Thursday, March 15, 2012

The Rise of the Phoenix Society

In the first column in this series, The Apolitical Economic Superpower, we discussed the rapid growth of the untaxed, unregulated economy. According to the Organisation for Economic Co-operation and Development (OECD), it already provides an estimated 50% of the world's jobs. And in only eight short years, they estimate that two out of three workers world-wide will be employed in jobs outside the control of government, in the apolitical economy that this article from Foreign Policy refers to as System D.
By 2020, the OECD projects, two-thirds of the workers of the world will be employed in System D. There's no multinational, no Daddy Warbucks or Bill Gates, no government that can rival that level of job creation. Given its size, it makes no sense to talk of development, growth, sustainability, or globalization without reckoning with System D.
Courtesy of the same Foreign Policy article, let's look at one example of this unregulated, untaxed entrepreneurship.
With only a mobile phone and a promise of money from his uncle, David Obi did something the Nigerian government has been trying to do for decades: He figured out how to bring electricity to the masses in Africa's most populous country.

It wasn't a matter of technology. David is not an inventor or an engineer, and his insights into his country's electrical problems had nothing to do with fancy photovoltaics or turbines to harness the harmattan or any other alternative sources of energy. Instead, 7,000 miles from home, using a language he could hardly speak, he did what traders have always done: made a deal. He contracted with a Chinese firm near Guangzhou to produce small diesel-powered generators under his uncle's brand name, Aakoo, and shipped them home to Nigeria, where power is often scarce.

David's deal, struck four years ago, was not massive -- but it made a solid profit and put him on a strong footing for success as a transnational merchant. Like almost all the transactions between Nigerian traders and Chinese manufacturers, it was also sub rosa: under the radar, outside of the view or control of government.
This is one tiny, but significant, story of apolitical entrepreneurship; someone taking the initiative to do an end-run around the bureaucratic machine and bring benefits to those in his society without the participation or even the blessing of his government. Such actions now account for half the jobs in the world. If you're thinking "that won't happen here," consider that there are any number of foreign manufacturers who would be willing to enter into similar agreements with apolitical vendors in your own country.

The Foreign Policy article also points out that just as in the Great Depression, those communities least connected to the political machine and the national economy have fared the best, and those with the most connections have fared the worst. This is not confined to anecdotal reports of isolated communities in the US, however.
A 2009 study by Deutsche Bank, the huge German commercial lender, suggested that people in the European countries with the largest portions of their economies that were unlicensed and unregulated ... fared better in the economic meltdown of 2008 than folks living in centrally planned and tightly regulated nations. Studies of countries throughout Latin America have shown that desperate people turned to System D to survive during the most recent financial crisis.
Governments around the world are repeating the mistakes of the Great Depression of the 1930s and the Lost Decades of Japan that began in the 1990s. Unlike those eras, however, technology has released the people, and the marketplace, from the stranglehold that governments maintained on their economies during those historic periods. In today's fast-changing world, people are no longer willing to wait around for centralized, slow-moving governments to bring their outdated ideas of recovery to the economy.
In other words, System D looks a lot like the future of the global economy. All over the world -- from San Francisco to São Paulo, from New York City to Lagos -- people engaged in street selling and other forms of unlicensed trade told me that they could never have established their businesses in the legal economy. "I'm totally off the grid," one unlicensed jewelry designer told me. "It was never an option to do it any other way. It never even crossed my mind. It was financially absolutely impossible." The growth of System D opens the market to those who have traditionally been shut out.

This alternative economic system also offers the opportunity for large numbers of people to find work. No job-cutting or outsourcing is going on here. Rather, a street market boasts dozens of entrepreneurs selling similar products and scores of laborers doing essentially the same work. An economist would likely deride all this duplicated work as inefficient. But the level of competition on the street keeps huge numbers of people employed. It liberates their entrepreneurial energy. And it offers them the opportunity to move up in the world.
But the apolitical economy isn't just about jobs; it's also about markets. It's about changing the way we relate as a society, cutting out the middleman of government and dealing directly with others to be able to make the choices we want to make. People are ignoring government in larger and more significant ways every day, and in the final analysis, there is very little that the governments of the world can do about it.

