DAVE DAVIES, host: As many as half of the world's workers are employed in activity that's unlicensed or untaxed. It's a sprawling $10 trillion web of commerce and industry that my guest Robert Neuwirth calls the informal economy. He uses that term rather than underground economy, because most of this activity would be perfectly legal if it were registered and taxed. It isn't drug smuggling and gun trafficking, but buying, selling, making and transporting that flourishes mostly in the developing world.

In his new book, Neuwirth gives first-hand accounts of the informal economy in several countries, and argues that it thrives on entrepreneurial spirit and operates with its own codes and unwritten rules. In some cases, Neuwirth argues, the informal economy is performing basic functions that governments can't or won't, like providing safe drinking water.

The informal economy is growing, Neuwirth says, and world policymakers need to better understand its scale and impact. Robert Neuwirth is an investigative reporter whose work has appeared in The New York Times, the Washington Post and other publications. His book is called "Stealth of Nations: The Global Rise of the Informal Economy." I spoke to him last week. I asked him to begin by describing the informal economy in Lagos, Nigeria.

ROBERT NEUWIRTH: Lagos is amazing, because I had never been there. I had no way of understanding the city from outside. And I just got there, and it is the most hyper-entrepreneurial, hyper-capitalistic, hyper-busy, cacophonous, amazing place. It has a horrible reputation in the world, largely because it is hugely cacophonous and hard to understand.

But people are just busy doing business, and everyone's doing business, from the smallest scavenger on the side of the road to massive corporations. And many of them - in fact, most of them - are doing business informally. So about 80 percent of the workforce in Lagos is part of the informal economy. And that runs the gamut from, you know, people selling vegetables at the side of the road to major corporations like the mobile phone companies that do almost all of their business through informal kiosks that are little more than stick and plywood stands under an umbrella at the side of the road.

DAVIES: Tell us about some of the electronics dealers.

NEUWIRTH: The electronics dealers in Lagos - Lagos has a lot of international market. It's the largest electronics market in West Africa, and perhaps in all of Africa. And people from neighboring countries come there to buy. The dealers are importing just huge amounts, containers and containers and containers of electronics, mostly from China.

It can be very threatening to walk into in the sense that you're immediately accosted by these touts who are saying, what do you want to buy? And (foreign language spoken), which is Yoruba and Ibo for white man, and they grab your arm and they try to pull you off into someone's kiosk. And it's not a violent gesture. It's just they want to sell you something. And you can always say, no. I'm going over here. I'm going over there. And they try to make a deal with you. They want to find out what you want to buy, and they want to sell to you.

DAVIES: And I love this. You actually found a computer shop where people were actually copying and pasting and mailing those emails that go all over the world...

NEUWIRTH: Oh, yeah.

DAVIES: ...the financial scam about the...

NEUWIRTH: Well, yeah.

DAVIES: ...existing bank account in Nigeria.

NEUWIRTH: Sure, what they call 419, which is - it refers to the number, section of the penal code in Nigeria that relates to financial fraud. But basically, it's everywhere. In the local Internet center - and they are Internet centers all over Lagos, which is quite interesting in the city that doesn't have a stable power grid. They run these diesel generators that are also imported by the informal economy. And in the one that I went to often the people sitting next to me where the guys who were cutting and pasting the same letter into thousands of emails. And in fact, if I didn't dump the cache every time that I left the Internet center, I would immediately begin receiving these emails as well, because there's a copy of your email address that's embedded in the computer unless you dump the cache. So in order to avoid, you know, just massive amounts of spam, I always had to remind myself to change the protocols on the computer every time I logged out.

DAVIES: Yeah, that's cache, C-A-C-H-E. Not cash.


DAVIES: C-A-S-H. Right.

And that's right. That's the memory in the computer that's embedded in the computer, unless it's the little cookies that have different websites embed in the computer to have it memorized where you've been.

Now these merchants who have now built businesses where they make millions by importing electronic products and sell them, they're not registered with the government. They don't pay taxes. But they do have some relationship, right? They bribe folks.

