Underground Economy

Underground Economy
Peter J Hill, Christianity Today

Not many sociologists enjoy name-recognition outside the confines of their profession. Sudhir Venkatesh is an exception. His 2008 book Gang Leader for a Day: A Rogue Sociologist Takes to the Streets, published by Penguin Press, has made him an academic celebrity of sorts. But before this popular book, Venkatesh published academic studies of the drug trade, high-rise public housing, and—in 2006—’the underground economy of the urban poor.’ Indeed, the last of these, Off the Books, could be regarded as a companion volume to Gang Leader for a Day. Between 1995 and 2003, Venkatesh gained the trust of residents in an area of ten square blocks that he calls ‘Maquis Park,’ a ghetto neighborhood on the south side of Chicago. During this time he walked the streets, interacting with store owners, drug dealers, pastors, street hustlers, and other interesting characters.

The world that Venkatesh describes in Off the Books has surprising similarities to middle-class America. People struggle with numerous constraints, but they find that production and exchange are at the heart of survival and that entrepreneurial talent and the ability to deal with complex social situations lead to success. This is not a world in which there is no order, or where most people simply while away their time waiting for someone else to meet their needs.

Many descriptions of ghetto life focus on certain pathologies that create economic and social problems, and those may well be important in explaining why life in Maquis Park differs in certain respects from much of the United States. Certainly the high number of female-headed households and the lack of male commitment to children and family have had a significant effect on the economic situation in this neighborhood.1 Venkatesh reports that in one block, 16 out of 21 inhabited housing units are headed by females, and in another only two of 22 households have a nuclear family arrangement. A number of commentators have argued that pervasive attitudes toward work and social relations hinder economic development among inner-city African Americans, and they would find plenty of evidence to confirm their views in Venkatesh’s account.2 Nevertheless, Off the Books is replete with examples of entrepreneurial energy and what Robert Putnam calls ‘social capital.’

In Maquis Park, the border between licit and illicit behavior is murky, and many residents operate in both the legal and illegal sector. Yet much of what is technically illegal—for instance, taking jobs ‘off the books’—would be considered legitimate in other settings. Take the example of James Arleander (a pseudonym, as are most of the names in the book). James has an alley-based car repair business, patronized both by residents of the community and by people from outside. He is able to do oil changes, brake replacements, and other minor repairs despite his lack of a permanent facility or even a secure place to store his tools. But the city of Chicago has no record of his business, and there certainly are no OSHA inspections. A woman in the neighborhood supplements her welfare payments by producing soul food in her kitchen for numerous members of the community, without meeting any of the multitude of health regulations governing food preparation. There are ‘legitimate’ businesses in the region—a hair salon, a hardware store, and another car repair business that has a fixed location, although it takes most of its payments in barter rather than in cash—but even all of these draw heavily on the informal market for labor services. Several restaurants and convenience stores survive, and there are also the drug dealers and places where guns can be purchased, as well as the pimps and prostitutes who frequent the area. Even the homeless are often engaged in economic activity, sometimes sleeping in a store in order to prevent theft, at other times performing menial tasks for shopkeepers or selling goods in the local park.

The most impressive thing about the economic activity of Maquis Park is the social order that is both produced by and necessary for such a functioning underground economy. Informal enforcement of codes of conduct and contract fulfillment occur through repeat dealings that strongly reinforce the importance of reputation. Local pastors serve an important arbitration function among residents, and the local drug lord uses his power to prevent anarchy. The overall picture is one of a thriving, functioning economy where informal rules and extralegal enforcement mechanisms have created enough order for a reasonable level of production and exchange to occur.

This small-scale society, like much larger societies, struggles with the perpetual problem of creating a structure that can employ coercion when necessary to maintain social order while yet limiting that coercive power to its appropriate function. Marlene Matteson, a widowed mother of three, is one of the local community leaders who enlists the services of a local pastor to arrange a weekly group meeting with Johnny ‘Big Cat’ Williams, the leader of the neighborhood gang. Marlene wants Big Cat to keep his drug dealers out of the local park in the afternoon when the children are coming home from school, and also wants to limit the areas in which pimps and prostitutes work. For several years Big Cat, who depends upon a certain degree of community trust for his activities, is willing to use his coercive power to enforce the extralegal arrangements that Marlene, her friends, and Pastor Wilkins want to see in place. Unfortunately, over time Big Cat decides that he needs more power and more revenue and starts to extract larger payments from legitimate businesses. He also becomes less willing to enforce the agreed-upon rules with regard to the local park and the streets, where much of the community activity takes place. The other informal third-party arbiters find that Big Cat’s desire to extract more from the community gradually destroys their ability to enforce contracts and secure order.

In this respect Maquis Park turns out to resemble the underdeveloped parts of the world. These societies, like Maquis Park, enjoy a thriving internal trade and rely upon a set of informal rules that govern exchange. Unfortunately, despite the proximity of much richer societies, localized exchange networks in the undeveloped world typically lack a governance structure that enables access to the world of impersonal exchange, a world that allows for the specialization and gains from trade that move people out of poverty.

Maquis Park seems to get the worst of its relationship with formal government at two levels. The police enforce certain rules within the community, dealing with crimes of major theft and murder, but don’t seem to be trusted enough to play much more than a minimal role. It is clear that formal government is failing to perform its basic functions of protection of life and property and enforcement of contracts. At the same time, the heavy hand of the regulatory state extends deep into the community. Minimum wage laws, requirements for contributions to pension funds, workplace safety and workman’s compensation legislation, and the like have the effect of making legal jobs cumbersome and costly. Hence, every legitimate business finds a major part of its labor supply in the illegal sector; it’s much easier to hire people under the table than to fulfill numerous requirements for hiring a legal worker. In short, Maquis Park gets the costs of modern government with few of the benefits.

Perhaps another scholar will take up the challenge implicit in Off the Books, teasing out the lessons of Maquis Park and similar neighborhoods for American society more generally. The result might be different from what we’ve been taught to expect.