In the end, people don’t manage to go all the way towards the final definition of the transaction and they stop in the middle or some place. So, they never really get a security. Even if they get at the final decision, the transaction, the next transaction will not look the same like the first one, because the processes have been changed. So, the security of the transfer in the formal environment is equally informal, equally insecure than within the informal environment. So, insecurity of transaction is permeating all behaviour. And individuals decide that they are not going to get engaged into such a energy, draining, costly, and unpredictable exercise. Instead, they will limit themselves into a knowingly insecure, but less expensive and quicker transaction. So, that is the informal market.
In the informal market it is not black and white. About 70% of the world’s population, about more than four billion people in the world live and work in the informal market. And informality means that you may not have full security of your home or of your apartment. And you can identify that when it is not possible for you, for example, to sell it very quickly, to rent it. The processes are very complicated. If you leave your house, let’s say, your house with your agricultural land and go to another country to find a better job and you come back and your neighbour has actually trespassed and taken part of your property it takes you forever to actually defend your ownership through a very complicated system of judicial enforcement and so on. This is part of informality. All of that is not illegal. It is just living a life in a very complicated, not structured well institutional system.
The “black” market on the other hand is something rather different. The “black” market is a willingness to engage in “black”, corrupted activity, so that you can extract rent, extract higher profits. It is done with a purpose from the very beginning of the behaviour, from the very beginning of the agreement. Both parties are knowledgeable of the fact that they are engaging in a “black” activity. An example of that activity is that I will be knowingly building a house in a place where I know it does not belong to me. I will knowingly trespass and take the land of another person. I will actually let go and do a contracts and hire a notary or a lawyer who will pay money and then everybody is engaged in this “black” activity. Another “black” activity is when the people get paid under the table extra money for specific non-eligible jobs or transactions. These are very close to “black” activities, very close to corruption. Another “black” activity is when people choose not to pay taxes. Now, is informal activity equal to “black” activity? No. Is, however, informal activity a precursor of “black” activity? It could be because a “black” activity is more dominant in countries where the formal structure is very weak, and it is very difficult to enforce law. It is very difficult to enforce formal rules, and it is very difficult to actually apply them. And in this way you have an environment that incubates a lot of uncertainty or it becomes a bit of the Far West. Those who have the money, those who have the power, those who are able to actually engage and transact faster, these are the people that are going to prevail. An example I can give you in the world – South East Asia, Latin America in the 1980s, India. These are countries where informality exists and there is not much “black” activity. There is but it is not rampant. Yet, you go to countries like parts of Eastern Europe, or in the Middle East, and you notice that there is a lot of “black” activity. There is a lot of corruption. And that is as a result of the fact that it continues to grow, because it is very difficult to eradicate it. Even it becomes the way of doing business.
How harmful is the informality to the economy of the society, because from what you said it turned out that informality solves problems that exist. If it resolves problems why should we fight it?
It is a very good question, because a lot of policymakers make the mistake to believe that informality, because it is basically the humans’ brain to go around a very difficult, converse, complicated beaurocratic system, solves the problem. So, a lot of policymakers, a lot of ministers of finance of many countries say because we have a lot of informal activity we have a cushion. So, it solves issues. It is the biggest mistake somebody could actually make because it is exactly that informality that allows people to survive. It is basically surviving. It keeps them in survival mode and never allows the markets to grow and become revised and developed, and become competitive internationally. If we keep informality and allow it to grow in a country that is when we have decided that the country will never develop from the survival mode. It will constantly remain an emerging country, a developing country, a small country, a backward country. And I do not think anyone would like to have such type of a country or such type of a market. So, looking very, very short-term and saying “Oh, well, because people are really bright and smart and we come from a country that everybody is being entrepreneurial and they figure out ways to go around the stuff” to keep this is the worst mistake you could ever do.
Let’s go to the informality in the Greek economy. Could we see it in here?
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