By Tampa Bay Times

Original Link: Tampa Bay Times, FL 2.5.12

February 5, 2012

Few places in the world can top Lagos, Nigeria as the setting for a study of black market economies. The sprawling, diesel-choked megacity is a hive of unregulated commercial activity — from food stalls where grit rains down from highway overpasses to hawkers snaking between cars trapped in miles-long "go-slows."

Like so many other parts of the developing world, people in Africa's most populous country just want to make a quick buck with as little interference from the government as possible. The notoriously corrupt Nigerian government is okay with this. Officials who survive on money skimmed from oil drilling royalties are as inclined to use their regulatory powers to punish political opponents as they are to defend citizens from fraud.

For an American investigative journalist like Robert Neuwirth, looking to understand the forces that drive unlicensed commerce across the world, the initial conclusion could easily have been that illicit commerce grows in direct proportion to bad government.

"I started this process as much more of a believer in government regulation," he said recently by phone from New York.

But as his research progressed, taking him to teeming bazaars around the globe, he became less interested in creating barriers that might snuff out the entrepreneurial spirit that drives innovation. "I'm in favor of more people into the market."

More people like David Obi.

Neuwirth met Obi in Nigeria in 2007, not long after he had completed a deal with a Chinese company to produce small diesel generators that would provide electricity in a country notorious for its spotty supply.

"David's deal ... was not massive," Neuwirth writes in his book Stealth of Nations, "but it made a solid profit and put him on a strong footing as a transnational merchant. Like almost all the transactions between Nigerian merchants and Chinese manufacturers, it was also sub rosa: under the radar, outside of the view or control of government, part of the unheralded economic universe of System D."

The term System D sounds a whole lot more benign than black market, and that's intentional. It comes from the French term debrouillard, which is bestowed on someone who has the self-reliance and ingenuity to succeed. In the former French colonies of West Africa where more or less everyone must live this way, the term morphed into a description of an entire economic system — l'economie debrouillardise, or Systeme D for short.

"Half the workers of the world" are part of System D, Neuwirth says, producing an estimated $10 trillion of goods and services worldwide. If System D were an independent nation, he says, it would be the second largest economy in the world.

Of course, most of those workers are spread throughout the developing world. They make computers in Paraguay that are smuggled into Brazil. They stamp buckles in India that end up on belts in shops in Europe.

But the growth of System D has implications for the United States economy as well. Black market transactions equal roughly 8 percent of the $14 trillion U.S. economy, or more than $1 trillion, Neuwirth says.

"That's everything from construction workers who job-up outside Home Depot to home health care workers, to people betting on the Super Bowl," he says. "Who's declaring that income? It's basically right in front of us."

Neuwirth's most challenging idea is that governments, including one as regulation-minded as America's, ought to reconsider this massive sector. Don't try and stamp it out, he argues, find ways to co-opt it. It's a notion that politicians who shout and posture over debt and deficits would do well to consider, but it flies in the face of how we have been conditioned to think about black market trade, that it is nefarious and morally wrong.

"Criminality is wrong and should be prosecuted," Neuwirth says. But what about the woman who wants to make soup at home to sell at a local Saturday morning market? In New York City, he says, it is impossible for a home kitchen to get a permit, thereby forcing otherwise legit businesses underground.

"How about a simple certification that gets someone like that out of System D" and on to the tax rolls? he asks. "We ought to salute that entrepreneurialism."

Ronald S. Fischer, executive director of the Pinellas County Construction Licensing Board, says, "There's probably more unlicensed activity now than I've ever seen." On top of the habitual offenders, a bad economy has drawn in people who just "need to make a living."

But making it easier for someone to moonlight as an electrician is not the answer, he says, not if it means putting consumers at risk.

Besides, says economist Sean Snaith at the University of Central Florida, "These people are off the books for a reason. It's evasion of law enforcement or taxes."

If you really want to bring untapped revenue out of the shadows of the black market, Snaith says, you need to focus on the very sector that Neuwirth is reluctant to engage.

"Look at the hundreds of billions we've spent on the war on drugs and you find we're no better off in terms of addicts than we were in the 1970s," he says. "We could oversee it, regulate it, tax it and use the revenue to help people who are addicted.

"Right now we're doing nothing but making billionaires out of drug lords."