A case study of the social construction of two flea markets and their relationships to the cash underground economy:

socio-cultural impact on institutionalizing and organizing economic activity in an informal setting

Dr. Les Abrams

Abstract

This paper discusses the social construction of order in the informal economy. The case study involves two very large and successful flea markets in the New York metropolitan area and their source of successful acquisitions of goods and services in the informal economy or as I call it - the cash underground economy. It demonstrates the socio-cultural influences on economic behavior from an interactionist perspective. As such, it seeks to demonstrate Durkheims axiom: there can be no economics without preestablished cultural norms, the concepts of contract, and the moral sentiments and social understandings as underpinnings for economic action. Concepts as trust, reciprocity, mutual dependencies, cooperation, common agreements that are embedded in culture, are explored from a human centered approach. Lastly, it allows for a re-examination of some of the fundamental postulates of neoclassical economic theory such as an economy and business transactions as being separate from society and outside influences, consisting of atomistic individuals relating as lone individuals coldly calculating and maximizing their own utility. Quite the contrary view is described here. The rich, contextual, multifaceted, interpersonal qualities of exchange are established. How these recurrent expectations and concerns of economic actors get organized into roles and relationships is the focus of this paper.

Introduction

This paper considers the structure of the informal marketplace in the context of two specific flea markets: Aqueduct Racetrack Flea Market (in Queens, NY.) and Roosevelt Raceway Flea Market (in Nassau, a county just outside the city line). These case studies illustrate economic activity in an informal setting. Economic sociology seeks to understand how it is possible to operate such sprawling, seemingly unwieldy, hugely popular, marketplaces in an informal setting. What dynamics and operating rules allow them to operate an exchange with thousands of financial transactions in an open field or empty parking lot on the side of racetracks (initially intended for horseracing.) Under the prevailing neo-classical theory, the market place is impersonal, atomistic and solely motivated by self interest. These are not the only relevant categories to consider in explaining complex socio-economic transactions in the market place. This paper challenges this dominant view, and adopts a modified Durkheimian view of the matter. As a result, this paper seeks to overlay the dominant neo-classical economic theory within a sociological view of markets. It is contended that from a sociological point of view that markets are social constructions operating within sociological parameters. Shared social meanings and individual understandings are required for the successful functioning of economic activity. Based on observation and analysis of the economic activity in two flea markets, neo-classical theory is inconsistent with the observed facts and fails to explain the personal, individual and group social bonds which critically impact the economic activity. A more complete answer requires a human centered approach which focuses on specific aspects of social/psychological components of the relevant embedded localized culture. While post-Durkhemian commentators have identified several embedded characteristics, this paper points out several embedded social characteristics which play a

crucial part in explaining the observed economic activity in the informal market setting of flea markets, a branch of the underground cash economy. This paper concludes that one must consider the shared social bonds exemplified in kinship, friendship, trust, cooperation, reciprocity, neighborhood ties and other emotional links to provide a more complete theoretical explanation of such economic activity. Theoretical Perspective A brief overview of theory goes like this. From a neo-classical perspective, the economy is defined as an entity separate from society functioning, existing independently of social institutions. The market is understood in terms of being a natural order of things- part of nature as an evolutionary universal process of human action: non-historical. Markets in this context are as free institutions which work most smoothly/efficiently/efficaciously when unregulated by government policy or unrestrained by local norms, traditions or politics. Economic actors are seen as atomistic, coldly calculating, rationally maximizing their profit potential despite all others and against all odds. These supposedly neutral, self seeking maximizers have their preferences, priorities, and game plan ready to go. Supposedly, their self-reliance and rugged individuality allows them to know the conditions of the market and have perfect information allowing them to take full advantage of exchanges for their own benefit. Therefore, having their preferences pre-arranged for economic action as well as priorities set concerning exchanges of commodities, money and information, business activity will be frictionless, atomistic exchanges. Accordingly, unlimited competition will provide for a proper equilibrium of supply and demand of goods and services. From a Durkheimian perspective, a society in which each individual solely pursues his/her own interest would disintegrate within a short span of time. It will degenerate

