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Policy: Economy

System D: Economic boats floating beneath the surface

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Opinion,Austin Bay,Columnists,Economy

In 2011, China had a gross domestic product of $7.3 trillion dollars, second only to America's $15 trillion GDP output -- at least according to official data.

In 2011, System D had a GDP of $10 trillion, though that imposing figure is utterly unofficial, by definition.

System D doesn't belong to the United Nations, so don't try to find it on a map. If System D is news to you, odds are good you've encountered it or you know it by one of System D's more shifty names. These identities include (from less shifty to more so): the do-it-yourself (DIY) solution, casual employment, the informal economy, the unofficial or unreported or shadow or underground economies, or -- most forbidding -- the black market.

The multiple monikers don't fully explain the powerful human economic and social phenomenon they express. For that reason, economic writer Robert Neuwirth began using System D to describe it.

Neuwirth's etymology gives the phenomenon human form. In an October 2011 Foreign Policy article, Neuwirth wrote that the bazaars of French-speaking Africa and the Creole Caribbean spawned the term. Locals dubbed "particularly effective and motivated people" working these markets debrouillards.

"Hustler" carries con man baggage. Not so debrouillard -- it is a huge compliment. "To say a man is a debrouillard," Neuwirth wrote, tells 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 the debrouillard economy, System D.

For Neuwirth, the term described personally observed truth. Interaction in the world's unregistered markets "is not simply haphazard. It is a product of intelligence, resilience, self-organization and group solidarity ... ."

Sharp and self-organizing describes the inventive Inca entrepreneurs found in Peruvian economist Hernando De Soto's 1986 study of informal markets, "The Other Path." So System D isn't new; it is simply the path of least resistance productive people take when they confront discriminatory access to the formal economy.

Tracking System D is tough since it operates -- usually for legitimate and morally grounded reasons -- beyond the reach of what I'll call "authorized regulatory administrations." However, a system that creates wealth in dire circumstances and pumps out $10 trillion a year certainly demands the attention of economists, investors and political leaders who really want to understand wealth creation.

Because their success or failure fundamentally depends on how they dynamically influence wealth creation, government economic policy and tax policy are second-order subjects. You wouldn't know that scanning political headlines.

Apparently Greece's government still doesn't understand that spurring entrepreneurial creativity is absolutely essential to economic recovery. In a recent Bloomberg View economics column, Megan Greene dismissed headlines touting a Greek turnaround. Greece's business operating environment "remains unattractive because of high levels of red tape, an unstable regulatory environment, an opaque legal system" and judicial corruption.

Greene's list of Greek business afflictions would resonate with Neuwirth's System D entrepreneurs. Rejecting poverty, they operate beyond the reach of crooked politicians levying confiscatory taxes. Rejecting poverty, they sidestep expensive legal business registration costs.

Fair bet The Great Recession and our onerous "authorized regulatory administrations" have vexed American debrouillards. Indeed, our System D has grown. In a recent New Yorker column, James Surowiecki asked why Americans didn't report $2 trillion in income to the IRS. Economist Edgar Feige mentioned red tape and distrust of government. Irked Americans want to avoid regulators' "elaborate hoops."

Surowiecki bewails lost tax revenue and the social hazards tagging underground economies. However, he is oh so reluctant to confront the source of Yankee debrouillard distrust: a self-serving political class overseeing self-serving administrative bureaucracies selectively enforcing a burdensome and opaque regulatory regime.

America isn't Greece. Not yet.

Washington Examiner Columnist Austin Bay is nationally syndicated by Creators Syndicate.

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Austin Bay

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The Washington Examiner