Grow the Pie
The unofficial economy, aka the parallel economy, second economy, informal economy, shadow economy, side-walk economy, etc. often provides heart warming stories of survival at the BoP, but nothing to be proud of. 93% of India’s jobs! 40% of Mexico’s and Brazil’s GDP! In extreme cases like Benin, 95% of jobs and 50-60% of GDP! Europe is not immune – wondered where Greece’s problems spring from? The ‘Fakellaki’ or little envelope seems like a harmless tax evasion necessity – too bad about the tens of billions of dollars the government could have vs. having to borrow (with a steep interest).
Supporters of the unofficial economy are rooted on two myths:
- First, they say that it’s a natural progression to go from the unofficial economy to the official economy as businesses grow.
- The second myth is that the informal economy is the only way to provide jobs in rural to urban demographic shifts
Both of these myths are, of course, WRONG – tax evasion is huge and continues throughout the lifetime of many businesses and the informal economy is the cause not the solution to unemployment and underemployment – which all leads to corruption and its evil corollary, poverty (Rich nations have a lot less unofficial economy).
Beauty queens are geniuses – we SHOULD fix global poverty – it kills, it enslaves it dehumanizes. Maybe we can’t all be visionaries like Muhammad Yunus who founded Grameen bank and pioneered microloans to women villagers or Hernando de Soto whose ILD program has given property titles to more than 1.2 million families and brought nearly 400,000 firms from the informal to the formal economy. But we can try.
Before we can expect a wave of social innovation to come from large corporations, they must also learn to do away with their unofficial economy – shadow intrapreneurs hiding in their offices performing tragic soliloquies or planning their escape to startup nirvana, ignoring a huge portfolio of skills and assets that the large corporation can bring to bear in launching innovative business models.
The conditions for formalizing the untapped potential of corporate entrepreneurship include:
- The call for innovation
- Culture of shared responsibility for innovation
- Open market mechanisms
- Internet connections and face to face conversations
The fringe and the core need not be disconnected or insouciant to each other. Whether in emerging societies or within corporations, the goal should be to make people succeed because of the system and not despite of the system. It’s not zero sum – It’s how we grow the pie.