Book review: Improvisational economies and a globalized building

Robert Neuwirth is bringing new insights to familiar (for him, unfamiliar for most of us) territory in his book, “Stealth of Nations“. His previous work, “Shadow Cities” was a plea to take squatter cities and informal settlements seriously, rather than dismissing them as slums. (My review of Shadow Cities is here.) His mission in this new book is for us to reconsider the “informal economy”, which he rebrands “System D”.

“System D” is an abbreviation for “l’economie de la débrouillardise”, a tern coined in French-speaking Africa to refer to a system of “resourceful and ingenious” people who make their livings outside the formal, taxed and regulated economy. Neuwirth rejects the term “informal” because the coiner of that phrase, British anthropologist Keith Hart, included the criminal underground in his term, “the informal economy”. Neuwirth wants to celebrate the energy and ingenuity of people who make their living outside formal economic structure, but distinguish those he celebrates from those who are selling drugs or running prostitution rings. The heroes of System D may avoid taxes, smuggle goods or operate without permits, but Neuwirth sees them not as criminals but as hardworking people trying to make a living in systems that are broken and corrupt.

Neuwirth’s great strength is as a traveler and storyteller. Like “Shadow Cities”, “Stealth of Nation” is packed chock full with stories from the communities he’s visited in Brazil, Paraguay, Nigeria, China and the United States. We meet street merchants selling pens and cakes in São Paolo, a handbag manufacturer in Guangzhou and the baker of high-end (if unlicensed) olive oil cake in New York City. He takes a particularly deep dive in Lagos, a megalopolis he describes as “a System D city”, where virtually no infrastructures are provided by the state, and where basic services like power, drinking water and public transit are provided by private industry and workers’ collectives, who build systems that function with limited licensing, taxation or oversight.

This wealth of narratives helps make the case that System D is massive and pervasive. Working from numbers from the World Bank and using the insights of Austrian economist Friedrich Schneider, Neuwirth offers an estimate that System D is responsible for roughly $10 trillion in goods and services bought and sold annually. That makes “Bazaristan” the second largest economy in the world, behind the United States. He further argues that System D provides employment for a majority of adults in many developing nations. Whether or not we approve of the activities of System D, Neuwirth argues, we need to take it seriously because of the large number of individuals it impacts.

Neuwirth’s inquiry is extremely broad in scope, both in terms of the subjects he considers and the timescale he examines. Chapters look at phenomena like piracy and counterfeit goods, and smuggling across international borders, which Neuwirth examines primarily via Paraguay’s Ciudad del Este, a urban center that exists primarily so Brazilian citizens – and merchants – can avoid paying taxes. To provide a historical context for these sorts of trade, Neuwirth calls on classical economists, including Adam Smith, as well as histories from the 18th century to demonstrate the ongoing demonization and dismissal of System D merchants. For me, these excursions into the past are less enjoyable that the wealth of contemporary examples he provides, though they’re helpful in establishing that System D is a very old system as well as a new one.

The danger in both of Neuwirth’s books is that he loves his subject so much, he occasionally celebrates it uncritically. “Shadow Cities” occasionally read to me as a marketing brochure for Brazilian favelas, suggesting we abandon traditional urban planning and invite urban entrepreneurs to rewire the electrical grid to meet their needs. “Stealth of Nations” is more careful, and Neuwirth engages with the ways in which Lagos can be a nightmare for the people who live there, not just a creative laboratory for urban innovation. At the same time, he urges us to take seriously the miracle that Lagos works at all, a miracle that can be hard to see underneath the diesel smog, caught in an hours-long go-slow.

This appreciation for the complex systems that compose System D can push Neuwirth towards a sort of conservatism that’s familiar to readers of Jane Jacobs. Neuwirth’s Robert Moses is Lagos State governor Babatunde Fashola, who Neuwirth lambasts for clearing street merchants from busy intersections and setting up formalized markets in inconveniently located parts of the city. Neuwirth is right to point out that Fashola, and other urban planners, have a tendency to undervalue the contributions of street merchants, and tend to propose unworkable alternatives to current systems. But celebrating contemporary Lagos in the ways that Jacobs celebrated the Lower East Side seems to miss two critical points. First, to the extent that Lagos works right now, it just barely works – Neuwirth acknowledges as much when he points out that some of Lagos’s most impenetrable traffic jams are caused by the tendency of merchants to turn roadways into markets. Second, Lagos is growing at a ferocious pace, and Fashola seems to be taking seriously the challenge of allowing the city to continue functioning as a megalopolis, likely to soon be one of the world’s largest cities. One possible response to Neuwirth’s criticism is to point out that Fashola was just re-elected with 81% of the vote in a poll most observers saw as free and fair.

