Robert Neuwirth: The power of the informal economy

Summary

The video script explores 'System D', the informal economy, through the lens of Makoko, Lagos, Nigeria. It showcases how businesses thrive without traditional infrastructure, from mobile stores to artisan boat makers. Highlighting the global scale and potential of this economy, the speaker argues that embracing rather than suppressing it could lead to greater global development and equality. The talk challenges the perception of the informal sector and suggests it's a significant, yet often overlooked, driver of economic growth.

Takeaways

• 🏪 System D refers to the informal economy, which is often misunderstood as underground or black market but operates openly and aboveboard.
• 🛶 In communities like Makoko in Lagos, Nigeria, businesses like mobile stores and artisanal boat makers demonstrate a self-reliant and entrepreneurial spirit.
• 🐟 Global businesses, such as fish smoking in Lagos, rely on the informal economy, with products like fish being sourced from as far as the North Sea.
• 📈 The informal economy is massive, with 1.8 billion people working in it, making it a significant force in global employment and economic growth.
• 🌐 Big businesses have recognized the power of the informal economy, adapting their business models to sell products through street vendors and kiosks.
• 📱 Mobile companies like MTN have successfully penetrated markets by selling airtime through the informal economy rather than traditional plans.
• 🛍️ Products from multinational corporations are often sold in the informal economy, indicating its importance to global distribution networks.
• 👕 Piracy and counterfeit goods are widespread, serving as market research for some businesses and reflecting the demand for certain brands.
• 💼 The informal economy faces challenges, such as tax evasion, but so does the formal economy, with large corporations also engaging in questionable practices.
• 🌐 The potential of the informal economy is vast, with the hypothetical 'United Street Sellers Republic' being a major global economic player.
• 🤝 The informal economy can be seen as cooperative, highlighting the importance of recognizing and embracing its role in global development.

Q & A

What is the main subject of the video script?

The main subject of the video script is 'System D', which refers to the informal or self-reliant economy, and the various business practices and implications within this sector.

What is the significance of the photograph taken in Makoko, Lagos, Nigeria?

The photograph signifies a store in a shantytown built over a lagoon, where the store comes to the customer due to the lack of streets for traditional shopping, exemplifying the adaptability and ingenuity of System D.

What is business synergy as described in the script?

Business synergy in the script refers to the cooperation between businesses within the same community, such as the artisan who makes boats and paddles and sells directly to those who need them in the community.

How does the script describe the global business involving fish smoking in Makoko?

The script describes the fish smoking business as a global operation where fish is caught in the North Sea, frozen, shipped to Lagos, smoked, and sold for a small profit on the streets, demonstrating the reach of System D.

What is the role of Olusosun dump in the informal economy?

Olusosun dump is the largest garbage dump in Lagos where 2,000 people work, turning waste into a source of income, and showcasing the entrepreneurial spirit within the informal economy.

How does the script differentiate System D from the traditional informal economy?

The script differentiates System D by emphasizing that it is open and aboveboard, not underground, and that it is a self-reliant or DIY economy, rather than just an informal or black market.

What is the 'pickle economy' as mentioned in the script?

The 'pickle economy' is a metaphor used in the script to describe the current economic focus on the luxury economy, which excludes a large portion of the workforce and does not account for the vast potential of the informal economy.

How does the script suggest big businesses are recognizing the potential of System D?

The script suggests that big businesses, such as UAC foods and Procter & Gamble, have adapted their business models to cater to the informal economy, recognizing its size and potential for growth.

What is the significance of the mobile phone market in Nigeria as described in the script?

The mobile phone market in Nigeria is significant as it demonstrates how companies like MTN had to adapt their business strategies to fit the informal economy, selling airtime instead of expensive monthly plans, and achieving most of their profits through System D.

How does the script address the issue of intellectual property in the context of System D?

The script addresses intellectual property by highlighting the prevalence of pirated and counterfeit goods in the informal economy, but also suggesting that some companies may use piracy as a form of market research.

What are some of the principles that could be derived from a flea market economy as suggested by the script?

