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TEDGlobal 2012

Robert Neuwirth: The power of the informal economy

June 28, 2012

Robert Neuwirth spent four years among the chaotic stalls of street markets, talking to pushcart hawkers and gray marketers, to study the remarkable "System D," the world's unlicensed economic network. Responsible for some 1.8 billion jobs, it's an economy of underappreciated power and scope.

Robert Neuwirth - Author
To research his new book, "Stealth of Nations," Robert Neuwirth spent four years among street vendors, smugglers and “informal” import/export firms. Full bio

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Double-click the English subtitles below to play the video.
In System D, this
00:16
is a store,
00:18
and what I mean by that is that this is a photograph
00:20
I took in Makoko, shantytown in Lagos, Nigeria.
00:22
It's built over the lagoon, and there are no streets
00:27
where there can be stores to shop,
00:30
and so the store comes to you.
00:32
And in the same community,
00:34
this is business synergy.
00:35
This is the boat that that lady was paddling around in,
00:37
and this artisan makes the boat and the paddles
00:41
and sells directly
00:44
to the people who need the boat and the paddles.
00:45
And this is a global business.
00:47
Ogandiro smokes fish in Makoko in Lagos,
00:50
and I asked her, "Where does the fish come from?"
00:54
And I thought she'd say, "Oh, you know,
00:57
up the lagoon somewhere, or maybe across Africa,"
00:59
but you'll be happy to know she said
01:02
it came from here, it comes from the North Sea.
01:04
It's caught here, frozen, shipped down to Lagos,
01:06
smoked, and sold for a tiny increment of profit
01:08
on the streets of Lagos.
01:11
And this is a business incubator.
01:13
This is Olusosun dump, the largest garbage dump in Lagos,
01:15
and 2,000 people work here, and I found this out
01:18
from this fellow, Andrew Saboru.
01:21
Andrew spent 16 years scavenging materials on the dump,
01:24
earned enough money to turn himself into a contract scaler,
01:28
which meant he carried a scale and went around and
01:31
weighed all the materials that people had scavenged
01:34
from the dump. Now he's a scrap dealer.
01:36
That's his little depot behind him,
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and he earns twice the Nigerian minimum wage.
01:41
This is a shopping mall.
01:46
This is Oshodi Market in Lagos.
01:48
Jorge Luis Borges had a story called "The Aleph,"
01:50
and the Aleph is a point in the world
01:53
where absolutely everything exists,
01:55
and for me, this image is a point in the world
01:57
where absolutely everything exists.
01:59
So, what am I talking about when I talk about System D?
02:02
It's traditionally called the informal economy,
02:04
the underground economy, the black market.
02:07
I don't conceive of it that way.
02:10
I think it's really important to understand that something like
02:13
this is totally open. It's right there for you to find.
02:15
All of this is happening openly, and aboveboard.
02:20
There's nothing underground about it.
02:23
It's our prejudgment that it's underground.
02:25
I've pirated the term System D from the former French colonies.
02:29
There's a word in French that is débrouillardise,
02:33
that means to be self-reliant,
02:36
and the former French colonies have turned that into
02:38
System D for the economy of self-reliance,
02:42
or the DIY economy.
02:44
But governments hate the DIY economy,
02:47
and that's why -- I took this picture in 2007,
02:51
and this is the same market in 2009 --
02:54
and I think, when the organizers of this conference
02:58
were talking about radical openness,
03:01
they didn't mean that the streets should be open
03:02
and the people should be gone.
03:05
I think what we have is a pickle problem.
03:06
I had a friend who worked at a pickle factory,
03:10
and the cucumbers would come flying down
03:13
this conveyer belt, and his job was to pick off the ones
03:15
that didn't look so good and throw them in the bin
03:19
labeled "relish" where they'd be crushed and mixed
03:22
with vinegar and used for other kinds of profit.
03:23
This is the pickle economy.
03:27
We're all focusing on — this is a statistic from
03:29
earlier this month in the Financial Times —
03:32
we're all focusing on the luxury economy.
03:34
It's worth 1.5 trillion dollars every year, and that's
03:38
a vast amount of money, right?
03:40
That's three times the Gross Domestic Product of Switzerland.
03:42
So it's vast. But it should come with an asterisk,
03:45
and the asterisk is that it excludes two thirds of the workers
03:50
of the world.
03:54
1.8 billion people around the world work
03:55
in the economy that is unregulated and informal.
03:59
That's a huge number, and what does that mean?
04:04
Well, it means if it were united in a single political system,
