Ghetto Capitalism

September 14, 2007 6:36 PM

Ghetto Capitalists At once an outsider and a welcome participant in the ghetto economy, he found that he was suddenly part of “a vast, often invisible web” of economic exchange. That web supports the residents of Maquis Park and adds a strange sort of order to their existence, tempering chaos and adding predictability to the lives of Chicago’s poor. For the most part, the people he meets seem eager to trade. It’s just that much of what they’re trading isn’t going to meet with the approval of a law-and-order Republican or a bleeding-heart Great Society Democrat.
posted by jason's_planet (29 comments total)

Pretty intersting article, even if it veers into preaching near the end about how government=gangs. I've been wanting to read that book.

I might be mistaken, but I think that the author's work served as the basis of the crack dealer chapter in Freakanomics.
posted by Bookhouse at 7:06 PM on September 14, 2007

I am currently taking a class with Venkatesh, who wrote this book. He's a cool guy.
posted by ofthestrait at 7:14 PM on September 14, 2007

Tell me about it. When I was a kid, I was hanging out with Master P, E-40, and Mr. Scarface and a couple of the guys from the Hughes Brothers American Pimp.

I have a BA in OG, an MA in Tricknology, and a PhD in Street Philosophy. My ghetto pass is cash or mash.

Ghetto capitalists? Brother, you don't know the half of it.
posted by humannaire at 7:16 PM on September 14, 2007

Yup, that's the Freakonomics guy from Chapter 3: here's a recent Q&A with him on Freakonomics author Dubner's blog. He also served up a segment on ghettonomics on This American Life: (episode page link) | (mp3 link).
posted by Kinbote at 7:16 PM on September 14, 2007

But now I'm down with Dennis Kucinch.
posted by humannaire at 7:17 PM on September 14, 2007

Venkatesh also has a film out about the Chicago housing projects where he spent some time.
posted by ofthestrait at 7:18 PM on September 14, 2007

The book is extremely valuable for its depth of understanding gained through tons and tons of field work but Venkatesh is unfortunately not a natural writer and I felt like it really became a slog halfway through. There were so many compelling narratives there that I felt would have been better fleshed out by a pro. I imagine Levitt's pairing with Dubner made his material more accesible and better paced; Venkatesh could use a bit of that.
posted by The Straightener at 7:19 PM on September 14, 2007 [1 favorite]

I'm pretty sure Bookhouse is right about the author being one of the major sources in Freakonomics. IIRC, he was the grad student who went and hung out with the crack dealers and learned that they were basically emulating corporate hierarchies within drug gangs.

I think the last paragraph of the article, where it calls for basically eliminating the differences between legitimate/permitted business dominated by the majority, and the "ghetto capitalist" businesses run without permits by minorities, are that the latter exist in a grey area where legitimate businesspeople have decided the market isn't worth the costs of doing business legitimately.

That is to say, if you eliminated the permit requirements that keep 'ghetto businesses' from competing directly with legitimate ones, the result might not be some minority-led renaissance, but might just lead to the ghettos becoming populated with Starbucks and other conventional businesses, as the 'cost of doing business' declines enough to make those neighborhoods worthwhile targets for the majority.
posted by Kadin2048 at 7:23 PM on September 14, 2007 [1 favorite]

It sounds like a microcosm of the larger economy, just run under the table. It's like a pre-modern fiefdom, with the gang as the local ruler. Fascinating.
posted by MythMaker at 7:41 PM on September 14, 2007

I've been meaning to read that book, but what's missed by the author of the Reason piece, Kerry Howley, is that it's hard for a place to thrive when everything depends on social connections. As Howley writes:

Their economic survival thus depends largely on friendships and community relations, less so on contracts and impartial adjudication... the idea that a wider economy connects billions of strangers seems utterly alien to the women and men trying to make it on the street.

What the Howley derided -- government licensure and regulation -- is exactly what allows people to perform business transactions outside of the social webs of trust and enforcement that exist in the ghetto. The environment also prevents people from succeeding anonymously... the only way they can support themselves is developing these social networks for business and protection, otherwise they won't be able to make money and will leave themselves more vulnerable to crime than they would be otherwise.

Howley is advocating for a "state of nature" situation where inability to thrive and remain protected is chalked up to an inability to negotiate the social compromises and gang enforcers perpetrated by the unregulated ghetto. Never does it seem to cross Howley's mind that the patterns and mindsets of the underground economy are what is keeping these areas down because it is a closed system that, without oversight and without the expectation of being able to conduct legal, dependable business with strangers, can't be connected to the larger economy.
posted by deanc at 7:53 PM on September 14, 2007 [3 favorites]

It's a closed system anyway. It's a system predicated on failed public infrastructure, eroded tax bases (in the old industrial cities) and decades of increasingly dense social isolation. The areas Venkatesh did his field work in were until very recently dominated by a landscape packed with highrise public housing projects, which by every informed estimation were quite possibly the biggest fuck up in the history of urban planning. The residents of those neighborhoods didn't decide to build the projects, but mostly had little choice but to live in them and had no say in suffering the consequences that naturally follow when you take the most desperately poor and pack them into small spaces and then stack them on top of each other.

