Is the informal sector an ally in the fight against corruption?

Corruption needs to be better understood, especially in transition economies. The informal sector is often synonymous with corruption, and as a result is often treated with distain by the international policy community. However, there is growing evidence that the informal sector should be given more prominence when thinking about dealing with this issue. A point, well remonstrated today, at the ERF’s 18th Annual Conference by Lisa Anderson (American University in Cairo) and Mushtaq Khan (University of London).

This point was emphasized today, at the ERF’s 18th Annual Conference by Lisa Anderson (American University in Cairo) and Mushtaq Khan (University of London).

Understanding corruption

Corruption is often defined as the diversion of goods from the public sphere for private gain. However, corruption is a complex term if left un-contextualized. This common definition is a modern notion based on a clear distinction between the private and public sphere, and rests on the assumption that there is a ‘political’ and ‘social’ system in place that should not be used for personal gain.

Historically corruption was more closely associated with ‘moral depravity,’ at such a time the notion of a distinct ‘public’ sphere did not exist.

Roots of complexity

Anderson argues that in some countries around the world, particularly in the developing world, this distinction between the public and private sphere is not clear and as a result definitions of corruption have become confused, creating confusion for policy makers, and resulting in the misalignment of policies seeking to tackle corruption.

In other words, relying on the regulatory system of the public sphere is not enough, and there is a clear need for approaches that are able to interweave both the private and public sphere, and taking into account both formal and informal systems of regulatory control.

A new role for the informal sector

Khan supports this view by reflecting upon how the informal sector sustains political orders in emerging economies. Such societies often rely heavily on the informal allocation of resources, and this is the means by which the ruling elites are able to provide stability. Khan made clear that attempts to remove this system simply through top down rules and regulations do not work, despite the best efforts of the international community to link political subsidies to the principles of good governance and other regulatory systems.

Khan concedes that effective governance structures are important, but before these can be implemented there is a real and pragmatic need to look at the way existing systems operate, which interventions are holding development back, and how things can be improved.

New development perspectives

For Khan, understanding how ruling structures operate should underpin the future design and strategy attached to implementing development policies. His underlying assumption is that if policies run against the fundamental survival instinct of the ruling coalition, they are not likely to be implemented. In this regard the evidence speaks for itself: countries that do well in terms of developmental strategies are more often than not aligned with the interests of the ruling coalition.

Anderson’s unpacking of corruption, in terms of the private and public sphere, also opens up important ground on which we need to dwell, not only in terms of how we think about defining corruption, but also how we use this understanding to frame pragmatic development policies that take into account the lack of distinction between the public and private sphere in some countries, and the important role informal systems can have.

Small steps

The insights offered by Khan and Anderson today have left ERF and its wider community some  enlightening thoughts on how to halt corruption in the transition countries of the MENA region. The challenge now is to take this thinking forward and work more closely with the informal sector, gaining more  insights on which to start taking the small steps required to achieve the long term goal of good governance.

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