Just how big is System D? Friedrich Schneider, chair of the economics department at Johannes Kepler University in Linz, Austria, has spent decades calculating the dollar value of what he calls the shadow economies of the world. He admits his projections are imprecise, in part because, like privately held businesses everywhere, businesspeople who engage in trade off the books don't want to open their books (most successful System D merchants are obsessive about profit and loss and keep detailed accounts of their revenues and expenses in old-fashioned ledger books) to anyone who will write anything in a book. And there's a definitional problem as well, because the border between the shadow and the legal economies is blurry. Does buying some of your supplies from an unlicensed dealer put you in the shadows, even if you report your profit and pay your taxes? How about hiding just $1 in income from the government, though the rest of your business is on the up-and-up? And how about selling through System D even if your business is in every other way in compliance with the law? Finding a firm dividing line is not easy, as Keith Hart, who was among the first academics to acknowledge the importance of street markets to the economies of the developing world, warned me in a recent conversation: "It's very difficult to separate the nice African ladies selling oranges on the street and jiggling their babies on their backs from the Indian gangsters who control the fruit trade and who they have to pay rent to."
Schneider suggests, however, that, in making his estimates, he has this covered. He screens out all money made through "illegal actions that fit the characteristics of classical crimes like burglary, robbery, drug dealing, etc." This means that the big-time criminals are likely out of his statistics, though those gangsters who control the fruit market are likely in, as long as they're not involved in anything more nefarious than running a price-fixing cartel. Also, he says, his statistics do not count "the informal household economy." This means that if you're putting buckles on belts in your home for a bit of extra cash from a company owned by your cousin, you're in, but if you're babysitting your cousin's kids while she's off putting buckles on belts at her factory, you're out.
Schneider presents his numbers as a percentage of the total market value of goods and services made in each country that same year -- each nation's gross domestic product. His data show that System D is on the rise. In the developing world, it's been increasing every year since the 1990s, and in many countries it's growing faster than the officially recognized gross domestic product (GDP). If you apply his percentages (Schneider's most recent report, published in 2006, uses economic data from 2003) to the World Bank's GDP estimates, it's possible to make a back-of-the-envelope calculation of the approximate value of the billions of underground transactions around the world. And it comes to this: 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). The gap is narrowing, though, and if the United States doesn't snap out of its current funk, the USSR/Bazaaristan could conceivably catch it sometime this century.
In other words, System D looks a lot like the future of the global economy. All over the world -- from San Francisco to São Paulo, from New York City to Lagos -- people engaged in street selling and other forms of unlicensed trade told me that they could never have established their businesses in the legal economy. "I'm totally off the grid," one unlicensed jewelry designer told me. "It was never an option to do it any other way. It never even crossed my mind. It was financially absolutely impossible." The growth of System D opens the market to those who have traditionally been shut out.
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