The Role of Informal Economies in the Post-Soviet World

Colin C. Williams, John Round, Peter Rodgers

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135036850
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Based on extensive ethnographic and quantitative research, conducted in Ukraine and Russia between 2004and 2012, this book's central argument is that for many people the informal economy, such as cash in hand work, subsistence production and the use of social networks, is of great importance to everyday life. Formal work is both a facilitator of such processes and is often supported by them, as people can only afford to undertake low paid formal work as a result of their informal incomes. By looking at the informal nature of formal work and practices, informal practices, gift giving, volunteer work and the economies of the household the book is one of the first to give an overview of the nature of the informal economy in all spheres of everyday practice.

1 Introduction

In a village just outside Moscow’s city limits, a house stands out from all the others in the vicinity in that it is impeccably maintained and has a very well cultivated garden. Given that the owner’s only income is her pension, the immaculate condition of her house seems somewhat at odds with her economic circumstances, especially when it is compared with the others surrounding it in the village. It transpires that the owner ‘rents’ rooms in her house to Chechen migrants who, wary of working in Moscow city centre as they are without the correct documentation, work as labourers in this rural fringe area of Moscow, building homes for Russia’s rich. Eager to send as much money home as possible and to save money for the winter months when work is scarce, her lodgers wish to reduce their outgoings as much as possible. Therefore, rather than pay rent to her, they steal materials from the building sites on which they work and use them to renovate her house. They also help her plant, tend and harvest her vegetable garden, and when there is produce to sell, they drive her to the local market and pick her up on their return home in the evening. Here at the market, she sells the food produced in her vegetable garden informally on the edge of the market as she does not want to pay the bribe and annual fee for a licence to sell formally. To ensure she does not have any trouble from the owners of the market, she gives some of her produce to the police who operate in the vicinity. Back in her village, she also makes a small annual payment to the local police who are aware of the migrants’ presence, in order to ensure that there are no problems. Indeed, this practice of receiving such informal payments is quite lucrative for the local police chief since he also receives an annual payment from the caretaker of the local school so that a blind eye is turned when he turns the school’s sports hall into a temporary hostel for migrants during the summer months. Not all of this income is kept by the local chief of police, however, as he has to make payments ‘upwards’ to ensure that he keeps his position and can continue to operate without interference. In consequence, from the house owner renting out rooms in her home, through the entrepreneurial behaviour of the migrants and the interactions of the residents with the state in the form of the police and licences, to the production and selling of the foodstuffs, all of these processes are wholly informal exchanges. The only formal component in this woman’s totality of livelihood practices is the pension which just about covers her communal charges, utility bills and the informal payments she has to make to obtain her medicines that are supposedly free.

This example of a participant’s livelihood practices gathered during the fieldwork for this book conveys the commonality of informal practices in everyday life for many people in post-Soviet economies. Far from the informal economy being some minor residue in contemporary post-Soviet economies or a leftover from some previous system of exchange that is steadily disappearing from view, this example displays how informal exchanges remain a persistent and integral feature of the livelihood practices of a large segment of the population in post-Soviet societies and well beyond. As Standing (2011: 261) points out, the informal economy is one of the key defining features of the contemporary global economy, and contrary to the assumption that there is a universal formalisation of economies, it is more the informal economy that has ‘become pervasive’. Of course, estimating the true size of the informal economy is a difficult, if not impossible, task since by its very nature such work is hidden from the state’s gaze. Using indirect proxy indicators, however, Schneider et al. (2010) have suggested that the size of the ‘shadow economy’ globally is equivalent to about 34 per cent of global GDP. Obviously, however, there are marked differences in its size between countries, with estimates ranging from 67 per cent of GDP in Bolivia to 8.4 per cent in Switzerland, and with the two countries that are the focus of this book – Russia and Ukraine – both sitting at the higher end with their shadow economies estimated to be equivalent to 46 and 52 per cent of GDP, respectively. This shadow economy, moreover, is purported to be increasing, not decreasing, in size relative to the official economy on a global level, especially during the current economic crisis (Kulikov and Blyzniuk 2010). To ignore the informal economy when providing accounts of the ‘economic’ and ‘economy’, therefore, would be to overlook a major, if not the dominant, segment of the whole economy in many countries.

