The Invisible Economy

by Jeff Riggenbach
Jan. 25, 2012

Robert Neuwirth is a journalist who is preoccupied with this question: What do people do when the state has made satisfaction of their wants, their natural desire to improve their lives, almost impossible?

Neuwirth would almost certainly not pose the question in quite these terms. On the one hand, he understands quite clearly that this is precisely what is going on — that it is the state that has put people in the position he describes so well. In his first book, Shadow Cities: A Billion Squatters, a New Urban World, published in 2005, he wrote about “people who came to the city, needed a place to live that they and their families could afford, and, not being able to find it on the private market, built it for themselves on land that wasn’t theirs.” In almost all cases the land in question belonged to the local state. Back in the 1980s, when squatters first arrived on the then-empty piece of hillside land in Rio de Janeiro now known as Rocinha, for example, they “assumed that building a stone or brick home would be so brazen that it might encourage the government to come out and demolish the homes.” So they built “rickety mud and wood houses,” where they “survived with no water, no electricity, no gas, no toilets, nothing.”

Things have changed there in the past couple of decades. “Today,” Neuwirth wrote in 2005,

there are thirty thousand homes in Rocinha.… Most are two, three, or four stories tall, made from reinforced concrete and brick. Many boast shiny tile facades or fantastic Moorish balustrades or spacious balconies, which look out over the endless waves crashing on the beach at São Conrado, far down the hill. Electricity and water have come to this illegal city, and with them a degree of consumerism. Most families have a refrigerator, a color television … and a stereo

Today,

these squatters mix more concrete than any developer. They lay more brick than any government. They have created a huge, hidden economy — an unofficial system of squatter landlords and squatter tenants, squatter merchants and squatter consumers, squatter builders and squatter laborers, squatter brokers and squatter investors, squatter teachers and squatter schoolkids, squatter beggars and squatter millionaires. Squatters are the largest builders of housing in the world — and they are creating the cities of tomorrow.

In these cities of tomorrow, everything is provided by that hidden economy. The state won’t provide water or electricity or gas, so illegal businesses provide them. The state won’t deliver mail, so illegal businesses deliver it. The state won’t provide mass transit, so illegal businesses provide it. The state won’t arbitrate or adjudicate disputes among illegal businesses and their customers. So illegal businesses do that, too. And in his new book, Stealth of Nations: The Global Rise of the Informal Economy, Neuwirth turns his attention to those illegal businesses and to the men and women who run them, people who “do business without licenses, without being registered or incorporated, and without paying taxes.”

This “informal economy,” he writes, “produces, cumulatively, a huge amount of wealth.… It is how much of the world survives, and how many people thrive.” And he has a name for it: System D.

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