Ghetto "Capitalism"

Friday, December 08, 2006

There is an article over at Slate about Off the Books: The Underground Economy of the Urban Poor, by Sudhir Venkatesh, whom readers of Levitt and Dubner's Freakonomics might recall as the unorthodox economics student who immersed himself in ghetto life in order to understand the economics behind drug dealing.

The review seems to treat the book fairly and, in turn, the book seems to avoid drawing too many unwarranted similarities between the underground ghetto economy and actual capitalism, despite the presence of the term "capitalism" in the title of the review.

On that one residential block, Venkatesh focuses on three women: Bird, a prostitute; Eunice, an office cleaner who sells home-cooked meals on the side; and Marlene, a nanny who is president of the block's neighborhood association. (All the names in the book are pseudonyms.) The women share tart observations about their respective livelihoods: Bird thinks gangsters should "let the pimps show them how to run a business." Through them, we come to meet a diverse cast of locals, "nearly all linked together," Venkatesh writes, "in a vast, often invisible web that girded their neighborhood. This web was the underground economy."

Licit and illicit economies tend to be entwined, and in a closely knit urban neighborhood, this mutual dependence means that public-minded civilians and hardened criminals are regularly forced to negotiate. In the spring of 2000, an entrepreneurial gang leader, Big Cat, was elevating the criminal activity in a local park. Marlene and a preacher, Pastor Wilkins, arranged a tense summit with the kingpin in a church basement. Venkatesh talked his way into the room and watched as Big Cat agreed to stop peddling drugs in the park during after-school hours. For this concession, Pastor Wilkins promised to persuade a nearby store owner to allow Big Cat's gang to deal in his parking lot, and Marlene agreed to ask the cops to leave the dealers unmolested in their new location.


If Venkatesh sometimes marvels at the ingenuity of the people he writes about, he does not overlook the essentially tragic nature of the story he is telling. The depredations of daily life mean that for many residents, what Venkatesh calls the "perceptual horizon" does not extend beyond the neighborhood. Sadder still, it doesn't reach beyond the struggles of the day to day. Bird, Eunice, and Marlene each envision a leisurely future of comfortable retirement. But none is clear on precisely when and how that future will come to pass. In the meantime, they hustle to get by, and the hustle means relying on one another. "You have to do things shady," one local businessman tells Venkatesh. "Well, maybe not shady like committing a crime, but shady like you depend on each other." [bold added]
A big problem with many pro-free-market economists is that they do not consider the moral aspects of capitalism and it would be interesting to see whether Venkatesh makes the same error, and whether he in fact regards how the economy works in the ghetto as "capitalism" or merely sees elements of capitalism at work there.

It is worth noting that (setting aside whether such activities as drug use and prostitution should be illegal) the fact that so many people pursue illegal activities in the ghetto means that these people are subject to blackmail on the fear of being turned in to authorities. This fact alone makes the police one's enemies in the sense that an arrest or a fine can, at any time, destroy one's plans, whatever degree of planning or creativity one has managed to exercise.

Furthermore, this makes many people less likely to take the recourse of being aided by the authorities when they should. Whatever "free market" mechanisms exist in the ghetto, they are only manifestations of the way economies not under central control work. But capitalism is more than the absence of central planning: it is the protection of individual rights by the government, and this is severely compromised in the ghetto. In a truly capitalistic milieu, there is no need to negotiate with criminals, for example, as they usually end up where they belong: behind bars.

Thus in the ghetto, the "perceptual horizon" and short-range thinking become the inevitable result of its inhabitants' lives not being free from the threat of the initiation (or lawful retaliatory use) of force. If crime doesn't pay, neither do criminals make profitable partners.

I am tempted to read this book. Will Venkatesh make connections like these? Perhaps, but even if he does not, his book promises to provide lots of good data for anyone else who can.

-- CAV

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