NEUWIRTH: Yeah. You know, in fact...

DAVIES: Talk a little bit about the Nigerian government; what it does and does not do, with respect to regulating this economy.

NEUWIRTH: It's not exactly the case that these firms are not registered because anyone who is importing anything into Nigeria has to be registered with the Nigerian Corporations Commission. But what they are doing is futzing with their manifests or pulling the wool over the eyes of customs officials or smuggling in what they call CB or contraband or pirated goods through other ports. Like they'll bring their fake Nokia phones or fake Panasonic stereos, they'll bring them in through Cotonou, in the neighboring country of Benin, and then truck them into Lagos.

They're all sorts of ways that they do this stuff. The Nigerian government - look, basically Nigeria has oil wealth. It's the fifth largest oil-producing country in the world, and that has meant that the government is fairly flush and they don't really worry about a lot of this stuff. So as a result, there's just a lot of porousness in the system, which these informal merchants exploit and they bring in containers and containers - thousands of containers - every month full of stuff that is totally legal but never gets reported to the tax man or the customs official.

DAVIES: It's clear that, you know, millions of people are in the informal economy because they don't have economic opportunity with, you know, with so-called legitimate economy. I mean they...


DAVIES: They need to survive and this is a way to do it and they use their entrepreneurial instincts to make a living...

NEUWIRTH: Absolutely.

DAVIES: And it's made possible in many cases by government that simply kind of can't or won't regulate commerce the way it's done in other places. But it's also interesting that in at least in Nigeria you have in some respects the informal economy taking over some basic functions of infrastructure that the government just isn't up to. Like for example...


DAVIES: ...drinking water, getting clean potable water.

NEUWIRTH: Right. Absolutely. There is no municipal water system in Lagos, and there are no water pipes, really. Most rich people who have enough money to do this will dig a deep well that they call a borehole and buy an engine and a generator and pump up the water and filter it and drink it. Most poor people have to buy water. And so a market sprang up. Some very clever entrepreneurs figured out how to put water in baggies - heat sealed baggies and they were marketed all over the streets. They were called pure water and you could buy them five naira or about three or four cents for a half-liter bag. And this is a major way that people get drinking water in the city. And it was designed and implemented informally.

The government then figured out a way to make sure that the water was drinkable. And without forcing the firms to completely formalize or completely pay taxes or completely obey all the laws, the NAFDAC, as it's called, the Nigerian, essentially their version of the FDA, came up with a plan to inspect and approve the pure water production facilities. And that's been a tremendously successful plan and really guaranteed that the water was healthy for people, and at the same time allowed but in formal businesses to continue selling it. So it was quite an amazing governmental intervention that didn't wipe out an informal market but kept it going and made it better.

DAVIES: Right. Now this also strikes me as an illustration of some of the problems with having an informal economy do things that we would expect a government to do. People buy these bags of water, they bite off the corner, gulp down the water, toss the bag, and now...


DAVIES: ..they're clogging, you know, rivers...


DAVIES: ...streams and sewers. I mean...

NEUWIRTH: Absolutely.

DAVIES: I mean environmental degradation is a real issue here. I mean there's not a regular reliable power supply so people use all these gas-powered generators, there's smoke everywhere, people use these little taxis, motorcycles, you know, they're...

NEUWIRTH: Right. Two stroke engines that put out a lot of grit. It's absolutely true. Look, you know, many of these solutions are temporizing in the face of no public solution to the problem. There is no public or no massive public transportation system in Lagos, although the government has tried to intervene with some express buses, but - and so the motorcycles have proliferated and there are about a million unlicensed motorcycle taxis in Lagos. They put out all sorts of pollution. The baggies from pure water are a definite environmental hazard. And there are real problems to the temporizing solutions to the lack of infrastructure. And there really needs to be a way of figuring out how to broker in between the two sectors - the governmental sector and the informal responses to the government's lack of action, to be able to recreate something that's much more sustainable. But in the absence of a water system, I don't think it's a solution to say that people should have no water. So I think pragmatically speaking, the informal response to the lack of a water system has been great. And then you have to figure out on the back end, well, how do we make this better? How make it less of an environmental nightmare?

