Informality in Ukraine and beyond: one name, different flavours...with a cheer for the Global Encyclopaedia of Informality
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- 1 Introduction: The long march of informality studies
- 2 The liquidation-formalization dichotomy
- 3 Elitist flavour – Informal governance and Ukranian variant of sistema
- 4 Classic flavour – Shadow economy and informal labour
- 5 Popular flavour – Informal payments and corruption
- 6 3+1 layers of informality
- 7 Conclusion: An emerging flavour – Informality and policy-making
- 8 References
- 9 Further reading
By Abel Polese, Dublin City University, Ireland
Introduction: The long march of informality studies
I find it difficult to locate a precise moment in time when research on informality gained such a momentum. But I can at least recall my own starting point. When I got inspired by the Odessa-Chisinau elektrichka to write a paper for a workshop at the Max Planck Institute for Social Anthropology in Halle in 2005, I was advised to use 'survival strategies' instead of 'informality' in the title because few would understand the latter word. I remember how relieved I was, a couple of years later, to find Colin Williams devoting a great deal of his time and efforts to informality and to Ukraine.
A few years after that, things had radically changed. After a short break from academia, I was back in November 2013, parachuted into the largest event on informality in the post-socialist world I have ever seen. Thanks to a series of generous grants, my friend Nicolas Hayoz invited around 120 scholars working on informality in the Balkans, Eastern Europe, Caucasus and Central Asian regions to Fribourg. Informality seemed to have gone big and has since become a catchword decorating academic articles, books and special issues from a variety of regions. At the conference I was introduced to the idea of the Global Encyclopaedia of Informality (Ledeneva et al. 2018a, b) that was being developed at the time and that eventually brought scholars from the four corners of the world to the launch of its two volumes in London in March 2018.
In spite of the autobiographic introduction to the term informality, I have no intention to deny the long history of debates developed around it well before this. If we take a mostly economistic view on informality, we could look at least back to post-WWI debates on economic development. Explorations of the informal sector, as the topic was called at that time, informed a variety of economic and economistic positions (Lewis 1955, 1959) eventually evolving into several other directions: from ultra-liberal views on corruption (Leiff 1964) to the work of anthropologists shifting attention from monetary to non-monetary transactions (Hart 1973), from the tangible and measurable to the symbolic and allegedly intangible.
The post-war debates also revolved around the basis of critical management theories maintaining that informality was needed for capitalist expansion. From the International Labour Organization to the World Bank, informal labour and informality in general have been acknowledged as a major global concern and have fed the debate on whether informality should be liquidated before building an equal society from scratch or whether one should start from the existing informal structures and formalise the informal sector.
The liquidation-formalization dichotomy
The problem of the liquidation-formalization dichotomy is two-fold. First, there is no ultimate judge who can, objectively or in complete good faith, give clear indications of which practices to liquidate and which ones to preserve. Informal practices may shift meanings when placed in different contexts so that we cannot talk of one informality but of many. While we can discern 'two informalities' (Polese 2016) – the first works against the state and the second helps it to function in spite of its dysfunctionalities and idiosyncrasies – even the practices of going against the state can in some cases be domesticated or institutionalized to benefit the state or society.
It is impossible to identify a stable position on the formalization-liquidation spectrum also because informality has come to take on so many meanings. How could we assert a single and consistent position on a phenomenon that has been used as a lens to explain, inter alia, architectural processes, development, corruption studies and governance at the same time? This is especially true if we look at post-socialist spaces, where this multi-faceted nature seems particularly accentuated.
I do not wish to discourage the search for an interpretative framework. In several years of research on informality, I have come across several meanings of informality that can be regarded as either curtailing the state but not society, impairing both state and society or benefiting both. The problem is that not all practices that are considered detrimental by international organizations are necessarily perceived as a burden by society. Similarly, not all practices considered beneficial by international consensus or a normative position are necessarily likely to bring the desired results. Empirical evidence from the post-socialist, but also other regions of the world suggests that there is a variety of forms informality can manifest itself in. My classification is inspired by the approach used in the Encyclopaedia but clusters the categories in a different manner.
Elitist flavour – Informal governance and Ukranian variant of sistema
Take an institution, or an entire system, that theory predicts will be unlikely to function properly. Notice, to your great wonder, that it works much better than it is supposed to. This accurately renders at least two things in instable states like Ukraine (where most of my initial research was conducted) today. One, the fact that political institutions seem constantly on the verge of collapse but do not actually collapse. Two, the failure of external actors implanted into the system with the hope of avoiding being sucked into existing political dynamic to make sense of the strings they need to pull to perform their tasks effectively. A good example of the latter were the several foreign nationals who were given high-level posts in the government on the basis of their neutrality and impartiality. Most of them quit shortly after being appointed. They simply could not manage to change anything.
A system that works when it is not supposed to, but does not function the intended way it was intended in theory, provokes amazement among scholars and practitioners. How is it possible that an apparently ineffective and widely corrupted environment produces results at all, let alone decent ones? This idiosyncrasy lies at the very base of the definition of informal governance and, as some suggested, is the very principle allowing international organizations (including the European Commission and the United Nations) to function, somehow. The same mechanisms of informal governance are also often used to regulate and possibly solve the disputes between multinational corporations spanning several countries or acting in the space between powerful and bureaucratic institutions of the state (Dixit 2007, Helmke and Levitsky 2004).
