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Keith Hart on the
Informal Economy, the Great Transformation, and the Humanity of Corporations














International Relations
has long focused on the formal relations between states; in the same way,
economists have long focused exclusively on formal economic activities. If by
now that sounds outdated, it is only because of the work of Keith Hart. Famous
for coining the distinction between the formal and the informal economy in the
1970s, Hart is a critical scholar who engages head-on with some of the world's
central political-economic challenges. In this Talk, he, amongst others, discusses the value of the distinction 40
years after; how we need to rethink The
Great Transformation nearly a century later; and how we need to undo the
legal equivalence of corporations to humans, instituted nearly 150 years back.














Print version of this Talk (pdf)




What is, according to you, the
central challenge or principal debate in International Relations? And what is
your position regarding this challenge/in this debate?







I think it is the lack of fit between politics, which
is principally national, and the world economy, which is global. In particular,
the system of money has escaped from its national controls, but politics, public
rhetoric aside, has not evolved to the point where adequate responses to our
common economic problems can be posed. At this point, the greatest challenge is
to extend our grasp of the problems we face beyond the existing national
discussions and debates. Most of the problems we see today in the world—and the
economic crisis is only one example—are not confined to a single country.







For me, the question is how we can extend our research
from the local to the global. Let the conservatives restrict themselves to
their national borders. This is not to say I believe that political solutions
to the economic problems the world faces are readily available.  Indeed, it is possible that we are entering
another period of war and revolution, similar to 1776-1815 or 1914-1945. Only
after prolonged conflict and much loss might the world reach something like the
settlement that followed 1945. This was not only a settlement of wartime
politics, but also a framework for the economic politics of the peace,
responding to problems that arose most acutely between the wars.  It sounds tragic, but my point in raising the
possibility now is to remind people that there may be even more catastrophic
consequences at stake that they realize already. We need to confront these and
mobilize against them. When I go back in history, I am pessimistic about
resolving the world's economic problems soon, since the people who got us into
this situation are still in power and are still pursuing broadly the same
policies without any sign of them being changed. I believe that they will bring
us all into a much more drastic situation than we are currently facing. Yet in
some way we will be accountable if we ignore the obvious signs all around us.











How did you arrive at where you currently are in your thinking about IR?







My original work in West Africa arose out of a view that
the post-colonial regimes offered political recipes that could have more
general relevance for the world. I actually believed that the new states were
in a position to provide solutions, if you like, to the corrupt and decadent
political structures that we had in the West. That's why, when we were demonstrating
outside the American embassies in the '60s, we chanted the names of the great
Third World emancipation leaders—Frantz Fanon, Kwame Nkrumah, Fidel Castro, and so
on.







So for me, the question has always been whether
Africans, in seeking emancipation from a long history of slavery, colonialism, apartheid
and postcolonial failure, might be able to change the world. I still think it
could be and I'm quite a bit more optimistic about the outcome now than I have
been for most of the last fifty years. We live in a racialized world order
where Africa acts as the most striking symbol of inequality. The drive for a
more equal world society will necessarily entail a shift in the relationship
between Africa and the rest of the world. I have been pursuing this question
for the last thirty years or more. What interests me at the moment is the
politics of African development in the coming decades.







Africa began the twentieth century as the least populated
and urbanized continent. It's gone through a demographic and urban explosion
since then, doubling its share
of world population in a century. In 2050, the UN predicts that 24% of the world
population will be in Africa, and in 2100, 35% (read the report here, pdf)! This is because Africa is growing
at 2.5% a year while the rest of the world is ageing fast. Additionally, 7 out
of the 10 fastest growing economies in the world are now African—Asian
manufacturers already know that Africa holds the key to the future of the world
economy.







But, besides Africa as a place, if you will, a number
of anti-colonial intellectuals have played a big role in influencing me. The
most important event in the twentieth century was the anti-colonial revolution.
Peoples forced into world society by Western Imperialism fought to establish
their own independent relationship to it. The leading figures of that struggle
are, to my mind, still the most generative thinkers when we come to consider
our own plight and direction. My mentor was the Trinidadian writer C.L.R. James, with whom I spent a
number of years toward the end of his life. I am by temperament a classicist; I
like to read the individuals who made a big difference to the way we think now.
The anti-colonial intellectuals were the most important thinkers of the 20th
century, by which I mean Gandhi, Fanon and James.