The underground economy isn't there so its participants can thrive and grow rich, though some may. It largely exists to stave off homelessness and starvation. The underground economy gives those with absolutely nothing the ability to make next to nothing, which isn't exactly the American Dream realized.
posted by The Straightener at 8:47 PM on September 14, 2007

underground economy isn't there so its participants can thrive

The characterization seems almost a defense of a situation in which people, an underclass, struggles without the same recourse to protection against exploitation and injustice that the general citizenry would demand as an essential service from the "security state."
posted by nervousfritz at 9:39 PM on September 14, 2007

You want to run that by me again, Fritz? I don't quite follow.
posted by Kadin2048 at 9:45 PM on September 14, 2007

The characterization seems almost a defense of a situation in which people, an underclass, struggles without the same recourse to protection against exploitation and injustice that the general citizenry would demand as an essential service from the "security state."

You could come to that conclusion, I suppose, but I have no idea how or why you would.
posted by The Straightener at 9:58 PM on September 14, 2007

Given that the projects are being dismantled, does anyone know if the book at all delves into the question of what happens to these ghettoized economies when they are moved into mixed-income developments such as the one replacing Cabrini Green?

The explicit goal of these developments -- which only began construction in the 1990s, some three decades after the high-rise projects were targeted in the 1966 Gautreaux lawsuit -- is to give lower-income residents social access to the middle-class economy.
posted by dhartung at 11:06 PM on September 14, 2007

I'm sure Venkatesh does cover it, and I'm surprised that Reason of all publications would omit to mention it, but one key element in inner city informal economies is welfare fraud: preserving government benefits is a very salient motive for working and owning assets off the books.
posted by MattD at 5:22 AM on September 15, 2007

There's another layer that I forgot to mention-- the fact that these underground, off-the-books economies are nothing new. Plenty of immigrants got their start working "under the table" at small retail businesses. The difference is that there's no ability to transition to the main economy for people in the ghetto, only a permanent wallowing in that situation because it isn't connected to the larger economy.

one key element in inner city informal economies is welfare fraud

So that the welfare queens can pay for their Cadillac, right, MattD? As we saw in Louisiana, all of the "so-called poor" are actually making lots of money off of welfare fraud, right?
posted by deanc at 8:00 AM on September 15, 2007

I think it tends to be that they're not getting enough welfare and so on to get by, but if they got an above-table job to supplement it they would be punished for their industriousness.
posted by TheOnlyCoolTim at 8:16 AM on September 15, 2007

So that the welfare queens can pay for their Cadillac, right, MattD? As we saw in Louisiana, all of the "so-called poor" are actually making lots of money off of welfare fraud, right?

Welfare fraud is rampant. I've known a number of people who defrauded the welfare system for additional income. I knew a woman who had three kids and refused to name the father so she could collect AFDC without him having to pay child support. She also babysat (cash, of course) for several children. Not to mention that she collected rent and utility assistance for the house she "rented" from her live-in boyfriend/landlord/baby daddy. I've known a lot of people like this over the years.

The thing is that if you earn more than a pittance "on the books" or manage to save more than a modest amount the welfare system will sanction you and reduce your benefits. Fraud is a way to try an achieve some semblance of a comfortable lifestyle for many people on government benefits.

See TheOnlyCoolTim above for the short version.
posted by MikeMc at 8:57 AM on September 15, 2007

MikeMc agrees with my perception -- that there's a lot of welfare fraud but most of it at a fairly minor level and resulting in poor people being somewhat less poor.

I'm going to pull some statistics out of a hat here :-D and say that 20% of the money directed towards welfare goes to fraud and another 20% is wasted by an inefficient and stupid bureaucracy -- but still about 70% of it goes right into the "ghetto economy" and "helps the poor."

To get a perspective, I'd claim that the proportions are reverse in "defense" contracting, for example -- that 70% of the money is stolen or wasted and only 30% goes to "defense". By that metric, welfare is twice as efficient as "defense" contracting is.

Where do I get this number? Well, scan through the top defense contracts monetarily, look at the number that never worked at all, and the number that continue to consume money but have yet to deliver; then look at the contracts that worked and compare them to the costs other comparable contracts in the private sector, there's a ratio of between 3:1 and 10:1 -- and it's really not clear that the quality delivered is any better.

There are some additional costs due to working for the military -- but can those even be as great as 100% overhead to deliver the same items?

In many cases, the same part, with the same tolerances, made by the same company, but made on identical but different assembly lines with different "paperwork", will fetch three times (or sometimes a lot more) as much for the military as for industry. And that's not talking about the fact that the government typically covers contractor R&D, which in the civilian sector is usually covered by the contractor, not by the employed.