Alena Ledeneva is possibly the scholar with the longest track-record of research on informality in the post-socialist region. Starting from the role of long-term relations and the practice of blat in Russian society and politics, she has picked the word sistema and used it to talk of 'methods of informal governance' (2013), where highly unreliable and ineffective institutions are operating because of the agency of a single highly influential person (Vladimir Putin in the Russian case). This person knows which strings to pull, whom to call and how to motivate key people to make things move along. Although this setup seems to function perfectly in the short-run, the illusion of effectiveness is tied to the agency of a single person and his entourage, which makes it impossible to replicate the same structure and procedures once the person has gone. A similar but smaller example by Darder (2008) in Ukraine has showed the paradoxical effectiveness of a parliament (under President Kuchma) issuing an unexpectedly high number of laws and decisions in spite of operating in a highly corrupt and unstable environment. In other words, the system worked. Not the way that it was expected to or that was comprehensible to the external observers, yet the parliament still managed to fulfil its function. This makes it a good starting point – should one day a radical reform be attempted, it will be worthwhile to save the knowledge and synergies used to facilitate the parliament functioning instead of trying to liquidate the entire system and reconstruct from the ground up.
These points have been codified, to different extents, in the Encyclopaedia of Informality. They are most apparent in chapter 8, 'Control: Instruments of informal governance' (see Gel’man's introduction, Politics of fear) and chapter 7, 'Co-optation: Recruiting clients and patrons' (see Heywood's Carrots versus sticks in patron–client networks]. These themes can also be gleaned from the findings in chapter 5 (see Gaming the system by Hanson) and, from a different perspective, in chapter 4 (see Zusi's The grey zones between cultural and political).
Classic flavour – Shadow economy and informal labour
In the four corners of the world, revenues are hidden, companies 'forget' to register and salaries are partly paid in white envelopes. These are not minor practices. Schneider estimates the level of shadow transaction in the post-Soviet region at almost half of the national GDP (2013). Why is it so? The reasons range from barriers preventing company registration to company taxation, which remains so extremely high that companies find it more convenient to bribe the tax inspectors once a year or use 'butterfly' companies (firma babochka).
The desire to pay taxes is likely to decrease when trust towards the state, institutions and values is low (Mickiewicz, Rebmann and Sauka 2017). In a survey we conducted in Ukraine at the end of December 2015 (Polese and Stepurko 2016) more than 80% of the respondents did not think that their state was acting in their interests. 78.7% disagreed that the government was doing what was best for the country. When the levels of distrust are this high, operating out of the shadow becomes difficult for companies and their managers. How many will think that the money they pay in taxes will be fairly spent and that it will be returned to them in the form of services, infrastructures or other kinds of benefits?
In addition, state control is sparse. While tax inspections and other forms of coercion intend to ensure taxpayer compliance, they are often used to solicit a bribe or as an indirect tool allowing a private company to put pressure on its competitor with the fiscal inspection. Ukraine is in no way unique in this trend. Concealing revenues employing workers precariously occurs across the world and the global informal sector accounts for, on average, almost two-thirds of national economies (Jütting and Laiglesia 2009) and has been explored from a 'us' vs 'them' perspective in part 2 of the Encyclopaedia (see the introduction to chapter 3, Group identity and the ambivalence of norms, by Gordy) but can also be regarded as a sort of opposition to a political power or from a 'survival' angle). However, research on this aspect of informality is limited to countries producing the data that can be discussed.
Popular flavour – Informal payments and corruption
This is perhaps the widest and thus the most confusing category of informality. Allowing some flexibility in the definition, any exchange between two or more actors can be classified as corruption: an extra payment to a nurse or a doctor for a service; a payment to reduce waiting time in a public hospital; a payment to a police officer to avoid a fine or to a university teacher to pass an exam. The problem with the amalgamation of all informal payments in one category here is twofold. First, the same category may host very different transactions – payments of several million euros to a politician to get a multi-million deal is equalled to a fistful of euros paid to a doctor to thank them for a service that they performed for free. Second, the same gesture may change meanings according to the dynamics of the exchange (Polese 2008). A payment demanded before medical attention can be regarded as blackmailing ('if you do not pay, I will not attend to you'), but a payment after the service can be regarded as a sign of gratitude ('thank you doctor for going out of your way and help us with this even more than it was your due').
Statistics on a range of countries considered 'transitional' tend to confirm that informal payments are rampant and spread in all social domains, with medical and police sectors particularly affected. However, the category of corruption is vast and expanding; in a growing trend, the term invades even classic social science phenomena such as gift giving and reciprocity. But to classify as 'corruption' practices with functions such as social solidarity and redistribution of welfare, is dangerous. For one thing, it morally compels the legislator to fight anything that falls into the 'corrupt' category with little regard for the utility of the practice. When an activity has been consolidated in time, it can be expected to serve an economic or social end. Its persistence should not be treated as a deviance from a standard rule but should rather prompt the question: why would a group of people prefer to engage with such practice instead of acting by the rules?