04:08
one country, call it
04:12
"The United Street Sellers Republic," the U.S.S.R.,
04:17
or "Bazaaristan,"
04:20
it would be worth 10 trillion dollars every year,
04:22
and that would make it the second largest economy
04:26
in the world, after the United States.
04:28
And given that projections are that the bulk
04:30
of economic growth over the next 15 years will come
04:33
from emerging economies in the developing world,
04:37
it could easily overtake the United States
04:40
and become the largest economy in the world.
04:42
So the implications of that are vast, because it means
04:46
that this is where employment is — 1.8 billion people —
04:49
and this is where we can create a more egalitarian world,
04:53
because people are actually able to earn money and live
04:57
and thrive, as Andrew Saboru did.
05:01
Big businesses have recognized this,
05:04
and what's fascinating about this slide,
05:07
it's not that the guys can carry boxes on their heads
05:09
and run around without dropping them off.
05:11
it's that the Gala sausage roll is a product that's made
05:13
by a global company called UAC foods
05:16
that's active throughout Africa and the Middle East,
05:19
but the Gala sausage roll is not sold in stores.
05:22
UAC foods has recognized that it won't sell if it's in stores.
05:25
It's only sold by a phalanx of street hawkers
05:29
who run around the streets of Lagos at bus stations
05:33
and in traffic jams and sell it as a snack,
05:36
and it's been sold that way for 40 years.
05:40
It's a business plan for a corporation.
05:43
And it's not just in Africa.
05:45
Here's Mr. Clean looking amorously at all the other
05:48
Procter & Gamble products,
05:51
and Procter & Gamble, you know,
05:53
the statistic always cited is that Wal-Mart
05:55
is their largest customer, and it's true, as one store,
05:58
Wal-Mart buys 15 percent, thus 15 percent
06:03
of Procter & Gamble's business is with Wal-Mart,
06:06
but their largest market segment is something that they call
06:09
"high frequency stores," which is all these tiny kiosks
06:13
and the lady in the canoe and all these other businesses
06:15
that exist in System D, the informal economy,
06:19
and Procter & Gamble makes 20 percent of its money
06:24
from that market segment,
06:28
and it's the only market segment that's growing.
06:30
So Procter & Gamble says, "We don't care whether a store
06:33
is incorporated or registered or anything like that.
06:36
We want our products in that store."
06:39
And then there's mobile phones.
06:43
This is an ad for MTN,
06:45
which is a South African multinational
06:47
active in about 25 countries,
06:49
and when they came into Nigeria —
06:52
Nigeria is the big dog in Africa.
06:54
One in seven Africans is a Nigerian,
06:56
and so everyone wants in to the mobile phone market
06:58
in Nigeria. And when MTN came in, they wanted
07:01
to sell the mobile service like I get in the United States
07:03
or like people get here in the U.K. or in Europe --
07:06
expensive monthly plans, you get a phone,
07:10
you pay overages,
07:13
you're killed with fees --
07:15
and their plan crashed and burned.
07:18
And they went back to the drawing board, and they retooled,
07:19
and they came up with another plan:
07:21
We don't sell you the phone,
07:23
we don't sell you the monthly plan.
07:25
We only sell you airtime.
07:27
And where's the airtime sold?
07:30
It's sold at umbrella stands all over the streets,
07:32
where people are unregistered, unlicensed,
07:36
but MTN makes most of its profits,
07:40
perhaps 90 percent of its profits,
07:42
from selling through System D, the informal economy.
07:45
And where do the phones come from?
07:50
Well, they come from here. This is in Guangzhou, China,
07:52
and if you go upstairs in this rather sleepy looking
07:55
electronics mall, you find the Guangzhou Dashatou
07:58
second-hand trade center,
08:03
and if you go in there, you follow the guys with the muscles
08:05
who are carrying the boxes, and where are they going?
08:09
They're going to Eddy in Lagos.
08:11
Now, most of the phones there are not second-hand at all.
08:14
The name is a misnomer.
08:17
Most of them are pirated. They have the name brand
08:18
on them, but they're not manufactured by the name brand.
08:21
Now, are there downsides to that?
08:24
Well, I guess. You know, China has no —
08:27
(Laughter) — no intellectual property, right?
08:30
Versace without the vowels.
08:33
Zhuomani instead of Armani.
08:35
S. Guuuci, and -- (Laughter) (Applause)
08:37
All around the world this is how products
08:42
are being distributed, so, for instance,
08:45
in one street market on Rua 25 de Março
08:48
in São Paulo, Brazil,
08:51
you can buy fake designer glasses.
08:53
You can buy cloned cologne.
08:56
You can buy pirated DVDs, of course.
08:58
You can buy New York Yankees caps
09:01
in all sorts of unauthorized patterns.