Here in the US, with the smallest apolitical economy of any nation when graded by percent of market, there are low-energy homes being built in violation of zoning laws, cars being driven with untaxed biodiesel fuel, and food being consumed that hasn't (gasp!) been blessed by the USDA and their partners in crime, ADM and Monsanto. The creation and marketing of literature, music, photography and other arts has been transformed, thanks to the largely unregulated and tax-free internet. And when government recently attempted to regulate it, the response from the people was an overwhelming "NO!"

Education, too, is beginning to escape from the political economy, with homeschooling on the rise, the growth of alternative schools, and increasing pressure to implement school vouchers just some of the indicators that people are increasingly seeking ways to take education out of the hands of the establishment and return it to more localized control. Even such noteworthy sources of secondary education as the Massachusetts Institute of Technology are decentralizing by offering certification to be earned via the Internet. With the growing availability of computers in almost every home, it's not hard to envision education slipping quietly into the apolitical economy under the guise of homeschooling.

Urban farming, once almost nonexistent, is on the rise nationwide, as well as globally, with the U.S. Department of Agriculture reporting that "around 15 percent of the world's food is now grown in urban areas." We are already seeing a shift in preference away from factory-farmed foods and toward local products, many purchased from roadside stands or at farmers' markets where reported taxable income may be easily understated and regulatory compliance lax.

An increasingly-regulated and taxed world with steadily increasing energy costs will provide additional impetus for the shift toward decentralization, and consequently the apolitical economy. Locally-raised edibles and locally-produced goods become more competitive with centralized, mass-produced items as the costs of transportation and petroleum-based preservatives, shipping and packaging materials increase, particularly if the costs of regulatory compliance and taxes are sidestepped completely or in part.

The costs associated with the infrastructure necessary for centralized production and widespread distribution have historically been socialized, but funds for infrastructure expansion and even maintenance are becoming harder for governments to come by. The same can be said for the costs associated with regulatory compliance. If pay-for-play schemes to recover these costs become part of the political landscape, those costs will have a considerable impact on the local vs. centralized debate. Shipping goods hundreds or thousands of miles makes much less economic sense when the full costs of distribution are taken into account. This disparity will only increase as local sources grow to meet demand and the tax funds necessary for the socialization of costs become more scarce.

Mass production is soon to face challenges similar to those we have just discussed for edible goods. Making cheap, disposable goods and distributing them globally in a never-ending cycle uses considerably more resources and energy than crafting durable, repairable goods for a smaller geographic area. As with produce, the hidden costs of socialized infrastructure account for a considerable portion of the supposed economic advantages of mass production. In a future column we'll discuss oncoming technology that will challenge mass production and distribution of goods much as decentralized arts have begun to challenge the major media outlets and local farming is becoming a nascent threat to factory farming; technology that will soon be as readily available to the local craftsman as farming implements are to the local farmer.

Commuting dozens of miles or more each day to sit in a cubicle consumes hours of living time, commits a considerable portion of income to transportation costs, and consumes large amounts of energy, likely to increase those costs over time. As more opportunities for jobs arise in the apolitical economy, they will grow increasingly attractive to those who realize the extra costs and time spent commuting and the extra expenses of cubicle life make little economic sense when a politically-generated after-tax income is compared to an apolitically-generated, untaxed one.

There are already myriad opportunities. It's quite likely that you know someone employed in the apolitical economy, either partly or completely off the regulator and tax collector's books. Perhaps the car mechanic who works out of his garage, the gardener who prefers cash (with a wink and a nod), the roadside vegetable stand that always has the sweetest corn, or the baker, artisan or craftsperson who always seems to be smiling at the flea market. I'll leave others as an exercise for the readers.

System D, or the apolitical economy, as I've termed it, is the marketplace of a new society of scofflaws -- the Phoenix society, if you will, arising from the ashes of centralization and corporate globalization while the fires have not yet expired. As the economy becomes more apolitical, so too will society. Disputes that arise within the zero-sum game of politics are non-existent when traders contemplate an ever-growing pie. The more people become aware of that truth, the more society will slip away to join the apolitical world.