into a heap of mutually antagonistic and self seeking individuals" (Coser, 1977:132). Arguing against Spencer and the utilitarians for their emphasis of individuals joining society (from a separate existence in nature) via a social contract, he maintained that society cannot be derived (nor maintained) from the propensity of individual self-interest to trade and barter in order to maximize their own happiness. This view Durkheim believes, fails to account for several factors that: people do not trade and barter at random but follow a pattern that is normative (Ibid., 132), and is in existence as an ongoing reality which is not reducible to individual propensities. In other word, for economic actors to make a contract and live up to it, there must have been a prior commitment to the meaning of a contract in its own right. Such prior collective commitment, that is, such as non-contractual element of contracts, constitutes the framework of normative control. No trade or barter can take place without social regulation and some system of positive and negative sanctions (Ibid., 136) - a social organization embedded in society, history and culture, as part and parcel (the hows and whys) of a particular market-place is organized positing its own unique way of development. Traditions, manifestations of existing rules, authority, laws of the state, customs, norms, morals, ethics, and religion are inherent in business deals, contracts and common understandings. For Durkheim, one of the major elements of integration is the extent to which various members interact with one another. He goes on to say that paradoxically, as complex division of labor increases in modern societies leading to increased individualization, there is a mutuality of needs, and therefore, an increasing interdependence among members of society with its concomitant mutuality of interests and cooperation with others (Giddens, 1971:69). Contact increases because, individuals are now engaged in differentiated ways of life and in specialized activities,

the members are largely dependent upon one another and networks of solidarity can develop between them (Coser, 1977:132). There is no capitalism without local articulation, (Hefner, 1998:29). From this perspective, sociologists such as Mark Granovetter and Brian Uzzi question if this type of neo-classical market actually exists in reality. They each develop a concept of embeddedness. Embeddedness refers to the process by which social relations shape economic action. What are the social arrangements that help create the uniqueness of each of these two marketplaces? Variables such as local history, local values, available resources, capital formation schemes (which are usually based on access to capital, availability of opportunity, ego gratification, and power), social relations involved in doing business, and in creating stability such as trust, must be assessed. A sophisticated analysis of economic action must consider embeddedness as purposeful economic action that is embedded in concrete, on going systems of social relations (Granovetter, 1985:487). Uzzi stresses the social forms - networks of organization relative to market based exchange systems. Embeddedness is an exchange system with unique opportunities relative to markets and that those that are organized in social networks have a higher survival rate than those with arms length relationships (Uzzi, 1996:674). He believes there is an exchange logic based of expectations and opportunities that differ from purely economic logic. These opportunitiesin these case-the development of private/public space-open space and its derivative uses are directly and concretely embedded not just in economic considerations but legal, political, and social structures. In fact, in order to understand the history and transformation of these open spaces for multi-purpose use, one must not only take into account the history but include the social and economic

arrangements at work. One must actually pay attention to concrete actors who mobilize resources through networks of social relations. These networks or arrangements set the way which business deals are made. They are not static but ongoing, continuously being constructed (and reconstructed) depending on social relationships, capital formation, and market necessities at the time. These realities not only shape the people involved, but are in fact, shaped by these economic actors-their individual identities, strategic rationale, and styles of doing business together, are all involved producing a specific and unique outcome. Business reality is itself embedded in a broader system of relations to society and community and culture. By description/definition, flea markets as specific marketplaces are socially and economically constructed each with its own methods, constructs, and beliefs.

Methodology This ethnographic study results from having worked in these two flea markets with family members for more than six years. This has afforded me the opportunity to learn about flea markets from first hand experience. Participant observation was augmented by formal and informal interviews and discussions with vendors, manufacturer/supplier, and shoppers. These discussions were within the flea market before and after business hours,

during business hours if inclement weather prohibited sales as individuals were usually frustrated by the disruption of activities and very willing to talk about business or shopping. I went back on different days when I wasnt working the market to look people up and let them know of my research design and their place in it. Furthermore, both my Father and I have had extensive discussions over the years with various manufacturers who supply the flea markets. Some of these discussions were recorded on audio tapes. These discussions have a semi-structure to them which has allowed me to collect data on a number of specific points, as well as subjective opinions, stories, antidotes, and advice. By presenting myself as one of them, I have had the opportunity to enrich this social and economic research by adding emotional and personal depth that a formal questionnaire, by its positivistic nature would hinder. My long term association with the market has proven to be an asset as it has provided an historical, personal context I would not have had otherwise. These vendors like me have worked in these flea markets for a number of years and can offer insights into the workings of these two markets from the right spot an inside view from a vendors perspective as well as share some of the concerns and attitudes expressed by many shoppers which we have dealt with over the years. Between these vendors including myself, we have had business dealings with thousands of shoppers and many manufacturers/suppliers. In these many transactions, the degree of intimacy varied usually based on personalities, frequency of contact, and mutuality of interests. Secondary materials include several years of researching markets and marketplaces. Much of the literature of the field both economic and social has been reviewed. Several pertinent articles and ethnographic studies proved to be beneficial in adding to my own knowledge of markets.