The script suggests principles such as cooperative development, recognizing the relativity of facts in different contexts, and the importance of alternate economies and currencies as key aspects of a flea market economy.

Outlines

00:00

🌐 System D: The Unseen Global Economy

The first paragraph introduces the concept of 'System D', which is a term borrowed from French-speaking countries to describe the informal or self-reliant economy. The speaker, Joseph Geni, uses examples from Lagos, Nigeria, to illustrate how this economy operates openly and is integral to the livelihoods of many. The examples include a mobile store in a lagoon, a fish smoking business sourcing from the North Sea, and a garbage dump-turned-business hub. The speaker argues that this informal economy is not underground but is often misjudged due to societal prejudices. He also points out that the informal economy is vast, potentially larger than many recognized economies and could be a significant driver for a more egalitarian world.

05:02

📦 Big Business and the Informal Economy

In the second paragraph, the speaker discusses how large corporations have adapted to and thrive within the informal economy. UAC foods, a company operating in Africa and the Middle East, sells its Gala sausage rolls exclusively through street vendors. Similarly, Procter & Gamble recognizes the value of 'high frequency stores' and earns a significant portion of its revenue from the informal market. The mobile company MTN also pivoted its business model in Nigeria to focus on selling airtime through street vendors, which turned out to be highly profitable. The paragraph also touches on the global nature of the informal economy, with products being distributed and sold in various creative ways, including the use of second-hand trade centers and pirated goods.

10:03

💼 The Tax Dilemma and Rethinking Economic Systems

The third paragraph addresses the issue of taxation within the informal economy, suggesting that the lack of tax contribution is not solely the fault of small-scale operators. The speaker points out that even large, respected companies, such as Siemens, have been involved in bribery and tax evasion. The paragraph challenges the traditional view of economic systems, proposing that if Adam Smith had considered a flea market economy, he might have emphasized cooperation, relativity of facts, and the importance of alternative currencies. The speaker concludes by advocating for a reevaluation of the informal economy as a powerful force for global development.

Keywords

💡System D

System D refers to the informal economy, which is traditionally called the underground or black market. In the video, it is described as an open and aboveboard economy that is self-reliant and DIY in nature. The concept is derived from the French term 'débrouillardise,' meaning self-reliance. The video emphasizes that System D is a significant part of the global economy, often overlooked but integral to understanding economic diversity and self-sufficiency.

💡Makoko

Makoko is a shantytown in Lagos, Nigeria, built over a lagoon without streets for traditional stores. The video uses Makoko as an example to illustrate the concept of System D, where stores come to people in the form of boats due to the unique geographical challenges. It shows how business synergy operates in such communities, with artisans making and selling boats and paddles directly to those who need them.

💡Business Synergy

Business synergy in the context of the video refers to the mutually beneficial relationships between different businesses within a community. The example given is of a lady who paddles a boat made by a local artisan in Makoko, demonstrating how local businesses support each other and contribute to the community's economy.

💡Ogandiro

Ogandiro is a person mentioned in the video who smokes fish in Makoko. The fish she uses comes from the North Sea, highlighting the global nature of the informal economy. The fish is caught, frozen, shipped to Lagos, smoked, and sold on the streets, showing how System D can involve international trade and contribute to local economies.

💡Olusosun Dump

Olusosun dump is the largest garbage dump in Lagos, where 2,000 people work, as mentioned in the video. It serves as a business incubator, providing opportunities for individuals like Andrew Saboru to rise from scavenging materials to becoming a scrap dealer, earning twice the Nigerian minimum wage. This example illustrates the potential for economic mobility within the informal economy.

💡Oshodi Market

The Oshodi Market in Lagos is depicted as a shopping mall in the video, drawing a parallel to Jorge Luis Borges' story 'The Aleph,' which is a point where everything exists. The market represents the diversity and abundance of goods and services available in the informal economy, emphasizing the complexity and richness of System D.

💡Pickles Economy

The pickles economy is a metaphor used in the video to describe the formal economy's focus on the luxury market, which excludes a large portion of the workforce. It suggests that the informal economy, like the cucumbers turned into relish, is often overlooked but plays a significant role in the overall economic landscape.