In this book, in consequence, our aim is to start to bring out of the shadows the important role that informal economies play in people’s livelihood practices. In order to do so, we here focus our attention on the role of informal economies in the post-Soviet/socialist world in general, and Ukraine and Russia in particular. To achieve this, our intention is to first re-think not only the discourse of ‘transition’ in the post-Soviet world, but also the meanings of the ‘economic’ and ‘economy’ in the contemporary world, and following this, to develop an analytical lens which enables the totality of work relations to be understood when studying the economy and the trajectories of development in different places. To show the outcomes of adopting this ‘whole economy’ perspective, we will then chart in some detail the full range of economic practices in Ukraine, as well as in Russia’s capital city of Moscow, in order to understand the role that informal economies play in the contemporary post-Soviet world. This will provide critical insight into the so-called transformation or transition process in post-Soviet economies and the meanings of the economic and economy in lived experience in such spaces by examining the full range of livelihood practices pursued by people. This will reveal not only that studying the formal economy alone fails to fully capture the lived experiences of people’s economic practices, but also, and more importantly, that unless the full repertoire of the economic practices pursued by people are evaluated, it is impossible to understand the meaning of the economic and economy or the trajectory of economic development in the world today.

At the heart of this book is a critique of the notion that economic transition is at an end in Russia and Ukraine and that the move from the command system to the market economy is complete. The term transition implies a movement from one place, or state, to another, a defined starting and end point. Within the context of post-Soviet/socialist states, this refers to the movement away from the command economy system, with the state controlling all aspects of planning, production, distribution and sale, to the neo-liberal system where ‘the market knows best’. For most Soviet and socialist countries, this process began between 1989 and 1991 and was ‘completed’ either by joining the European Union, the bestowing of ‘market status’ by other countries or entry into the World Trade Organisation (for discussion on ‘the end of the transition paradigm’, see Carothers 2002). A full discussion of this transition literature is provided in Chapter 2. It is important to highlight at the outset, nevertheless, that the concept of economic transition from one state to another is highly simplified. As will be shown through the lens of everyday life, there was never any ‘pure’ command economy system where the state controlled all aspects of planning, production, distribution and sale. Neither is it the case that all post-Soviet/socialist states have now moved to some ‘pure’ ideal-type market economy, which after all only exists in textbooks and is in lived practice nowhere apparent. Instead, through examining the lived experience of how people achieved and achieve their livelihoods, it quickly becomes apparent that all economies are composed of a diverse repertoire of labour practices, and that if the ‘economic’ and ‘economy’ are to be understood, it is necessary to move beyond such simplified accounts where one mode of production or another assumes a hegemonic status and all other systems of exchange disappear. Rather, what happens is that economies are sometimes involved in processes of transformation whereby there is a shift in the balance afforded to different systems of exchange and that these transformations involve multiple development paths and trajectories being pursued from different starting points (Abbott and Wallace 2009; Brown et al. 2012; Pickles and Smith 1998; Round et al. 2010; Smith and Timár 2010; Sýkora and Bouzarovski 2012). By exploring the importance, role and nature of informal economies in post-Soviet economies, both in the past and present, in consequence, this book disputes not only the past hegemony of the command economy system, but also the primacy of the formal market economy in the present along with the view that there is a universal linear development path being pursued towards a hegemonic formal market economy system.

To move beyond an understanding of the economic and economy which is centred on the impending hegemony of a formal market economy and to gain greater understanding of the role that informal economies continue to play in people’s livelihood practices, a ‘whole economy’ perspective will be used here. This is achieved by adopting an analytical lens for understanding the multiple labour practices which exist in contemporary economies that conceptualises a spectrum from formal-oriented to informal-oriented labour practices, which is cross-cut by another spectrum ranging from wholly monetised to wholly non-monetised labour practices. The resultant outcome is to capture the plurality of labour practices that exist in post-Soviet societies in a manner which shows how they all seamlessly merge into each other. Having developed this theoretical and conceptual framework for understanding the plurality of labour practices in economies, the intention in the second part of the book is to apply this to understanding the multifarious practices used in post-Soviet societies.

