Round table, Sofia, April 18-19, 2002

Within the framework of the network "Towards European Integration", consisting of public policy institutes and think-tanks from the EU accession countries, a round table devoted to the issue of informal economy was organized by the World Bank, the Bertelsmann Foundation and the Center for the Study of Democracy. It brought together experts involved in policy and research coming from EU member states (Austria, Germany, Italy, the United Kingdom), accession countries (Bulgaria, the Czech Republic, Hungary, Lithuania, Poland, Romania and Slovenia), states participating in the Stability Pact for Southeast Europe (Albania, Bosnia, Croatia, Moldova and Serbia) and other countries (Canada and Russia) as well as representatives of international organizations, multilateral and bilateral donor agencies.

The discussion at the round table focused on the following topics: size and scope of the informal economy, methods of assessment, general views and cross-country comparisons, case studies from Central Europe, the Baltic republics and the Balkans. A special panel was devoted to a related issue - risk reporting and early warning for good governance and against corruption. About 100 persons attended the round table, 50 of which were from the host country - Bulgaria. The papers presented by the speakers as well as the written comments submitted by the discussants will be published later thanks to a World Bank grants.

The discussion focused on the following major issues:

There are multiple definition of the term "informal economy" which is also referred to as "grey", "underground", "criminal", etc. The participants accepted the plurality in the conceptualization of the phenomenon and tried to address it as a whole without limiting their attention, for instance, to the "criminal" sector or the "subsistence" economy.

There was a consensus that the informal economy is not just a feature of developing countries or countries in transition: not only it exists in the EU and OECD member-states but in some of them it is very dynamic in nature and large in size. The informal economy does not recognize national boundaries: one could argue that the informal sector in the EU accession countries it is more organically related to that in the EU member-states than to the domestic formal economy. To a large extent. the EU member states are the consumers of the products and services generated in the informal sector of the candidate countries; in a sense, the informal economy has already achieved a significant degree of European integration.

This should be taken into account in further research and policy work if it is to help better understand its nature and implications of the phenomenon as well as bring it to a manageable proportion with regard to the formal sector. The scope of research as well as related policy initiatives should therefore go beyond national boundaries

It was noted that the key factors for people to go "informal" are the inappropriate state intervention in the economy and society, often materialized in excessive taxation and
regulation. Most often, going "informal" is the easiest form of the "exit" option for a businessman or an wage laborer; it is an alternative to a total "exit" which could have less predictable consequences for any of the actors involved.

The informal sector often hosts illegal and criminal activities, such as money laundering, drug trafficking, prostitution, etc. Their goal is totally different from other activities, some of which, for instance, have subsistence purposes. That is why there is a need for increased attention to the phenomenon in general and its elements in particular in order to be able to come up with adequate and differentiated policy responses in the state's efforts to control its spread. Forcefully pushing into "formality" can entail much greater costs for a national government than tolerating a manageable informal sector in the absence of adequate social safety nets, business growth opportunities and a well-working market environment.

Little has been done so far to study the implications of the EU accession for the informal sector both in the EU member-states and the candidate countries. It is expected that the strict regulations by which business and society will have to abide in an enlarged union may motivate further growth or at least internal transformations in the informal sectors in the new member states.

The participants in the round table agreed that the launch of a European thematic network of academics, policy analysts, representatives of civil society (interested NGOs) and relevant international organizations can provide an effective mechanism for future cooperation among experts in the filed from different countries, bring better understanding of the phenomenon of the informal economy necessary and lead to formulation of recommendations to benefit policy makers in individual countries and the European Union as a whole.

A possible immediate follow-up action can be the organization of a second round table devoted to specific aspects of the study of the informal economy, for instance, its implications for one or another sphere of business or social activities or the health of society in general. (CERGE-EI expressed an interest to host such an event in the future.) There was an understanding of the need to cooperate in raising funds for such initiatives from various sources, including international organizations, donor agencies, private sector contributions, etc.

See agenda