In summary, I hope to add knowledge to the field of economic sociology by embedding economics into sociology. This will document the actuality of flea markets with its textured complex reality. Secondly, relations to the cash underground economy and its workings to flea markets will be explored. Lastly, in an attempt to go beyond the template of neo-classical economic assumptions, a critique of neo-classical economic theory will be offered based on the evidence of these two market sites.

Flea Markets as Democratic Process Commodity Exchange Sites in an Informal Setting There is a history of social and economic arrangements at work in the development and construction of race tracks and multipurpose use of these open spaces in these two areas. Location is a key ingredient and substantial variable in attempting to understand the construction and success of marketplaces. Marketplace systems are highly influenced by their surrounding communities in which they are situated or embedded its history, values, and its rituals of shopping, and ways of conducting business. (I have thought of this phenomena as social economics.) The location of these two flea markets

specifically and flea markets generally, and their embeddedness in the surrounding communities have fostered an immense growth in the development of the informal economy in and around the New York metropolitan area. Using local history and location as primary variables in impacting the structure, function, and organization of these market sites, both of these flea markets are located on sites that were originally open space bought by private investors. Though planned for one purpose racing thoroughbred horses, these parking lots now have multifunctional use providing an array of opportunities bettering the life of so many. From entertainment, to bargaining hunting, these opportunities involving open space and its derivative uses are directly and concretely embedded in economic, legal, political, and social structures. The details are somewhat dissimilar; however, the parallels are enlightening. Both flea markets use the immense parking facilities along side the race tracks to set up their rows of vendor spots. More than 1000 vendors show up on weekends and once during the week Tuesday or Wednesday depending on the market, mostly in vans, but with every conceivable set up. How does it work? What are the agreements, understandings, and common sense aspects of organization? The flea market and its complement, the cash underground economy, (part of the informal economy which basically involves certain manufactures supplying these markets with an infinite array of seemingly unlimited merchandise), have an alternative regulatory structures that has evolved to organize peoples expectations and business practices. There are integrative factors that help organize ticket sales for vendor spots. There are monthly tickets for full time vendors. Spots for the week or day are also available. These spots can be purchased in advance by going to the main office or in the case of a daily, that day at the gate. Gates open for vendors at 6:00AM.; for customers, at 9:00AM. Ones name must be on a list to acquire a

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full-time spot, but knowing the owners of the flea market definitely helps in its acquisition. By opening time for shoppers, the lines are blocks long. Upon entering, cars must be parked in a particular section away from the crowds and somewhat near the vendors. Attendants working for the flea market management help direct cars and the process is efficiently organized. Security personnel are walking around to ensue safety and to help prevent theft. There are special assistants to management that ride around in golf carts to handle any disputes and are authorized to represent the management. Punitive measures for disruptive behavior on the part of the vendors can lead to having ones ticket confiscated, and the vendor having to go to the management during the working day and resolving the dispute in order to get ones ticket back. Disruptive behavior is collectively defined by management and vendors in relation to common understandings in every day business practices. Cooperation, harmony, and trust rule the day. One is encouraged to act in an ethical manner it is good for the reputation of the market as well as for vendors and shoppers alike. At the end of the day, general time for breaking down ones spot, packing, and going home; and although it was flexible, it was generally about 5:30-6:30PM. Reciprocal arrangements were often made between vendors especially the ones along side, sharing the same boundary. Watching, offering additional security, helping with a box or equipment while setting up or breaking down or filling in during breaks or while using the bathroom or to get lunch is a practice that was widespread. Reciprocity, cooperation, and trust among the vendors added to the social cohesiveness of market activity and its successes. The Informal Sector - The Cash Underground Economy And its Relation to Flea Market Success To more fully understand the hugely successful flea markets in these two instances, neither the overall dominant economy nor the informal/cash underground or alternative

