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. Rob says:

    Hidden due to low comment rating. Click here to see.

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  2. Rene says:

    The best sport in Italy is, like Greece, tax evation and not soccer as everybody would think.

    Mexican unemployment rate is too low compared to any developed country, guess: system D.

    I lived in Venezuela 10 years ago. On Fridays, driving back home from office, the trafficc was very, very slow. Guess what you can find from street vendors: beer sold directly to your car, how cool is that. Huge market, huge system D.

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  3. John @ Van Winkle Insurance Group says:

    I think this could possibly be the future if we are not careful of taxes. I am not a proponent of no taxes or against raising them, but if consumers and business owners find the value in evading paying taxes by doing a beneficial cash business (many already do), I think this would be a very likely scenario.

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  4. Mike H says:

    Does this include, say, people selling stuff online from their homes? I would guess that if so, it’s a small percentage. Am I right?

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  5. Tyler says:

    That is a macbre IF.

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  6. Elmo Frank says:

    BUYER BEWARE!
    The $10 trillion figure is taken from the highly controversial work of Friedrich Schneider. The following is a quotation from a recent published review by Trevor Breusch of an co-edited volume by Schneider:(Size, Causes and Consequences of the Underground Economy: An International Perspective Trevor Breusch. Economic Record. East Ivanhoe:Dec 2006. Vol. 82, Iss. 259, p. 492-494 (3 pp.))
    “The measurement or ‘size’ chapters are of particular interest to this reviewer.
    They are the most controversial – and the weakest. A long chapter by Schneider and Bajada purports to show the size of the underground economy in 145 countries, and the changes in that magnitude over a 3-year period. They pay lip service to the problems of definition, but never say what they are actually measuring.
    The precision of the calculations is astounding (for example, we are told that in Kazakhstan it increased from 44.1 to 45.2 per cent of GDP between 2001 and 2002), but there are no standard errors or other indications of uncertainty in these estimates.
    What is worse, it is impossible to reconstruct these results from the documentation that is provided here or in the other Schneider papers on which this chapter is based. Neither the data nor the model details were forthcoming from Schneider when I asked for them.”
    In another in depth review of the Mimic models Schneider uses, [http://ideas.repec.org/p/wpa/wuwpem/0507003.html] Breusch concludes:
    “The literature applying this model to the underground economy abounds with alarming
    Procrustean tendencies. Various kinds of sliding and scaling of the results are carried out in the name of “benchmarking”, although these operations are not always clearly documented. The data are typically transformed in ways that are not only undeclared but have the unfortunate effect of making the results of the study sensitive to the units in which the variables are measured. The complexity of the estimation procedure, together with its deficient documentation, leave the reader unaware of how the results have been stretched or shortened to fit the bed of prior belief…. There are many other results in circulation for various countries, for which the data cannot be identified and which are given no more documentation than “own calculations by the MIMIC method”. Readers are advised to adjust their valuation of these estimates accordingly.”

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  7. Roger Zimmerman says:

    Is this the economy of the future?

    Probably, given that the most dynamic and productive people tend to be the ones that most dislike government busybodies meddling coercively in their day to day affairs. Of course, as De Soto observed, were governments to recognize and protect the property rights of these entrepreneurs, but somehow refrain from regulating and taxing them to oblivion, we could have the best of both worlds. I think that is very unlikely, so I would put my money on the incessant growth of the informal sector.

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  8. Burke Files says:

    It may seem silly but this was an interesting holiday take on System D – very funny.

    http://www.aegisjournal.com/real-stories-from-the-field/black-friday-and-system-d/2011/12/

    Thanks fro what you guys do.

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