Neuwirth is a journalist and documentarian, not an economist or an urban planner, and it may be unreasonable to ask him to solve the thorny problem of bringing System D and the formal economy into closer partnership. Neuwirth examines Hernando de Soto’s work on formalizing System D through property rights. De Soto’s most helpful intervention is the observation that the poor have wealth – homes, businesses, assets – but few ways to access them. By creating a paper trail, establishing ownership over houses and other real estate, de Soto argues that the poor can access their wealth, borrowing against their homes and using the loans to start new businesses. Neuwirth looks at de Soto’s native Peru and concludes that formalization hasn’t done much to help System D. The problem is the banks, who are perfectly willing to accept deposits from System D entrepreneurs, but unwilling to lend to them. Neuwirth’s anger is rightly placed, and his solution – that communities and governments need to demand that banks serve the communities they are located in, not just their shareholders – is timely and correct, even if difficult to implement.

The solutions Neuwirth offers for strengthening and legitimating System D are, by his own admission, modest in scope. Merchants should work together to regulate their activities, settling disputes within mediation mechanisms. They should take responsibility for the physical spaces they inhabit and work to make them clean and safe. They should consider systems that review product safety and ensure the quality of goods sold. Neuwirth isn’t opposed to regulatory involvement in this space – he looks closely at the “pure water” industry in Nigeria, where entrepreneurs drill wells, pump water and purify it under government standards before selling it in single-use sachets to thirsty customers. The system could be a health nightmare if minimum health standards are not enforced. The Lagos government can’t provide clean drinking water to its citizens, so it has found a way to work with System D to ensure that people have water and the water doesn’t kill them – for System D advocates, there’s potential in that story and a model other governments might follow.

But the pure water story also reveals the apparent limits of System D. “Pure water” usually won’t kill you, but it’s an environmental nightmare, as millions of nylon bags clog the Lagos sewers. It’s a wonderful thing that Lagosians can drink safe water, but a system where thousands of school-age girls sell sachets of water because you can’t drink the water out of the pipes isn’t a system any sane planner would advocate for. System D can get Lagos’s citizens to work, but it’s never going to build affordable and environmentally sound public transportation. If merchants follow Neuwirth’s advice, they may collectively buy bigger diesel generators, but they’re unlikely to fix Nigeria’s laughably inadequate power grid.

The people Neuwirth celebrates are – rightly – frustrated by their governments. They avoid paying taxes both because those taxes can be arbitrary and unaffordable, and because they see very few government services in exchange bought with those revenues. But governments need revenues to build infrastructures. And, as economist Paul Collier argues, they need taxes – and need to put those taxes to use in productive ways – in order to have legitimacy. System D seems like a local maximum in an equation – when it works well, it’s amazing what entrepreneurial people can accomplish against impossible odds. But the solutions created are convoluted and incomplete, and it’s reasonable to worry that System D may prevent more formal systems from providing more complete solutions to societal problems.

I don’t actually disagree with Neuwirth on this point – I wrote an essay some years back about incremental infrastructure, an idea I’d had from studying African mobile phone markets, that suggested that systems like power grids and roadways might be built by the cooperation of entrepreneurs when governments failed. My proposal suffers from the same weaknesses I’m criticizing Neuwirth for: it’s hard to see how a collective of merchants builds a railroad, and sometimes a railroad is what’s really needed for economic development.

But that’s an awfully big problem to demand that Neuwirth tackle – if you want to understand precisely how complicated that problem is, try this thought piece from Collier, proposing a possible solution to railroad construction in sub-Saharan Africa. Neuwirth’s job isn’t to solve the problems of System D. What he does – compellingly, readably, engagingly, and frequently, brilliantly – is give the reader a picture of how the world’s economies actually work, and a convincing argument that we need to respect and understand these economic systems. It’s a good read and an important book.