💡UAC Foods

UAC Foods is a global company mentioned in the video that produces the Gala sausage roll. Instead of selling through traditional stores, UAC Foods recognizes the power of street hawkers in Lagos and the informal economy, selling their product through this channel for 40 years. This example shows how big businesses can adapt and thrive within System D.

💡Procter & Gamble

Procter & Gamble is highlighted in the video as a company that generates 20 percent of its profits from the informal economy, or System D, through 'high frequency stores' and small kiosks. This demonstrates the importance of the informal economy to even large, established corporations and its potential for growth.

💡MTN

MTN is a South African multinational company active in the mobile phone market, as discussed in the video. Initially failing with a traditional business model, MTN adapted by selling airtime through umbrella stands on the streets of Lagos, capitalizing on the informal economy. This shift led to significant profits, illustrating the adaptability and opportunity within System D.

💡Guangzhou Dashatou

Guangzhou Dashatou is a second-hand trade center in China, mentioned in the video as a source of mobile phones for the informal economy in Lagos. Despite the center's name suggesting second-hand goods, many of the phones are pirated, carrying brand names but not manufactured by the brands. This example shows the global interconnectedness of the informal economy and the challenges of intellectual property within it.

Highlights

In Makoko, Lagos, Nigeria, stores come to customers due to the absence of traditional streets.

Business synergy in the same community involves artisans making and selling boats and paddles directly to those in need.

Ogandiro smokes fish in Makoko, sourcing fish from the North Sea, showcasing a global business connection.

Olusosun dump in Lagos is a business incubator where 2,000 people work, including Andrew Saboru's journey from scavenger to scrap dealer.

System D, or the informal economy, is a significant global business phenomenon, often misunderstood as underground.

System D is derived from the French term débrouillardise, signifying self-reliance and DIY economy.

Governments' disdain for DIY economy is evident in the transformation of markets, as seen in the before and after photos of the same market in 2007 and 2009.

The 'pickle economy' metaphor illustrates the focus on the luxury economy while overlooking the unregulated and informal economy.

1.8 billion people work in the unregulated and informal economy, which could be the world's second-largest economy.

Big businesses like UAC foods recognize the power of street hawkers for product distribution, avoiding traditional stores.

Procter & Gamble's 'high frequency stores' segment in the informal economy is their largest and only growing market segment.

MTN's mobile service in Nigeria thrived by selling airtime through informal street vendors instead of traditional plans.

The Guangzhou Dashatou second-hand trade center is a hub for pirated phones distributed globally, including to Lagos.

Piracy can serve as market research for companies, indicating the popularity and demand for their products.

The informal economy's tax evasion issue is a two-way street, with governments also engaging in opaque practices.

Siemens' history of bribery highlights that tax evasion and corruption are not exclusive to the informal economy.

Adam Smith's hypothetical flea market theory would emphasize cooperation, relative facts, and alternate currencies.

The informal economy is a powerful force for global development, deserving of recognition and consideration.

Transcripts

Translator: Joseph Geni Reviewer: Morton Bast

In System D, this

is a store,

and what I mean by that is that this is a photograph

I took in Makoko, shantytown in Lagos, Nigeria.

It's built over the lagoon, and there are no streets

where there can be stores to shop,

and so the store comes to you.

And in the same community,

this is business synergy.

This is the boat that that lady was paddling around in,

and this artisan makes the boat and the paddles

and sells directly

to the people who need the boat and the paddles.

And this is a global business.

Ogandiro smokes fish in Makoko in Lagos,

and I asked her, "Where does the fish come from?"

And I thought she'd say, "Oh, you know,

up the lagoon somewhere, or maybe across Africa,"

but you'll be happy to know she said

it came from here, it comes from the North Sea.

It's caught here, frozen, shipped down to Lagos,

smoked, and sold for a tiny increment of profit

on the streets of Lagos.

And this is a business incubator.

This is Olusosun dump, the largest garbage dump in Lagos,

and 2,000 people work here, and I found this out

from this fellow, Andrew Saboru.