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economy can be adequately understood in isolation from each other. It is not the purview of this paper to analyze the scope or the size of the cash/underground economy. An interactionist perspective will add to the social aspects of three major variables which are the main components of the informal economy: 1. presentation of self and individual identity, 2. the interpersonal development of trust and 3. establishment of lines of credit will be explored with the hope of filling a void of the role this economy plays in enhancing the success of these two flea markets. Cross defines the informal economy in his article Street Vending and the Postmodern World as, including the production and exchange of legal goods and services that involves the lack of appropriate business permits, (use of two sets of books and phony receipts), violation of zoning codes, failure to report tax liability, non-compliance with labor regulations governing contracts and work conditions, and/or the lack of legal guarantees in relation with suppliers and clients (2). The informal cash/underground economic system and how its functioning is relation to these two flea markets in the metropolitan area is both economic and social in nature. Miller believes that the informal economy offers a community based, solidarity cooperative, smaller scale, more personal, less market-valued way of economic production (and exchange) (147). Too often for lack of research in this type of economy, which is understandable by definition, it has been labeled hidden, irregular, the black or gray economy. The cash underground economy as I choose to call it because it embodies the manufacturer/suppliers relationship to these two flea market places and their penchant for use of cash transactions. The informal sector describes business activity that takes place outside the formal norms of economic transactions established by the state and formal business practices. Usually these businesses are run by self-employed individuals on a

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micro level dealing with small companies particular family owned companies. Specifically to these flea markets, a vast array of merchandise is exchanged through a network of individuals that develop trust through camaraderie, reputations that follow one from place to place, by phone calls of introduction, and by what I observed and labeled identity alliances-establishing ones identity answering questions such as: where did you grow up?; from what neighborhood?; who you were friends with (even from thirty years ago), and where did you hang out? Business deals and terms of credit are done on a handshake and a smile, and a feeling of trust. These informal, reciprocal cash transactions developed out of the rise of these two huge flea markets during the 1970s. Opportunities for employment, starting a small business, being involved with manufacturing/suppliers provided an opportunity to make a lot of money most of it tax free. Money increased activity, opened doors, and got things done. So much of Manhattans apparel/fashion industry opened its doors to the vendors of these flea markets. The cash underground economy flourishes here. There are various business sites lower Manhattan, Seventh Avenue, and Madison Avenue that are intensely involved with these two market places. It is an economic and social network relying on expected reciprocity, kinship like relations in an (post) industrial era, which is enhanced by lengthy introductions, frequently shared stories of a similar past, usually of an immigrant experience, and mutual respect. Manufacturers and vendors are sizing each other, probing and looking for areas of commonality allowing for the development of trust and for the business alliance to move forward. Individuals involved have their own ideas of economic realities, norms, and modes of operation. It is precisely this evasion, excitement, and feeling of beating the system, which generates feeling of satisfaction of having power

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over ones life. Important as this is, it is secondary to making money, conducting business off the books, which generates cash incomes, jobs and the flow of goods and services. Who are some of the people that become the business proprietors that have provided such an immense array of merchandise for these flea markets especially in the garment trade? In order to understand the major and minor economic players that have supplied a vast amount of merchandise to both flea markets, the focus must turn to the seminal experience of the immigrant who came to America primarily to start a new life in a new land. Most individuals in the cash underground economy are attempting to realize the essence of the American Dream. Having enough money was a sure way of realizing ones goals. We met and dealt with individuals infused with business attitudes and ethics that were subsumed within the attitude that not having enough when young, and therefore determined to be empowered financially, and as an individual, making it big time. Beyond any question, the motivating variables in the underground economy were cash and ego. Furthermore, there was a complex interweaving of laissez faire, feelings of empowerment, and excitement. We also dealt extensively with the second generation the children of founders of businesses who were themselves middle age. Their roots were local even though they were raised by immigrants (as a counter distinction to first generation immigrants whose business was an extension of their identity and background from anther part of the world). They had strong feelings for those that raised them, helped or hurt them. Early memories of the local neighborhood ran deep. They tell stories of the struggles they had when young, and the adjustment they had to make in order to succeed. Their stories include people relatives and friends in their lives that had the most impact on them, as

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well as local establishments such as a synagogue or church or candy store, and the school yard that had a pivotal impact on them. There is a social solidarity they find essential in relating to people which guides their business acumen. In the cash underground economy, successful people take this seriously into consideration. The importance of social value relationships cannot be overvalued.

