The 'Informal Economy' Driving World Business.

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REPORTING ON THE FRONT LINES OF MEXICO'S DRUG WAR

DAVE DAVIES, host: This is FRESH AIR. I'm Dave Davies, filling in for Terry Gross. Our first guest, journalist Ioan Grillo, has spent a decade covering the escalating violence in Mexico, where drug cartels are battling each other and the Mexican army and police, often torturing and mutilating the bodies of their victims.

Among the more than 40,000 dead are journalists, government officials and countless innocent bystanders and kidnapping victims. Grillo calls the violence a criminal insurgency because the death toll now exceeds that of some civil wars, and the brutal and chaos threaten the viability of the Mexican state.

In his reporting, Grillo has interviewed criminals, government officials, American drug agents and victims of the drug wars. His new book examines the historical roots of the conflict and explores ways to end the carnage. Ioan Grillo has reported for Time magazine, CNN, the Associated Press and other news outlets. He grew up in England and now lives in Mexico City. His book is called "El Narco: Inside Mexico's Criminal Insurgency."

Well, Ioan Grillo, welcome to FRESH AIR. You write in the book that there's a long history of poppy growing in the Mexican hills and in trafficking in booze and drugs, illegal trafficking, but that at some point things really changed, and it got much, much bigger and more organized.

And I think, you know, we think of the Colombian cartels back in the '80s and Pablo Escobar as having been the real kingpins of international drug trafficking. How did the Mexicans occupy that spot? How did the shift come?

IOAN GRILLO: Well, basically the Colombian cartels had this fantastic product, cocaine, which they could make enormous amounts of money selling to Americans for these crazy inflated prices, the big tens of tens of billions of dollars. And they used to fly it straight from Colombia across to Miami.

And the American military and Drug Enforcement Administration worked out that it was very easy to create a choke point in the Caribbean and to basically make it very difficult to smuggle cocaine right from Colombia to Florida. So the answer was to smuggle it through Mexico.

And the Mexicans began as paid couriers and gradually began to take over the business from the Colombians, and then own the lion's share of the cocaine business, where the real huge money was.

DAVIES: Right, and this was aided by a very aggressive crackdown on the Colombian traders by American and other investigators, right?

GRILLO: That's correct. The Americans and the Colombians, just after the end of the Cold War, the American agencies all got together, the CIA, the Pentagon, the DEA, and went after Pablo Escobar. They saw him as a huge threat. He was putting bombs on airliners and paying guerrillas to attack politicians and so forth.

So they took him down. He was shot dead, a big victory, it was seen, in the war on drugs. But after he went down, the Mexicans took more and more of that pie, and even worse problems created up in Mexico.

DAVIES: So through the '90s, you have some very large, powerful and wealthy drug traffickers operating in Mexico. But people who know the history of Mexico, know that for decades, since the revolution early in the 20th century, every presidential election was won by one party, the PRI, the Institutional Revolutionary Party.

And you write in the book, that the expansion of violence in Mexico is inextricably linked to the end of the rule, that one-party rule, and really a birth of real democratic institutions in Mexico. Explain the connection for us.

GRILLO: Yeah, I think this is a very crucial point that is the center of the whole conflict in Mexico today. Throughout 71 years, you had this one party in power, and they had a very good system of controlling all aspects of national life: all the local police forces and also controlling organized crime.

And it was through a very well-constructed system of power, where the power flows down like water, and the money rises up like gas. So the corruption rises up like gas. And the system of corruption was broken down. So what we started to see were the police forces controlled by different political parties and actively fighting each other.

So we've seen cases, like in the state of Michoacán, where a group of hit men attacked the federal police, had a punctured tire escaping, and phoned the state police, who came and picked them up and drove them away to safety. So we've seen a real fragmentation of the state, and that is one of the core reasons why the conflict has got so bloody and so out of control.

DAVIES: So before, when this PRI, the institutional party, was in control, there was plenty of drug trafficking, there was plenty of corruption, but there wasn't as much violence.

Now, there's a critical moment, you say, that came in the early 2000s at Nuevo Laredo, which is the border city across from Laredo, Texas. Explain what happened.

GRILLO: Well, in Nuevo Laredo is across from Texas, and it had really grown in importance for trafficking drugs, with the growth of the American cities of Houston and Dallas and that whole part of the United States. You had - you started to have more goods going through the Texas-Mexico border than the California border.

