Off the Books: The Underground Economy of the Urban Poor

Review by: Claudia Freeland Jolin, Director, Economic Development, Downtown Partnership of Baltimore

April 2018

Why This Book?

In 2008, Baltimore commissioned a study called “Baltimore Neighborhood Market Drilldown” to measure the untapped buying power and retail leakage due to many inner-city neighborhoods participating in the underground economy. The study provided an objective, systematic analysis of business attributes in the underground economy but only touched about the anthropology of the community. I wanted to learn more, so I picked up Sudhir Venkatesh’s Off the Books.

Off the Books

Off the Books is an exploration of the underground economy in “Maquis Park,” a fictional name representing a real neighborhood in Southside Chicago. Venkatesh’s research focuses on the structure of an underground economy, the roles of its participants, and the inherent challenges associated with conducting an underground business.

He addresses the misperception that an underground economy is simply criminal activity, by including “under the table” businesses like textiles, music, food, auto repair, and tax preparation. While these activities are usually legal, their transactions are not sanctioned, licensed, or regulated by the government. In fact, most successful businesses in “Maquis Park” are under the table, which offers flexibility in how they employ and benefit the local population. The underground economy also provides opportunity to the large population of previously incarcerated young men – who are otherwise limited in their ability to find work upon release.

While most of the community participates in lawful activities, illicit activity is rampant. The intersection between the two in “Maquis Park” is most notable. Drugs are sold at playgrounds, sex workers solicit the alleys between homes, and preachers accept donations from gangs to fund children’s programs. Underground economies exist in a cycle where businesses in “Maquis Park” are dependent on the neighborhood and in turn, the residents depend on the success of the underground economy to survive.

Reflection on Off the Books

Off the Books challenges the notion that the unemployed are truly unemployed. It isn’t that the poor aren’t working; they just aren’t working formally. For perception, homeless people of “Maquis Park” are often police informants, security guards, or otherwise regulators of the underground economy – showing that even the most marginalized members of the community perform meaningful work. It takes creativity to survive in an underground economy, however those with skill and human capital in the underground economy often have limited access to the skills required to succeed in a formal economy like navigating legal documents, accessing finance, and bridging the digital divide.

It is easy to assume that the government could just “force the community to legitimize their businesses.” But the underground economy is such a deeply rooted way of life, that without opportunity and access to resources, the long-term investment to legitimize a business doesn’t easily fit into a survival plan. Disruption of the underground economy coupled with the persistent systemic issues associated with concentrated poverty, would cause the community to collapse and cease to exist.

From the top down, Small Business Administration assistance, enterprise zones, and start-up capital, fail to connect to the extremely poor. Yet underground economies exist because from the bottom up, there isn’t a fear of legal consequence and the neighborhood is truly forgotten. Venkatesh stated,

“Without a change in the kinds of resources that make their way into places like “Maquis Park,” there will never be much in the way of meaningful opportunities for inner-city inhabitants to experience economic stability – let alone upward social mobility. And without an adjustment in the relationship of the ghetto to the wider world, residents will continue living underground.”

Data on the Books

Above all, Off the Books made me reflect on how we as urban planners collect and interpret data. Every data point that we have is an assumption based on legal activity. This includes income, number of businesses, demographics etc... Barely any of our data is reflective of those who participate in the underground economy.

Our current systems allow for reporting on the measurable economy due to viable data, painting only a portion of the entire picture of cities. We need to keep in mind that our data excludes people in our cities who don’t participate in the formal economy. How can cities and urban place management organizations incorporate a fuller dataset to include both the measurable economy and the underground?

In 2008, the city of Baltimore attempted to measure the informal economy through various data sets including credit reports, gas and water usage, and the number of check cashing businesses versus banks in a neighborhood. They found an $872 million-dollar gap of unreported income in impoverished neighborhoods.

Baltimore Off the Books

Like Chicago’s ‘Maquis Park’, Baltimore’s underground economy has been largely ignored by the formal sector and functions because of the systemic discrimination, chronic unemployment in the formal economy, lack of services, and isolation from the city. Wage gaps are largely due to a combination of historic discriminatory housing policies and the manufacturing industry's exodus from the city. The drug trade and sub-living-wage service industry jobs are the backfill.

This underground economy is not good for Baltimore city’s growth, nor is it good for the individuals that participate. In practice, the underground economy keeps those in poverty poor and produces few if any positive long-term benefits.

Baltimore and other cities can address their underground economies by challenging mental models regarding poverty and informal economic relationships, and by collecting data to write policy that can assist businesses and individuals who are otherwise trapped in the informal economy. Systematic inequities affect not only people’s lives, but also our public spaces, communities, and economies. Cities and place management organizations should be aware of these implications.