To achieve this, we will here report the findings of fieldwork conducted since 2005 in Ukraine and Moscow. Indeed, the fieldwork in the post-Soviet world on which this book is based has been a long time in gestation. Prior to conducting the research for this book, one of the authors had been researching the informal economy in western economies for well over two decades before turning his attention to analysing the informal economies of the post-Soviet world in order to write this book, while the other two authors had realised for more than a decade prior to writing this book the importance of informal economies in the post-Soviet world. Indeed, many of the research questions on which the eventual fieldwork for this book was based emerged from the lessons learned from these dual experiences of studying this phenomenon in the western world and from researching aspects of the informal economy in post-Soviet countries for doctoral research on the coping practices of senior citizens in Russia and identity formation in Ukraine.

It is also important to realise that we as authors have had many formative experiences gained during extended periods living in post-Soviet households that drove our curiosity to understand the role played by informal economies in everyday life. For example, on arrival in Russia to conduct his doctoral research on the coping practices of senior citizens in Russia, one of the authors of this book opened the front door on his first morning in Russia and found a large jar of caviar on the doorstep. When he asked the owner of the apartment what it was doing there, he was told that it was in return for a favour. That evening as the owner was leaving the flat he said ‘I am just going out to pay my “tax” (i.e. an informal payment) to get out of military service.’ Such first impressions of post-Soviet everyday life have been formative in realising the important role that informal economies play in daily life and have provided the motivation to want to conduct the research for this book.

It was, however, only some years later that we began our more ‘formal’ research into the role that informal economies play in livelihood practices in the post-Soviet world. Between 2005 and 2007 both quantitative and qualitative empirical research was undertaken into this phenomenon. On the one hand, this involved a structured questionnaire conducted on a face-to-face basis at the household level with 600 participants in Ukraine and 313 participants in Moscow. On the other hand, it involved some 75 follow-up semi-structured qualitative interviews across the two countries, with participants selected using maximum variation sampling in order to gain a richer and more textured understanding of the role informal economies play in livelihood practices. The Ukraine research, it must be mentioned, was funded by the Economic and Social Research Council (ESRC), while the funding to replicate the research in Moscow was provided by the School of Management at the University of Leicester. The findings reported in this book are from this fieldwork, the methodology of which will be introduced in greater depth in Chapter 4. Since 2007 when this quantitative and qualitative research was completed, a further 96 in-depth face-to-face interviews have been conducted in Ukraine and Russia between 2008 and 2012, mostly in order to bring greater clarity to our understanding of the role played by informal economies in livelihood practices in these countries. The opportunity to conduct these 96 in-depth interviews has arisen, it should be stated, because one of the authors had being living in Ukraine for almost three years up until 2011, while another of the authors has spent the last two years since 2011 living and working on a full-time basis in Moscow.

Indeed, these extended periods living and working in Ukraine and Moscow between 2008 and the present day have provided the opportunity for a great deal of ethnographic observation to be undertaken to further understand the role played by informal economies in daily life. To take just one small example of how ethnographic observation becomes an inherent part of daily life when living in post-Soviet societies and an integral part of the research process, we here recount a recent experience on the Moscow metro. While queuing to buy a metro ticket at a local station during 2011, one of the authors observed that a large number of people were seemingly shaking hands with an elderly woman overseeing the barriers. It became clear that what was actually happening was that money was being given to the woman who was then letting people through without a ticket. When the author tried to instigate this transaction himself, much to his embarrassment, it was refused. Somewhat red-faced, he returned to the back of the queue to purchase his metro ticket and when he later recounted this story to a local resident, it turned out that the woman working the metro station was an acquaintance of the resident and she arranged for the author to have an interview with her so he could understand this practice.