Andrew spent 16 years scavenging materials on the dump,

earned enough money to turn himself into a contract scaler,

which meant he carried a scale and went around and

weighed all the materials that people had scavenged

from the dump. Now he's a scrap dealer.

That's his little depot behind him,

and he earns twice the Nigerian minimum wage.

This is a shopping mall.

This is Oshodi Market in Lagos.

Jorge Luis Borges had a story called "The Aleph,"

and the Aleph is a point in the world

where absolutely everything exists,

and for me, this image is a point in the world

where absolutely everything exists.

So, what am I talking about when I talk about System D?

It's traditionally called the informal economy,

the underground economy, the black market.

I don't conceive of it that way.

I think it's really important to understand that something like

this is totally open. It's right there for you to find.

All of this is happening openly, and aboveboard.

There's nothing underground about it.

It's our prejudgment that it's underground.

I've pirated the term System D from the former French colonies.

There's a word in French that is débrouillardise,

that means to be self-reliant,

and the former French colonies have turned that into

System D for the economy of self-reliance,

or the DIY economy.

But governments hate the DIY economy,

and that's why -- I took this picture in 2007,

and this is the same market in 2009 --

and I think, when the organizers of this conference

were talking about radical openness,

they didn't mean that the streets should be open

and the people should be gone.

I think what we have is a pickle problem.

I had a friend who worked at a pickle factory,

and the cucumbers would come flying down

this conveyer belt, and his job was to pick off the ones

that didn't look so good and throw them in the bin

labeled "relish" where they'd be crushed and mixed

with vinegar and used for other kinds of profit.

This is the pickle economy.

We're all focusing on — this is a statistic from

earlier this month in the Financial Times —

we're all focusing on the luxury economy.

It's worth 1.5 trillion dollars every year, and that's

a vast amount of money, right?

That's three times the Gross Domestic Product of Switzerland.

So it's vast. But it should come with an asterisk,

and the asterisk is that it excludes two thirds of the workers

of the world.

1.8 billion people around the world work

in the economy that is unregulated and informal.

That's a huge number, and what does that mean?

Well, it means if it were united in a single political system,

one country, call it

"The United Street Sellers Republic," the U.S.S.R.,

or "Bazaaristan,"

it would be worth 10 trillion dollars every year,

and that would make it the second largest economy

in the world, after the United States.

And given that projections are that the bulk

of economic growth over the next 15 years will come

from emerging economies in the developing world,

it could easily overtake the United States

and become the largest economy in the world.

So the implications of that are vast, because it means

that this is where employment is — 1.8 billion people —

and this is where we can create a more egalitarian world,

because people are actually able to earn money and live

and thrive, as Andrew Saboru did.

Big businesses have recognized this,

and what's fascinating about this slide,

it's not that the guys can carry boxes on their heads

and run around without dropping them off.

it's that the Gala sausage roll is a product that's made

by a global company called UAC foods

that's active throughout Africa and the Middle East,

but the Gala sausage roll is not sold in stores.

UAC foods has recognized that it won't sell if it's in stores.

It's only sold by a phalanx of street hawkers

who run around the streets of Lagos at bus stations

and in traffic jams and sell it as a snack,

and it's been sold that way for 40 years.

It's a business plan for a corporation.

And it's not just in Africa.

Here's Mr. Clean looking amorously at all the other

Procter & Gamble products,

and Procter & Gamble, you know,

the statistic always cited is that Wal-Mart

is their largest customer, and it's true, as one store,

Wal-Mart buys 15 percent, thus 15 percent

of Procter & Gamble's business is with Wal-Mart,

but their largest market segment is something that they call

"high frequency stores," which is all these tiny kiosks

and the lady in the canoe and all these other businesses

that exist in System D, the informal economy,

and Procter & Gamble makes 20 percent of its money

from that market segment,

and it's the only market segment that's growing.

So Procter & Gamble says, "We don't care whether a store

is incorporated or registered or anything like that.

We want our products in that store."

And then there's mobile phones.

This is an ad for MTN,

which is a South African multinational

active in about 25 countries,

and when they came into Nigeria —

Nigeria is the big dog in Africa.

