Informal economic institutions

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Informal Economic Institutions

Fall 2012

Professor Harley Balzer, Georgetown University

Blat’, Guanxi, Wasta and Jeito are forms of informal exchange found in Russia, China, the Arab world and Brazil. They are sometimes criticized as corrupt, but are recognized by many economists as providing crucial “grease” that makes the economic system work. People who live in these countries often talk about the terms as describing “how to get things done.”

These informal systems are perceived as unique by those living in each of the cultural settings where they prevail, yet all societies have patterns of informal relationships that help systems to function (what Merton called “functional dysfunctions”). The course will explore similarities and differences in these relationships across a range of societies.

We will focus on five cases: Russia, China, the Arab world, and Brazil and the U.S. Each student will undertake an individual project exploring one or more of the cases in greater depth, or examining informal relationships in one or more other cases of his/her choice.

Written Assignments for the semester will include two short essays (approximately 1500 words) on two specific sets of readings selected by the student, and a case study approximately 25 pages in length discussing the informal economy in one society or comparing two or more societies.

The short essays discussing specific readings are due on the day the readings are assigned, and papers must be submitted at the start of the class session that day.

The case study will focus on a country, region, or comparison selected by the student in close consultation with the instructor. A one-page description of the case study topic is due no later than October 17. An outline of the case study is due no later than November 14. The completed case study is due no later than 3:00 p.m. on December 13. The essays and the case study are described in more detail in separate handouts.

In addition to the written assignments, each student will make an oral presentation of the main findings of their research at the class meeting on either November 28 or December 4. Students’ work will be evaluated approximately according to a formula assigning 50% to the case study, 30% to the two short essays, and 20% to participation in class discussions.

Course objectives may be described on two levels, specific and general. The specific goal is to explore how informal arrangements help or hinder the workings of formal institutions. Informal institutions exist in all societies. In most instances, they are taken for granted. In a few cases, they have become codified in ways that accord them near-mythical status. Insiders come to regard them as a way of life, and often believe that outsiders could not possibly comprehend how things “really work.” Our goal will be to demystify and attempt to classify the existing range of informal institutions, and to gauge whether some informal institutional configurations are more conducive (or less damaging) to good governance, economic development and social justice.

The more general goal is to think critically about what you read and become a better contributor to discussions and a better writer. To accomplish these goals, students will meet with the instructor on a regular basis, will receive written and oral feedback on their work, and will be expected to discuss this feedback with the instructor.

The following books are required:

Gold, Thomas, Doug Guthrie and David Wank, eds. Social Connections in China: Institutions, Culture, and the Changing Nature of Guanxi, (Cambridge and New York: Cambridge University Press, 2002), 0-521-53031-8

Ledeneva, Alena V., Russia’s Economy of Favours: Blat, Networking and Informal Exchange, (Cambridge and New York: Cambridge University Press, 1998), 0-521- 62743-5

Venkatesh, Sudhir Alladi, Off the Books: The Underground Economy of the Urban Poor, (Cambridge and London, Harvard U. Press, 2006

Recommended titles:

Rohter, Larry, Brazil on the Rise: The Story of A Country Transformed, New York: Palgrave Macmillan

Whyte, William Foote, Street Corner Society: The Social Structure of an Italian Slum, (Chicago and London: University of Chicago Press, 4th edition 1993 [original 1943])

Liebow, Elliott, Tally's Corner: A Study of Negro Streetcorner Men (Legacies of Social Thought), Rowman & Littlefield, 2003 (original 1967)

Class 1: Introduction


Castells, Manuel and Alejandro Portes, “World Underneath: The Origins, Dynamics and Effects of the Informal Economy,” IN: Portes, Castells and Lauren A. Benton, eds,The Informal Economy: Studies in Advanced and Less Developed Countries, Baltimore: Johns Hopkins University Press, 1989, pp. 11-37.

Helmke, Gretchen and Steven Levitsky, “Informal Institutions and Comparative Politics: A Research Agenda,” Perspectives on Politics, Vol. 2 No. 4, December 2004, pp. 725-740.


La Porta, Rafael and Andrei Shleifer, “The Unofficial Economy and Economic Development,” Brookings Papers on Economic Activity, Fall 2008, pp. 275-363 (including “Comments and Discussion,” 353-63).

Portes, Castells and Lauren A. Benton, eds, The Informal Economy: Studies in Advanced and Less Developed Countries, Baltimore: Johns Hopkins University Press, 1989. Choose any chapters that seem interesting.

