EXCERPT

The Shadow Superpower

Forget China: the $10 trillion global black market is the world's fastest growing economy -- and its future.

With only a mobile phone and a promise of money from his uncle, David Obi did something the Nigerian government has been trying to do for decades: He figured out how to bring electricity to the masses in Africa's most populous country.

It wasn't a matter of technology. David is not an inventor or an engineer, and his insights into his country's electrical problems had nothing to do with fancy photovoltaics or turbines to harness the harmattan or any other alternative sources of energy. Instead, 7,000 miles from home, using a language he could hardly speak, he did what traders have always done: made a deal. He contracted with a Chinese firm near Guangzhou to produce small diesel-powered generators under his uncle's brand name, Aakoo, and shipped them home to Nigeria, where power is often scarce. David's deal, struck four years ago, was not massive -- but it made a solid profit and put him on a strong footing for success as a transnational merchant. Like almost all the transactions between Nigerian traders and Chinese manufacturers, it was also sub rosa: under the radar, outside of the view or control of government, part of the unheralded alternative economic universe of System D.

You probably have never heard of System D. Neither had I until I started visiting street markets and unlicensed bazaars around the globe.

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. A number of well-known chefs have also appropriated the term to describe the skill and sheer joy necessary to improvise a gourmet meal using only the mismatched ingredients that happen to be at hand in a kitchen.

I like the phrase. It has a carefree lilt and some friendly resonances. At the same time, it asserts an important truth: What happens in all the unregistered markets and roadside kiosks of the world is not simply haphazard. It is a product of intelligence, resilience, self-organization, and group solidarity, and it follows a number of well-worn though unwritten rules. It is, in that sense, a system.

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.

Kids selling lemonade from the sidewalk in front of their houses are part of System D. So are many of the vendors at stoop sales, flea markets, and swap meets. So are the workers who look for employment in the parking lots of Home Depot and Lowe's throughout the United States. And it's not only cash-in-hand labor. As with David Obi's deal to bring generators from China to Nigeria, System D is multinational, moving all sorts of products -- machinery, mobile phones, computers, and more -- around the globe and creating international industries that help billions of people find jobs and services.

In many countries -- particularly in the developing world -- System D is growing faster than any other part of the economy, and it is an increasing force in world trade. But even in developed countries, after the financial crisis of 2008-09, System D was revealed to be an important financial coping mechanism. A 2009 study by Deutsche Bank, the huge German commercial lender, suggested that people in the European countries with the largest portions of their economies that were unlicensed and unregulated -- in other words, citizens of the countries with the most robust System D -- fared better in the economic meltdown of 2008 than folks living in centrally planned and tightly regulated nations. Studies of countries throughout Latin America have shown that desperate people turned to System D to survive during the most recent financial crisis.

This spontaneous system, ruled by the spirit of organized improvisation, will be crucial for the development of cities in the 21st century. The 20th-century norm -- the factory worker who nests at the same firm for his or her entire productive life -- has become an endangered species. In China, the world's current industrial behemoth, workers in the massive factories have low salaries and little job security. Even in Japan, where major corporations have long guaranteed lifetime employment to full-time workers, a consensus is emerging that this system is no longer sustainable in an increasingly mobile and entrepreneurial world.

So what kind of jobs will predominate? Part-time work, a variety of self-employment schemes, consulting, moonlighting, income patching. By 2020, the OECD projects, two-thirds of the workers of the world will be employed in System D. There's no multinational, no Daddy Warbucks or Bill Gates, no government that can rival that level of job creation. Given its size, it makes no sense to talk of development, growth, sustainability, or globalization without reckoning with System D.