People are making the move to the apolitical economy every day, and forming relationships with others like them in the Phoenix society. It doesn't require a group of lawyers and accountants, permission from the local zoning board, an act of congress or a winner in a presidential election. It simply means making different choices in our own personal lives, times seven billion.

It's apparent to even the most casually knowledgeable observer that the current socio-political model is terribly broken. It appears that those in charge of the existing mega-institutions fail to grasp the severity of existing and future problems and lack both the political will and the skills to address them even if they did. The media, for the most part, appear to be just as blissfully ignorant. It requires watching only one Presidential debate, taking one glance at the docket in Congress or the statehouse of your choice, to recognize insanity in full bloom.

For the self-motivated subset of society that drives its success, it's rapidly becoming easier to walk away from centralized organizations and centralized policy than it is to change them. As the activists in society become aware of the alternatives, from members of the Tea Party to Occupy Wall Street and everyone in between, the economic dinosaurs of Big -- Big Government, Big Banking, Big Business, Big Unions -- will find themselves fighting for their lives.

The author of The Homebrew Industrial Revolution summarizes the coming future like this.
The alternative economy... operates with almost no fixed costs, so that almost all its revenue is free and clear and it can survive prolonged periods of slow business. Because it’s organized stigmergically, with modular open-source designs, innovation costs are spread over the widest possible product ecologies with a minimum of transaction costs.

The alternative economy is breeding the rats in the nests of corporate dinosaurs.
I see the choice between these two alternatives shaping up as the battle for the future. Which one wins in the long run will determine the very shape of the future. The rise of the Phoenix Society may well prove to be the modern version of David's sling.

As for this retooling of civilization, it's unlikely to happen easily and completely peacefully. Those most invested in, or dependent on, the existing systems will keep fighting for a twentieth century lifestyle until the whole thing collapses from lack of tax revenue. But sooner or later, continuing to argue for bread and circuses is going to mean no bread and no circus, either. The world of the twenty-first century will arise from the still-smoldering ashes of the twentieth in the long run. I'm betting that world will look substantially different than the one we inhabit today.

...and that's all I have to say about that -- for now.

In future columns of this series, we'll discuss the Homebrew Industrial Revolution, which will bring to production the decentralization we've already seen the Internet bring to the arts and local farming bringing to food production. We'll explore solutions for utilities, defense and justice that will arise from the move toward decentralization and the consequent deregulation. We'll also examine the rise of the globalist, corporatist economy we're currently living under, the Greecy slope all the nation's economies are currently on, and the race to the future between the two world visions. I hope you'll stay tuned.

Author's Note: The series continues with Homebrew Production is Coming. Here's a Table of Contents for the Phoenix Society series of posts.


  1. Well done! It gives me much to think about. I really enjoy your blog. Keep up the good work!

  2. The US government is already aware of this movement and its threat to the corporate paymasters of the Criminals in Congress assembled. Which is the genesis of the >$600 per year 1099 tax form law, which was thankfully repealed.

    Likewise, local authorities are aware of it and freaking out, which is the genesis of last Summer's crackdown on children's lemonade stands. Prohibiting children from earning real money selling lemonade prevented them from learning how to be successful entrepreneurs, and taught them the extent of overreach in current regulation. I applaud the clods who closed down lemonade stands; they have set the stage for an energetic and creative next-generation in the Phoenix economy :-)

  3. Great post -- also your companion article on the Greek economy. We will be discussing this on a future episode of our podcast.

  4. This is one of the most optimistic, educating, and awesome things that I've ever read. The future truly looks bright for all of us.

  5. I agree with Adam, even though it's kind of scary. Change has always been something kind of hard for me to appreciate. Though this doesn't sound necessarily bad. And from your examples, we really are already living apolitically more and more. Even in my own little world, I can think of 3 examples right off the bat. You've certainly opened my eyes with this post, giving great examples of humankind coming together and using their own brains and skills to break out of governmental a way that benefits us all. I can certainly see the world moving toward this more and more. Who will win, I don't know. And that's what's scary. But...there's hope for us yet.