One in seven Africans is a Nigerian,

and so everyone wants in to the mobile phone market

in Nigeria. And when MTN came in, they wanted

to sell the mobile service like I get in the United States

or like people get here in the U.K. or in Europe --

expensive monthly plans, you get a phone,

you pay overages,

you're killed with fees --

and their plan crashed and burned.

And they went back to the drawing board, and they retooled,

and they came up with another plan:

We don't sell you the phone,

we don't sell you the monthly plan.

We only sell you airtime.

And where's the airtime sold?

It's sold at umbrella stands all over the streets,

where people are unregistered, unlicensed,

but MTN makes most of its profits,

perhaps 90 percent of its profits,

from selling through System D, the informal economy.

And where do the phones come from?

Well, they come from here. This is in Guangzhou, China,

and if you go upstairs in this rather sleepy looking

electronics mall, you find the Guangzhou Dashatou

second-hand trade center,

and if you go in there, you follow the guys with the muscles

who are carrying the boxes, and where are they going?

They're going to Eddy in Lagos.

Now, most of the phones there are not second-hand at all.

The name is a misnomer.

Most of them are pirated. They have the name brand

on them, but they're not manufactured by the name brand.

Now, are there downsides to that?

Well, I guess. You know, China has no —

(Laughter) — no intellectual property, right?

Versace without the vowels.

Zhuomani instead of Armani.

S. Guuuci, and -- (Laughter) (Applause)

All around the world this is how products

are being distributed, so, for instance,

in one street market on Rua 25 de Março

in São Paulo, Brazil,

you can buy fake designer glasses.

You can buy cloned cologne.

You can buy pirated DVDs, of course.

You can buy New York Yankees caps

in all sorts of unauthorized patterns.

You can buy cuecas baratas, designer underwear

that isn't really manufactured by a designer,

and even pirated evangelical mixtapes. (Laughter)

Now, businesses tend to complain about this,

and their, they, I don't want to take away from their

entire validity of complaining about it,

but I did ask a major sneaker manufacturer earlier this year

what they thought about piracy,

and they told me, "Well, you can't quote me on this,

because if you quote me on this, I have to kill you,"

but they use piracy as market research.

The sneaker manufacturer told me that if

they find that Pumas are being pirated, or Adidas

are being pirated and their sneakers aren't being pirated,

they know they've done something wrong. (Laughter)

So it's very important to them to track piracy

exactly because of this, and the people who are buying,

the pirates, are not their customers anyway,

because their customers want the real deal.

Now, there's another problem.

This is a real street sign in Lagos, Nigeria.

All of System D really doesn't pay taxes, right?

And when I think about that, first of all I think that

government is a social contract between the people and

the government, and if the government isn't transparent,

then the people aren't going to be transparent either,

but also that we're blaming the little guy

who doesn't pay his taxes, and we're not recognizing

that everyone's fudging things all over the world,

including some extremely respected businesses,

and I'll give you one example.

There was one company that paid 4,000 bribes

in the first decade of this millennium, and

a million dollars in bribes every business day, right?

All over the world. And that company

was the big German electronics giant Siemens.

So this goes on in the formal economy

as well as the informal economy,

so it's wrong of us to blame — and I'm not singling out

Siemens, I'm saying everyone does it. Okay?

I just want to end by saying that if Adam Smith

had framed out a theory of the flea market

instead of the free market, what would be some

of the principles?

First, it would be to understand that it could be

considered a cooperative, and this is a thought

from the Brazilian legal scholar Roberto Mangabeira Unger.

Cooperative development is a way forward.

Secondly, from the [Austrian] anarchist philosopher Paul Feyerabend,

facts are relative, and what is a massive right

of self-reliance to a Nigerian businessperson

is considered unauthorized and horrible to other people,

and we have to recognize that there are differences

in how people define things and what their facts are.

And third is, and I'm taking this from

the great American beat poet Allen Ginsberg,

that alternate economies barter and

different kinds of currency, alternate currencies

are also very important, and he talked about

buying what he needed just with his good looks.

And so I just want to leave you there, and say that

this economy is a tremendous force for global development

and we need to think about it that way.

Thank you very much. (Applause)

(Applause)