09:04
You can buy cuecas baratas, designer underwear
09:07
that isn't really manufactured by a designer,
09:10
and even pirated evangelical mixtapes. (Laughter)
09:13
Now, businesses tend to complain about this,
09:17
and their, they, I don't want to take away from their
09:20
entire validity of complaining about it,
09:23
but I did ask a major sneaker manufacturer earlier this year
09:25
what they thought about piracy,
09:30
and they told me, "Well, you can't quote me on this,
09:33
because if you quote me on this, I have to kill you,"
09:34
but they use piracy as market research.
09:36
The sneaker manufacturer told me that if
09:42
they find that Pumas are being pirated, or Adidas
09:45
are being pirated and their sneakers aren't being pirated,
09:49
they know they've done something wrong. (Laughter)
09:52
So it's very important to them to track piracy
09:55
exactly because of this, and the people who are buying,
09:58
the pirates, are not their customers anyway,
10:00
because their customers want the real deal.
10:03
Now, there's another problem.
10:05
This is a real street sign in Lagos, Nigeria.
10:07
All of System D really doesn't pay taxes, right?
10:10
And when I think about that, first of all I think that
10:13
government is a social contract between the people and
10:15
the government, and if the government isn't transparent,
10:19
then the people aren't going to be transparent either,
10:21
but also that we're blaming the little guy
10:23
who doesn't pay his taxes, and we're not recognizing
10:26
that everyone's fudging things all over the world,
10:28
including some extremely respected businesses,
10:31
and I'll give you one example.
10:35
There was one company that paid 4,000 bribes
10:36
in the first decade of this millennium, and
10:41
a million dollars in bribes every business day, right?
10:43
All over the world. And that company
10:48
was the big German electronics giant Siemens.
10:50
So this goes on in the formal economy
10:53
as well as the informal economy,
10:57
so it's wrong of us to blame — and I'm not singling out
10:59
Siemens, I'm saying everyone does it. Okay?
11:01
I just want to end by saying that if Adam Smith
11:05
had framed out a theory of the flea market
11:08
instead of the free market, what would be some
11:11
of the principles?
11:15
First, it would be to understand that it could be
11:17
considered a cooperative, and this is a thought
11:20
from the Brazilian legal scholar Roberto Mangabeira Unger.
11:23
Cooperative development is a way forward.
11:27
Secondly, from the [Austrian] anarchist philosopher Paul Feyerabend,
11:30
facts are relative, and what is a massive right
11:34
of self-reliance to a Nigerian businessperson
11:39
is considered unauthorized and horrible to other people,
11:42
and we have to recognize that there are differences
11:46
in how people define things and what their facts are.
11:48
And third is, and I'm taking this from
11:50
the great American beat poet Allen Ginsberg,
11:53
that alternate economies barter and
11:56
different kinds of currency, alternate currencies
11:59
are also very important, and he talked about
12:02
buying what he needed just with his good looks.
12:05
And so I just want to leave you there, and say that
12:08
this economy is a tremendous force for global development
12:11
and we need to think about it that way.
12:16
Thank you very much. (Applause)
12:18
(Applause)
12:21
Translator:Joseph Geni
Reviewer:Morton Bast

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Robert Neuwirth - Author
To research his new book, "Stealth of Nations," Robert Neuwirth spent four years among street vendors, smugglers and “informal” import/export firms.

Why you should listen

In his 2012 book Stealth of Nations, Robert Neuwirth challenges conventional thinking by examining the world's informal economy close up. To do so, he spent four years living and working with street vendors and gray marketers, to capture its scope, its vigor--and its lessons. He calls it “System D” and argues that it is not a hidden economy, but a very visible, growing, effective one, fostering entrepreneurship and representing 1.8 billion jobs worldwide.

Before this, for his previous book Shadow Cities (also a TEDTalk), he spent two years exploring one of the most profound trends of our time: the mass migration of the world's population into urban shantytowns. A billion people live as squatters. Life in a favela, slum, shantytown is hard: no water, no transport, no sewage. But in the squatter cities of Rio, Nairobi, Istanbul and Mumbai, Neuwirth discovered restaurants, markets, clinics and effective forms of self-organization.

Our challenge, Neuwirth says, isn't to end squatter cities or shut down gray markets--but to engage and empower those who live and work in them.

 

The original video is available on TED.com
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