Tuesday, September 18, 2012

Introducing the Fringe Economy

Introducing the Fringe Economy
You’re snacking from a food cart at a music festival, strolling through a swap meet, perusing home-made goods at a craft or holiday fair, spending Saturday garage sale-ing, dropping a dollar bill in a busker’s cup or scanning the ads on Craigslist or Ebay.  Without knowing it you are probably supporting the Fringe Economy, also known as the Informal Economy, the Grey Market, System D, the Underground Economy, the Street Market and so on.

How to understand the Fringe Economy?

Well, the Fringe Economy is to the traditional economy as Fringe Theater is to traditional theater: an opportunity for those on the outside of the institution to find a way into that select group.  Not familiar with Fringe Festivals?  Here’s a brief description courtesy of Wikipedia ~

Street performers at the Edinburgh Fringe,
the world's oldest and largest Fringe Theater Festival.
Photo source: www.culturalweekly.com
Fringe theatre is theatre that is not of the mainstream. The term comes from the Edinburgh Festival Fringe, which name comes from Robert Kemp, who described the unofficial companies performing at the same time as the second Edinburgh International Festival (1948) as a ‘fringe’, writing: ‘Round the fringe of official Festival drama, there seems to be more private enterprise than before’. The term has since been adopted by the Edinburgh Festival Fringe and thence by alternative theatres and alternative theatre festivals.”
– Wikipedia, August 29, 2012
And a brief explanation from the Edinburgh Fringe website ~
Our story dates back to 1947, when eight theatre groups turned up uninvited to perform at the (then newly formed) Edinburgh International Festival, an initiative created to celebrate and enrich European cultural life in the wake of the Second World War. Not being part of the official programme of the International festival didn’t stop these performers – they just went ahead and staged their shows anyway.”
The Fringe Economy
As someone who has worked with start-up businesses for thirty plus years, I'm most interested in the self-employed, especially those who are struggling to create an income and a life for themselves. 

For so many entrepreneurs the expense of starting a business is more than they can afford.  So, they go “ahead and stage their shows anyway.”  i.e., they operate without or with the minimum of permits and licenses while paying (if at all) the minimum of taxes, on the fringe in the same manner that performers in 1947 crashed the party in Edinburgh.

A Fringe Business is any business that sells legal products and or services without the benefit or often the burden of licenses or permits and whose owner may or may not  pay taxes on income earned by the business.  This differs from a Black Market in that Black Market businesses sell illegal or illegally obtained products and services, again with licenses, permits or paying taxes.  

Are Fringe Businesses cheating the system?
Obviously, Fringe Businesses aren’t paying their fair share of the cost of our economic infrastructure ranging from police and fire protection to roads, bridges and other public services.
And no.
Why no?  Fringe businesses create an astounding number of jobs and income even in this country, jobs that would otherwise not exist. 
But why operate on the Fringe? 

Because all too often the cost and requirements of permits and licenses are effective bars to new businesses entering an industry.  An example is the training and licensing required in most states to become a hair dresser.  Industry groups lobby legislatures to set higher standards than are really necessary to “protect the public.”  Hair dressers and barbers aren’t alone in trying to protect those currently in business from those who want to go into that business.
So what does a prospective entrepreneur do?  They operate on the Fringe, creating jobs and income as best they can until they can afford or meet the requirements of rules often designed to keep them out of an industry under the guise of protecting the public.  This is a critical balancing act in society.
The Fringe Economy, by the way, is recognized as having existed for, well, forever.  In fact, as long as humans have traded one thing for another.  In a way, it’s the natural state of affairs between humans.  As primitive societies developed, the leaders of these groups instituted regulations and instituted fees or taxes to support the superstructure of the culture, and more importantly, the infrastructure that supported trade, both the regulated and taxed businesses and the Black Market that has existed at all times and in all places.or th

I keep running into Fringe Businesses such as the shoe shine business that has supported an extended family for years, or the young man from an African country who purchases junk bicycles that he ships by the container full to his home country where his father rehabs them for sale to the public.

There is the portable food cart operated by a husband and wife, and the junk hauler who supports his family with his old pick-up truck and the computer IT specialist who sells equipment on the side.  All are in business for themselves of economic necessity.  And none fall into the category of businesses that will attract financing or one day become the next microsoft.  Yet each is a personal expression of an independent solution to their personal situation.  And each in a true business in every sense of the word, a business that adds to the well being of our country.
To quote Nobel Prize winning economist, Milton Friedman, “The black market was a way of getting around government controls. It was a way of enabling the free market to work. It was a way of opening up, enabling people.”  Substitute Fringe Economy for Black Market to get a more modern meaning of this quote.
According to a recent article by Robert Capps in the January, 2012 issue of Wired Magazine, “. . .the globe’s gray and black markets have grown during the (current) international recession, adding jobs, increasing sales, and improving the lives of hundreds of millions.[i]
In Robert Neuwirth’s 2011 book, Stealth of Nations, he estimates that worldwide the Fringe Economy that he labels “System D” is the second largest on the planet, generating some $10 trillion in sales in 2009.  That year, the largest economy was that of the U.S. at $14 trillion.  He estimates that the Fringe Economy of the U.S. generated $1 trillion, a number not included in the $14 trillion reported through government agencies.
Here’s the real shocker, at least to me.  Worldwide, System D or Fringe Economy businesses provide OVER one half of all jobs on the planet.
Photo Source:nodepression.com
So the next time you have a shoe shine at a sidewalk stand or toss a dollar into a street performer’s hat, realize that you’re contributing to the economic wellbeing of a Fringe Entrepreneur, a member of the second largest economy in the world.

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The Entrepreneur's Bookshelf ~
The more you know about small business management and financing before you start, the more likely you are to succeed.  That's why I urge anyone thinking of starting a business to contact their local Small Business Development Center or Community College.  I have also organized this bookshelf for you at Powell's Books, the world's largest single site new and used bookstore, featuring the latest books on small business start-ups, marketing, and small business money management.   
A Selection Related to this Post:

Click on this link to see all the selections on ~

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[i] "Why Black Market Entrepreneurs Matter to the World Economy", Robert Capps, Wired Magazine, January 2012


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