The growth of System D presents a series of challenges to the norms of economics, business, and governance -- for it has traditionally existed outside the framework of trade agreements, labor laws, copyright protections, product safety regulations, antipollution legislation, and a host of other political, social, and environmental policies. Yet there's plenty that's positive, too. In Africa, many cities -- Lagos, Nigeria, is a good example -- have been propelled into the modern era through System D, because legal businesses don't find enough profit in bringing cutting- edge products to the third world. China has, in part, become the world's manufacturing and trading center because it has been willing to engage System D trade. Paraguay, small, landlocked, and long dominated by larger and more prosperous neighbors, has engineered a decent balance of trade through judicious smuggling. The digital divide may be a concern, but System D is spreading technology around the world at prices even poor people can afford. Squatter communities may be growing, but the informal economy is bringing commerce and opportunity to these neighborhoods that are off the governmental grid. It distributes products more equitably and cheaply than any big company can. And, even as governments around the world are looking to privatize agencies and get out of the business of providing for people, System D is running public services -- trash pickup, recycling, transportation, and even utilities.

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.

This alternative economic system also offers the opportunity for large numbers of people to find work. No job-cutting or outsourcing is going on here. Rather, a street market boasts dozens of entrepreneurs selling similar products and scores of laborers doing essentially the same work. An economist would likely deride all this duplicated work as inefficient. But the level of competition on the street keeps huge numbers of people employed. It liberates their entrepreneurial energy. And it offers them the opportunity to move up in the world.

In São Paulo, Édison Ramos Dattora, a migrant from the rural midlands, has succeeded in the nation's commercial capital by working as a camelô -- an unlicensed street vendor. He started out selling candies and chocolates on the trains, and is now in a more lucrative branch of the street trade -- retailing pirate DVDs of first-run movies to commuters around downtown. His underground trade -- he has to watch out for the cops wherever he goes -- has given his family a standard of living he never dreamed possible: a bank account, a credit card, an apartment in the center of town, and enough money to take a trip to Europe.

Even in the most difficult and degraded situations, System D merchants are seeking to better their lives. For instance, the garbage dump would be the last place you would expect to be a locus of hope and entrepreneurship. But Lagos scavenger Andrew Saboru has pulled himself out of the trash heap and established himself as a dealer in recycled materials. On his own, with no help from the government or any NGOs or any bank (Andrew has a bank account, but his bank will never loan him money -- because his enterprise is unlicensed and unregistered and depends on the unpredictable labor of culling recyclable material from the megacity's massive garbage pile), he has climbed the career ladder. "Lagos is a city for hustling," he told me. "If you have an idea and you are serious and willing to work, you can make money here. I believe the future is bright." It took Andrew 16 years to make his move, but he succeeded, and he's proud of the business he has created.

We should be too. As Joanne Saltzberg, who heads Women Entrepreneurs of Baltimore -- a business development group -- told me, we need to change our attitude and to salute the achievements of those who are engaged in this alternate economy. "We only revere success," she said. "I don't think we honor the struggle. People who have no access to business development resources. People who have to work two and three jobs just to survive. When you are struggling in this economy and still you commit yourself to having a better life, that's really something to honor."

TED ALJIBE/AFP/Getty Images

EXCERPT

Asia's New Great Game

China and India are both hungry for Burma's vast natural riches. But will Burma's people pay the price or can this Southeast Asian backwater finally enter the 21st century?

Slide Show: Asia's New Silk Road

When geography changes -- as when the Suez Canal joined Europe to the Indian Ocean, or when the railroads transformed the American West and the Russian East -- old patterns of contact disappear and new ones take hold, turning strangers into neighbors and transforming backwaters into zones of new strategic significance. Entire groups decline or vanish; others rise in importance.

Over these next few years, Asia's geography will see a fundamental reorientation, bringing China and India together as never before across what was once a vast and neglected frontier stretching over a thousand miles from Kolkata to the Yangtze River basin. And Burma, long seen in Western policy circles as little more than an intractable human rights conundrum, may soon sit astride one of the world's newest and most strategically significant crossroads. Mammoth infrastructure projects are taming a once inhospitable landscape. More importantly, Burma and adjacent areas, which had long acted as a barrier between the two ancient civilizations, are reaching demographic and environmental as well as political watersheds. Ancient barriers are being broken, and the map of Asia is being redone.