Evaluation and Critique The success of these flea markets exchange sites lies in the fact that human society is interwoven within the economy and its involvement is multifaceted (Cf. Becker, 1976; Belshaw, 1965; Grenovetter, 1985; Polanyi, 1944; Smelser, 1976; Uzzi, 1996). My contention is that there is no one institutional form or economic business template, but rather different organization forms each having different degrees of institutionalization. It is only by observation and description can one classify, describe and interpret the social working of these market sites. It is not like the outcome had to be a specific way or conform to a prescribed neo-classical economic model. In other words, each of these markets has their own specifics embedded concrete realities. Flea markets developed as part of the informal economy, where the reality of relationships across group boundaries and the way in which adjustments are continually made to new or emerging market situations forms part of the social structure. The nature of interaction between

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individuals with their own specificities such as socially constructed concepts of justice, empowerment, empathy, fairness, resistance, and fun, form the particularities of the specific flea market and the cash underground economy. Patterns of work and consumption are an essential part of a persons life. There is power in having some control of buying and selling and defining ones life. Having a feeling of beating the system, and feeling oneself to be part of a community or participant in an alternative economic activity or lifestyle in the informal economy either in the flea market as part of the cash underground economy, fosters a feeling of existential control. In the cash underground economy, people feel free to somewhat reformulate their ideological outlook concerning making a living, consumption patterns and/or needs in relations to the primary economy and cultural trends. Conclusion Based on the observations of the actual workings of two specific flea markets, in the New York City metropolitan area, it is clear that neo-classical economic theory fails to explain the dynamics and mechanics of such economic activity. Neo-classical theory and its emphasis on cold, dispassionate, impersonal and atomistic relationships by economic actors, fails to account for the observed facts in the cases studied herein. It is contended that sociological theory and its emphasis on social bonds must be applied to explain such economic behavior. This paper contends that a human centered approach which recognizes the importance of localized social bonds can provide a more complete analysis of the dynamics and mechanics in the operation of the observed flea markets, which illustrate the workings of informal economic activity in the context of the cash underground economy.

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Literature Cited Collins, R. and M. Makowsky. 1989. The Discovery of Society. Random House: New York. Coser, Lewis. 1977. Masters of Sociological Thought. Long Grove: Illinois. Cross, John. 1998. Street Vendors in a Postmodern World. Informal Cyberspace. DeSoto, Hernando. 1989. The Other Path. Harper & Row: New York. Durkheim, Emile. 1933. The Division of Labor in Society. Free Press: New York Fligstein, Neil. 1996. Markets as Politics: A Political-Cultural Approach to Market Institutions. American Journal of Sociology. vol. 61. August. pp.656-673. Gaughan, Joseph and Louis Ferman. 1987. Toward an Understanding of the Informal Economy. AAPSS, 493, September. Geertz, Clifford. 1983. Local Knowledge. New York Basic Books Granovetter, Mark. 1985. Economic Action and Social Structure: The Problem of Embeddedness, American Journal of Sociology, vol. 91. Nov. pp. 481-510. Giddens, Anthony. 1971. Capitalism and Modern Social Theory. Cambridge University Press. Hausman, Daniel M. 1992. The Inexact and Separate Science of Economics. Cambridge University Press. Hefner, Robert, ed. 1998. Market Cultures. Boulder Co.: Westview Press. Miller. S. M. 1987. The Pursuit of Informal Economies. AAPSS, 493, September.

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Morales, Alfonso. 1991. Institutionalizing Informal Economic Resources: The Case of property in Chicagos Maxwell Street Market, ABF Working Paper #9125 Northwestern University American Bar Association, Chicago, IL. Soiffer, Stephen S. and Gretchen Herrmann. 1987. Visions of Power: Ideology and Practice in the American Garage Sale. Sociological Review (1) pp. 48-83. Smith, Charles. 1981. Auctions. London and New York: Free Press.

Uzzi, Brian. 1996. The Sources and Consequences of Embeddedness for the Economic Performances of Organizations: The Network Effect. American Sociological Review. vol. 61 (August: 674-698). White, Harrison. 1981. Where Do Markets Come From? AJS vol. 87 Number3. pp. 517-547.

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