Thursday, May 17, 2012

Going Underground

Even as more and more people get ejected from the money/cash economy, they still need to sell their labor power to survive. What is often forgotten is that these people will not just die and mysteriously vanish, they will do what they have to do in order to survive. Increasingly, this means turning to the underground economy, a topic we've covered here before.

The New York Times has a fascinating story about how the Spanish economy is doing just that. What's especially fascinating about it is how much it seems like the evolution of a future economy. People are working out of their homes and undercutting "official" businesses, since there is no overhead, waste or tax. As more of the economy moves off the books, tax revenue is lost, causing the state to shrink even further. This is causing the Spanish state to try and squeeze the little guys for more tax revenue. The Spanish workers for their part are avoiding this, probably seeing governments as little more than a means to transfer wealth from citizens to the international bondholder class outside of democratic control. What we're seeing is the slow erosion of both capitalism and the nation state. I think this will continue to spread across the world, as debt swallows both businesses and governments. Where this will lead is anyone's guess.
SEVILLE, SPAIN — More than six months ago, a 37-year-old worker here named Juan was laid off from his job delivering and assembling furniture for customers of Ikea, joining the legions of unemployed in Spain. Or so it would seem.

Since then, Juan has continued doing more or less the same work. But instead of doing it on the payroll of Pantoja, a transport subcontractor to Ikea, he hovers around the parking lot of the megastore, luring customers of his own by offering not only to deliver their furniture but also to do “general work,” like painting and repairs, all for the bargain price of €40, or $51, a day.

“I will do anything except electricity and plumbing, where I really don’t have enough expertise to guarantee a safe and decent job,” said Juan, who did not want his full name used because he does not declare his income and did not want to run afoul of the tax authorities.

As Spain’s recession deepens, more workers like Juan are being shunted into an underground economy that amounts to as much as a fifth of Spain’s gross domestic product, according to some estimates, with broad implications as the country tries to revive itself, reform its labor market and keep at bay the kind of wrenching crisis that now threatens to push Greece out of the euro zone.

The happy news is that the size of the underground economy means that more Spaniards are working than it might seem, and that the official unemployment figure of 24.4 percent — the highest in Europe — may be overstated by as much as five to nine percentage points, economists say. That has given the Spanish government an important safety valve.

“Without the underground economy, we would be in a situation of probably violent social unrest,” said Robert Tornabell, a professor and former dean of the Esade business school in Barcelona. “A lot of people are now staying afloat only thanks to the underground economy, as well as the support of their family network.”

The downside is that fewer workers are being taxed, even as many also collect unemployment and social assistance benefits, placing Spain’s government in a tightening pincer of shrinking revenue and expanding outlays. The missing revenue may be as much as €37 billion, economists estimate.

The dynamic is accelerating wage and price deflation, as workers do the same jobs for less, cutting the costs of services but also reducing the amount of money they earn to put back into the economy as well as the government coffers.


Meanwhile, in Andalusia, where the official unemployment rate of 33 percent is the highest in Spain, the black market is thriving. The walls and lamp posts of its largest city, Seville, are plastered with personal ads, offering all manner of services, from gardening to computer repair work.

Flea markets are flourishing, too. Patricia Aragon Llamas, 31, shows up every weekend at the Charco de la Pava market to earn about €50 selling second-hand clothing and shoes.

“This market has doubled in size in the past year,” she said. “I’ve got a 3-year-old child and an unemployed husband, so I’m really beyond thinking about what’s legal or not, as long as it brings in a bit more money.”
Spaniards Go Underground to Fight Slump (The New York Times)

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