Systeme D

In French, a man (or woman) who is particularly resourceful is called a débrouillard (débrouillarde).  In the former French colonies of West Africa, people have used this word to form a phrase, “l’economie de la débrouillardise” which refers to the vast network of “inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes.” Systeme D for short.

The concept and the quote are from a nifty and fairly new book I’m reading just now, “Stealth of Nations” by Robert Neuwirth.  He claims that the world-wide Systeme D economy would, if aggregated, amount to more than any other nation’s economy save the U.S. The claim may be hyperbolic but he leaves no doubt that in most of the developing world it is a major factor in the flow of goods and services.

He cleverly begins each chapter with a quote from Adam Smith’s “Wealth of Nations” and gives accounts, mostly first-hand, of how the Systeme D economy, or the informal economy or the black market if you will, works in various countries.

The participants in this economy sometimes operate entirely outside the law and sometimes with one foot in and one foot out.  They seldom count on the police or the courts for protection or redress.  Yet informal systems of protection of life and property spring up and seem to work pretty well.

Take the bustling street market that operates along the Rua Vinte e Cinco de Março (Avenue of March 25) in São Paulo, Brazil.  The daily routine begins at 3:30 AM when vendors of pirated CDs and DVDs set up their stands.  One vendor has done well enough buying movies for 50 centavos and selling them for double that, that he has moved into the middle class.  He and his wife own an apartment and a rental house.  At 4:30 a woman parks her truck and opens the back, where she offers homemade cakes and bread for sale.  Everyone respects her “ownership” of that particular parking space.  At 6 AM come the vendors of clothing, sunglasses, pirated NY Yankees baseball caps, you name it.  At 8:30, Paulo shows up and spends the next seven hours tossing plastic spider-men against a wall, watching them rappel down the wall.  They are made in China, trucked to Paraguay, and smuggled across the border into Brazil.  Paulo buys them for 80 centavos and sells them for about triple that.  So it goes, all day long.  By late evening all the stands and stalls are packed away, ready for the daily cycle to begin anew.

The rules are simple: “Vendors pay no rent to occupy the curbside, and there’s no protection money, taxes, or other fees … You simply ask, ‘Can I set up next to you?’ and if the answer is no and you do it anyway, you have a fight on your hands.”

What’s the volume of business on the Rua?  An estimated 400,000 people (!) per day and up to a million on major holidays, most of whom come to buy.  Annual turnover for this one street market, with its estimated 8,000 vendors, mostly unregistered, is estimated at US$10 billion.  If that figure is anywhere near correct, this one market would rank with Brazil’s five largest corporations.

The description of the Systeme D economy of Lagos, Nigeria is particularly fascinating.  This is a huge city that lacks most of what we would consider basic public services, even sewers and running water.  Yet thanks largely to Systeme D it works, after a fashion.

Author Neuwirth does not gloss over the problems of the world’s Systeme D economies.  There is fraud and sometimes violence, but not necessarily any worse than that of the above-ground regulated economy.  There is wide-open pirating of software, games, music and movies.

The bizarre private bus system of Lagos, though it works for the Nigerians after a fashion, is not something any of us in the developed world would be happy with.  Most of us are happy with our clean, well-lighted supermarkets (see my article “Sardines at Midnight.”) Yet there is a lesson we can take from the Systeme D economies.  Our economy is becoming increasingly hog-tied with regulations. We could make a big dent in unemployment if the politicians and bureaucrats would lighten up a bit and allow the “informal economy” to grow.  Yes, the politicians and bureaucrats and lawyers are to blame but they take their cues from consumers who demand near-perfection in product offerings and unlimited product liability.

I highly recommend “Stealth of Nations” as light but informative summer reading.  Read it for the stories and pay no attention to occasional stumbles into bizarre generalities like “There’s nothing natural about the free market.  It’s a fiction, an artificial construct created and held together with the connivance of government.”

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3 thoughts on “Systeme D

  1. I like the topic and I like the essay. But, Warren, Warren, mon Dieu, can you not invest in accents ? You need one on the firs e of “systeme.” Quelle Horreur!

  2. Why is that closing statement a bizarre generality? It’s an opinion held by many respectable, smart people. Is it debatable? Sure. Bizarre? Not really.
    I haven’t read the book, but I will comment the 25 de Março bit. It happens to be very close to the neighborhood where I grew up and there is one fundamental problem with the description made by the author, or perhaps your summary of it.
    The description of how the informal market works is fairly accurate. The numbers on how many people visit the area also sound right. But the informal sector is NOT the dominant portion of the market. Not even close.
    25 de Março, which is a whole district, not only the street that gives it its name, is mostly comprised of shops. Regular shops that pay taxes, follow labor laws, etc. (Or maybe not, but they do it at their own risk, as do landscapers and roofers who hire people off the books in the US.)
    They are mostly small stores, some of them a few square feet stands in what people call “mini-malls”, some of them large, taking up whole blocks.
    The reason they are so active is because they sell cheap and have become the main shopping district for the 20 million or people of São Paulo Metro Area who live on incomes of 700-800 dollars, or less., and some bargain-minded people of upper social strata as well. They spend very little on overhead, the merchandise is piled in boxes, the aisles are cramped, customer service is limited to people at the registers and people re-stocking shelves.
    Their competitive advantage comes from selling to a very large customer base, i.e., everyone who doesn’t mind buying a “brand-less” smartphone for $100, as opposed to six times that much for an I-phone that will provide pretty much the same functions.
    There are many informal sellers, true. But they play a permanent game of cat and mouse with the police, just like street peddlers do in any large American city, and are regarded as cheaters who take advantage of their illegal status by the rest of the shopkeepers. Those who are most successful, usually apply for a street seller license, pay taxes and join the formal market. They want to, because regularizing their business gives them access to financing, allows them to buy on credit, and all the other advantages of regular businesses. Informality is a stepping stone to regular merchant status. They are in fact eager to follow rules and regularly demonstrate in front of city hall to demand, oh horror!, regularization, rules, and licenses. Informality is a product of need and lack of resources, not a desired status.
    25 de março is certainly an ode to the ability of enterprising people to achieve economic success starting from scratch, as well as to the enduring demand for goods that simply do their job and are priced for what they deliver, rather than the marketing fads of name brands that satisfy emotional needs rather than mere functionality. But 25 de Março is not the unregulated, pure free-market the author wishes to see there. I wonder if this flawed sample is representative of what he has to say about the other places he describes in his book.
    (Bizarre and provocative statement warning!) Free-markets do not exist anywhere in the world, other than as an utopian ideal whose real world implementation has always failed to deliver the results promised by its believers, which makes it a close relative of socialism, after all.

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