And so for drug traffickers, it became an extremely important place to control. You could move drugs into the United States and right up to the Northeast seaboard, as well.

Now, the Sinaloan Cartel, the traditional strongmen of the Mexican drug trafficking industry, tried to seize this area, and the local group to defend themselves, they hired a group of former special forces military personnel who became known as the Zetas. So for the first time in the Mexican drug conflict, rather than seeing gang-bangers with shaved heads and tattoos fight each other, you started to see military-style units fighting with military ranks and automatic weapons, RPGs and military-style tactics against their enemies.

And from there it started to escalate very sharply.

DAVIES: There are some amazing details from this period in the conflict, and this group, the Zetas, that's Z-E-T-A-S, a group that's - a cartel that's still around - they were actually advertising for new recruits?

GRILLO: That's correct. You know, one of the many surreal things about this conflict, the Zetas, as they defended their own turf, began to expand massively across the country and set up cells anywhere across Mexico. And one way they recruited was actually had blankets hanging from bridges, saying: Why be poor? Why take the bus to work? You can have a new car of your choice. If you've an ex-military or ex-policeman, you know, come to us, and we'll give you a good job.

And it was one of the many ways they recruited people to their ranks.

DAVIES: There was clearly a wide expansion in violence, but the other thing you saw was a change in the kind of violence. I mean, there's been organized crime in America for years, and the typical, you know, mafia hit was a brutal-but-businesslike bullet to the head. And at some point, the violence in Mexico became particularly savage, beginning with the beheadings of victims. Do we know where that came from, why it developed?

GRILLO: It's very interesting, we talk about beheading now, this is in Mexico, as if this has gone on for a long time, while actually it's pretty recent. The first beheadings were in 2006, when they chopped the head off two policemen.

Now, it's difficult to know exactly what the motivations were behind the people doing this, but there's various ideas. One is that at the time, the videos of the al-Qaida groups carrying out beheadings were being shown on TV throughout the world and were actually shown in full on some Mexican TV channels.

And they were seeing this and thinking, well, this is a good way to intimidate your enemy. Another idea is that there were some mercenaries hired from the ex-special forces of Guatemala. And during the civil war in Guatemala, they had carried out brutal beheadings to intimidate villagers from joining the left-wing guerrillas.

And they began to use these same tactics, basically, because they saw themselves as military personnel controlling territory. How do you control a territory? You sow terror against the population. And so they began to use these very brutal tactics.

DAVIES: And this was often accompanied by clear messages in one way or another, right?

GRILLO: Yeah, in the use of the narco-propaganda, they will often, carrying out beheadings, they will videotape the beheadings, and they will often leave notes aimed at rival cartels, aimed at members of the public or aimed at politicians. And this violence can say different things to different people.

Sometimes it can be speaking to the public, saying: Look, if you mess with us, this is what's going to happen to you. Do not affect our business. Do not touch our business. And that's obviously very effective. But also it can be talking to the street. It can be saying: We are the toughest guys in town. Look, we leave 12 beheaded corpses. We are the people who are controlling this city. Come and work for us. We are the winning team.

So it's a very complicated way they send message out to people with their violence.

DAVIES: Ioan Grillo's new book is called "El Narco." We'll talk more after a short break. This is FRESH AIR.

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DAVIES: If you're just joining us, our guest is Ioan Grillo. He has reported on the drug-trafficking wars in Mexico for more than 10 years. His new book is called "El Narco: Inside Mexico's Criminal Insurgency."

So in the mid-2000s, I mean, there was this dramatic expansion of violence and particularly savage violence in Mexico. And then President Felipe Calderon takes office in 2006 and makes this a priority and takes a different approach. Tell us about that.

GRILLO: Felipe Calderon arrived in power, and 10 days after he took office, he said we've got a war on drug cartels. And he started off with moving the military to his home state of Michoacán, there was bigger convoys of soldiers and burning fields and, you know, going through the cities, helicopters buzzing above the towns.

I went to see many of these operations. And he's also extraditing kingpins to the United States. And he started to come up with some huge busts, like 23.5 tons of cocaine, which he busted in one shipment, the biggest ever cocaine bust anywhere in the world.

