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Informal institutions: sometimes good, sometimes bad
01/2007
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[ Informal institutions ]
The good, the bad and the ugly
Côte d’Ivoire today is a place characterised by market failures and institutional vacuum. In this situation, village associations that operate on a voluntary, non-profit basis are the cornerstone of local development. The so-called “mutuelles”, explains Ginette-Ursule Yoman, Secretary of State for Good Governance in Côte d’Ivoire, provide access to credit and insurance, help in times of distress and contribute to the production of local public goods such as infrastructure.
“Mutuelles” are a good example for informal institutions still being very important today, despite an increasingly integrated global economy. Mini-bus taxis in South Africa are another one. According to Sue van der Merwe, South African Deputy Minister of Foreign Affairs, the taxis fill a gap left by the overloaded official transport network; they ensure roughly 65% of public transport. However, the downside of the informality of this business is a lack of passenger safety, violent clashes over market shares between the taxi entrepreneurs and tax evasion.
Jean-Philippe Platteau, Professor in Development Economics at Namur University, says that informal rules are persistent for good reason in many sub-Saharan countries: in many cases access to land, resolution of conflicts, gender relationships and local risk management are governed by social norms rather than official laws. Platteau, van der Merve and Yoman met at a conference on the developmental role of informal institutions, jointly organised by the OECD Development Centre and the DAC-Working Group on Governance in Paris in December.
While “mutuelles” and mini-bus taxis promote development, other kinds of informal institutions are suspected of having detrimental effects, however. According to Christian Morrisson, Professor emeritus at Sorbonne University, the very institutions that are the basis of informal security systems can have perverse effects, becoming “taxes on success”. For instance, any hard-working farmer in Benin, who has accumulated some wealth over the years, will normally have to share the fruit of his labour with his enlarged family, including distant relatives. Family pressure obliges him to accommodate any person of his kin. In economic terms, this “informal institution of sharing” might then become a disincentive to investment as well as lead to opportunistic attitudes if there is no obligation to reciprocate.
Finally, there are the “ugly” informal institutions, including traditions such as female circumcision. Institutions that directly violate human rights need to be abolished, but that is often easier said than done, as they are rooted in deeply enshrined norms and values. There was consensus in Paris that neither the “romantic’s” nor the “moderniser’s” approach to institutional change was promising. The romantics can be seduced into a folkloric approach to tradition, admitting even the most backward customs in spite of their negative effect on development. The modernists, in their haste for results, tend to wiping the board and starting over. Both approaches are bound to fail.
A more promising pragmatic way of dealing with informal institutions should respect three important guidelines: First, be patient and think about sequencing your reforms instead of going for a big-bang approach. Second, the principle of “subsidiarity” should be observed in the sense that informal institutions that work well at the local level can be further strengthened and developed, while at the regional and national level formal institutions will play a more important role. Thirdly, change has to come from within a society and can only be assisted from the outside. Changing century-old traditions and codifying informal laws into formal ones raises questions of legitimacy, which are crucial for the sustainability of reforms, particularly if interventions affect people’s personal or even private spheres.
Johannes Jütting
On the internet:
Papers and presentations of the Paris seminar:
http://www.oecd.org/dac/governance/informalinstitutions
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