Keith Hart on Fri, 19 Jul 2002 14:24:09 +0200 (CEST)

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Re: <nettime> Deflation, anyone?

>I'm not even sure how to ask this: but is there any way of
gauging the extent of "illicit" and/or "escaped sectors"
of The Economy? I've a nagging suspicion, coupled with known
instances, that a relatively large proportion of the global
populace operates in a vastly different/indifferent
financial climate, and that the global economic rhetoric is
a needlessly servile ruse.<

There is no way of quantifying the global informal economy, but it is
possible to conceptualise its constitutent parts and relations with the
official economy, as well as throw in anecdotal and research-based

To start with the last, a number of studies are currently being carried out
under the auspices of the Ministry of Culture (sic) into the informal
economy in France. There is a flourishing illegal trade in cars and car
parts for Africa based on Marseille and Montpellier and run largely by
North Africans. This trade extends into Germany and Belgium. It is so large
that the whole shape of the French car industry has been altered to
accommodate it. The participants operate without papers, taxes and other
impedimenta of bureaucracy. They see the networks they are developing as
part of a re-islamization of the Mediterranean. There partners include
Russian and Latin American mafias. It may be recalled that the Mitterand
presidency's slush fund (used among other things to help out with Kohl's
electoral efforts) also depended on the sale of lucrative monoplies to
firms operating in Africa and that a parallel secret service and banking
system was financed by links to the oil company Elf-Aquitaine. None of this
shows up in the official statistics of course. Players at the top of the
system are just as much involved in illegal money scams as people at the
bottom. If not more so.

Illegal drugs are estimated to be the single largest commodity in the world
market. We hear often enough about Colombia, since that is the US's current
target within 'its' region. The last time I saw a report on this, marijuana
was the most valiuable cash crop in twenty US states. Every day a war is
fought on the border of Iran and Afghanistan for control of opium exports
to the West. In Jamaica during the 80s, ganja sales exceeded the three
largest legitimate exports in total (tourism, bauxite and garments)The
world's arms traffic is notoriously corrupt, much of it supplied from the
former Soviet Union. Bootleg copies of everything imaginable swamp markets
for manufactures. And let us not forget that most of the money circulating
the globe is beyond regulation by national governments. What was once a
lucrative sideline, offshore banking, is now the norm. The informal economy
has gone global since world war two.

Before asking how all this relates to what is supposed to be happening in
world markets as officially recorded, it is worth remarking on the very
large proportion of humanity who have next to no money to spend in the
first place. They live mainly from self-provisioning or from unrecorded
exchange. This sector is signifcant even in the most bureaucratised
economies. There is a small but substantial development of self-organized
exchange employing barter or local money, with Argentina the most prominent
current example. Commerical barter systems are growing rapidly alongside
e-business. The whole question of the how to regulate international
e-commerce is a further aspect of the official economy losing its grip on

So what happens to all this when deflation hits? Property (especially in
stocks) and commodities lose value and the worth of cash appreciates. The
value of access to non-marketed goods and services rises. So that in real
terms this represents a relative gain for the world's poor, since they have
less to lose. But the collapse of commodity markets affects poor areas
disproportionately, if they depend on one or two exports for all their
import consumption. Illegal markets avoiding taxes and other bureaucratic
expense are better placed to compete with official versions of the same. A
country like Japan is tremendously vulnerable to world deflation.
Competitive devaluation seems inevitable, given the isolationist tactics of
the biggest player. The US economy will benefit quickly from a lower
exchange rate -- its own exports will be more competitive and the world's
money will soon enough return to buy propertythere at bargain prices.This
is after all what happened in the 80s. What produced the Great Depression
was protectionism. Capitalism was still national then. As long as money and
commodities can still circulate relatively freely in this world economy,
the various shades of its markets, official and unofficial, will adjust
sufficiently to prevent a similar meltdown. But would you bet on Bush
avoiding the pitfalls of 1931?

Keith Hart

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