Rodrik, Dani, “Second-Best Institutions,” NBER Working Paper 14050, June 2008.

North, Douglass C.,”Institutions,” Journal of Economic Perspectives, Vol. 5 No. 1, Winter 1991, pp. 97-112.

Raiser, Martin, “Informal institutions, social capital and economic transition: reflections on a neglected dimension,” EBRD, Working Paper No. 25, August 1997.

Pejovich, Svetozar,”The Effects of the Interaction of Formal and Informal Institutions on Social Stability and Economic Development,” Journal of Markets and Morality, Vol. 2 No. 2, Fall 1999, pp. 164-81.

Class 2: Blat’ 1


Lovell, Stephen, Alena Ledeneva and Andrei Rogachevskii, eds., Bribery and Blat in Russia: Negotiating Reciprocity from the Middle Ages to the 1990s, St. Martin’s Press, 2000. Chapters 3, 12 and 15.

Ledeneva, Alena V., Russia’s Economy of Favours: Blat, Networking and Informal Exchange, Chapters 1 & 2.


Lovell, Ledeneva and Rogachevskii, eds. Choose any other chapters that look interesting.

Gel’man, Vladimir, “Subversive institutions, informal governance, and contemporary Russian politics,” Communist and Post-Communist Studies, [Forthcoming, online.]

Class 3: Blat’ 2


Ledeneva, Alena, Russia’s Economy of Favors. Chapters 3-6.

Ledeneva, Alena, “From Russia with Blat: Can Informal Networks Help Modernize Russia?” Social Research Vol. 76 No. 1, Spring 2009, pp. 257-88.


Hale, Henry E., “Formal Constitutions in Informal Politics: Institutions and Democratization in Post-Soviet Eurasia,” World Politics, Vol. 63 No. 4, October 2011, pp. 581-617.

Kapelyushnikov, Rostislav, Andrei Kuznetsov and Olga Kuznetsova, “The role of the informal sector, flexible working time and pay in the Russian labour market model,” Post-Communist Economies, Vol. 24 No. 2, June 2012, pp. 177-90.

Gimpel’son, V. E. And A. A. Zubina, “‘Neformaly’ v rossiiskoi ekonomike: skol’ko ikh i kto oni?” Moscow: Vysshaia shkola ekonomiki, Preprint WP3, Seies WP3, Problemy rynka truda, June 2011.

Dmitriev, Mikhail Egorovich, S. A. Belanovskii S. M. Drobyshevskii, N. S. Ivanova, O. V. Lazreva, P. V. Trunin and A. S. Iurtaev, Rynok beznalichnykh roznichnykh platezhei v Rossii: Vygody i perspectivy raszitiia (The Market for Cash Wholesale Payments in Russia: Advantages and perspectives for development), Moscow: Center for Strategic Development, 2009.

Class 4: Guanxi 1


Gold, Thomas, Doug Guthrie and David Wank, eds. Social Connections in China: Institutions, Culture, and the Changing Nature of Guanxi, Cambridge and New York: Cambridge University Press, 2002, Introduction and Chapters 1, 2, 4, 5 & 11.


Li, Ling, “Performing Bribery in China: gunaxi-practice, corruption with a human face,” Journal of Contemporary China, 20 (68), 2011, pp. 1-20.

Lin, Jun and Steven X. Si, “Can guanxi be a problem? Contexts, ties, and some unfavorable consequences of social capital in China,” Asia Pacific Journal of Management, Vol 27, 2010, pp. 651-81.

Gold et. al., Choose other chapters that look interesting.

Class 5: Guanxi 2


Tsai, Kellee S., “Beyond Banks: Informal Finance and Private Sector Development in Contemporary China,” KSG/HBS/MIT, Cambridge, MA, September 11-13, 2001.

Zhan, Jing Vivian, “Filling the gap of formal institutions: the effects of Guanxi network on corruption in reform-era China,” Crime, Law and Social Change, 2012 (forthcoming, available online).


Tsai, Kellee S., “Banquet Banking: Gender and Rotating Savings and Credit Associations in South China,” The China Quarterly / Volume 161 / March 2000 , pp 142-170.

Feenstra, Robert C., Chang Hong, Hong Ma and Barbara J. Spencer, “Contractual Versus Non-contractual Trade: The Role of Institutions in China,” NBER Working Paper 17728, January 2012, papers/w17728.