So he began a hard campaign against drug cartels. Now, I actually think that he wasn't imagining that he would still be on this conflict five years later, discussing this incredible death toll. But unfortunately, it blew up in his face and became a more and more intense conflict.

DAVIES: Right, and how did the cartels react when Calderon sent the military after them?

GRILLO: Many of the cartels reacted by actually turning on the police and the military, and I think this was one thing that the government didn't really understand, that in Mexico today, the state really had lost power, substantially, since the end of the PRI. People no longer respected the military in the same way.

You know, 10, 15, 20 years ago, when the military rolled up, you know, the cartels would run. But now the cartels stood and fought, began to kidnap military personnel, decapitate military personnel, ambush them. And also we saw many cases where the police were fighting actively with the cartels and actively fighting each other.

So the real problem, the central problem of Calderon's attack on the cartels, is that his security apparatus is not effective. Too much of it is corrupt, and too much of it is - has allegiances with different cartels, is actively fighting each other.

DAVIES: And when military units come into an area to go after a cartel, do they make friends among the civilian population, or do they, you know, inflict, you know, damage on innocent people, too?

GRILLO: Well, again it's one of the central problems, just like when you have the military - the American military going into Iraq, often many of the local people turn against them. Or the British military going into Northern Ireland, many of the local people turn against them.

And it's the same in Mexico, and many of the military units come from the south of Mexico and go into places in the north. Now people see them as being an invading force, and often it gets more tense as the military are very scared about anyone who's looking at them, any suspicious-looking kids talking into their cell phones. They're worried they could be telling the cartels that they're on their way, and many times the kids are working for the cartels.

So then you get military units with very itchy fingers on the triggers. Sometimes they'll see a car driving too fast towards a checkpoint, and they'll fire and kill innocent people. Sometimes they'll see a suspicious-looking kid or gang member, take them and start to beat them and torture them. And so you get the military committing many human rights abuses.

And we've had - again, this is coming to a very large scale, a very widespread human rights abuses across the country from the military.

DAVIES: So there have been 40,000 people murdered in Mexico since 2006, is that right?

GRILLO: There's been much more - many more than 40,000 people. There's been 40,000 murders which they think are directly linked to this drug-related conflict. As well as that, there's been many other regular murders, you know, domestic violence and any other kind of drunken fights in bars and that kind of thing.

As well as that, there have been thousands of people who have disappeared, and we haven't accounted for them. In some cases, we've seen buses driving in the north of Mexico, like in Tamaulipas state, which is one of the hardest-hit states in Mexico, and whole buses have been stopped by gunmen who have taken people off these buses, and we haven't found them since.

So some extraordinary violence and some, you know, extraordinary things happening in the country that we have to try and make sense of.

DAVIES: I know that you did a lot of your work in Mexico working with Mexican journalists who were, in some cases, experienced crime reporters and who would get tips on when there were incidents and that you would sometimes show up at these scenes before the police even would.

This is a gruesome question, but there's a purpose behind it. Do you have any idea how many dead bodies you've seen in the last 10 years?

GRILLO: I've lost count of the number of dead bodies I've seen, particularly in the last three or four years. Before I'd come to Mexico and done this work as a journalist, I hadn't seen corpses, and I began to arrive at these scenes - murder scenes - in some cases there would be one, sometimes two, sometimes five, sometimes more bodies on the street. And it tragically is something you become very accustomed to through the work.

And the first few times you start staring at the sight of death, it's something very disturbing, and you become accustomed to seeing it. But one thing that really brings it home, this is real lives that have gone, is when you see family members arriving, and you see the faces of the family members, the tears in their eyes. And these are people who know and love the victims, whoever the victims are, where sometimes they're policemen, sometimes they're civilians, and sometimes they're drug traffickers.

But they all have family members who love them and are very hurt by their deaths.

DAVIES: Yeah, I ask because in part, I mean, one of the things you see is a lot of young people drawn into this life and becoming involved, in one way or another, with the cartels. And given the level of violence on the streets and the number of, kind of, videos and Internet pictures there are about all that's going on, I wonder if in some weird way become inured to it, particularly the young ones. It begins to see normal to them; they've grown up in it.

GRILLO: Yeah, I think that's very true, and it's very sad. Often at these crime scenes, you see young children on the streets. You see eight-year-old children, nine-year-old, 10-year-old children, 12-year-olds, 14-, 15-, 16-, sitting around. Often I've seen young teenagers looking at the crime scenes, discussing the type of bullets that are there, discussing if they're AK-47 bullets, AR-15 bullets.