For millennia, India and China have been separated by near impenetrable jungle, deadly malaria, and fearsome animals, as well as the Himalayas and the high wastelands of the Tibetan plateau. They have taken shape as entirely distinct civilizations, strikingly dissimilar in race, language, and customs. To reach India from China or vice versa, monks, missionaries, traders, and diplomats had to travel by camel and horse thousands of miles across the oasis towns and deserts of Central Asia and Afghanistan, or by ship over the Bay of Bengal and then through the Strait of Malacca to the South China Sea.  

But as global economic power shifts to the East, the configuration of the East is changing, too. The continent's last great frontier is disappearing, and Asia will soon be woven together as never before.

At the heart of the changes is Burma. Burma is not a small country; it is as big in size as France and Britain combined, but its population of 60 million is tiny compared with the 2.5 billion combined populations of its two massive neighbors. It is the missing link between China and India.

It is an unlikely 21st-century nexus. Burma is one of the world's poorest countries, wracked by a series of seemingly unending armed conflicts, and ruled for nearly five decades by one military or military-dominated regime after another. In 1988, following the brutal suppression of a pro-democracy uprising, a new junta took power, agreeing to cease fires with former communist and ethnic insurgents and seeking to unwind years of self-imposed isolation. But its repressive policies soon led to Western sanctions and this, together with growing corruption and continued mismanagement, meant that any hope of even economic improvement quickly dimmed.

By the mid-1990s the view of Burma in the West became fairly set -- a timeless backwater, brutal and bankrupt, the realm of juntas and drug lords, as well as courageous pro-democracy activists, led by Aung San Suu Kyi. A place worthy of humanitarian attention, but unconnected to the much bigger story of Asia's global rise. China, however, viewed things differently. Where the West saw a problem and offered mainly platitudes and a little aid, China recognized an opportunity and began changing facts on the ground.  

Beginning in the mid-1990s, China began unveiling plans to join its interior to the shores of the Indian Ocean. By the mid-2000s, these plans were being turned into reality. New highways are starting to slice through the highlands of Burma, linking the Chinese hinterland directly to both India and the warm waters of the Bay of Bengal. One highway will lead to a brand-new, multi-billion-dollar port, facilitating the export of manufactured goods from China's western provinces while bringing in Persian Gulf and African oil, oil that will be transported along a new 1,000-mile-long pipeline to refineries in China's hitherto landlocked Yunnan province. Another, parallel pipeline will carry Burma's newfound offshore natural gas to light up the fast-growing cities of Kunming and Chongqing. And more than $20 billion will be invested in a high-speed rail line. Soon, journeys that once took months to make may soon be completed in less than a day. By 2016, Chinese planners have declared, it will be possible to travel by train all the way from Rangoon to Beijing, part of a grand route they say will one day extend to Delhi and from there to Europe.

Burma could become China's California. Chinese authorities have long been vexed by the soaring gap in income between its prosperous eastern cities and provinces and the many poor and backward areas to the west. What China is lacking is another coast to provide its remote interior with an outlet to the sea and to its growing markets around the world. Chinese academics have written about a "Two Oceans" policy. The first is the Pacific. The second would be the Indian Ocean. In this vision, Burma becomes a new bridge to the Bay of Bengal and the seas beyond.

China's leadership has also written about its "Malacca dilemma." China is heavily dependent on foreign oil, and approximately 80 percent of these oil imports currently pass through the Strait of Malacca, near Singapore, one of the world's busiest shipping lanes and just 1.7 miles across at its narrowest point. For Chinese strategists, the strait is a natural choke point where future enemies could cut off foreign energy supplies. An alternative route needed to be found. Again, access across Burma would be advantageous, lessening dependence on the strait and at the same time dramatically reducing the distance from China's factories to markets in Europe and around the Indian Ocean. That Burma itself is rich in the raw materials needed to power industrial development in China's southwest is an added plus.

