We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

The corporate state, McKinsey-style

How else? You might ask. But this abstract in McKinsey Quarterly caught my attention with its astounding wrong-headedness:

How Brazil can Grow -

The most important obstacle is Brazil’s huge informal economy which, distorts competition by putting efficient, law-abiding companies at a disadvantage. Macroeconomic instability­reflected in the high cost of capital­is the second-most-important hurdle, followed by regulations (such as rigid labor laws) that limit productivity.

Could it possibly be that it’s the top-heavy regulatory state and shocking tax rates on officially recognised activities that are keep the poor poor, small companies small, and the poltically unconnected outside the system hoping not to be noticed? It couldn’t be state favouritism and that same capricious regulatory apparatus that keep the risks high and capital proportionately expensive? It would also be interesting to know in what sense ‘efficient’ and ‘law-abiding’ go hand in hand in such circumstances. It is implied that unlawful, invisible, enterprises are inefficient ones (in whatever sense that is). How do they know?

5 comments to The corporate state, McKinsey-style

  • Julian Morrison

    Trouble is, black markets also tend to keep the poor, poor. Underground traders aren’t free because the proper functions of law (contrct etc) are monopolized and denied them, and because the minions of the state collude with organized crime (or are one and the same) resulting in a rigged and monopoly-riddled market whose goal isn’t efficiency, but connections.

    Any anarchic fix (defense agency etc) is isomorphic with an anarchic coup d’etat and equally hard for the same reasons.

  • guy herbert

    Quite. But the black market isn’t the problem so much as the symptom. It is the dual of an official rigged market in which connections and patronage, as well as tax and compliance costs, present barriers to entry. Social exclusion, if you will.

    It seems to me weight of regulation and increasing privlege to officialdom is Brazilianising Britain.

  • veryretired

    It used to be tacitly acknowledged by the powers that used to be in the Soviet and Chinese systems that the only way anything ever really got done in a timely fashion was by bribery and barter.

    Dentists fixed your teeth because you fixed their plumbing, or brought them vodka and cigarettes, telephone installers showed up because you could trade them auto parts or fresh meat or produce.

    It was well known that the entire money supply of Romania was utterly worthless, and everything was done with packs and cartons of Kent cigarettes, a holdover from the aftermath of WW2, when smokes and liquor were the “currency” of necessity as well as choice.

    It was just reported that Cuba has had a new burst of revolutionary fervor, (read Castro paranoia) and started closing down various private forms of enterprise, like home based restaurants and private cars being used as taxis, among many other things.

    People exchange valuables with other people as they see fit, and they define what is valuable according to their personal preferences, not what some rule or regulation says it is.

    The reason so much has to be done “under the counter” is not that those things are somehow evil in and of themselves, as the regulators would have us believe, but that interfering busy bodies have decided they know what’s best for everyone, and outlawed everything else.

    The black market exists because people want to make choices denied to them by the “pezzenovante” of the government and the Church, as the “Godfather” says, and so, yes, the “informal” economy becomes the territory of the violent and lawless, or normally legitimate businesses are forced by circumstance to break any number of rules just to stay in business.

    And, of course, if enough things are illegal, then everyone becomes a criminal just for trying to live a normal life. Gee, I wonder who benefits from that state of affairs?

  • ernest young

    Solve the problem of black markets and all the problems they bring, raise taxes solely from sales and not from income. Then the whole point and purpose of making money – i.e. to spend, is bought under the legal fiscal umbrella.

  • Kim du Toit

    The REAL trouble is that the “informal economy” doesn’t hire overpaid and expensive consultants like McKinsey.

    If they did, McK would be trumpeting about how the informal economy is a model for growth.

    Of course, if the informal economy DID hire consultants, there wouldn’t BE any growth: all the spare capital would be pissed away on fees.