You refer to this, what's happening in Mexico, as a criminal insurgency. Explain what you mean.

When I use the term criminal insurgency, it's to explain it's an extraordinary conflict that has gone way beyond the bounds of organized crime. When we think of Al Capone and organized crime, we think of a conflict where, in the largest massacre, where there were something like seven people killed, whereas in Mexico, in a single massacre, you've seen 72 people murdered.

You've seen mass graves with 200 bodies, groups of 50 men with RPGs and AK-47s attacking police bases, attacking military units. So we have to understand it's gone way beyond the regular bounds of a mafia war.

Now, the drug cartels don't have an ideology like al-Qaida or an ideology like communist insurgents or even a nationalist agenda. They're after controlling territory for their criminal business interests. We've seen, now, in the last four-and-a-half years, more than 3,000 police, soldiers and officials killed by these drug cartels.

Now, in some cases, you know, it's obviously a challenge to authority, a challenge to state and government. We've seen one case where the mayor of a small town was taken by some gangsters and stoned to death on a main street. Now, I don't understand how anyone can argue this is no longer a challenge, a threat to the authorities, with this kind of violence.

And drug cartels, in areas where they're powerful, they become like a shadow state, like a predatory government. When they take money from businesses through extortion, and sometimes they make even schoolteachers pay money to them, is allowing them to become - it is empowering them, by saying we are the people who can collect tax, in a way, from the people.

Now, in Ciudad Juarez, the business owners at one time said: Why should we pay tax to the central federal government if we're paying extortion payment to gangsters? And they had quite a compelling argument to why do they have to pay two sets of taxation.

DAVIES: Ioan Grillo's new book is called "El Narco: Inside Mexico's Criminal Insurgency." He'll be back in the second half of the show. I'm Dave Davies, and this is FRESH AIR.

This is FRESH AIR. I'm Dave Davies, filling in for Terry Gross, back with journalist Ioan Grillo. He spent a decade covering the narco wars in Mexico, where drug cartels are battling each other and the Mexican military and terrorizing civilians with gruesome murders and kidnappings. In his book, "El Narco: Inside Mexico's Criminal Insurgency," Grillo looks at the historical roots of the conflict and explores steps that might curb the violence.

You know, if you look at the history of organized crime in America, I mean, it's not just mythology that there were meetings at time in which rival crime families got together and decided to end a fratricidal war and divide up turf and cooperate within a sphere for the sake of business, and so there was less violence. I mean, if the cartels in Mexico are really fighting over turf, I mean, doesn't it stand to reason that there's at some point at which it would be in their interests to, you know, reach a detente and just do their trafficking without so much killing?

GRILLO: Well, that's a very central point, I think, which is going to be debated into the 2012 presidential election in Mexico. Many members of the public, if they're asked in surveys, should they try and make pacts between the cartels, many members will say yes. Now, politically, it's very difficult to say this, because to say we want to work with the cartels to make pacts is to say you're supporting their drug trafficking. But there are cases - I mean, often in the U.S., for example, the U.S. prison system, where there's prison gangs fighting, the prison authorities will sit down gang leaders and say, okay, look. We have to make some peace here. We have to stop this fighting. You're not necessarily giving them anything. You're just saying, you know, it's not benefiting anybody to have this fighting.

Now, often in communities like Ciudad, Juarez, especially in the kind of mid-level commanders that are from these areas don't necessarily want to see their own communities being burnt like this, being destroyed. And when you have gangs in Ciudad, Juarez like the Barrio Azteca and a group called the Artist Assassins, who are fighting - these are street gangs who are fighting on behalf of the drug cartels.

There could potentially be moves to say to these people, you know, we need to create some kind of peace. For the good of this community, we have to have cease-fires. You know, even in wars, you can start to make cease-fires and start to make, kind of, rules. And this had some of effect, as well, in Colombia, in Medellin - often not by the government, but by some other people, like for example, some religious figures from the churches, and plus some other deputies and old (unintelligible) leaders helped to negotiate peace deals between rival factions. And that did reduce violence in cities like Medellin.

DAVIES: So do you see anybody working on that in Mexico?

