Maurizio – Omnologos

Where no subject is left unturned

Archive for May 24th, 2006

Do services degenerate faster in an informal economy?

with one comment

In conventional thinking, there are many advantages in living in a formal economy, where entrepreneurs and laborers work together according to established rules agreed by everybody through the involvement of the State.

This is supposed to guarantee fairness and more recently, a widespread care system centered around protecting the poorest, most vulnerable and the most elderly members of the society

On the other hand, a more or less completely informal economy is the day-to-day experience of hundreds of millions if not billions of fellow humans, especially (but by no means only) in so-called emerging and developing Countries.

In an informal economy, certain types of income and the means of their generation are “unregulated by the institutions of society, in a legal and social environment in which similar activities are regulated.”

It is usually a sign that the State is locally very weak. So income (including salaries) is received without paying taxes; work arrangements do or do not follow lawful standards, there is no apparent provision for old-age pension

And more often than not, one has to have cash at hand to guarantee speedy treatment of one’s issue for example in a state court: in what we call corruption

However scandalous to the average well-disposed thinker, this is a system that a) is very widespread and b) appears to be working more or less smoothly. In fact, there is an element of trust: however small or big the bribery, it would not get paid if the service would then not be provided

This obviously applies to specific cases. You can call it “salary informalisation”, where things get done quickly only when the “customer” pays directly into the pocket of the employee on the other side of the counter, rather than through the State for example via taxes.

Other circumstances are completely different: think of the police officer that threatens to impound the car unless offered money; the politician cutting 15% on a nation’s foreign contracts, “otherwise they won’t get signed”

These are two different kinds of corruption. The former is about asking additional money in order to provide a service. The latter is greedy intimidation into paying in order to avoid getting oneself into a dangerous position. This is far worse, as it sucks money away with very little to show in return

Corruption as parasitical intimidation is what stiff sentences and worldwide campaigns against corruption should concentrate on

What are the drawbacks then of the more benign kind of corruption, the “salary informalisation”? At first glance, it is quite tempting to accept it. If (and when) it works, it is much more efficient than having to deal with a far-away incorporeal entity called “the State”. Even fairness can be far superior than in the formal economy, as rules are ready to be renegotiated and can be bent to be just in every occasion, not only as described by the necessarily incomplete Law.

The problem is of course in those two words: IF and WHEN. An informal economy works well only as long as there is no excess of abuse on one side or the other: otherwise the requisite of fairness disappears, and we fall back in the “corruption as greed” trap.

And in fact, is not that what too easily happens when the Rules and the Laws are not enforced appropriately, exactly when the State is too weak to do so? Worse, the usual cures evolved the world over can be worse than the malady: as soon as “Groups of Mutual Help” arise to protect the members against unfair treatment, their intentions are hijacked turning them into Mafias, with further damage to the economy

This is not a necessity. But an informal economy is simply too fragile: its services may disappear at the whim of the providers, and organized crime can only thrive without a clear, enforced set of rules called the Law

An informal economy can never be considered a good, healthy economy

Written by omnologos

2006/May/24 at 23:52:23

What’s wrong with Development Studies?

leave a comment »

It is hard to think “Development Studies” (“DS”) as a proper “science” at the moment.

In fact, the one thing that comes out clearly of a rapid analysis of the evolution of DS thinking, is that most if not all “Development Breakthroughs” look much like a “flavour of the decade” list rather than solid processes valid most of the time

Here’s a quick review:

  • 1950s “Development” substituted colonialism as a way for Western countries to keep control and a presence, also against the Communist threat
  • 1960s “Rising income with own growth”. Huge investments in infrastructure. Large loans from private sources, but growth did not take into account distribution
  • 1970s Focus on poverty and “basic needs” with redistribution. Further borrowing
  • 1980s Switch to aid as poverty of people and States became entrenched. World Bank and IMF pushed for Structural Adjustment Programs. Start of NGOs
  • 1990s “Development” started to include non-financial indicators (Freedom, Democracy, Environment Damage). Focus on participatory programs.
  • 2000s Idea of the State back in focus. “Development” as power dynamics, considering also Women and Universities

What shall then we make of today’s mantras of DS such as Beneficiary Participation, Gender Issues, etc etc?

Obviously I am not suggesting they are not worthwhile and appropriate.

But what’s out there to indicate they will not simply be substituted by new fads, in a few years?

And of course the big counterpoint is that the one and only thing that has changed, ever, is the “Own Interest” of the most powerful countries, ready to defend it no matter what (and no matter what their stated intentions on getting people out of poverty)

This is doubly disturbing, if we consider that at the end of the day enormous resources will keep being wasted in following the latest fashion, rather than in making people get out of a life of poverty and high risk

A thorough rethinking of the whole field of Development and Development Studies is in order

Written by omnologos

2006/May/24 at 00:07:12