Incredible article on one corner of the new economic structure of the world that is emerging in Wired this month.
From that article this amazing statistic -
“small, illegal, off-the-books businesses…employ fully half the world’s workers. [These businesses are] unregistered, unregulated, untaxed, but not outright criminal—I don’t include gun-running, drugs, human trafficking, or things like that.”
There is a lot that has been written about how long of a process it is to start a business legally in a lot of foreign countries and how it often takes many bribes along the way. Should the US support foreign unregistered businesses as a matter of policy, because they are less immoral, then a legal business who paid a slew of bribes to corrupt politicians?
These unregulated markets are also not just selling fake purses or sustenance goods, increasingly they are responding to market needs not met by Western corporations -
“Chinese phones were the first to offer dual-SIM-card capability, for example. It was a reaction to a need that wasn’t being met by the formal market… Nokia makes one now, but the underground Chinese manufacturers had them back in 2007. Chinese manufacturers didn’t figure out that a dual-SIM-card phone would be a really good thing. Some folks from Africa and elsewhere said, ‘Hey, this would be a popular product. We want it.’ And the Chinese were happy to make it.”
Increasingly it is clear that the future of world commerce and innovation will not be driven by onerous patents or other forms of highly protected corporate intellectual property, but will instead be driven by countries/economies that can get innovative, market responsive products to market the quickest. While the US preaches IP law to China, the Chinese seem to be making huge strides ahead of the US in this new IP-free section of the world economy -
“If someone wants something made—even if that person isn’t licensed—a Chinese factory will make it. It’s also easy to deal with China. You can go to the local Chinese consulate and get a tourist visa within a couple of hours. You can’t say the same about coming to the US. So African importers, for instance, travel to China and commission Chinese firms to make goods for them to sell in Africa.”
I think the emergence of this new unregulated sector highlighted in this article might be similar to the academic concept of “food deserts” where a bunch of economists from the Midwest (Purdue) sat in their office and went “oh my! Poor people in urban areas cant get healthy food! They can only get junk food from the local 7/11! Look there is not a Kroger Foods or Walmart anywhere near them!” When really, there is a fresh fruit and vegetable cart that is setup on
nearly every major corner in Queens/Bronx/etc. Some with permits, many without. The economists were wrong in their conclusions because they only took data from their experiences with where they bought fresh fruits and vegetables at big box normal grocery stores and tried to apply it to the question and had no clue about the realities of the market regulated and unregulated on the ground in urban areas.
Similar to this food desert issue, many are worried about how Western designed goods are not appropriate or ill designed for international markets, specifically Africa. While there are likely many products that are poorly regionalized, or wholly missing from the market for other regions, but maybe this issue will simply take care of itself. The businesses and consumers in those countries may simply go around the Western corporate system and source the products that are fit to their region and culture directly from manufactures, or maybe major Western corporations will learn to adapt:
“Procter & Gamble, for instance, realized that although Walmart is its single largest customer [informal markets] when you total them up, actually account for more business. So Procter & Gamble decided to get its products into those stores. In each country, P&G hires a local distributor—sometimes several layers of local distributors—to get the product from a legal, formal, tax-paying company to a company willing to deal with unlicensed vendors who don’t pay taxes. That’s how Procter & Gamble gets Downy fabric softener, Tide laundry detergent, and all manner of other goods into the squatter communities of the developing world.”
The rise of China and other emerging economies, is not simply a rebalancing of economic or political prowess but is a dramatic shift in the order of the world that will have numerous, many yet to be known, effects on how business is done and lives are lead.
