What do computer consultants, immigrants and Dominican fruit sellers have in common?

We are all in some respects forced into the informal economy. I have had several people ask me why I am so interested in the informal sector throughout the world . Isn’t that just for bleeding heart lefties?

As a matter of fact no. Most of the things that push people into the informal sector was set in place of the years by bleeding heart lefties and other “the government will fix it kind of people”.

I wrote the majority of this article about half a year ago and have been meaning to finish it every since. Due to my friend Sean’s story I decided it was time to finish it.

Let me first explain why the informal economy exists.

The Formal Economy

Most countries have a bunch of systems in place to make the country run smoothly. These can be government run systems like law and regulators but often forgotten are also the privately run systems such as credit agencies, lending procedures etc. As a matter of fact these things mostly work together hand in hand.

The systems are based on fitting people into neat boxes that can be easily monitored, verified and enforced. Boxes like this are permanent employment, university degrees, established business etc. In most cases this works well. If you are an employee with a verifiable income and/or a proven record, you can normally get credit to buy a house or car or to start a business in most parts of the world.

These systems and boxes are all self enforcing. For example to make it easier to tax you the government creates rules for taxation of employment, where employers report your salary and often pay the tax on it for you to the government. This handy information is certified as a annual tax return statement (every government calls it something different). Lenders use this information to feel happy with you so they can lend you money. After a while you have a credit history built up, which allows them to feel even happier (or less so as the case may be) with you.

The lending and taxation example above is only one of many such systems that societies have built up over the years to streamline the functions of society.

What happens if you don’t fit into a box?

A mentioned above these systems depend on carefully crafted and tended boxes. What happens if you don’t fit into one? Well, normally it is either impossible or very difficult to build up a new box for you.

Some people who normally have a difficult time fitting into boxes are:

• Entrepreneurs/freelancers/selfemployed
• Immigrants
• Low income people in the developing world

This is why these groups of people tend to get more involved with the informal economy than others. As a matter of fact one of the side effects of globalization is that there are more and more people who don’t fit into boxes.

Immigrants and banks

Many places such as Panama, Britain and the US have made it increasingly difficult recently to open a bank account for immigrants and foreigners.

In Panama for example you generally need at least 2 bank references that can be very difficult to get in this day of modern internet banking. It is of course also difficult if you come from a place where it never was common to have bank accounts.

In England they normally require utility bills as “proof of address” in your name that also might be hard to achieve if you are living in a room or a hotel.

Of course many places require a national identification number as well. Which you don’t have if you are just there temporarily.

So what do immigrants do? In some countries like the US and Panama it is very common that immigrants don’t have bank accounts. They live in a cash based world for good and for bad. How do they send money home? Some through expensive systems like Western Union and others through informal Hawala systems.

Personal PayPal example

I have had 3 different paypal accounts, because they won’t accept a change of address outside a country. They wont even let me transfer existing funds from my old ones into my existing functioning one as I can’t provide proof of residence in the 2 countries that I don’t live in any more.

Shanty towns and the mystery of capital

Shanty towns are what you might call extra legal housing estates that serve a really important function in many places. I wish Denmark had them (and no “Christiania” does not count).

Robert Neuwirth has done an excellent job documenting this world in his blog and book Squatter Cities.

Basically these cities are places that are open to people who fall outside the boxes. They are not necessarily poor places as documented by Hernando De Soto from Peru. See this list of common dwelling types in Haitian Squatter Cities done by his team and click on to the estimated value held in these cities.

In the US, Brazil or anywhere else for that matter if you are poor immigrant, recently arrived from the interior selling fruit (or yourself). These places may be the only option you have. The less boxes available legally in a country send more people into these extra legal cities.

My story

I am a Danish citizen and arrived in Denmark last fall after almost 15 years abroad. Needless to say I have a nonexistent credit history here and no tax record

I have been a computer consultant for over 10 years now and it has always been preferable to work as an independent contractor for me. Not only does it give me more flexibility it normally pays a lot more as well.