There's graft and incompetence everywhere in the system. If we wanted to close the leaks, we should start at the top where rich men continue to rob the taxpayers blind of billions in their psychopathic pursuit of profit, rather than two-bit chiselers who are stealing money thousands of dollars at a time.
posted by lupus_yonderboy at 9:56 AM on September 15, 2007

I knew a woman who had three kids and refused to name the father so she could collect AFDC without him having to pay child support.

When was that? Because things have changed recently. In the state of PA you have to pony up socials for all the fathers in order to get DPW for your children.

The problem generally isn't that the father refuses to pay support, or that the mother is in collusion with the father to defraud the system, but that the father also has no taxable income or is incarcerated. If the father is incarcerated and the mother is receiving welfare, there will be a support order lodged against him and the back support will pile up, despite the fact that he doesn't really have any way to earn an income. If the father refuses to meet a minimum payment schedule upon release another bench warrant will be issued for contempt and he'll be incarcerated again for failure to pay.

One could argue that this acts as an extra incentive for fathers to stay under the radar and working in the black and grey market. However, having worked with so many extremely poor, single mother headed families, I can't really say that the punitive nature of the child support system is unjust. Out of the 42 families on my case load at my last job I believe three mothers were actually receiving formal child support payments. In every one of those other 39 cases a child support payment would have made the difference between desperate, crushing poverty and plain old poor. The difference is significant.
posted by The Straightener at 10:12 AM on September 15, 2007

Actually, when I think about it, this article reminded me of some libertarian arguments in the 80s and early 90s that the business conducted by drug dealers in NYC's Washington Square Park showed that unregulated free markets really work.
posted by deanc at 10:43 AM on September 15, 2007

Yeah, they work really well until there's a dispute over turf and/or product quality and purity.
posted by Maias at 2:57 PM on September 15, 2007

I think the key point here is to always remember that the established markets, with their permits and licenses and everything else, all started out at some point (possibly many hundreds of years ago in the cases of some professions) as unregulated "ghetto economies." But people chose -- perhaps not all at once, individually, but over time, collectively -- to replace the unregulated market with the current one because they felt it was advantageous.

And given that legitimate businesspeople are not flocking to the unregulated markets of the ghettos (except when the product is one that can only be easily sold there, i.e. drugs), I think it's quite easily demonstrated that people prefer more regulated ones.

What needs to happen is that we need to make the established/regulated market somewhat easier to participate in, and make clear what its advantages are, not eliminate it and turn the entire economy into the ghetto.
posted by Kadin2048 at 11:49 PM on September 15, 2007

Saying that welfare fraud exists is not the same as saying thaat welfare is bad and that people on welfare are all crooks.

Chances are that people who are running businesses under the table are probably also drawing a check from Uncle Sam. Why not? You're already breaking the law.
posted by empath at 2:18 PM on September 16, 2007

20% of the money directed towards welfare goes to fraud and another 20% is wasted by an inefficient and stupid bureaucracy -- but still about 70% of it goes right into the "ghetto economy"

I hear 10% is wasted on accounting errors.
posted by electroboy at 8:20 AM on September 17, 2007

I would have to agree with those who believe there is vast welfare fraud. I know first hand at least that there is a large market for goods acquired using WIC or Food Stamps, but really who cares? If someone is so desperate that they are buying or selling milk bought with a WIC check, they probably need serious help.
posted by Pollomacho at 8:56 AM on September 17, 2007

(I agree with electroboy 110%.)

Of course there's vast welfare fraud, whether you count it in cash, milk vouchers, or housing. The general idea of welfare used to be something about bettering the poor, but most of that idealism (echoed even in the Great Society era) has now vanished, leaving only the idea that we are giving the next generation a better chance, or even protecting children from their parents' errors.

I'm not entirely convinced that the social ills caused by, say, welfare moms becoming a target for scuzzball guys to move in on (lliterally as well as figuratively) are something we want, but I think the alternative is worse.

I should mention there's probably some interesting material in my AskMe thread closely relating to all of this. I wanted to know about the economics and social structure of drug houses, basically. We had about two months of hell because of one, and I had a lot of opportunity to observe this stuff right across the street. Basically, you had one (white) woman with a job, her kids, her friend and her friend's kids -- and then all of the (black) boyfriends of both women, layabouts every one unless they were selling drugs. The men's job seemed to be finding a way to get room, board, and sex and my presumption is that this was accomplished through procuring drugs. There were also numerous hangers-on and spongers. (In I Am a Camera this is depicted as charming. I suppose ...) Nobody was rich but they always had enough beer and pot. But basically, they had no interest in joining the broader legitimate economy whatsoever -- they were satisfying their Maslowian hierarchy of needs quite well, thank you.
posted by dhartung at 10:32 AM on September 17, 2007

My impression is that when people speak of welfare fraud they'd like you to believe the Reagan era myth of the welfare queen who drives a Cadillac, when in reality most of the fraud consists of underreporting marginally high income or not telling WIC that you get some support from your child's father. So more like in the tens or single hundreds of dollars a month, instead of the thousands people make it out to be.
posted by electroboy at 11:11 AM on September 17, 2007