DAVIES: Robert Neuwirth's new book is called "Stealth of Nations." We'll talk more after a short break. This is FRESH AIR.


DAVIES: If you're just joining us, our guest is writer Robert Neuwirth. He's written a book about the underground and informal economies of the world. It's called "Stealth of Nations: The Global Rise of the Informal Economy." You know, this book is an interesting and sympathetic look at the millions of, you know, tens, hundreds of millions of people involved in this economy.


DAVIES: And I wonder if you had the chance to speak to policymakers at the top of, say, the State Department and the United Nations. Are they getting things wrong because they don't understand this economy?

NEUWIRTH: Well, I would argue that they are. I didn't focus on that end of the equation so much. I mean I spoke with some officials at various agencies. And indeed, a year ago, I was making a presentation down at a conference in Washington, D.C. co-sponsored by the State Department and the CIA. But look, the fact of the matter is that governments don't quite know what to do about this. Everyone knows it's there. Everyone is tolerating it to some degree or another, and they're not quite sure how to go about things with it, so they tend to get very punitive towards it. And, you know, I would argue in the book that punitive is the wrong way to go. We have to be looking for a middle ground where we are encouraging this kind of economic activity while bringing these folks in from the cold so that they can be part of the stable growth and improvement of their country.

DAVIES: Well, we've really been talking mostly about the developing world. How big is the informal economy in the United States?

NEUWIRTH: Well it's an interesting thing here, that the statistics is that the United States by percentage of gross domestic product has one of the smallest informal economies in the world - at about somewhere between 8 and 9 percent of our, the value of our GDP. But, of course, given the value of our GDP, that makes the United States the largest informal economy in the world with a value of about a trillion dollars. So it's actually percentagewise small, but in actual dollars huge in the United States. It's all over the place – from, you know, the guys you see waiting around for construction jobs in the parking lots at Home Depots and Lowe's, to folks selling food on the street, to swap meets where people are, you know, selling goods from kiosks. So it's all over the United States.

DAVIES: Should the government be adopting policies that are different?

NEUWIRTH: Absolutely. I mean, the government here I think has to recognize the informal economy as what it's always been in the United States, which is an incubator. Many of the major businesses in the United States started out. I mean that famous Balzi quote that Mario Puzo used at the beginning of the "Godfather:" "No great fortunes without the history of criminality." But it's kind of true, not in the criminal sense, but Dick Sears was a station agent in - along the railroad in Minnesota when he started selling watches to people on the trains, and that was the start of the business enterprise that became Sears Roebuck - that for many years was the largest retailer in the United States. Stanley Tools, Frederick T. Stanley, started as a tinker, selling tools from a mule. Van Heusen shirts started - the fellow who started the company that became that enterprise was a peddler in Philadelphia. So this has always been the case in the United States, and we have to look at it as a kind of incubator sector in our economy and figure out ways that we can assist the merchants who are selling informally rather than trying in a punitive way to drive them out of business.

DAVIES: Well, Robert Neuwirth, it's been interesting. Thanks so much for speaking with us.

NEUWIRTH: Yeah, thank you, Dave. It's a pleasure.

DAVIES: Robert Neuwirth's book is called "Stealth of Nations: The Global Rise of the Informal Economy."


DAVIES: You can join us on Facebook and follow us on Twitter at nprfreshair. And you can download podcasts of our show at For Terry Gross, I'm Dave Davies.


DAVIES: On the next FRESH AIR, a conversation with David Carr, who writes a column for The New York Times about old media and new media. He says we may be entering a golden age of journalism.

DAVID CARR: I look at my backpack, it contains more sort of journalistic firepower than the entire newsroom that I walked into 30, 40 years ago.

DAVIES: Join us.

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