When you pick up Neuwirth’s new book, also consider grabbing a copy of Gordon Mathews’s “Ghetto at the Center of the World”, a remarkable ethnography of a single building in Hong Kong, Chungking Mansions. Chungking Mansions is a nondescript and somewhat run-down tower block in one of the more crowded corners of Kowloon. Inside is a remarkable market, where Chinese, Pakistani and sub-Saharan African merchants interact with one another in a microcosm of global trade. Mathews refers to this economic phenomenon as “low-end globalization”, and his book unpacks the history, mechanics, personalities and motivations in a way that is absolutely fascinating.

Chungking Mansions exists because of a peculiarity of Hong Kong’s visa policies. Tourist visas to Hong Kong are easily obtained by citizens of many nations – residents of countries like Ghana, Nigeria and Kenya often have difficulty obtaining visas to Europe, the US or China, but are able to travel to Hong Kong for anywhere between 7 and 90 days, depending on the discretion of the immigration officer. As China became a major manufacturing power, Chungking Mansions became a critical interface between Chinese factories and developing world markets. The upper floors of the building feature low-cost guesthouses that cater primarily to traveling merchants, and restaurants that offer home cooking for the African and South Asian migrants who work out of the building.

On the ground floor, dozens of stalls feature Pakistani merchants selling Chinese-made mobile phones to African middlemen. Mathews documents the trade in intimate detail, explaining the ownership of the individual stalls (they are generally rented from Chinese owners who are rarely present in the building, but have a powerful owner’s association that governs the working on the market), the provenance of the phones sold (including the difference between original phones, 14-day phones – original phones returned to the vendor by dissatisfied customers, good fakes and bad fakes) and the economics of importing phones into sub-Saharan Africa. Mathews posits (without much data to back this claim) that up to half the mobile phones in Africa come through Chungking Market and enter African markets through the luggage of entrepreneurs.

I found Mathews’s account so compelling that Chungking Mansions was my first stop when visiting Hong Kong a few weeks ago. Based on his explanation of Chinese perceptions of the building (as a dangerous place filled with drug addicts and criminals), I expected a much shadier place than I actually found. Chungking Mansions is immediately familiar to anyone who’s bought electronics in the developing world – it’s cleaner and better organized than markets I’ve been to in Nairobi and New Delhi, but in some ways, functionally the same place. Walking through the stalls, I experienced a tesseract, a folding of space that let me move between Hong Kong, Pakistan and West Africa over the course of a few meters. I dropped into one of the few non-phone stores, a clothing store featuring street fashions, including a wide array of Yankee caps. I gave the merchant grief about not stocking Red Sox hats, quickly figured out that he was Ghanaian, greeted him in Twi, and was warmly embraced and invited upstairs for fufu and groundnut soup. It wasn’t at all hard to figure out why Mathews had fallen in love with the place – if you’re interested in how globalization is transforming economies, Chungking Mansions really is one of the centers of the world.

I had the chance to meet Mathews when we lectured together at the University of Hong Kong a few days later. He’s as wonderfully crazy as you’d imagine him to be, and told me that he’d written the book in a bar across the street from his research site. “The key is that the bar has roasted peanuts in the shell. I’d shell a peanut and think, then write a sentence, then sip my beer. That writing pace is just perfect as long as you remain under three beers.” Rarely have I learned so much from a single ethnographer – how to smuggle phones into Ghana in my luggage, the best strategies for overstaying my Hong Kong tourist visa, how to befriend Nepali heroin addicts, and how to pace my writing.

I’ve been pushing Mathews’s book on the ethnographers I know because it’s an amazing example of the power of the deep dive. It’s possible that no one on the planet understands Chungking Mansions as thoroughly as Mathews does based on his decade of research. But his insights are profoundly helpful not just for understanding this one wonderful and strange building, but for understanding globalization as it is actually practiced. Where Neuwirth takes a broad view, considering economies on four different continents, Mathews rarely leaves the confines of a single building and still manages to tell a story that’s global in scope and impact.