Meanwhile, India has its own ambitions. With the "Look East" policy, successive Indian governments since the 1990s have sought to revive and strengthen age-old ties to the Far East, across the sea and overland across Burma, creating new connections over once impassable mountains and jungle barriers. Just north of where China is building its pipeline, along the Burmese coast, India is starting work to revive another seaport with a special road and waterway to link to Assam and India's other isolated and conflict-ridden northeastern states. There is even a proposal to reopen the Stilwell Road, built by the Allies at epic cost during World War II and then abandoned, a road that would tie the easternmost reaches of India with China's Yunnan province. Indian government officials speak of Burma's importance for the security and future development of their country's northeast -- while also keeping a cautious eye on China's dynamic push into and across Burma.

Watching these developments, some have warned of a new Great Game, leading to conflict between the world's largest emerging powers. But others predict instead the making of a new Silk Road, like the one in ancient and medieval times that coupled China to Central Asia and Europe. It's important to remember that this geographic shift comes at a very special moment in Asia's history: a moment of growing peace and prosperity at the conclusion of a century of tremendous violence and armed conflict and centuries more of Western colonial domination. The happier scenario is far from impossible.

The generation now coming of age is the first to grow up in an Asia that is both post-colonial and (with a few small exceptions) postwar. New rivalries may yet fuel 21st-century nationalisms and lead to a new Great Game, but there is great optimism nearly everywhere, at least among the middle classes and the elites that drive policy: a sense that history is on Asia's side and a desire to focus on future wealth, not hark back to the dark times that have only recently been left behind.

And a crossroads through Burma would not be a simple joining up of countries. The parts of China and India that are being drawn together over Burma are among the most far-flung parts of the two giant states, regions of unparalleled ethnic and linguistic diversity where people speak literally hundreds of mutually unintelligible languages, of forgotten kingdoms like Manipur and Dali, and of isolated upland societies that were, until recently, beyond the control of Delhi or Beijing. They are also places where ballooning populations have only now filled out a once very sparsely peopled and densely forested landscape. New countries are finding new neighbors. Whereas the fall of the Berlin Wall reopened contacts that had only temporarily been suspended, the transformations under way are enabling entirely new encounters. There is the possibility of a cosmopolitan nexus at the heart of Asia.

But is a modern-day Silk Road really in the making? Until earlier this year, it was difficult to be optimistic, with Burma at the heart of the transformations and the news from Burma remaining so bad. Ordinary people were as poor as ever, political repression was the order of the day, and the Chinese projects under way seemed to be doing more to fuel corruption and devastate the environment than anything else. Fresh elections were held late last year, but they were widely condemned as fraudulent.

Over the past several months, however, there have been increasing signs that better days might lie ahead.

This March, the junta was formally dissolved and power handed over to a quasi-civilian government headed by a retired general, U Thein Sein. President Thein Sein quickly began to exceed (admittedly low) expectations, speaking out against graft, stressing the need for political reconciliation, appointing technocrats and businessmen to key positions, inviting exiles to return home, announcing fresh peace talks with rebel groups, and even reaching out to Aung San Suu Kyi, not long before released from house arrest. Poverty reduction strategies have been formulated, taxes lowered, trade liberalized, and a slew of new laws on everything from banking reform to environmental regulation prepared for legislative approval. Parliament, after a shaky start, began to take on a life of its own. Media censorship has been significantly relaxed, and opposition parties and Burma's burgeoning NGO community have been allowed a degree of freedom not seen in half a century.

It's a fragile opening. The president seems determined to push ahead, but his is not the only voice. There are other powerful ex-generals in parliament and in the cabinet, and the structures of repression remain intact. Burma is at a critical turning point.

And now, for the first time, Burma's politics matter beyond its immediate borders. If this opportunity for positive change is lost, Burma may remain a miserably run place -- but it will no longer be an isolated backwater. The great infrastructure projects under way will continue, as will the much longer-term processes of change. Asia's frontier will close and a new but dangerous crossroads will be the result.

But if Burma indeed takes a turn for the better and we see an end to decades of armed conflict, a lifting of Western sanctions, democratic government, and broad-based economic growth, the impact could be dramatic. China's hinterland will suddenly border a vibrant and young democracy, and India's northeast will be transformed from a dead end into its bridge to the Far East. What happens next in Burma could be a game-changer for all Asia.

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