Free Minds & Free Markets

America's Economic Refugees

In an overregulated economy, the best preparation for survival may be a Third World education

Marta can still vividly recall the day, 22 years ago, when she drove across the border from Tijuana with her handsome new husband, headed for Los Angeles. She was no mojado—wet, as illegal Mexican immigrants invariably call themselves, whether they came across the Rio Grande or not—either in fact or in spirit. Her husband, though born in Mexico, was a U.S. citizen, and Marta came in through the front door, with a legal visa. And it didn’t have anything to do with money, either. She had been doing all right in Tijuana, running a small factory that manufactured neon signs by day, working at a restaurant by night.

But her two little boys needed a dad. Their own father had disappeared into the Tijuana night a few years before, and Marta felt there ought to be a man around the house. Marta needed one, too. "That’s what I thought, anyway," she says now, laughing.

That first day was exciting: marveling at all the new cars zipping along Interstate 5, the ranch-style homes visible from the freeway in Orange County, the mad agglomeration of fast-food restaurants and shopping strips as they entered Los Angeles. America, it seemed to Marta, fairly reeked of prosperity.

But it took only a few days for the glamour to wear off. Her husband informed her that his salary as the manager of a small aluminum-siding factory wouldn’t cover the costs of sneakers, blue jeans, hamburgers, broken arms, and other matters associated with little boys. "Besides, they aren’t my kids," he added. "They aren’t my responsibility."

Marta was stunned. She had no working papers, few marketable skills, and she didn’t speak a word of English. "What do you expect me to do?" she asked her husband. "You’ll think of something," he replied.

Marta spent the next day hunting down friends from Ocotlan, the small city in western Mexico where she grew up. One of them, who sewed blouses at a downtown garment factory, told Marta the place was hiring and wouldn’t ask any troubling questions about work permits. Like most garment manufacturers, the company paid by the piece: 12 cents for each completed blouse. A good worker, Marta’s friend said, could sew about 200 of them in an eight-hour shift.

"So I took the job," Marta recounts. "I spent the next 15 years sewing. It paid really lousy, and it hurt my eyes. Oh, you don’t know how we used to come out of there at the end of the day, out of those sweatshops. My back always felt broken, and my feet are permanently swollen now. My vision is strained."

So why did she do it? Marta looks faintly astonished at the question. "My kids were little," she says. "They needed clothes. They needed food. I didn’t want them out in the streets. And without any English, who else would hire me?"

On that day in 1971, Marta stepped into what economists call the "informal" economy—the misty terrain where goods and services flow back and forth without government supervision. It has no minimum-wage laws; work permits, Social Security, worker’s compensation, union shops, environmental-impact studies, unemployment benefits, or professional licenses. It certainly has no taxes.

Literary-minded social scientists like to refer to the informal economy as underground, subterranean, black, or hidden. The fact is, though, that with a very few exceptions it functions right out in the open. You can see it every day: The unlicensed street vendors who hawk oranges on freeway exit ramps throughout Los Angeles. The minivans with no commercial permits that roll out of Miami’s Little Haiti every Sunday, carrying field hands back to the canefields where they work during the week. The men clustered around the corners of Route 7 and Glen Carlyn Drive, just outside Washington, D.C., in suburban Virginia, waiting for plumbers and carpet layers to stop with offers of a day’s off-the-books labor.

Zoë Baird was able to find her way to the informal economy when she needed a nanny; Stephen Breyer went there for a cleaning lady. In fact, sometimes it takes a concerted effort not to see the informal economy. Every day around lunchtime, hundreds of unlicensed street vendors—nearly all of them illegal aliens—set up shop on Federal Plaza in lower Manhattan, right in front of the headquarters of the Immigration and Naturalization Service.

A better description of the informal economy might be uncharted. Because it exists largely on a cash basis, with little bookkeeping and almost no reporting, the informal sector resists virtually all economic mapping techniques. Like Saudi Arabia’s Khali desert, we know it’s out there and we know it’s huge, but the exact dimensions are unknown and probably unknowable. The few attempts by government number crunchers to quantify it have produced wild disparities.

Back in 1985, for instance, California’s Little Hoover Commission estimated that the state’s informal economy generated $40 billion in annual transactions. But earlier this year, New York City Comptroller Elizabeth Holtzman claimed that the informal sector in her city alone is $54 billion annually, a whopping 20 percent of the city’s economy.

Obviously these estimates must be taken with a truckload of salt. (How can anyone know that you gave a $20 bill to an undocumented Salvadoran last week to mow your lawn?) But they do offer a sense of just how vast the informal economy really is. Untold millions of Americans participate in it, from survivalist nut cases buying untraceable ammo with gold bars to white-collar barter groups where dentists and accountants swap services among themselves without going through IRS-approved accounting niceties. They come from every socioeconomic and ethnic corner of society.

But if most Americans take an occasional swim in the informal economy, there are some for whom it’s a total immersion: immigrants. "There’s no question about it, they’re everywhere in the informal economy," says Jacqueline Leavitt, a professor of urban planning at the University of California, Los Angeles. "Sometimes you wonder if they work anywhere else."

They sew designer jeans in backstreet warehouses. They tend fastidious gardens on the elegant side of town. They sell fried plantains from their back porches. They drive rickety gypsy cabs. They tend children in makeshift home day-care centers. They vend cheap toys and exquisite hand-crafted jewelry on street corners. They wash dishes in steamy restaurant kitchens. They install drywall for unlicensed construction crews. They hustle painted velvet portraits of Elvis at flea markets. They repair cars in their driveways.

What links these seemingly disparate jobs is that government regulations make it difficult to do them legally, or the pay is low, or both. That makes them unattractive to many Americans. But Third World immigrants simply don’t care. Penurious employers and overbearing governments are nothing new to them.

"I was walking along Roosevelt Avenue in New York recently—that’s in Jackson Heights, a heavily Hispanic area—and I saw a street vendor who was handing out leaflets," says Patricia Fernandez-Kelly, a Johns Hopkins sociologist who studies the informal economy. "I took one, and it was announcing a meeting of a new organization dedicated to stopping police harassment of vendors.

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