Keane, Michael and Elaine Jing Zhao, “Renegades on the Frontier of Innovation: The Shanzhai Grassroots Communities of Shenzhen in China's Creative Economy,” Eurasian Geography and Economics, Vol. 53, No. 2, March-April 2012, pp. 216-30.

Tsai, Kellee S., Back-Alley Banking: Private Entrepreneurs in China, Ithaca and London: Cornell University Press, 2002.

Class 6: Off the Books: Blat’, Guanxi, Wasta and Jeito closer to home


Venkatesh, Off the Books.


Liebow, Tally’s Corner

Class 7: Wasta 1


Robert B. Cunningham and Yasin K. Sarayrah, Wasta: The Hidden Force in Middle Eastern Society (Westport, Conn.: Praeger, 1993), Parts 1, 2, 4 & 7.


Mohamed, Ahmed Amin and Hadia Hamdy, “The Stigma of Wasta: The Effect of Wasta on Perceived Competence and Morality,” Cairo: The German University in Cairo, Working Paper No. 5, January 2008.

Robert B. Cunningham and Yasin K. Sarayrah, Wasta, remainder.

Class 8: Wasta 2


Robert B. Cunningham and Yasin K. Sarayrah, “Taming Wasta to Achieve Development,” Arab Studies Quarterly, Vol. 16, 1994.

Al-Ramahi, Aseel, “Wasta in Jordan: A Distinct Feature of (and Benefit for) Middle Eastern Society,” Arab Law Quarterly, Volume 22, Number 1, 2008 , pp. 35-62.

Akhtar, Shamshad, et. al., “Understanding Islamic Finance: Local Innovation and Global Integration,” Asia Policy, No. 6, July 2008, pp. 1–14.


Eaves, Elisabeth, and Michael Noer, “Islamic Finance,” Forbes Special Report, April 21, 2008,

Barnett, Andy H., Bruce Yandle and George Naufal, “Regulation, Trust, and Cronyism in Middle Eastern Societies: The Simple Economics of ‘Wasta’,” Ms., December 20, 2011.

Loewe Markus, Jonas Blume, Verena Schönleber, Stella Seibert, Johanna Speer and Christian Voss, “The Impact of Favouritism on the Business Climate: A Study of Wasta in Jordan,” Bonn: Deutsches Institut für Entwicklungspolitik, 2007.

Golda, Gary D. and George S. Naufalb, “Wasta: The Other Invisible Hand: A Case Study of University Students in the Gulf,” Journal of Arabian Studies: Arabia, the Gulf, and the Red Sea, Vol. 2, No. 1, 2012 pp. 59-73.

Class 9: Jeito/Jeitinho


Rohter, Larry, Brazil on the Rise: The Story of A Country Transformed, New York: Plagrave Macmillan, 2010, Chapter 2.

Duarte, Fernanda, “A double-edged sword : the 'jeitinho' as an ambiguous concept in the Brazilian imaginary,” International journal of interdisciplinary social sciences, Vol. 1, no. 1 2006, pp. 125-131.

Rosenn, Keith S., “Brazil’s Legal Culture: The Jeito Revisited,” Florida International Law Journal, Vol. 1 No. 1, Fall 1984, pp. 1-43.

Duarte, Fernanda, “The Strategic Role of Charm, Simpatia and Jeitinho in Brazilian Society: A Qualitative Study,” Asian Journal of Latin American Studies Vol. 24 No. 3, 2011, pp. 29-48.


Moreira De Sa, Vanessa Mendes, “Internet Piracy as a hobby: what happens when the Brazilian Jeitinho meets television downloading?” Global Media Journal - Australian Edition, Vol. 5 No. 1, 2011.

Neves de H. Barbosa, Lívia, “The Brazilian Jeitinho: An Exercise in National Identity,” IN David J. Hess and Roberto da Matta, eds., The Brazilian Puzzle: Culture on the Borderlands of the Western World, New York: Columbia University Press, 1995, pp. 35- 48.

Dennis, Leslie E. and Linda K. Stroh, “A Little Jeitinho in Brazil: A Case Study on International Management,” Journal of Management Education, Vol. 21 No. 2, May 1997, pp. 255-261.

Amado, Gilles and Haroldo Vinagre Brasil, “Organizational Behaviors and Cultural Context: the Brazilian ‘Jeitinho’,” International Studies of Management & Organization, Vol 21 No. 3, Fall 1991, pp 38-61.

