Ghetto Capitalists

The inner cities are bustling with informal enterprises, but the government has cut them off from the larger economy.


Off the Books: The Underground Economy of the Urban Poor, by Sudhir Alladi Venkatesh, Cambridge: Harvard University Press, 448 pages, $27.95

In the immediate aftermath of Hurricane Katrina, the Louisiana Superdome became a font of myths about the depravity of the urban poor. News reports, widely circulated but never corroborated, described an epidemic of murders, rapes, and other assaults among the thousands stuck waiting in the world's largest fixed-dome structure. On a widely-quoted episode of the Fox News Channel's Hannity & Colmes, the Rev. Jesse Lee Peterson assailed the moral character of the refugees. "In three days," he said, "they turned the dome into a ghetto."

The implicit definition of ghetto reflected a popular conception of the least privileged Americans. Polls consistently show that Americans think the poor are more likely to be African American and unemployed than is actually the case, and the dome fed those misconceptions with a fetid 259,000 square feet of photographed paralysis. Katrina, commentators insisted, was a "wake-up call," but those stock images of the Superdome reinforced a vision of the ghetto as a sloth-filled dead zone. It was a warehouse, not a community; it was packed with black Americans waiting to be saved.

A new book challenges that stereotype of the idle poor and their supposed quiescence before the market economy. In Off the Books, Sudhir Alladi Venkatesh posits that if a transaction occurs in the ghetto and no one writes it down, it still counts as trade. His sprawling study of Chicago's seedy South Side unearths a lively world of exchange in a supposed economic graveyard.

Now a sociologist at Columbia University, Venkatesh spent over a decade immersed in a 10-block neighborhood he calls Maquis Park (a pseudonym) before producing Off the Books. At once an outsider and a welcome participant in the ghetto economy, he found that he was suddenly part of "a vast, often invisible web" of economic exchange. That web supports the residents of Maquis Park and adds a strange sort of order to their existence, tempering chaos and adding predictability to the lives of Chicago's poor. For the most part, the people he meets seem eager to trade. It's just that much of what they're trading isn't going to meet with the approval of a law-and-order Republican or a bleeding-heart Great Society Democrat.

Take Oceana, a mother of six whose last six months of employment are a picture of elbow-greased, bootstrapping entrepreneurialism. "I picked up garbage for a guy who worked in the city and who was fucking some lady in the van and needed some time off one day," she tells Venkatesh. "I bought some kids some beer. I always have someone who can't leave work but who needs a bag [of pot or cocaine]. The lady at the library lets me put the books on the shelves. That minister likes me to walk on his back, or sometimes do a little more, but I'm not talking about that. Unless you paying." Also on Oceana's résumé: washing cars, painting houses, and minding a local store while a hooker gives the proprietor a blow job. She summarizes, "I do just about anything and everything, baby."

Within the fluid economy of Maquis Park, Oceana's flexibility is extreme but not aberrant. Her neighbors are unlicensed hairstylists, ad hoc caterers, tailors, psychics, and accountants, and typically ply more than one trade at a time. They sell clothes, pirated movies, and used kitchen supplies they call "ghettoware." Others are gypsy cab drivers, janitors, and mechanics. Some make a quick buck taking over abandoned buildings and offering the space for shelter; others make money with promises to keep police patrols away from the same space.

Taxable income isn't reported, and the requisite licenses are not obtained. For those reasons, among others, residents are often unwilling to turn to law enforcement when crime hits. Listing the challenges of running an off-the-books car repair service, resident James Arleander first cites the people purportedly protecting him: "First, you are doing something illegal, which means police must be involved. You have to deal with them, and you can either hide [from them] or pay [them]." (Arleander does not specify whether he is hiding or paying.)

Maquis Park's fortune seekers negotiate between the wider city and their largely isolated neighborhood, spanning the legal and underground economies. A store may be formal in that it has the requisite permits, but it will still conduct most of its activity far from city regulators' prying eyes. Seventy percent of the neighborhood's shops employ one or more people off the books, paying in cash, food, liquor, or any number of store products. In a ghetto where police presence is always inadequate, business owners can stave off break-ins by renting out their space after hours to street entrepreneurs: prostitutes, gamblers, hair stylists. When owners need a bit of capital, it's not banks to which they turn but friends and loan sharks with cash on hand.

The economy Venkatesh describes is frenetic and buoyant, but it is also deeply insular, a raucous party behind closed doors. Ghetto enterprises must rely on community ties for everything from their labor force to their security to their cash flow. Their economic survival thus depends largely on friendships and community relations, less so on contracts and impartial adjudication. As Samuel Wilson, who runs a day care center, puts it, "It's a small group of us that are really helping each other.…It's what you do in the inner city, and you can't lose that. Who's going to trust you next?"

If the neighborhood's "vast, invisible web" holds the poor together, it also ensnares them. Local entrepreneurs simply can't imagine expanding beyond the immediate community. That storied sphere "where everyone knows your name" isn't simply a special place; it's all there is. "For the local black merchants," Venkatesh explains, "other business climates are really just other examples of informal and highly personalized economic relations—like those in Maquis Park —to which they are not privy."

