System D: The Shadow Economy is the Second Largest in the World

In 2009, the OECD concluded that half the world’s workers (almost 1.8 billion people) were employed in the shadow economy. By 2020, the OECD predicts the shadow economy will employ two-thirds of the world’s workers. This new economy even has a name: “System D.”  

In a new article (accompanying photoessay here) for Foreign Policy, Robert Neuwirth explains: 

System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that 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, are part of “l’economie de la débrouillardise.” Or, sweetened for street use, “Systeme D.” This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy.

The shadow economy is involved in everything from “mobile phones to heavy machinery to roses” to “trash pickup, recycling, transportation, and even utilities.” And it’s big:

The total value of System D as a global phenomenon is close to $10 trillion. Which makes for another astonishing revelation. If System D were an independent nation, united in a single political structure — call it the United Street Sellers Republic (USSR) or, perhaps, Bazaaristan — it would be an economic superpower, the second-largest economy in the world (the United States, with a GDP of $14 trillion, is numero uno). 

Is this the economy of the future?

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  1. John B. says:

    There’s another meaning to “Systeme D”. It is derived from “démerder” or “to remove oneself from the shit”. To be great at System D is to know how to interact with the opaque bureaucracy that is ubiquitous in French life. The meaning is similar in that to know how to navigate it you are likely creative, socially adept, and inventive.

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  2. HH says:

    Does the comparison double-count the US shadow economy?

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  3. Mike B says:

    I would say it is more like the economy of the past. Think of the informal economy as vs Ebay (neglecting the fact that Amazon doesn’t pay taxes either). It has much less overhead than the formal economy so therefore it has cost savings that can be passed onto the consumer. Where corruption and bureaucracy are high those costs are significant so therefore the informal systems become attractive. Where those costs are lower then most consumers will tend to prefer the safety of the formal economy.

    The study shows that the United States, with its business friendly environment and low corruption levels, has the lowest informality rates in the world. As developing economies become more like that of the US, they too will see their informality drop. However there will always be room for the informal economy as some portion of consumers will feel comfortable enough to take advantage of it or their needs will simply not be served by formal enterprises. Remember a side effect of informal economies are informal methods of dispute resolution. This runs the gamut from “fooled me once” to the St Valentines Day Massacre. I think most people prefer to have the rule of law to backstop their economic transactions.

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    • old.frt says:

      You forget that the informal economy emerges in lockstep with anything which is desired and proscribed, e.g., sex, drugs, guns, music.
      So every time the US makes a law about something, shortly thereafter an entrepreneur emerges to satisfy the demand.
      Let’s hear it for the knockoff artists, the loan sharks, the ATF, DEA, and the local vice squads.
      “Follow the money.”

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  4. RJB says:

    Will “the economy of the future” need government-supplied contract enforcement? Of course not. Government supplied infrastructure? Duh, no.

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  5. Russell Webster says:

    If you believe the press in Europe, the entire Greek economy is System D

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  6. alex in chicago says:

    Perhaps if taxes and regulations on the normal economy were not so burdensome we wouldn’t have this issue…

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  7. berhin says:

    That’s the economy supporting a large part of the developing world. Wherever good institutions and infrastructure is lacking, people have no choice but to do whatever it takes to survive. Not many people run legitimate businesses, pay taxes or expect anything from the government.

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  8. Jasper says:

    Isn’t this a sign that there is way too much regulation and barriers to legal entry globally? I’m sure shadow economy size correlates strongly and negatively with business friendliness of a regime.

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    • Brian says:

      Not necessarily. Many of the business friendly policies are used to attract big business and investment, instead of the average Joe.

      The shadow economy develops from people who start out too small to be regulated.

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