This is the key lesson of the first part of the Encyclopaedia, Redistribution — The substantive ambivalence: relationships vs use of relationships. Economies of favours that contribute to wealth redistribution while going beyond monetary transactions can be considered distinct from informality as an instrument of sociability (see Vernaculars of informality). I do not wish to suggest that no gift is corrupt, only that there is a need for further attention to distinguish transactions with a social meaning from those with purely economic ones. This has been a central insight of studies and debates on Ukraine and the wider post-socialist region and has made me look at corruption as a sub-category of informality, in which the monetarization of exchanges and the long-term consequences of transactions should be taken into account.
3+1 layers of informality
The uses of informality described above can be fed into a matrix that will help us make sense of the possible advantages, disadvantages and perceptions of its aspects. It will help us understand that tackling informality does not imply distinguishing good from evil, or right from wrong. Informality in its many forms and can contain both aspects. For public policy, it will be useful to look at what the positive and negative sides of accepting, or even of taking advantage of, a particular kind of informality in a particular policy context might be. The matrix below can also help us distinguish how harmful an aspect of informality may be and, possibly, what can be done about it.
|Legal Perception||Social Perception||Pluses||Minuses|
|Informal governance and sistema||Reciprocity may be treated as nepotism or corruption but there is no legal framework to deal with the situation where everyone has something to hide||Ranges from 'necessary evil' to get things done to 'evidence of advanced degradation of a country and its society'||Avoids collapse. A last minute or ad-personam solution is usually found||The perspective of no development. Effectiveness depends on people. When they change, everything starts from zero again|
|Shadow economy and informal labour||Tax non-compliance and failure to register a company is illegal||Hard to find someone openly condemning it. It is usually 'us' against the (bad) state and usually justified or understandable as the attitude by those not directly affected by it||Allows a large amount of people to survive. Can be used as a starting point to think of tax and other reforms||Takes away revenues from state budget; puts the country in a negative light with regards to the business environment; represents an additional cost to secure compliance|
|Informal payments and corruption||Tax non-compliance and failure to register a company is illegal||Hard to find someone openly condemning it. It is usually 'us' against the (bad) state and usually justified or understandable as the attitude by those not directly affected by it||Allows a large amount of people to survive. Can be used as a starting point to think of tax and other reforms||Takes away revenues from state budget; puts the country in a negative light with regards to the business environment; represents an additional cost to secure compliance|
|Informality and policy-making||There is virtually no debate or awareness||Little reflection. It is treated as an exception to a usually widely accepted rule or behaviour||People who are unable to meet state requirements or act as they are supposed to can still 'live with the rule' and need not take action, protest or challenge the state||Generates a gap between policy-makers (setting impossible objectives) and the people (especially those who cannot live with these objectives)|
Conclusion: An emerging flavour – Informality and policy-making
An implicit message of the Encyclopaedia, at least as I see it, is that informality can be regarded as an opposition – an opposition to a policy, a group, or to exogenous standards and rules imposed onto a system. Informality is in standing up to a political regime or workers taking a toll on a decision that harms them. During my PhD fieldwork I came across an interesting dynamic. My initial goal to simply study 'identity in Odessa' ended up unveiling the mechanism through which the local Russian-speaking population reacted to the pressure of formal laws and the public opinion, that Ukrainian should become the language of public spaces.
Imagine a citizen behaving in a way different from what a given rule of law prescribes. This person would be usually considered a deviant or, in a more extreme case, a criminal. Multiply this situation a thousand times and you have what Scott defined as infrapolitics (2012). My research on Odessa uncovered this aspect. My fieldwork started in 2005, after Ukrainian culture and language had gone through a revival owing to the 2004 'Orange Revolution'. The attitude towards the Ukrainian language had drastically changed, and Ukrainian gained momentum across the country. Odessa was, however, still far from the quasi-total monolingualism enshrined in the 1996 constitution, in which Russian had the status of a minority language. Russian was still widely used in several parts of Odessa, although popular narratives stating that Ukraine speaks Ukrainian denied this fact. Negotiations of the use of language, therefore, happened informally – citizens would use Russian 'only today, only here, only now'. When a single citizen prioritizes the use of Russian, this is as an exception. However, when such exceptions are made regularly, and by a substantial number of citizens, we are witnessing a 'de facto' subversion of state instructions (Polese et al. 2018).
I understand this as informal policy-making. When a policy aims to modify a behaviour, but few citizens challenge it most ignore it, yet the state fails to sanction non-compliance, the informal situation that results has the effect of policy-making. Only marginal research on this angle of informality has been conducted so far but it is well worth exploring further. The reasons for policy non-compliance may be that a policy has failed or that it should be implemented through a different channel. Informality should be used as a feedback mechanism and a policy tool.
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This essay builds on arguments outlined in the essay 'Beyond Official Statistics: Re-classifying “Informality” in Ukraine' published in Transitions Online on 11 December 2018 (Polese 2018).