As Venkatesh stares into this closed economy, he comes to realize that residents cannot see out. To them, the larger business climate is an amalgam of mysterious institutions and backroom dealing. Residents "believe their white counterparts have clandestine connections." Says a neighborhood businessperson: "I've noticed business all over the city and it's all about hand-shaking, promises, lots of things going on behind closed doors." The larger world is just a bigger, whiter ghetto, where people are riding on their reputations and sharing wealth among friends. The discrimination may be real, but the idea that a wider economy connects billions of strangers seems utterly alien to the women and men trying to make it on the street.

This lack of perspective isn't enough to explain the isolation of Maquis Park, and Venkatesh fails to put forward a cogent theory of why the ghetto is an economic island. The fact that the formal economy remains impenetrable to enthusiastic entrepreneurs suggests that something is seriously wrong in Chicago; the city has played a role in walling off the formal economy. Legitimate enterprises adhere to regulations that their ghetto counterparts have no chance of heeding. Businesses in Maquis Park are wont to pay below minimum wage; they are not overseen by the Occupational Safety and Health Administration; they frequently lack licenses. Permits, whatever their virtues, make little sense in so mutable a business climate. A shop owner might be selling car parts one day, cutting hair the next. City regulations simply bear no relation to the realities of Maquis Park markets, and every layer of red tape widens the space between marginalized and mainstream entrepreneurs.

There is, of course, another way to make a buck in Maquis Park, one that does connect the neighborhood to the larger city—and its suburbs too. Drugs were the life spring of the community's economy in the 1960s and '70s, and the Black Kings, a notorious Chicago gang, financed itself through the illicit trade. But as heroin and crack became less lucrative in the '90s, the gang's business interests diversified and matured. Slackening demand for narcotics forced the Kings to find alternate sources of income, from pimping to extortion. If the gang's cash flow has waned since the crack heyday of the '80s, its entanglement with the local economy runs deeper than ever. "Back then, there were gangs; today it's a business," Venkatesh hears residents comment, with a whiff of nostalgia.

"As Chicago's working poor entered the year 2000," Venkatesh explains, "the gang's advances were making very blurry the lines that divided shady traders from one another." It becomes even more difficult to separate funds made off the books from those made on them. Local businesses launder their money, and local ministers accept their donations. Gang money feeds the dealers, hairstylists, and hookers alike.

Maquis Park residents, cut off from police protection at least partly because many of them are outlaws themselves, are also vulnerable to the Black Kings' growing demands. In 2000 the gang's leader, short on cash due to lagging drug sales, began exacting payment from local businesses in exchange for a bit of security. The payments were not voluntary, and stores were charged monthly fees ranging from $50 to several hundred dollars. In effect, they were being taxed by a shadow government.

Venkatesh does not note the obvious parallels between government coercion and organized crime, and he never probes residents' feelings toward the police force that has left them to parry the Black Kings on their own. That's a shame, because the enforcement of drug laws is largely responsible for the neighborhood's fragile ecosystem. Prohibition pushes up the price of narcotics, feeding the community while leaving most of the attendant economic activity without police protection and vulnerable to plunder. Prohibition also helps fund the Black Kings' reign, a lawless and often cruel alternative to the city of Chicago.

Venkatesh is also needlessly moralistic in his discussion of prostitution, his disapproval seeping through the veneer of academic objectivity. (He describes the neighborhood's hookers as "selling their bodies," a dated and condescending euphemism for sex work.) He can be repetitive and rambling, pumping out page after page on subjects of limited interest, such as the long, dry business histories of community leaders. But if Off the Books sometimes seems like an inelegant information dump, it's also a gallimaufry of fascinating tidbits about the odd economics of the ghetto.

The book, then, is a reflection of the cityscape Venkatesh limns: chaotic and inconstant, but not without hidden value. Its strongest contribution is his redefinition of the urban landscape. Maquis Park emerges not as a holding pen for the idle poor but as a hub of spirited exchange. It has never made much sense, after all, to characterize the ghetto as both a seat of sloth and a hotbed of vice. Narcotics and guns don't sell themselves. The wider world may not approve of sex work, but it's still work.

At the very least, Off the Books should call into question a world in which fixing cars for cash is a criminal enterprise, one where the will to work clashes so constantly with the limits of the law. If Venkatesh's picture of the ghetto is accurate, the task is not to change the people within its borders, as conservatives would have it, or to ply them with subsidies, as their liberal counterparts would. Ending the isolation of Maquis Park means allowing its bustling informal economy to join the wider network of formal exchange. While that task is freighted with the historic legacy of discrimination, a city truly interested in encouraging ghetto capitalists would erase the lines between the licensed and unlicensed, the permit-carrying barbers and the outlaw beauticians.

There are no licenses, of course, for Maquis Park's hookers and drug dealers. But if we don't want poor Americans to conduct transactions off the books, we might reconsider what kind of activity we allow on the books. The ghetto, writes Venkatesh, is "a product of perpetual negotiations, of collusion and compromise, of the constant struggle to survive—to find a purpose for your life, to fulfill your desires, to feed your family." It's not a dome full of people waiting to be saved, he might add, but a force to be unleashed.

Kerry Howley is an associate editor of Reason.

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