| October 2008 - Politics |
| October 2008 |
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Q&A: Words John Dagge
What brings you and the Institute for Liberty and Democracy (ILD) to Syria? To submit a proposal on sizing up the extra-legal economy and use our experience in different parts of the world to propose items of reform where the Syrian government would like to exercise such reform. The extra-legal economy is a phenomenon that has probably been around for an enormous amount of time. But it has become extremely sizeable since the collapse of the Berlin Wall when just about every country in the world, except for North Korea, decided that you have to open up to the global economy. As the importance of the extra-legal economy becomes greater, it is important to know how to size it up and what to do about it. What do you mean by extra-legal, or informal, economy? Our definition of extra-legal is not whether you have a certificate. It’s whether that piece of paper covers you in the real economy and allows you to do certain things. There is a real doubt that anywhere in the world there is someone sitting on a piece of land, or owning an animal or a production facility that doesn’t have a piece of paper. The question is what does the law allow you to do with it? Does it allow you to leverage it? Does it allow you to use it as collateral? Does it provide you with an address? Does it allow you to receive clean water and electricity and be billed accordingly? Does it allow you to transfer it? Does it prove that you own it? If it fails to do any of these things, then for us it is extra-legal. For us, extra-legal means you cannot get the benefits from the law. Property rights provide society with security. The ILD has been working in Egypt for a number of years. Is there anything unique about the Middle Eastern development process compared to other developing economies around the world? Although there are differences, there really are not that many differences in terms of the basics. Whether it’s the Middle East, Latin America, Asia or Africa, more than 60 percent of the economy is an extra-legal economy and they all look very similar. If there are differences they respond to the fact that there are different concentrations. One country may have done well in the transport sector because the government operates very efficiently in that particular economic area. The concentrations of the informal economy may be in different places, but in the end the size is the same. It’s hard to find a constitution in the world that doesn’t say we are looking for a Western-style economy with degrees of state intervention. And by Western-type economy I mean Japan, Singapore and even China. A market economy. In all of these counties, what essentially everyone has found out is that getting to a Western type of economy is a much tougher job than anyone had thought. The West got there over 300 years and they are not good at explaining it. They remember the past 50, but not the former 250. So yes, there are differences between these countries. But what is more interesting are the similarities. What is the way forward? Essentially it means bringing everyone under the rule of law and standard. Now we are talking in a standard language, English, so we can understand each other and we can communicate quickly and directly. Standards allow us to define things and do things quickly. When you talk about the global economy, essentially it’s an economy of standards. When I came into the hotel here they asked me how I would pay the bill. Did I tell them I come from a reputable Peruvian family? No. Instead I pulled out a visa card and settled it like that. Standard economies compress our information and make things move more easily. I don’t have to know the person, as long as I know the standard. Law makes it the same for everyone. The extra-legal economy operates to certain standards. The idea is to bring it as close as possible to the standards that the government wants it to have. This will mean it is an economy of ‘know how’ rather than ‘know who’. You’ve said the poor are not as poor as we think. What do you mean? The value of all extra-legal homes and land in Egypt in USD 300bn. That is 50 times greater than total private investment in the country since Napoleon landed there. It doesn’t mean it’s enough, but you are talking about a sizeable sum of money. If it could be leveraged, if it could get access to capital, those slums are potentially bigger than any form of aid that will come into the country. They are not that poor. They might have more to give than to receive. In your experience, where does opposition to closing the informal economy come from? In the end it comes down to communication. If that communication is done properly there should hardly be any resistance because everyone will be better off in a legal economy. Everything works much better. If the idea is based on including, instead of excluding, the informal sector will like the idea of being formalised. Life in the informal sector is very tough. Since you’re doing many things outside the law, you don’t get protection. You fear the law and that’s very costly. The rate of interest in the informal sector is much higher than in the formal economy. Investment is down. The one part of the informal sector that may not like it is the criminal one, but we don’t consider that the informal economy. That’s the criminal economy. Formal also doesn’t mean an end to diversity. Europe is formal and it is diverse. The Japanese have a formal economy and when you are there it is Japanese. They have a Japanese way of doing business. It’s about introducing standards so you can do more business. You are from a country that was afflicted by terrorism. Indeed, you and your staff have been targeted in acts of terrorism. What are the root causes of terrorism? When we as an organisation began our institution we had a terrorist movement called the Shining Path. Those that were against the establishment were basically competing for the hearts and minds of the informal sector. Because we were about bringing the informal sector into the formal economy, we were targeted by them. There are different reasons in different countries. I would imagine terrorism has got various roots: ethnic, religious, a nationalism of sorts, anti-imperialism and some anarchistic. But if you’re trying to find some kind of common root, it would be exclusion. When people don’t feel part of the major system, the system that brings the most prosperity, they get angry. |
The ideas of Peruvian economist Hernando de Soto have transformed the way the world looks at development. De Soto’s work links the lack of formal property rights to poverty: the poor possess de-facto control over enormous amounts of assets, such as housing, yet they can’t use their possessions as collateral to economically better themselves because they lack airtight legal title to their holdings. Now, De Soto has been hired by the Syrian government to look into the country’s massive informal economy.