The BBC reports on the relocation of the Roque Santeiro market from the waterfront of Luanda (Angola) to a site 12 miles outside the city. Interesting here is the government’s use of the standard script for the bulldozing of the informal market:
“The authorities say the market had to be closed down because it was cramped and unhygienic, a den of organised crime and prostitution.”
I say standard script because it is employed so often to justify otherwise problematic government actions – for example, Mugabe used more or less this same script to justify bulldozing Harare shantytowns full of people who voted against him in 2005:
“Zimbabwe says the policy – known as Operation Murambatsvina [Drive Out Rubbish] – is intended to crack down on black-market trading and other criminal activity in the slum areas.” (via BBC)
The informal economy is a tremendously important source of income and resources for those living in the developing world. However, the script is also technically true – most of this economy functions outside of formal taxation, regulation, etc., and is therefore criminal. This makes life pretty precarious for those living in the informal economy – most of the time they are allowed to operate as they wish, but when it is politically or economically expedient, they are relabeled criminals and can lose everything. This is not to say that there are no criminals, prostitutes or other problematic people/activities to be found in the informal economy – indeed, a former student of mine, Denise Dunovant, found that much of Accra’s street vending appears to be loosely organized by organized crime networks that decide who can sell what and where. But that is not the point – everyone knows this sort of thing is going on all the time. So, whenever you hear a government refer to the informal economy as “organized crime” or otherwise criminal, ask yourself why they are finally choosing to enforce the law at that moment, in that place. In the case of the Roque Santiero Market, the BBC is right – the real estate was just too valuable to leave alone any longer.
“However, the script is also technically true – most of this economy functions outside of formal taxation, regulation, etc., and is therefore criminal.”
The critical point, though, is that it operates outside the circle of bribery.
Interminable bureaucracy and regulation make it all but impossible for the rural poor to partake of the legal economy. Barriers to trade are set up, which officials will then take bribes to bypass. While the corruption is not the real problem, it motivates the perpetuation of the real problem – the barriers to trade. Thus, the situation that leads to this sort of ‘criminality’ is at least partly deliberate.
One either has to be rich enough to pay the bribes, or even richer to be able to pay the legal people to comply with all the regulations. Those that cannot afford the price of entry drop back into the ‘informal’ market which is a lot less efficient even than the inefficiency of the corrupt ‘legal’ market. The splitting of the market into legal and illegal sectors is the primary cause of such severe inequality and a major obstacle to economic development.
No doubt the location on the waterfront was part of what made it viable, and so moving it from there is very likely a problem. But at least the government appears to have provided an alternative site (unlike Zimbabwe), and it may well be that an inability to expand beyond fixed borders was causing genuine problems that a new site may alleviate. I would want a lot more context, and to talk to the locals, before I rushed to judgement here.
I agree that the creation of “criminality” is, at least in part, intentional – it is not only useful for bribes (the traffic police in Ghana prove that point every day), but as I pointed out, very useful when large portions of the population don’t behave the way leaders might like . . . but I am not sure that you are right about the informal economy being less efficient than the formal economy. There are tremendously efficient activities happening all the time in the informal economy, but it is hard to see or measure them with our usual tools. And I am not sure that formalizing these relations will necessarily result in the economic boon that De Soto and others predict – most people have very few assets to leverage in the first place, and empirical evidence from microlending demonstrates that small amounts of capital are not always enough (though sometimes quite helpful). In rural agricultural areas, there is a lot of evidence to suggest that the formalization of communal landholding into individual smallholds will disable traditional systems of land management, resulting in ecological and financial disaster. In short, the formalization of the economy is not an unmitigated boon, nor the solution to the problems of the global poor – it works sometimes, in some places . . . but not everywhere, and maybe not in the majority of places.
And knowing something about Angola, and quite a bit about the relocation of informal economic activities in Africa (especially in stable countries with relatively strong rule of law, like Ghana), I feel (sadly) confident in my interpretation of this relocation. Sure, there were likely a few problems – but these were, in the end, excuses for relocation – not reasons.
“In rural agricultural areas, there is a lot of evidence to suggest that the formalization of communal landholding into individual smallholds will disable traditional systems of land management,”
Part of DeSoto’s argument was that it was no use imposing new patterns of formal ownership onto the informal economy (the downfall of previous attempts at legal reform by well-meaning Westerners, who tried to transplant their own systems of law), you instead had to formalise the system they already had, that had evolved to meet their needs. He called it the ‘barking dogs’ argument.
The informal market is quite efficient on a local, short-term level, because it relies on people knowing each other, being mutually reliant, so that breaking the rules results in a damaging loss of reputation. Long distance, long-term transfers are more difficult and much less efficient due to lack of trust. It’s inefficiency is perhaps best measured by observing outcomes.
I think DeSoto has admitted that the precise mechanism by which Capitalism works in developed countries is not known, and there is more than a hint of blind faith about some of the prescriptions.
But something makes Hong Kong and Singapore different from China, West Germany different from East, Seoul different from Pyongyang the US different from Mexico or Cuba. As he points out, the US was once unmistakably a third-world country, complete with shanty towns, informal markets, widespread corruption, just as we see today. What changed? How exactly did they do it? Does anyone know?
The problem with formalization, even of existing land management setups, is that it takes some of the flexibility out of those systems by codifying them. The advantage of these systems is local specificity and flexibility, and we tend to code that right out in formalization. Further, whether it was his intention or not, he has been interpreted (not fair to blame him for this, necessarily) in practice as an argument in favor of the privatization of landholding, which in many areas is an ecological trainwreck as it will undo the local swidden system by which soil fertility is maintained.
You are asking great questions here – the short answer is that I don’t know exactly how things worked out in some places and not others. There are hints, trends, etc., but the history of development theory is littered with “big ideas” that explained everything . . . only they didn’t really explain much of anything when they were held up against empirical data. Right now everyone thinks the answer is governance (well, not everyone, but it is the hot trend) – which is important, but not everything. Sachs argues it is simply a question of more aid well spent . . . and aid can help, but his Millennium Village Projects are failing because aid is not everything. Hell, the examples you put up prove this, right? West Germany vs. East? Clearly capitalism/democracy is the dominant factor. Ditto for the North/South Korea divide. But US different than Mexico – hell, Mexico has many freer markets than we do, and a reasonably functioning democracy (at least for now – who knows where the narco-syndicates are taking that country). And you could argue that size was more important than governance or markets in the case of Taiwan/Singapore vs. China. And in each of these cases, the dominant factors still do not tell us the whole story – perhaps not even the majority of the story. Development is a spectacularly complex, locally-specific process. This is one of the arguments in my book – that we really don’t understand what is happening in the developing world very well (for a lot of reasons), and we need to spend more time addressing this complexity and specificity if we are to get anything done. Policymakers really hate that answer . . . but you’d be surprised how many people at USAID are pushing for this more complex approach.