A protégé of Steven “Freakonomics” Levitt gets under the skin of Chicago’s
underground economy. It’s a pity he didn’t have a better editor
Diane Coyle
Off the Books: The Underground Economy of the Urban Poor by Sudhir Alladi
Venkatesh
Harvard University Press $27.95
Chicago has an irresistible allure for social scientists, and no wonder. Its
university, one of the worlds great research institutions, has some of the
grimmest of urban ghettoes right on its doorstep on the citys South Side.
Chicagos most famous (or notorious) economists drew free market lessons
from this daily drive-by brush with poverty. Nobel laureates such as Milton
Friedman and Gary Becker made Chicago economics a byword for the proposition
that the economy and society in general can be understood as the outcome of
individual rational choice. Then Steven Levitt, in his bestseller
Freakonomics, delved more deeply into the ghetto to debunk the Chicago
school free-to-choose account of why so many young African-American men opt
for drug dealing as a career (rather than, say, investment banking).
Or rather, Levitt delved by proxy, drawing on the research of a young
Chicago sociologist, Sudhir Venkatesh. Venkatesh (now a professor at
Columbia) spent years hanging about in the poorest parts of the city. He
observed Southsiders at work, at the shops, at home, at play. He conducted
surveys among the small businesses. He interviewed pastors and politicians.
Off the Books is his account of this detailed web of daily life.
We get our ghetto tour from the perspective of a few key individuals, with
whom Venkatesh clearly spent a lot of time. One is a mother and de facto
community leader, just about scraping by in a legal job. Another runs an
“off the books” auto repair shop. They in turn introduce us to their
neighbours, friends and enemies through the recounting of specific
incidents, such as the local gang leaders decision to move his selling
operations into a park used by local kids after school. Venkatesh goes on to
analyse the implications of each incident through local surveys and further
interviews.
The central point of this series of narratives is that economic and physical
survival in the inner city is made possible only by operating outside the
structures and institutions of the formal economyand that that necessity in
turn traps the community in informal or illegal economic activity. It is not
just that many people make their living from drug dealing and extortion.
Paying tax, offering vacations and health insurance to workers, satisfying
safety regulationsany of these burdens imposed by undertaking otherwise
legal activities formally would make them economically unviable. Almost
nobody in the area can lead a life thats legitimate by the standards of
middle America, because nobody else in the community does so. The only way
even to buy a meal or get a haircut is to do so off the booksor to move out
altogether. This trap is only reinforced by the inadequacy of the areas
infrastructure, policing and public services, which further increase the
hurdles in the way of in formal and legitimate economic activity.
At the same time, the book paints a detailed picture of the informal but
highly effective regulation of the off-the-books economy that emerges from
social relations in the community. Just as in the overground economy,
reputation, personal contacts and social power structures determine peoples
economic success or failure. “Social capital,” as this network of social
relationships is usually described, is both a vital source of economic
opportunity and a barrier to alternative and better ways of making a living.
Venkateshs detailed account illuminates the efforts of some economists
(including Levitt) to explain the persistence of deprivation and poverty as
a vicious circle in which individuals are trapped by particular
institutions. Conventional policies, especially those which assume poor
people are making free choices, do not address the multiple adverse
incentives which discourage individual effort.
Despite Venkatesh’s heroic research and information-gathering, however, Off
the Books has two flaws. The minor one is that it could have done more to
set his observations about the Chicago community in a broader analytical
context. For example, once we observe that a strong sense of community both
helps people survive and traps them in dangerous and unrewarding means of
survival, how should the South Side experience inform our views of the role
of institutions and social capital in determining economic wellbeing? To the
extent that Venkatesh comments at all on the role of government, he clearly
regards the absence of state intervention as the South Sides problem.
Policing, street cleaning, schools, safe public spacesall the
government-provided amenities of middle-class communities are absent or
inadequate here.
Yet Venkatesh’s examples show that the presence of government intervention
is a problem too: small businesses in poor communities cannot afford to meet
the many regulations imposed on them; the tax take from a low pay packet is
so great that people prefer to work for cash; local politicians will help
only those who can pay. Whats more, the underground economy is in fact far
smaller in the US than in most European economies, presumably because the
overall tax take is lower and the burden of regulation lighter, although the
pockets of informal economic activity are highly concentrated in the US. If
we want to explain the map of poverty and devise effective policies to
tackle disadvantage, they will have to be informed by detailed sociological
research of the kind reported in this book.
Venkatesh is clearly more interested in the storytelling. But the books
major flaw is that he turns this golden material into an absolutely leaden
read. There are some obviously wonderful narratives, all derailed by the
lumpen prose of the academic sociologist. A good editor could have made this
a much better book, perhaps a classic, but the publisher hasnt even
bothered to correct spelling mistakes and minor typos, never mind help out
with the organisation of material or clarity of the prose.
This is still a must read for anyone interested in shaping policies which
can reduce urban poverty and alienation. But it pales by comparison with
another classic of Chicago ghetto sociology, Eric Klinenbergs “Heatwave”
(University of Chicago Press, 2002). Heatwave takes the birds-eye view,
using statistics and secondary sources to tell the tale of political neglect
and entrapment in poverty, but its a compelling account even without the
first-hand experiences like those Venkatesh reports. Which is a real shame,
because Off the Books is the first book Ive read since Heatwave which has
been so thought-provoking about what exactly determines the individual
decisions which, added together, make economies succeed or fail.
URL- http://www.prospect-magazine.co.uk/article_details.php?id=8245