Qu... Buy New $22.95 (as of 09:27 EDT - Details) The hustle and bustle of the stalls in the sprawling outdoor and sometimes indoor black markets represent freedom bursting onto the scene. They allow the otherwise oppressed inhabitants of the country to survive. It doesn’t matter what you want, whether it be a new refrigerator or a pair of shoes, the informal market will provide it at a cheaper price. The ”formal”  merchants tied to a building at a fixed street address are identifiable by the government and will be targeted for closure if they don’t sell things with an official serial-numbered receipt, indicating that taxes have been paid.

Although farmers’ markets, swap meets, flea markets, thrift stores, yard sales, and garage sales have increased over recent years in the U.S., they haven’t reached the magnitude of the informal economy in third-world countries. They will get much bigger, when necessity requires it. People will choose to go “off the books” rather than die or subsist in abject poverty at the hands of an oppressive government.

It is incredible to see the ingenious circuitous routes through the Andes Mountains that manufactured goods from Asia traverse, going from the sea coast in Chile and across the Bolivian border in order to avoid confiscatory fees collected by border officials; and then to see that same merchandise traverse one landlocked country to the neighboring landlocked country of Paraguay only to rush across the Parana river at nightfall carried by hundreds of small motorboats going to unofficial landing spots in the “Tri-border Area” allowing Brazilian residents to avoid a hefty “Value Added Tax.”

The Ultimate Work From... Henderson, Michael Buy New $9.00 (as of 03:00 EDT - Details) When the big crash comes in the U.S. (maybe it is arriving now), the black markets—the informal economy—will arrive very noticeably. There is very little industrial productivity in this country and, in the winter, the U.S. relies heavily on produce imports from foreign countries that have year-round growing seasons. If strict price controls and import controls are imposed or if there is a flight to an “unofficial” form of money due to hyperinflation, the markets will pop up quickly in an attempt to meet demand at market prices. Americans will quickly swap survival for any imagined distaste they thought they would have for a hodge-podge market place where many vendors and shoppers give each other the assurance of anonymity as they blend together in a friendly mass. Since the merchants are outside the formal regulated economy, they can choose to ignore legal tender laws or any other regulation if it is advantageous to do so and make their transactions or trades in any medium they want.

Identifiable store names and logos will likely be absent with vendors, but you will remember the lady that gave you a good deal on a pair of shoes or the man that sells good cheese and dairy products.  When the informal economy asserts itself in a big enough way, the regulators will try to play catch-up and try to enshrine whatever new conditions develop into official policy before the dog scratches the flea off its back.

Informal markets are not the creations of know-nothing “substandard” foreigners. They are essential facts of life in regions where governments have shut down the ability to thrive and conduct business out in the open.  “Out in the open” would be better, where branding and associated reputation can be tracked more readily by consumers, but in hard times, getting the things you need becomes the paramount concern. See you at the swap meet.

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