IV. The informal economy has taken over the World
The idea of an informal economy was born in the 1970s when the post-war era of developmental states was drawing to a close. It seems, four decades later, that the economy has now escaped from all attempts to make it publicly accountable. What are the forms of state that can regulate a world of money that is essentially lawless? The informal economy started off as a way of talking about the Third World urban poor living in the cracks of a rule system that could not reach down to their level. Now the rule system itself is in question. Everyone ignores the rules, especially the people at the top – the politicians and bureaucrats, the corporations, the banks – and they routinely escape being held responsible for their illegal actions. Whereas the alliance between money and power used to be hidden, now it is celebrated as a virtue, wrapped up in neoliberal ideology. National economies and the world economy itself became radically informal as a result.
Not only has the management of money gone offshore, but corporations routinely outsource, downsize and casualize their labour forces, public functions are privatized, often corruptly, a global war over “intellectual property” has broken out and whole countries abandon any pretence of formality in their economic affairs. Here is no clandestine operation living between the cracks of the law. The market frenzy has led to the “commanding heights” of the informal economy taking over the state-made bureaucracy. Wall Street banks launder gangsters’ money through the Cayman Islands while mafias run opium out of Afghanistan with the support of several national governments. All of this has undermined whatever conceptual clarity the formal/informal pair – originally inspired by the state/market opposition of the Cold War — once had, to the point of their becoming often indistinguishable. The contributors to this book recognize this and wish to substitute for the old terminology “globalization from below”.
The shadow banking system — hedge funds, money market funds and structured investment vehicles that lie beyond state regulation – is literally out of control. Tax evasion is an international industry that dwarfs national budgets. The behaviour of transnational corporations is often blatantly criminal. Where to stop? The drug cartels from Mexico and Colombia to Russia, the illegal armaments industry, the global war over intellectual property (“piracy”), fake luxury goods, the invasion and looting of Iraq, 4 million dead in the Congo scramble for minerals. In 2006, a Japanese electronics firm, NEC, discovered a criminal counterpart of itself, operating on a similar scale under the same name and more profitably because it was wholly outside the law. The informal economy was always a way of labelling the unknowable, but the scale of all this goes beyond comprehension.
Inevitably, some dream of restoring the post-war era of social democracy, Stalinism and developmental states. The world turned then to governments to regulate markets. Their mission, for the first and only time in world history, was to reduce the gap between rich and poor, to increase the purchasing power of working people and to expand public services. The European empires were dismantled, beginning in Asia; a new world order was inaugurated under US hegemony, implementing the accords of Bretton Woods; the United Nations was formed and “development” – a post-colonial compact between rich and poor nations — was the order of the day. All of this took large amounts of state intervention.
The long post-war economic boom began to come unstuck around 1970. By the end of that decade, neoliberal conservatives were installed in power throughout the West. Their slogan was the free market and in the 1980s, with the active support of the IMF and World Bank, they set about dismantling state restrictions on the international flow of money in the name of “structural adjustment”, at first in the developing countries. The informal economy emerged in this context, not just to describe the Third World urban poor, but as a universal feature of modern economies.
“Informal” says what these activities are not – not regulated by state-made laws. We need to know more about what they are, to expose the positive principles organizing the informal economy. Its improbable rise to global dominance is the result of the mania for deregulation, linked to wholesale privatization of public goods and services and to the capture of politics by high finance. Deregulation has provided a fig leaf for corruption, rentier accumulation, tax evasion and public irresponsibility. Yet, while the credit boom lasted, criticism was drowned by celebrations of unending prosperity. Even after the bust, the political ascendancy of finance has hardly been challenged.
This is not to say that the state has faded away. It is very strong in the BRICS countries, for example, each of which in their own way is entering a phase of welfare state capitalism comparable to the West’s trajectory during the boom years after 1945. Pessimism concerning the political impotence of national institutions prevails in the North Atlantic societies whose world system is waning.