The Return of System D

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Robert Neuwirth, author of the book Stealth of Nations: The Global Rise of the Informal Economy, refers to a “System D.”

In a non regulation-sized nutshell, System D refers to the world’s unregulated, non state-sanctioned economy. And it is, in many ways, where the real action is. One of our Fellow Reckoners, responding to the above introduction, offered the following observations:

“Subcontractors work for cash. This lessens taxes, workmen’s comp, insurance, and withholding costs. Many shops run cash sales without sales taxes, like camera shops at the wharves in San Francisco. Farmers’ markets sell food without overhead or taxes. This will all be increasing geometrically…”

To be sure, this is the real wild west. A kind of frontier market where innovation flourishes and the natural, evolutionary forces of creative destruction are left to sheriff the town, themselves ungoverned by the arbitrary whim of world-improvers and their insufferable ilk. As such, the system is not without its failures. But nor is it without allure. Continues our reader:

“More and more people will be tempted to take the risk of government action against them, because it is better than starving, and the more people who work outside the system, the harder it will be for the government to force compliance with the myriad regulations and taxes which are a barrier to entry.”

Seems a valid point to us. Think of how much more competitive individuals working in the area between the Atlantic and the Pacific Oceans (say) would be if they were allowed to conduct business with whomsoever they wished and on their own, mutually agreed-upon terms. Millions of job-seekers could be put to work immediately. The state-sponsored unemployment problem would disappear overnight. It’s not as if there is no work to be done, after all.

This line of thinking begs the obvious question: if one could voluntarily contract work between two or more willing individuals, why involve the government at all? This is the basic concept behind System D. The state, as we know, is nothing but the ultimate, glorified middle man. And costly, too! For the benefit of having this “silent partner” – who, by the way, contributes absolutely zip to the start up of your business, neither in time, nor capital, nor to the ongoing production of it – you will be charged roughly half of your total profits. Moreover, you will be expected to act as the unpaid accountant and tax collector for this partner, who demands that you withhold wages from your employees so that it may confiscate them later. Who would voluntarily agree to such demeaning, demoralising deal?

As it turns out, the state itself knows exactly how many people would “opt” for its services if actually given the freedom to choose. How do we know this? The actions of the state tell us so, and clearly. If you know somebody wants to do business with you, if you are confident you are offering a valuable good or service at a competitive price, do you hold a gun to your potential customer’s head? Of course not. But that’s exactly what the state does when “offering” its “services.” It says, without apology:

You will use our currency, and no other, or we will label you a “domestic terrorist” and throw you in jail. You will carry our identifying documents, and no others, or we will not permit you to leave these boundaries (as defined by our wars with other states). You will surrender a certain portion of your private property to us annually, or we will lock you up. And if you try to escape our cage, you will be shot.

Does that sound like a confident businessman striving to provide the best service for his customers? Hardly. This is more like the behaviour of a jealous, insecure megalomaniac. As far as “silent” partners go, the state is more screaming, bellowing psychopath than hands-off onlooker. And, we hasten to add, it is armed to the teeth.

All in all, it’s a nasty affair this statism. Which is why System D is so very appealing for the millions of individuals who, despite the threat of the state and its various means of violence and coercion, decide to do business without its foul, unwanted blessing anyway.

Now, before readers disparage the “black market scourge” as merely a bunch of crims, cons and bloodsucking shysters lurking on in the shadows of civil society, allow us to consider the true nature of its participants. They could be anyone from a 4-year old lemonade vendor who decides to set up camp on mom and dad’s front lawn without the necessary government permit, to a peer-2-peer cyber crypto-currency currently enabling millions of dollars worth of transactions between freely-associating individuals around the world. And any of the brave, freedom-loving individuals in between. Simply, it consists of people who don’t hold guns to other people’s heads in or der to conduct business with them.

Besides all that, if its crims, cons and bloodsucking shysters that are cause for concern, one need look no further than Washington D.C. and the various capital cities around the world where the rest of the guns-for-hire reside in taxpayer-provided comfort and leisure.

To furnish but one recent example: In the “Land of the Free, Home of the Brave”, a Nobel Peace Prize-winning president and the “Leader of the Free World,” who also happens to be an expert in constitutional law and who spent a dozen years lecturing on the subject at the University of Chicago Law School, signed into law the National Defense Authorization Act, thereby granting himself – and future presidents – permission to incarcerate, indefinitely and without their recourse to counsel, trial or due process, any American citizen he or she deems, unilaterally, to be in need of detention…Great Writ be damned.

In a deafening act of bi-partisanship, the bill arrived on the president’s desk as passed by a “deeply divided” Congress…with overwhelming majorities in both the House and the Senate.

Arguing that free markets won’t work because there will still exist exactly the kind of morally bankrupt persons currently enjoying institutionalized positions of power is circular logic at its finest. Free markets don’t promise to get rid of these worms. They just promise not to provide an unchallengeable framework through which they may be promoted to the highest seats in the land…then gifted your tax slave number in the one hand and the nuclear codes in the other.

Publisher’s Note: Joel Bowman is the Managing Editor for The Daily Reckoning USA (www.dailyreckoning.com)

This article originally appeared in The Daily Reckoning USA.

Joel Bowman
Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.
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