GRILLO: Well, it will be very interesting to see who takes power in 2012. The favorite is Enrique Pena Nieto of the PRI. Many people say that they wanted that back....

DAVIES: That's the old institutional party that ruled for 70 years, right?

GRILLO: That's correct. They want to go back to the same party which ruled Mexico for 71 years, which was criticized for being undemocratic, because they feel it was more peaceful back then, that they could get along better, that they weren't facing - they might have had to pay off members of the government who were often shaking down their businesses. They didn't have to worry so much about gangsters shaking them down. So many people want to go back to the PRI. Some people say, well, the PRI are only going to negotiate with gangsters. The PRI will not openly say they will talk to gangsters, but there is speculation that they may, in an underhand way, find some kind of way to broker peace deals.

DAVIES: There have also been reports that U.S. intelligence and law enforcement agencies have been operating more aggressively in Mexico. And it's sort of reminds me of the situation with Pakistan, where U.S. intelligence keeps forces on the ground. It uses drones for surveillance and targeted attacks, doesn't tell the Pakistani government generally what it's up to. Do we see a similar situation developing in Mexico?

GRILLO: We've certainly seen an escalation of U.S. forces in Mexico. We've seen extensive training by the Northern Command, or the Mexican Marines, who have become an elite force to attack the drug cartels. We've seen the aid to Mexico by the American military in terms of Black Hawk helicopters, and also some drones again, to survey the units of drug traffickers on the ground, of the kind of malicious of drug cartels on the ground. And we've started to see some - bases - some stories of CIA operatives being at base in Mexico, which we still have to confirm these stories.

Now, obviously, the specter is of American troops themselves going into Mexico, and this was raised by the presidential hopeful Rick Perry in his campaign. He said, well, this is getting so bad, maybe one day we'll have to send some American troops. Now, a couple of years ago, I would have just said this is something completely impossible. But things are starting to get so bad in some areas, and when you do have militias with 50 guys with RPG's, AK-47s and so forth close to the U.S. border, then the American military machine is going to react.

DAVIES: You write a good bit in the last chapter of your book about legalization, or the decriminalization of drug use as one way to undermine the strength of the cartels. Just give us your perspective there.

GRILLO: The debate about the Mexican drug war has to be linked to the debate on American drug policy, whatever the views are on that policy. We have to understand it's the same question, that these drug cartels are receiving some $30 billion every year from American drug users. And if you look at that over 10 years, you're talking about $300 billion. Now, do we want to see the situation where, in 10 more years, American drug users give 300 billion more dollars to these organizations who are carrying out terror, hurting families and destroying communities? Is American drug policy effective now? I mean, there are many people who say, well, it's not effective right now. The drug policy itself has got problems. So we're getting into the realm of drug policy reform, and it's a very complicated debate.

One question of the debate is if you legalize marijuana, for example, would it affect drug cartels? Whatever the goods and bads are about legalizing marijuana, I would say it certainly will affect the cartels. We know they make billions of dollars every year selling marijuana in the United States. We don't know the exact percentage of marijuana in their business, and it varies from cartel to cartel. But we know that billions of dollars go to Mexico from selling marijuana and end up paying assassins, paying hit men, corrupting politicians.

DAVIES: One of the interesting parts of this story are the cultural artifacts of the narco trade, these songs about gangsters, the narcocorridos. How are the writers and performers here connected to the real narco traffic? Explain what a narcocorrido is, maybe.

GRILLO: A narcocorrido is a ballad about drug trafficking and drug traffickers. And the people who write these ballads are often actually paid by the drug traffickers to write the songs about them. They'll pay somebody - might be as little as $1,000, maybe as much as $50,000, even, to write a ballad portraying these traffickers as brave heroes who have the valor to fight against the DEA and the Mexican army, and so forth. Also, the drug balladeers will play at the parties, often, of drug traffickers, and they'll make a large amount of their income playing at these parties, which can go on for days and nights. And you have stories of some of these musicians where they've been almost held at gunpoint in these parties for days on end - days and nights of debauched partying.

DAVIES: And are the songs popular beyond the traffickers?

