It used to be that System D was small -- a handful of market women selling a handful of shriveled carrots to earn a handful of pennies. It was the economy of desperation. But as trade has expanded and globalized, System D has scaled up too. Today, System D is the economy of aspiration. It is where the jobs are. In 2009, the Organisation for Economic Co-operation and Development (OECD), a think tank sponsored by the governments of 30 of the most powerful capitalist countries and dedicated to promoting free-market institutions, concluded that half the workers of the world -- close to 1.8 billion people -- were working in System D: off the books, in jobs that were neither registered nor regulated, getting paid in cash, and, most often, avoiding income taxes.
AM: Surpise, suprise. The fastest growing economy is unregulated, untaxed: capitalism in its purest form?
So pure capitalism creates a massive group of people paying no taxes and working jobs with no security and no benefits? Sounds awesome.
ReplyDeleteAlso, I've got to question this: "a think tank sponsored by the governments of 30 of the most powerful capitalist countries and dedicated to promoting free-market institutions..."
Gee, I wonder what sort of system will look most appealing in a study commissioned by a party like that with absolutely no vested interest.
I think it shows that regulation is a barrier to economic activity. It seems to be thriving in the underground economy. And it also seems that some people at least are choosing this. Granted, it's China so the alternatives of manufacturing or agriculture might not be so attractive either.
ReplyDeleteNo security and benefits? That Western thinking. All the security and benefits you'll ever need is in the form of your parents or your kids, depending on your age.
ReplyDeleteTo suggest that regulation is a barrier to economic activity is just plain nonsense.
ReplyDeleteALL regulations?
So, for instance, making sure there are no monopoly's gets in the way of economic activity?
We all know better than that.
Ensuring quality of domestic goods is getting in the way of things? Really?
So, we should have less stuff getting in the way of Maple Leaf meat packaging?
You think people would buy more meat with less regulations?
And to Monsanto's milk byproducts?
And aren't we all glad that Canada regulates it's oil/gas/nuclear power plants with more attention than, say, India or Russia or almost any country in Africa has over the last 20 odd years?
You should do regulations the kind service of phrasing this "regulations I don't like are a barrier to economic activity I do like."
Agreed with Anonymous there too. Only someone as entitled and secure as a Westerner could see more benefit to having less benefits.
Well the fact is people in China, the worlds fastest growing economy, are surveying their options and choosing to work in the parallel economy.
ReplyDeleteLV: Regulatory compliance is a cost of doing business; and it's a barrier to entry into markets. So if you need to acquire a licence from the state to sell food commercially and that requires you to apply, intpret, and keep up to date with bureaucratic mandates, you're going to have to factor this into your costs. If you're a new start up, or a small producer and your margins are slim, this might be all it takes to keep you out of business. LV, it is for this reason that companies like Maple Leaf LOVE regulation: it keeps their small-scale competitors out of the market place. And if you really think that in practice, governments "ensure quality", then i've got some crap to sell you. They don't. The rules are in place, but they are not enforced. It's smoke and mirrors. The real force that ensures quality - competition and greed.
LV: "You think people would buy more meat with less regulations?"
ReplyDeleteI don't know. It depends. But all else equal, yes. Price effects quantity. Regulations increase price, reduce quantity. That's the general rule, but it applies differently in different situations. Watch the "Econ freedom video" on my earlier post to see the cost of regulatory compliance in the U.S.; it's very high, and it's basically deadweight loss.
So you trust corporations to look out for people?
ReplyDeleteHM
No, I trust people and companies to do what is in their self interest.
ReplyDeleteSounds very much like South Africa and their "informal" economy. Basically people selling stuff from stands on the side of the road or coming up to your car. While they don't pay taxes of course, it is a huge sector of the economy that people embrace because it lifts them out of poverty and gives them a chance to climb a few rungs on the social ladder.
ReplyDeleteExactly - more voluntary exchange! The engine of human progress.
ReplyDelete