Underground Economy is the Engine in Poor Neighborhoods

New America Media, Q&A, Annette Fuentes Posted: Jan 28, 2009

Editor's Note: Sudhir Venkatesh is a sociology professor at Columbia University who has spent a decade studying a southside Chicago neighborhood where the informal or underground economy is an integral part of the local economy. His book, "Off the Books: The Underground Economy of the Urban Poor," described the complex network of informal businesses—some illegal, like drug dealing, and others simply operating under the radar of regulators, like child day care operations. NAM editor Annette Fuentes spoke with him about the state of the underground economy in that Chicago neighborhood and other neighborhoods around the country as the economic recession squeezes Americans ever tighter.


sudhir Venkatesh In "Off the Books," you focus on a poor, inner city neighborhood and its underground economy. But what about middle-class communities? Don't they have informal economic activity?

I don't think you can go to an urban or suburban neighborhood, rich or poor, black, Latino or whatever, and not find some semblance of an underground economy. The key difference is that in most neighborhoods where there is illegal activity that generates income, it's not accompanied by conflicts. With kids selling lemonade, usually not a lot of things go wrong.

In the inner city, folks have to figure out how to make money but also how to deal with things going wrong. That means creating their own government-- some would say taking the law into their own hands. But it's creative, and, most interestingly, people have their own ethics and codes and morals.

Why is that surprising?

You won't find many social scientists who would pay attention to that. Usually, it's about the extent of illegal activity and why it's harmful to the community, how much money is lost to the government in taxes. We have a history in social science of defining poor communities in absentia, what's missing. It's an impoverished way of looking at these communities, using middle-class standards to define them, that's very limited.

Do you keep track of the Chicago neighborhood? Are they also hurting as the recession gets worse?

My research in Chicago is ongoing. I go back every month to keep tabs on them. The stereotypical way of looking at it is that they are so poor that the bad economy won't make dent in their lives. But that's not true. When the economy is good, people working off books can find lots of work. Now, they are finding that there is not a lot of work for them. They don' t have the safety nets most people have. [You] can be a nanny for 20 years and laid off and [you] won't get unemployment.

I had three dozen day-care workers, and about 25 are out of work. They were working for middle-class families, and the families had to cut back.

The one area that doesn't get lot of attention is immigrant neighborhoods, where people are exchanging credit, buying and starting businesses together. Those neighborhoods have felt a tremendous impact in terms of the recession. They are hurting. In New York, you would see Latino neighborhoods suffering quite a bit.

Will the economic crunch lead to more illicit activity in the underground economy?

Not necessarily. I'm hoping we'll have jobs programs. Government programs tend to help people who do manual labor. The people who do work off the books could find work that matches their skills. But in this climate I'm not sure it will happen.

I'm focused on antipoverty strategies now. So many of our jobs are non-union and they don't have the classic worker protections, so we're seeing people moving into poverty faster than we've seen before. We need to put in real safety nets for people living doubled up, working part time and multiple jobs.

A chain drug store here in San Francisco keeps its toiletry items locked away because of organized bands of shoplifters who sell the stuff to mom-and-pop stores, which are otherwise legitimate businesses. Is that kind of blurring between the legal and informal economy common?

off the bookThe retail sector is a great way to see the blurring you're talking about. Small stores give people credit when they are short on cash, and when those people buy on credit, they may come back say, 'I don't have the money, can I wash your car in payment?' That's another informal economic exchange. We know in recessions people shoplift. So small stores have to hire a guard. But they can't really afford to, so they hire a homeless guy from down the street who works for food. It just keeps going. It's a kind of economic engine that goes in cycles in poor neighborhoods and helps people out.

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