GRILLO: Yeah, the songs are very, very popular beyond the traffickers. There's some songs by artists who also are on major record labels in the United States playing these songs. The music itself, you know, it has a very kind of popular driving baseline and brass section often. And people enjoy these lyrics and they do see these characters often as these people, they call them valientes in some communities, or brave ones. And they're often seen as people who do have the guts in a very difficult society, in a society where the minimum wage is $5 a day. They are seen as people who have the guts to beat the system, to rise up and to make good for themselves.

DAVIES: Well, Ioan Grillo, I want to thank you so much for speaking with us.

GRILLO: Thank you very for your time.

DAVIES: Ioan Grillo's new book is called "El Narco: Inside Mexico's Criminal Insurgency." You can read an excerpt on our website, freshair.npr.org. Now here's one of those narcocorridos written about Mexican drug traffickers.

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DAVIES: Coming up: a look at the informal cash economy that employs half the world's workers. This is FRESH AIR.

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THE 'INFORMAL ECONOMY' DRIVING WORLD BUSINESS

DAVE DAVIES, host: As many as half of the world's workers are employed in activity that's unlicensed or untaxed. It's a sprawling $10 trillion web of commerce and industry that my guest Robert Neuwirth calls the informal economy. He uses that term rather than underground economy, because most of this activity would be perfectly legal if it were registered and taxed. It isn't drug smuggling and gun trafficking, but buying, selling, making and transporting that flourishes mostly in the developing world.

In his new book, Neuwirth gives first-hand accounts of the informal economy in several countries, and argues that it thrives on entrepreneurial spirit and operates with its own codes and unwritten rules. In some cases, Neuwirth argues, the informal economy is performing basic functions that governments can't or won't, like providing safe drinking water.

The informal economy is growing, Neuwirth says, and world policymakers need to better understand its scale and impact. Robert Neuwirth is an investigative reporter whose work has appeared in The New York Times, the Washington Post and other publications. His book is called "Stealth of Nations: The Global Rise of the Informal Economy." I spoke to him last week. I asked him to begin by describing the informal economy in Lagos, Nigeria.

ROBERT NEUWIRTH: Lagos is amazing, because I had never been there. I had no way of understanding the city from outside. And I just got there, and it is the most hyper-entrepreneurial, hyper-capitalistic, hyper-busy, cacophonous, amazing place. It has a horrible reputation in the world, largely because it is hugely cacophonous and hard to understand.

But people are just busy doing business, and everyone's doing business, from the smallest scavenger on the side of the road to massive corporations. And many of them - in fact, most of them - are doing business informally. So about 80 percent of the workforce in Lagos is part of the informal economy. And that runs the gamut from, you know, people selling vegetables at the side of the road to major corporations like the mobile phone companies that do almost all of their business through informal kiosks that are little more than stick and plywood stands under an umbrella at the side of the road.

DAVIES: Tell us about some of the electronics dealers.

NEUWIRTH: The electronics dealers in Lagos - Lagos has a lot of international market. It's the largest electronics market in West Africa, and perhaps in all of Africa. And people from neighboring countries come there to buy. The dealers are importing just huge amounts, containers and containers and containers of electronics, mostly from China.

It can be very threatening to walk into in the sense that you're immediately accosted by these touts who are saying, what do you want to buy? And (foreign language spoken), which is Yoruba and Ibo for white man, and they grab your arm and they try to pull you off into someone's kiosk. And it's not a violent gesture. It's just they want to sell you something. And you can always say, no. I'm going over here. I'm going over there. And they try to make a deal with you. They want to find out what you want to buy, and they want to sell to you.

DAVIES: And I love this. You actually found a computer shop where people were actually copying and pasting and mailing those emails that go all over the world...

NEUWIRTH: Oh, yeah.

DAVIES: ...the financial scam about the...

NEUWIRTH: Well, yeah.

DAVIES: ...existing bank account in Nigeria.

NEUWIRTH: Sure, what they call 419, which is - it refers to the number, section of the penal code in Nigeria that relates to financial fraud. But basically, it's everywhere. In the local Internet center - and they are Internet centers all over Lagos, which is quite interesting in the city that doesn't have a stable power grid. They run these diesel generators that are also imported by the informal economy. And in the one that I went to often the people sitting next to me where the guys who were cutting and pasting the same letter into thousands of emails. And in fact, if I didn't dump the cache every time that I left the Internet center, I would immediately begin receiving these emails as well, because there's a copy of your email address that's embedded in the computer unless you dump the cache. So in order to avoid, you know, just massive amounts of spam, I always had to remind myself to change the protocols on the computer every time I logged out.

