Thursday, April 09, 2009

The Underground Economy and Developing Markets

Tom Barnett points a Wall Street Journal piece on developing markets and the underground economy. The article suggests that the poor in developing countries turn to the underground during economic downturns and that economists now believe this can be a positive response despite the fact informal businesses don't pay taxes and can't easily raise capital to grow.

While the article is a great reminder that entrepreneurialism thrives amongst the poor in the developing world, that it thrives in the underground should also serve as a warning to bureaucrats. Given that much of the entrepreneurship is out of desperation rather than aspiration, it should be of particular concern that entrepreneurs believe the costs of formalizing outweigh the benefits.

No comments: