Josh Grasmick

It’s been around longer than any official, state sanctioned economy. Call it, if you like, the “original” economy. It is resilient. It is adaptive. And it will continue to exist and thrive regardless of whatever financial crisis slams the rest of the world in the future.

The French even have a word for the kinds of people who operate within it: débrouillards.

The word describes particularly effective and motivated people. To call someone such is to tell them how resourceful and ingenious he or she is. They are part of the “l’économie de la débrouillardise.” Or in the slang phrase used on the street, pirated from the French- speaking Africa and Caribbean… these people are a part of “Systeme D”.

“System D” is the economy of improvisation.

In fact, a number of chefs have appropriated the term to describe the skill and sheer joy necessary to improvise a gourmet meal using only the mismatched ingredients that happen to be at hand in a kitchen.

It’s embodied by a meticulously organized chaos.

You probably know it by another name…

The “informal economy” or… “the black market”.

Nobel Prize-winning economist Joseph Stiglitz points out that this sector of the economy was inhabited by nearly all mom-and-pop businesses in the United States until the spread of credit cards ensured that the majority of purchases were no longer cash transactions and thus had to be reported on the books.

Similarly, Robert Neuwirth had never heard of System D until he started visiting street markets and unlicensed bazaars around the globe. He was eventually enchanted.

In his book, Stealth of Nations, he articulates a startling fact:

“In 2009, the organization for Economic Co-operation and Development (OECD), a think tank sponsored by governments of thirty of the most powerful capitalist countries and dedicated to promoting free-market institutions, concluded that half the workers of the world — close to 1.8 billion people — were working in System D: off the books, in jobs that were neither registered nor regulated, getting paid in cash, and most often, avoiding income taxes.”

Not only is it largest sector of the economy, it’s also the fastest growing. He continues…

“In many developing countries — particularly in the developing world — System D is growing faster than any other part of the economy, and it is an increasing force in world trade. What’s more, after the financial crisis of 2008/2009, System D was revealed to be an important financial coping mechanism. A 2009 study by Deutsche Bank, the huge German commercial lender, suggested that people in the European countries with the largest portions of their economies that were unlicensed and unregulated — in other words, citizens of countries with the most robust System D — fared better in the economic meltdown of 2008 than folks living in centrally planned and tightly regulated nations. Studies of countries throughout Latin America have shown that desperate people turned to System D to survive the most recent financial crisis.”

Throughout the book, it will amaze you how desperate yet successful his aspiring real-life characters are.

Now I know what you have probably been thinking…

As you can imagine, System D maintains legitimate “employees” of merit and integrity, but these people often cross paths with legitimate criminals.

In the words of Neuwirth, “Finding a dividing line is not easy… it’s very difficult to separate the nice African ladies selling oranges on the street and juggling their babies on their backs from the Indian gangsters who control the fruit trade and who they have to pay rent to”.

The important question is: has it always been this way?

In most ways… yes. But there are differences, and the most important one is globalization.

In particular, the rise of globalization marks the rise in counterfeiting of goods.

China is in fact the counterfeit capital of the world, accounting for 8% of China’s GDP. And I don’t have to tell you who they’re selling their goods to…

In a detailed breakdown of the counterfeit goods industry, the total loss faced by countries around the world is $600 billion, with the United States facing the most economic impact.

While counterfeit money is the most popular product counterfeited, and is most aggressively attacked by governments, the federal crackdown on counterfeit imports has been harsh enough to actually drive an increase in domestic output of fake merchandise from the United States.

But the most nefarious of all these counterfeiting schemes is the fake pharmaceutical industry. The US is an especially attractive market in this area, because 40 percent of worldwide annual prescription drug sales were made in the United States in 2007… and between 2002 to 2010, drug imports to the US more than doubled, with 80 percent of drugs’ active ingredients imported, now accounting for 40 percent of finished medicines.

The new technologies that have enabled globalization act as a double-edged sword. Fortunately, there are countless ways to make money off of solving the world’s problems. And while counterfeiting has become a more sophisticated problem, there are brilliant minds advancing more sophisticated solutions.

The question remains: can we adopt the ingenuity and improvisation of a System D “professional”, and create solutions as quickly as we created problems?

Regards,

Josh Grasmick
for The Daily Reckoning

Josh Grasmick

Josh Grasmick is managing editor of Tomorrow in Review and associate editor of Technology Profits Confidential and Breakthrough Technology Alert. After graduating from Washington College with a degree in English, the self-described autodidact was interviewed by Time magazine for his novel entrepreneurship and worldwide eco-adventures. His experience with those in the fields of science, medicine and technology puts readers ahead of the curve and on top of the market.

  • Anmol Mishra

    Seriously Josh! “the Indian gangsters who control the fruit trade” Which fruit trade ? Which country ? And how did you end up with this brilliant insight ?

  • http://newjohn.wordpress.com/ New John

    Anmol, he was quoting Neuwirth.

  • enthusceptic

    “Legitimate criminals”, like” legitimate rape”? Please explain or get a grip!

  • enthusceptic

    Are you suggesting that a black/grey ecnomy actually works? The Italians and many others have had one forever. Governments become unable to meet their obligations when fhey don’t receive enough tax revenue.

  • enthusceptic

    I’m from Norway and live in Colombia. Prices here are ca 1/3 of those in Norway, but salaries are less than 1/10. 2/3 of Colombians are poor, and most don’t pay taxes. If salaries were higher the government could get more tax revenue and upgrade the infrastrucfture, which is badly needed. People could then also afford products from the developed world made here or in another low cost countries. That would also help the “poor” developed countries.

Recent Articles

5 Min. Forecast
How to Profit On the Back of an “Activist Investor”

Dave Gonigam

Since the invention of the "shareholder rights plan" (i.e. the "poison pill"), most companies are relatively immune to hostile takeovers. But according to Dave Gonigam that could all change thanks to one activist investor. And if you're savvy enough, you may just be able to follow his lead for big gains. Read on...


Extra!
Why Americans Shouldn’t Worry About Income Inequality

Jim Mosquera

As the markets have continued to rally over the last several years, more and more people have touted the problem of "income inequality" in the US. But as Jim Mosquera explains, this perceived problem will likely sort itself out with the arrival of one specific market event. Read on...


One ETF to Play Asymmetric Warfare

Addison Wiggin

Almost one year ago, substation telephone cables were maliciously cut in San Jose, CA. In 20 minutes, 17 transformers were knocked out. A year on, similar threats have cropped up. Today, Addison Wiggin explains why these threats are so serious for the safety of the global economy... and shows you one way to play it...


What Small-Caps are Saying About the Current “Bubble”

Greg Guenthner

The big problem with declaring bubbles is that it really does you no good. Unless you're attempting to measure and time market moves, you're also blowing hot air. But if you keep watch for negative divergences, you have a much better shot at figuring out big market moves than the latest bubble-busters. Greg Guenthner explains...


A Simple Strategy for Investing in the US Energy Boom

Byron King

Too often investments are made in a vacuum. But as Byron King demonstrates, the global economic crash... easy money... and technological advancements are all interdependent. In particular, that connection has changed the investment calculus in the resource market. Read on to learn how...


How Gold Will Respond to Declining Discovery

Henry Bonner

Oil isn't the only resource to experience "peaks." Due to a major contraction in gold exploration over the past few years, the mining sector is no longer mining gold at its replacement rate. In other words, the amount of gold above ground is running out. And according to Henry Bonner, it will get worse before it gets better...