DAVIES: Yeah, that's cache, C-A-C-H-E. Not cash.

NEUWIRTH: Yes.

DAVIES: C-A-S-H. Right.

And that's right. That's the memory in the computer that's embedded in the computer, unless it's the little cookies that have different websites embed in the computer to have it memorized where you've been.

Now these merchants who have now built businesses where they make millions by importing electronic products and sell them, they're not registered with the government. They don't pay taxes. But they do have some relationship, right? They bribe folks.

NEUWIRTH: Yeah. You know, in fact...

DAVIES: Talk a little bit about the Nigerian government; what it does and does not do, with respect to regulating this economy.

NEUWIRTH: It's not exactly the case that these firms are not registered because anyone who is importing anything into Nigeria has to be registered with the Nigerian Corporations Commission. But what they are doing is futzing with their manifests or pulling the wool over the eyes of customs officials or smuggling in what they call CB or contraband or pirated goods through other ports. Like they'll bring their fake Nokia phones or fake Panasonic stereos, they'll bring them in through Cotonou, in the neighboring country of Benin, and then truck them into Lagos.

They're all sorts of ways that they do this stuff. The Nigerian government - look, basically Nigeria has oil wealth. It's the fifth largest oil-producing country in the world, and that has meant that the government is fairly flush and they don't really worry about a lot of this stuff. So as a result, there's just a lot of porousness in the system, which these informal merchants exploit and they bring in containers and containers - thousands of containers - every month full of stuff that is totally legal but never gets reported to the tax man or the customs official.

DAVIES: It's clear that, you know, millions of people are in the informal economy because they don't have economic opportunity with, you know, with so-called legitimate economy. I mean they...

NEUWIRTH: Mm-hmm.

DAVIES: They need to survive and this is a way to do it and they use their entrepreneurial instincts to make a living...

NEUWIRTH: Absolutely.

DAVIES: And it's made possible in many cases by government that simply kind of can't or won't regulate commerce the way it's done in other places. But it's also interesting that in at least in Nigeria you have in some respects the informal economy taking over some basic functions of infrastructure that the government just isn't up to. Like for example...

NEUWIRTH: Sure.

DAVIES: ...drinking water, getting clean potable water.

NEUWIRTH: Right. Absolutely. There is no municipal water system in Lagos, and there are no water pipes, really. Most rich people who have enough money to do this will dig a deep well that they call a borehole and buy an engine and a generator and pump up the water and filter it and drink it. Most poor people have to buy water. And so a market sprang up. Some very clever entrepreneurs figured out how to put water in baggies - heat sealed baggies and they were marketed all over the streets. They were called pure water and you could buy them five naira or about three or four cents for a half-liter bag. And this is a major way that people get drinking water in the city. And it was designed and implemented informally.

The government then figured out a way to make sure that the water was drinkable. And without forcing the firms to completely formalize or completely pay taxes or completely obey all the laws, the NAFDAC, as it's called, the Nigerian, essentially their version of the FDA, came up with a plan to inspect and approve the pure water production facilities. And that's been a tremendously successful plan and really guaranteed that the water was healthy for people, and at the same time allowed but in formal businesses to continue selling it. So it was quite an amazing governmental intervention that didn't wipe out an informal market but kept it going and made it better.

DAVIES: Right. Now this also strikes me as an illustration of some of the problems with having an informal economy do things that we would expect a government to do. People buy these bags of water, they bite off the corner, gulp down the water, toss the bag, and now...

NEUWIRTH: Yeah.

DAVIES: ..they're clogging, you know, rivers...

NEUWIRTH: Yeah.

DAVIES: ...streams and sewers. I mean...

NEUWIRTH: Absolutely.

DAVIES: I mean environmental degradation is a real issue here. I mean there's not a regular reliable power supply so people use all these gas-powered generators, there's smoke everywhere, people use these little taxis, motorcycles, you know, they're...