On interviewing her, it turned out that her wage was so low, she argued, that she had no choice but to take money in this manner and that those paying her were getting a cheaper ride on the metro (tickets are not required to exit the system), but she only did so with those she knew and trusted. She then went on to discuss that she could not survive on her official salary as she had to pay for medicines that were supposed to be free, that her apartment was in a poor condition and that she had to pay for someone to undertake the repairs. She also highlighted how the builders employed to do the repairs for her were also being paid in cash, as were those being sub-contracted by them to do some of the work in her home, such as the electricians. Indeed, she even offered to arrange an interview with them if the author so desired. From this single ethnographic observation, therefore, not only did an interview eventually result, but also a much deeper understanding of the role of informal economic activity, the motivations underpinning it and the social relations involved.

This example, furthermore, highlights another important point regarding research on the role played by informal economies. While it might be assumed by those who have not engaged in research on this phenomenon that people will be reticent about discussing such practices, given that there is illegality involved, the opposite is more often than not the case. As Round (2006) discusses, the interviewees often take great pride in discussing the practices they engage in as these practices enable the household to cope in the face of perceived government indifference, and the participants are therefore often more than willing to discuss them in-depth (see also Pavlovskaya 2004). We found the same in the research for this book. Far from displaying any reticence, the participants often took great pride in telling us about their exploits and how they managed to secure a livelihood using a multiplicity of informal practices.

It is also important to state that by living in the areas in which the fieldwork has been conducted, this has enabled not only a diverse variety of observations to be made, but also for trust to be built up with many of the residents in the localities. Indeed, over time, living in many of the districts studied has resulted in friendships being made with potential participants in the research, and although we have been open about our role as academics, care has had to be taken with respect to how we have dealt with casual conversations about this phenomenon. As a general rule, information gained from such casual conversations has not been included in the findings reported in this book. However, if something extremely relevant was mentioned during casual conversation, then afterwards permission has been asked regarding whether we could include it in our research findings for this book. Nevertheless, it is impossible to forget things one has heard in casual conversation, and on some occasions these conversations have provided the basis for lines of questioning during more formal interviews with others as our knowledge of the role informal economic practices play in everyday life in these countries has improved (for further discussion of this issue, see Essers 2009).

It also needs to be pointed out that some of the interviews conducted for this book have been at times emotionally challenging for the researchers. There have been numerous discussions of upsetting events, especially with regards to the informal payments required in the healthcare system as discussed in Chapter 5, and there also have been times when the participants saw the authors as ‘privileged’ western academics and therefore capable of resolving various problems with the state for them. These have proven very difficult situations to negotiate and sometimes interviews could not continue because of the assumptions of the interviewee (for further discussion on the emotional impact of such research, see Lee and Lee 2012 or Dickson-Swift et al. 2007). The overall lesson, nevertheless, from conducting research over a seven-year time span for this book is that despite the popular assumption that it is difficult to talk to people about the role played by informal economic practices in securing a livelihood, this has not been found to be the case in the post-Soviet countries we have studied. As will become apparent throughout this book, participants have been not only open with us about the informal economic practices they undertake, but have sometimes gone to great lengths to help us understand how such practices are used by them to secure a livelihood.

Structure of the book

In order to understand the role that informal economic practices play in securing a livelihood in post-Soviet spaces, Part I provides the theoretical and conceptual framework for understanding this issue. In Chapter 2 we revisit the recurring question of transition in order to dispute not only the past hegemony of the command economy system, but also the notion that there is a universal linear trajectory of development in post-Soviet spaces towards a hegemonic formal market economy system as some end point. Instead, we call for a more nuanced argument to be adopted that recognises the transformation of post-Soviet economies in different ways from different starting points and along different economic development trajectories. This is reinforced in Chapter 3. This re-theorises the ‘economic’ by providing evidence of the shallow and uneven permeation of the formal market economy in the post-Soviet/socialist world and the persistence of informal economic practices. Given the recognition of the persistence of informal economic activities in these societies, Chapter 4 then outlines an analytical lens for capturing the plurality of labour practices that exist in post-Soviet societies and applies this to understanding the multifarious labour practic...