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Monday, March 5, 2012

The gift of renewing our perspectives

Just the other day I came across an article about underground banking. You may wonder why I would be interested in this topic, but it may soon become clear. First a quick explanation: underground banking is a form of service that falls outside the formal financial system. Oftentimes it involves the transfer of funds to other countries with as one of its most important objectives: tax evasion. Underground banking is considered part of the informal sphere of service, because governments have not figured out a way yet to tax it.

In the past few months I became fascinated with this whole "formal" versus "informal" economy thing. Sounds stuffy and boring? I thought so too in the beginning, but as I looked into it some more, I began to realize how much it means to our overall human wellbeing. My interest in the formal and informal economy got awakened when I had to develop proposals for presenting at a conference later this year. The topic was – you guessed it – the formal vs. informal economy! At first I thought, "Okay, this is not for me, because the subject is far from my bed!", but as I thought about it I began to see how much it concerns us all. So I gave it a shot, developed some proposals, and lo and behold: they got accepted!

Now, I will not bore you with details, but just share with you the dominant theme of my proposal. It's actually a question: can we still draw a clear line between formal and informal spheres? Our world has changed so much over the past decades: actions that used to be in the "informal" sphere are considered "formal" today, vice versa. A simple example of informal and formal spheres is a producer of homemade cookies or fruit juices. In the past everybody could prepare these things and take them to the neighborhood Mom-and-Pop store to have them on display there. Today you need to go through several motions: you need a license and formal visits from government bodies who will determine whether you have what it takes to engage in this small trade.

So, an "informal" sphere has been dragged into the "formal" arena, and can now be monitored," but most of all: it can be taxed! Then there are other economic activities that used in the formal atmosphere which are now well on their way to the Stone Age. Think of travel agencies and postal services. The Internet has made much of these activities obsolete. I now book my flights through Priceline or Hotwire, and rarely send a letter by "snail mail" anymore. For packages I (and millions of others with me) frequently use the privately coordinated mailing services of FedEx and UPS, so the formal postal service is fading. And yet, jobs in the formal
sphere are, on average, regarded higher than those in the informal sphere, because the informal sphere is usually born out of necessity: it shrinks when the economy blooms, and flares up when the economy is on the down.

The reasons why formal spheres are praised - often undeserved, by the way – has, in my opinion, much to do with control. Governments want to "monitor" activities, so they can demand taxes, and that is just easier in the "formal" sphere. Unfortunately, many people earn much less in the formal sphere than those that work in the informal sphere. As you may have gathered by now, the "spheres" are a product of our civilization. Truth of the matter is that many services in the formal sphere should undergo a serious, critical, conscious re-evaluation, because what is so respectable about producing weapons or cigarettes, which cause death and destruction? And what is so inferior about homemade crafts, or even prostitution, if they or responsibly executed (as in some countries), provide income, and reduce crime? The world is changing, and we can no longer cling to dusty, obsolete mindsets.


In my opinion there are no formal (white) or informal (black) spheres anymore today; just different shades of gray. What do you think?

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