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May 10, 2012 / Green America

Strategy #7: Recognizing and Integrating the Informal Economy

The booklet “Saving the Titanic” was originally published by Paul Freundlich, founder of Green America (formerly Co-op America).   It contains a dozen green strategies for our society to avoid the “icebergs” of climate change, nuclear catastrophe, economic collapse, and other ills.  Today, we excerpt Solution #7, and over the coming days, we’ll share the rest of Paul’s solutions:

In the poorer nations of the world, GNP ignores the self-sufficiency of communities, barter, and financial transactions that are undocumented and untaxed. The scale of these transactions ranges from growing one‘s own food and trading chickens for medical care, to prostitution and the drug trade. The traditional charm of the informal economy—reliance on personal trust and strengthening of community relationships—is almost as well-documented as the risks: usury, exploitation and violence. More dependable, institutional protocols may be worth giving up invisibility. In the past few decades, community investment vehicles like the Grameen Bank in Bangladesh have found mutual assurance for lending as a reasonable and reliable way of transferring money to support community entrepreneurship. A more mainstream example of the transition has been the inroads to lucrative gambling by casinos and government-sponsored lotteries.

How: Academic institutions taking the lead to identify mutual benefit; private, socially motivated investment by Calvert and other pro-active funds; governments willing to grapple with possibilities.

Result: Carefully studying the role of the informal economy, particularly in poor countries, could lead to a restructuring and encouragement of entrepreneurship along the lines of micro-enterprise lending. Serious consideration should be given to the ways in which a flow of money that presently poisons many economies and societies might be controlled and integrated. The interface between formal and informal remains mysterious, of-ten because there is a cultural divide. Crossing that divide will have a few surprises to both sides, but also potential gain.

Probability: Low. There are cultural as well as economic and political reasons for the status quo, and the criminal cartels will not go quietly.

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