The informal road to markets

Abstract

Purpose – The informal economy has expanded across developing countries during the last decades. Focussing on the Turkish case, the purpose of this paper is to examine the role of neoliberal reforms in this development. The author argues that neoliberal reforms produced a double-edged transformation in the regulatory environment of Turkey. On the one hand, the legal rules that constrain the operation of market forces decreased giving way to more entrepreneurial activity; while on the other hand, the state's effectiveness in “policing” the market declined. As the regulatory barriers to private entrepreneurship decreased, the regulatory barriers to informality also decreased. Private sector growth and informalization emerged as the concomitant outcomes of neoliberal reforms. Design/methodology/approach – This paper examines how the state's changing regulatory relationship to the private sector under neoliberal reforms fostered informal economic activities through a close study of the Turkish case. Findings – At the end of the 1980s, the Peruvian economist Hernando De Soto popularized the view that informalization resulted from government regulations imposing rigid constraints and costs on economic actors, and so would be restrained by decreasing or eliminating them. The economic developments of the past few decades challenge this view, however. The size of the informal economy has expanded in developing nations at a period when government regulations have been declining. How can we explain the increasing volume of informal economic activity in developing nations over the past few decades? And more, how can we explain that this has happened during a period when the private sector has grown, and regulatory rigidities have declined? This paper argues that the state's changing regulatory relationship to the private sector under neoliberal reforms was an important factor in the expansion of informal economic activities. Originality/value – The implications of neoliberal reforms for economic processes have been widely studied in the social scientific literature. Only a handful of studies have explored their implications for the informal economy, however. These studies singled out factors such as the decline in public employment, weakening of labor unions, or capital's enhanced ability to exploit labor in contributing to informalization of developing country economies in the neoliberal era. By discussing how the changing regulatory contours of the state-economy relationship played a role in the growth of informally operating private enterprises, this paper adds to the existing knowledge of this relationship.

Formulação e implementação, convergências e desvios: facetas da política pública do MicroEmpreendedor Individual (MEI) no plano local

“…It was expected that such initiatives ought to reduce informality and increase entrepreneurship rate. However, the country didn't have the capability of controlling the supervision of its regulation mechanisms, and, as a consequence, the policies implemented were not sufficient (Kus, 2014). In Latin America, several countries followed on the same path, nonetheless, the attempt to promote a minimum normative regimen that, at first, should trigger private sector growth and promote formalization, did not achieve the expected outcomes (Centeno & Portes, 2006).…”

“…With regards to the less developed countries, the informality is directly related to two factors: the first one results of the incapacity of the State in fulfilling its own regulatory milestones; the second one absorbs the very degree of the economy`s regulation (Kus, 2014). Seeking to reduce the degree of the economy`s regulation, China`s a good example for, by fighting informality and seeking to stimulate the entrepreneurship, it has reduced institutional barriers (Hu, 2014).…”

“…An expressive number of countries have created programs to support entrepreneurship in their territories (Barba-Sánchez & Atienza-Sahuquillo, 2012;Ghani et al, 2014;Halabí & Lussier, 2014;Mayer-Haug et al, 2013;Obaji & Olugu, 2014;Pickernell et al, 2013;Poschke, 2013;Román et al, 2013;Slonimczyk & Gimpelson, 2015) in order to tackle informality (Castro et al, 2014;Centeno & Portes, 2006;Hu, 2014;Kus, 2014;Nguyen et al, 2014;Webb et al, 2014). Those are initiatives that, in most part, present the double target of, on one hand stimulate the development of new enterprises and, on the other, support the transition from informality to formality.…”

“…In Latin societies, where poverty and inequality are elevated, Union powers are weak, and the State does not possess fitted controlling mechanisms, the Legislation non-compliance ends up generating more opportunities for private enterprises to benefit from informal ways (Centeno & Portes, 2006). Alongside with that, according to Kus (2014), neoliberal reforms and the transformation of the normative instruments boosted the private sector`s growth without, however, preventing the obeying of legal norms. There are evidences that an impressive part of the new entrepreneurship in Anatolia (and throughout the hole Turkey) in 1980 and 1990 has remained informal.…”

“…Most of the enterprises were family-based, within industries of intensive work, such as textile, clothing and food processing ones. These were enterprises of limited financial capability, offering few (or none) legal benefits of social security or health insurance to its employees, evading taxes and, many times, not being registered as legal entities (Kus, 2014).…”