NEUWIRTH: Right. Two stroke engines that put out a lot of grit. It's absolutely true. Look, you know, many of these solutions are temporizing in the face of no public solution to the problem. There is no public or no massive public transportation system in Lagos, although the government has tried to intervene with some express buses, but - and so the motorcycles have proliferated and there are about a million unlicensed motorcycle taxis in Lagos. They put out all sorts of pollution. The baggies from pure water are a definite environmental hazard. And there are real problems to the temporizing solutions to the lack of infrastructure. And there really needs to be a way of figuring out how to broker in between the two sectors - the governmental sector and the informal responses to the government's lack of action, to be able to recreate something that's much more sustainable. But in the absence of a water system, I don't think it's a solution to say that people should have no water. So I think pragmatically speaking, the informal response to the lack of a water system has been great. And then you have to figure out on the back end, well, how do we make this better? How make it less of an environmental nightmare?

DAVIES: Robert Neuwirth's new book is called "Stealth of Nations." We'll talk more after a short break. This is FRESH AIR.

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DAVIES: If you're just joining us, our guest is writer Robert Neuwirth. He's written a book about the underground and informal economies of the world. It's called "Stealth of Nations: The Global Rise of the Informal Economy." You know, this book is an interesting and sympathetic look at the millions of, you know, tens, hundreds of millions of people involved in this economy.

NEUWIRTH: Yeah.

DAVIES: And I wonder if you had the chance to speak to policymakers at the top of, say, the State Department and the United Nations. Are they getting things wrong because they don't understand this economy?

NEUWIRTH: Well, I would argue that they are. I didn't focus on that end of the equation so much. I mean I spoke with some officials at various agencies. And indeed, a year ago, I was making a presentation down at a conference in Washington, D.C. co-sponsored by the State Department and the CIA. But look, the fact of the matter is that governments don't quite know what to do about this. Everyone knows it's there. Everyone is tolerating it to some degree or another, and they're not quite sure how to go about things with it, so they tend to get very punitive towards it. And, you know, I would argue in the book that punitive is the wrong way to go. We have to be looking for a middle ground where we are encouraging this kind of economic activity while bringing these folks in from the cold so that they can be part of the stable growth and improvement of their country.

DAVIES: Well, we've really been talking mostly about the developing world. How big is the informal economy in the United States?

NEUWIRTH: Well it's an interesting thing here, that the statistics is that the United States by percentage of gross domestic product has one of the smallest informal economies in the world - at about somewhere between 8 and 9 percent of our, the value of our GDP. But, of course, given the value of our GDP, that makes the United States the largest informal economy in the world with a value of about a trillion dollars. So it's actually percentagewise small, but in actual dollars huge in the United States. It's all over the place – from, you know, the guys you see waiting around for construction jobs in the parking lots at Home Depots and Lowe's, to folks selling food on the street, to swap meets where people are, you know, selling goods from kiosks. So it's all over the United States.

DAVIES: Should the government be adopting policies that are different?

NEUWIRTH: Absolutely. I mean, the government here I think has to recognize the informal economy as what it's always been in the United States, which is an incubator. Many of the major businesses in the United States started out. I mean that famous Balzi quote that Mario Puzo used at the beginning of the "Godfather:" "No great fortunes without the history of criminality." But it's kind of true, not in the criminal sense, but Dick Sears was a station agent in - along the railroad in Minnesota when he started selling watches to people on the trains, and that was the start of the business enterprise that became Sears Roebuck - that for many years was the largest retailer in the United States. Stanley Tools, Frederick T. Stanley, started as a tinker, selling tools from a mule. Van Heusen shirts started - the fellow who started the company that became that enterprise was a peddler in Philadelphia. So this has always been the case in the United States, and we have to look at it as a kind of incubator sector in our economy and figure out ways that we can assist the merchants who are selling informally rather than trying in a punitive way to drive them out of business.

DAVIES: Well, Robert Neuwirth, it's been interesting. Thanks so much for speaking with us.

NEUWIRTH: Yeah, thank you, Dave. It's a pleasure.

DAVIES: Robert Neuwirth's book is called "Stealth of Nations: The Global Rise of the Informal Economy."

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DAVIES: You can join us on Facebook and follow us on Twitter at nprfreshair. And you can download podcasts of our show at freshair.npr.org. For Terry Gross, I'm Dave Davies.

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DAVIES: On the next FRESH AIR, a conversation with David Carr, who writes a column for The New York Times about old media and new media. He says we may be entering a golden age of journalism.

DAVID CARR: I look at my backpack, it contains more sort of journalistic firepower than the entire newsroom that I walked into 30, 40 years ago.

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