This I could have done in Denmark, when I arrived but it was pretty much impossible, even though jobs and the market exists.

My biggest problem is that my wife is not Danish. To bring her here Danish immigration rules require a bunch of things that require that can certify my income through payslips and tax receipts. It also requires a rental property for a minimum of 3 years or your own home. Both of them pretty much impossible if I continued on as I would normally do.

These requirements come from the Danish immigration departments assumption of various boxes of immigrants. They assume that there are two types of family based immigrants:

• 1st or 2nd generation immigrants bringing in their teenage cousin spouses from Turkey to live forever in Denmark
• Ethnic Danish people bringing in foreign spouses to live permanently and forever in wonderful Denmark.

Now we don’t fit into any of these groups as we are just here for a temporary period. I have no intentions of staying in Denmark forever. I just wanted to save some money up and get to know a country again that I left at the age of 20.

So our only option is to squeeze ourself into the second of two boxes mentioned above.

Most people who don’t fit into the above boxes actually take the extra legal way out and move to Sweden, some of them on a purely pro forma basis. Maybe we should have done that, but it’s not worth the risk right now. So I’m stuck earning less money than normal and having to buy an apartment here in Denmark, which I will sell again in a relatively short time. (It is currently easier to buy an apartment in Copenhagen than find one with a 3 year contract.)

Why go through all that trouble, couldn’t you just leave? Well yes I am tempted everyday to book a ticket out, but due to the brilliance of the Danish tax system, there is no box for Danish tax payer with foreign spouse without permanent residence. So I have been paying way too much in tax every month since I arrived here. If we go through all the pain, they will backdate the tax returns for her and we should get a significant pile of cash back. So we are kind of stuck in this limbo without boxes. we could take the loss, but I’m starting a business up and every buck counts.

My greatest error was arriving in Denmark in the first place, my second greatest error was not taking the informal approach immediately (via Sweden) after we arrived.

Sean’s story

Something similar has happened to my pal Sean. He has been legally resident in Denmark for 7 years and worked in various startups and as a freelancer. He has never been a public burden and will very likely never be one. He has also paid his taxes and has worked on several interesting startups bringing his very considerable experience to this country.

This morning he received the following letter

You shall leave the country latest 30 days after you have recognized this decision.

The office finds that there isn’t an essential Danish business interest that your company is established in this country. In this, the office has assessed that the above mentioned company doesn’t contribute a type of company to the Danish labor market that doesn’t already exist in Denmark.

p. So basically Sean doesn’t fit into neither of the two Danish boxes for upstanding citizens. He is neither a permanent employee nor working on a large enterprise. He is a freelancer for which there exists no box in the business immigration program. They therefore cancelled his 7 year visa and he has to be gone within a month.

Of course Charlotte Christiansen his caseworker couldn’t beside all the evidence figure out why anyone wouldn’t want to fit into one of her boxes. As she is a state employee she has no need to understand this either. She is fine with Sean and me paying her salary through our taxes.

The global extralegal economy

I think we are heading towards a global virtual shanty town. I know many people who emigrate or work temporarily abroad. Many people who work outside the normal employer/employee framework and basically don’t fit into the boxes. I know the difference between someone like me who has a good salary and an illegal Dominican immigrant selling fruit in the streets of Panama City may look huge. However there are many more similarities than differences when you don’t fit neatly into societies boxes.

In the mean time Charlotte Christiansen and her know it all statist sponsors are busy reinforcing the boxes they built more and more every year leaving more and more impossible barriers to climb.

This will continue to cause us problems. Such as finding housing, getting credit and dealing with government. Luckily the free and informal markets work quickly in creating new non governmental boxes for us. We are adaptable and find ways around their desks outside of their comfy jobs. Yes this is a matter of them and us, however much we don’t want it to be. The government and bank employees are not interested in knowing how to serve us.

Gladys, Sean and me are hit with hardships but wont keep ourselves down.