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Round table: The Informal Economy in the EU Accession Countries: Size, Scope, Trends and Challenges to the Process of EU Enlargement

Round table, Sofia, April 18-19, 2002

Within the framework of the network "Towards European Integration", including 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 Washington, D. C. (link - www.worldbank.org), the Bertelsmann Foundation, Guetersloh (link - www.bertelsmann-stiftung.de) and the Center for the Study of Democracy (link - www.csd.bg). Experts involved in research and policy work related to the subject 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 the international organizations, multilateral and bilateral donor agencies, took part in this event.

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 grants from the World Bank. The available draft presentations are posted on CSD's web.

The discussed in Sofia focused on the following major issues:

1) There are multiple definition of "the informal economy", also called "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 to the "criminal" sector or the "subsistence" economy.

2) There was a consensus that the informal economy is not a particular feature of countries outside the European Union: not only it exists in the EU member-states and the OECD countries but it has a very dynamic nature in these countries. The informal economy in the EU accession countries as well as the countries of the Stability Pact for Southeast Europe does not recognize national boundaries: 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 coming from the informal economy of the candidate countries; in a sense, the informal economy has already achieved a certain degree of European integration.

3) This should be taken into account in further work aiming at better understanding of the nature and implications of the phenomenon as well as efforts to 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.

4) It was noted that the key factors for people to go "informal" are the inappropriate state involvement in the economy and society, often epitomized 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.

5) 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 it. The costs of forcefully going "formal" can be much greater than tolerating a manageable informal sector in the absence of adequate social safety nets and business growth opportunities, guaranteed by a well-working market environment.

6) 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 may motivate further growth or at least internal transformations in the informal sectors of the new union members.

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 can provide on a continuous basis an insight into the phenomenon of the informal economy necessary for its better understanding and for the formulation of policy 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 certain aspects of the study of the informal economy, for instance, its specific 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

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