More than 80% of the global population lives in economic informality. Numbers of this caliber reflect the distrust of modern society in the face of an institutional edifice that does more harm than good, and pushes citizens to keep their economy out of the official records. Given this panorama, a correct diagnosis is crucial to begin to retrace a path that can only lead to failure.
That the informal economy constitutes a reality that encompasses society as a whole is a more than verifiable statement. It is not a question of addressing the issue solely on the basis of the individual decisions of citizens, but of understanding how the informal machinery has a direct impact on national development. Following this line, it would be a serious mistake to look for culprits among those who take refuge in informality to protect their personal finances. It is necessary to broaden the view and recognize that there is a system that does not offer guarantees and fails to convince.
From 1945 onwards, with the growth of inflation, informality in Argentina rose to levels close to 50%. Since then, it has never gone down again. In order to understand this phenomenon, it may be useful to incorporate the Anglo-Saxon concept of compassion. This differs in a central aspect from its closest Spanish equivalent, compassion: it does not refer to the pity felt for someone going through a bad situation, but invites empathy, to put oneself in the other's place.
Crisis of confidence in the State
Indeed, when corruption, inflation and instability are commonplace, citizens conclude that the money they contribute through taxes does not translate into social improvements. Thus, they use informality as a self-defense mechanism. Along the same lines, situations such as the parliamentary boycott of Ficha Limpia contribute to general distrust. If it is not possible to guarantee legal security, it is not possible to guarantee economic security either. The 21st century shows that the phrase "to shrink the state is to enlarge the nation" is more true today than ever, but it is difficult for the nation to grow if we allow the same old people to manage it.
The international problem
But the lack of compassion is not only Argentina's heritage: the proliferation of erroneous diagnoses led to the creation of an international bureaucracy in charge of imposing anti-money laundering regulations based on erroneous assumptions. The emergence of this phobia was justified in the fight against terrorism and drug trafficking, and has proved to be inconsistent as a strategy against both problems. Terrorist attacks do not depend on financing nor do they have significant costs, as the investigation of the attack on the Twin Towers proved; while drug trafficking from Latin America is u$s15,000 million per year, but domestic consumption in the United States is u$s250,000 million. Every year thousands of bank accounts of Latinos are closed, but no one deals with the mountain of narco-dollars that circulate daily in the US.
Recently, Javier Milei remarked on the differences that exist between the informality to which those who wish to protect their finances from the failures of the system resort, and the informality in which illicit activities hide. Correctly, the President pointed out that crime should be combated through the Security forces, and not with economic regulations that affect the average citizen. Indeed, the positions of Anti-Money Laundering are incompatible with the reality of three quarters of the world, and the position of the Argentine Government will help to tear down the first brick of this Berlin Wall.
This type of prejudice clouds the vision of the real causes of the problem, and makes it impossible to take the necessary measures against the real dilemma: informality as a response to a severe institutional distortion. Indeed, it is essential to attack the source of informality, which is none other than distrust. To this end, the solution is to generate incentives that invite people to enter the formal system and leave the margins.
In this sense, the current situation in Argentina shows some signs of improvement that allow us to think of progress in the short, long and medium term. In the immediate horizon, measures tending to promote the entry of informally safeguarded money into the formal economy, without punishing those who have so far chosen not to do so, are on the horizon. Milei insisted that the Government is working on a plan so that Argentines "may withdraw their savings without being persecuted by the State". This project represents an interesting step to put an end to the problem of informality, but there is one element that is a necessary condition to banish it: credit. With reasonable rates, people will pay taxes to be able to prove their income without the need to be prosecuted. The main incentive to launder income will always be access to credit. Those who do not see this will continue to make misdiagnoses and the never-ending story will continue to play out.
Source: Ambito
Marcos Victorica is Founder and CEO of BAS STORAGE.
Company that is revolutionizing the American real estate market by creating a product based on the American economic infrastructure.