Rodrigues, Ronaldo Pilati, Taciano L. Milfont, Maria Cristina Ferreira, Juliana B. Porto and Ronald Fischer, “Brazilian jeitinho: Understanding and explaining an indigenous psychological construct,” Interamerican Journal of Psychology, Vol 45 No. 1, 2001, pp. 29-38.

Ferreira, Maria Cristina, Ronald Fischer, Juliana Barreiros Porto, Ronaldo Pilati and Taciano L. Milfont, “Unraveling the Mystery of Brazilian Jeitinho: A Cultural Exploration of Social Norms,” Personality and Social Psychology Bulletin, Vol. 38 No. 3, March 2012, pp. 331-44.

Class 10: Comparative Perspective


Ledeneva, Alena, “Blat and Guanxi: Informal Practices in Russia and China,” Comparative Studies in Society and History, Vol. 50 No. 1, 2008, pp. 118-44.

Hutchings, Kate and David Weir, “Guanxi and Wasta: A Comparison,” Thunderbird International Business Review , Vol. 48 No.1, January-February 2006, pp. 141-56.

Ardichvili, Alexandre, Douglas Jondle, Brenda Kowske, Edgard Cornachione, Jessica Li & Thomas Thakadipuram, “Ethical Cultures in Large Business Organizations in Brazil, Russia, India, and China,” Journal of Business Ethics , Vol. 105 No. 4, 2012, pp. 415-428.

Puffer, Sheila M., Daniel J. McCarthy and Max Boisot, “Entrepreneurship in Russia and China: The Impact of Formal Institutional Voids,” Entrepreneureship Theory and Practice, May 2010, pp. 441-67.

Williamson, Claudia R. and Rachel L. Mathers, “Economic freedom, culture, and growth, Public Choice, Vol. 148, Nos. 3-4, 2011, pp. 313-35.

Cohen, Nissim, “Informal payments for health care – the phenomenon and its context,” Health Economics, Policy and Law, Vol 7, No. 3, July 2012, pp. 285-308.


Grzymala-Busse, Anna, “Informal Institutions and the Post-Communist State,” Washington, DC: NCEEER, 2006.

Brandstaetter, Thomas, “Informal Institutions, Personalism and Organisational Behavior in the Arab World and China (Wasta and Guanxi),” Journal of Regional Development, Vol. 3 No. 1, June 2011.

Smith, Peter B., “Are Indigenous Approaches to Achieving Influence in Business Organizations Distinctive? A comparative study of guanxi, wasta, jeitinho, svyazi and pulling strings,” The International Journal of Human Resource Management, Vol. 23 No. 2 January 2011, pp. 333-48.

Neuwirth, Robert, Stealth of Nations: The Global Rise of the Informal Economy, New York: Pantheon Books, 2011.

Mathers, Rachel L. and Claudia R. Williamson, “Cultural Context: Explaining the Productivity of Capitalism,” Kyklos, Vol. 64 No. 2,, May 2011, pp. 231–252.

Class 11: Other Informal Economies


Harriss-White, Barbara, “India’s Informal Economy–Facing the 21st Century,” Paper for Cornell University Conference on the Indian Economy, April 2002.

Maiti, Eibyendu and Kunal Sen, “The Informal Sector in India: A Means of Exploitation or Accumulation?” Journal of South Asian Development, Vol. 5 No. 1, 2010, pp. 1-13.

Meagher, Kate, “The Informalization of Belonging: Igbo Informal Enterprise and National Cohesion from Below,” Africa Development, Vol. 34 No.1, 2009, pp. 31-46.


Tripp, Aili Mari, “Non-formal Institutions, Informal Economies, and the Politics of Inclusion,” Helsinki: WIDER Discussion Paper No. 2001/108, October 2001. [focus on Africa]

Smith, Daniel Jordan, “Kinship and Corruption in Contemporary Nigeria,” Ethnos: Journal of Anthropology, Vol 66, No. 3, 2001, pp. 344-64.

Portes, Castells and Benton, eds, The Informal Economy: Studies in Advanced and Less Developed Countries, Baltimore: Johns Hopkins University Press, 1989. Choose any chapters that seem interesting.

Whyte, Street-Corner Society.

Fernández-Kelly, Patricia, and Jon Shefner, Eds., Out of the shadows : political action and the informal economy in Latin America,” University Park, Pa.: Pennsylvania State University Press, 2006, any chapters that look interesting.

Class 12: Presentations