But I've also pursued a very classical, Western
trajectory in seeking to form my own thinking. When I was an undergraduate, I
liked Durkheim and as a graduate student Weber. When I was a young lecturer, I
became a Marxist; later, when I went to the Carribbean, I discovered Hegel,
Kant and Rousseau; and by the time I wrote my book on money, The Memory Bank,
the person I cited more than anyone else was John Locke. By then I realized I
had been moving backwards through the greats of Western philosophy and social
theory, starting with the Durkheim school of sociology. Now I see them as a set
of possible references that I can draw on eclectically. Marx is still probably
the most important influence, although Keynes, Simmel and Polanyi have also shaped my
recent work. I suppose my absolute favorite of all those people is Jean-Jacques
Rousseau for his Discourse on Inequality and his inventive
approach to writing about how to get from actual to possible worlds.











What would a student need (dispositions, skills) to become a specialist
in IR or understand the world in a global way?







In your 20s and 30s, your greatest commitment should
be to experience the world in the broadest way possible, which means learning
languages, traveling, and being open to new experiences. I think the kind of
vision that I had developed over the years was not one that I had originally
and the greatest influence on it was the time I spent in Ghana doing my
doctoral fieldwork; indeed, I have not had an experience that so genuinely
transformed me since!







Even so, I found it very difficult to write a book
based on that fieldwork. I moved from my ethnographic investigations into a
literature review of the political economy of West African agriculture, and it
turns out that I am actually not an ethnographer, and am more interested in
surveying literature concerning the questions that interest me. I am still an
acute observer of everyday life; but I don't base my 'research' on it. Young people
should both extend their comparative reach in a practical way and dig very
deeply into circumstances that they encounter, wherever that may be. Above all,
they should retain a sense of the uniqueness of their own life trajectory as
the only basis for doing something new. This matters more than any professional
training.











Now we see spectacular
growth rates in African countries, as you mentioned, one of which is the DRC.
How can we make sense of these formal growth rates: are they representative of
the whole economies of these countries, or do they only refer to certain
economic tendencies?







The whole question of measuring economic growth is a
technical one, and it's flawed, and I only use it in the vaguest sense as a
general indicator. For example, I think it's more important that Kenya, for
example, is the world leader in mobile phone banking, and also a leader in
recycling old computers for sale cheaply to poor people.







The political dispensation in Africa—the combination
of fragmented states and powerful foreign interests and the predatory actions
of the leaders of these states on their people -- especially the restrictions
they impose on the movements of people and goods and money and so on – is still
a tremendous problem. I think that the political fragmentation of Africa is the
main obstacle to achieving economic growth.







But at the same time, as someone who has lived in
Africa for many years, it's very clear that in some countries, certainly not
all, the economies are very significantly on the move. It's not--in principle—that
this will lead to durable economic growth, but it is the case that the cities
are expanding fast, Africans are increasing their disposable income and it's the
only part of the world where the people are growing so significantly. Africa is
about to enter what's called the demographic dividend that comes when the
active labor force exceeds the number of dependents. India has just gone
through a similar phase.







The Chinese and others are heavily committed to taking
part in this, obviously hoping to direct Africa's economic growth in their own
interest. This is partly because the global economy is over the period of
growth generated by the Chinese manufacturing exports and the entailed infrastructure
and construction boom, which was itself an effect of the greatest shift from the countryside to the city in history. Now, the Chinese
realize, the next such boom will be—can only take place—in Africa.







I'm actually not really interested in technical
questions of how to measure economic growth. In my own writing about African
development, I prefer anecdotes. Like for example, Nollywood—the Nigerian film industry—which has just past
Bollywood as the second largest in the world! You mention the Congo which I
believe holds the key to Africa's future. The region was full of economic
dynamism before King Leopold took it over and its people have shown great
resilience since Mobutu was overthrown and Rwandan and Ugandan generals took
over the minerals-rich Eastern Congo. Understanding this history is much more
important than measuring GDP, but statistics of this kind have their uses if
approached with care.











Is it possible to
understand the contemporary economic predicament that we are seeing, which in
the Western world is referred to as the "crisis", without attributing it to
vague agencies or mechanisms such as neoliberalism?







I have written at great length about the world
economic crisis paying special attention to the problems of the Eurozone. My belief
is that it is not simply a financial crisis or a debt crisis. We are actually
witnessing the collapse of the dominant economic form of the last century and a
half, which I call national capitalism—the attempt to control markets, money
and accumulation through central bureaucracies in the interests of a presumed
cultural community of national citizens.







The term neoliberalism is not particularly useful, but
I try to lay out the history of modern money and why and how national
currencies are in fact being replaced. That, to my mind, is a more precise way
of describing the crisis than calling it neoliberal. On the other hand, neoliberalism does refer to
the systematic privatization of public interests which has become normal over
the last three or four hundred years. The bourgeois revolution claimed to have
separated public and private interests, but I don't think it ever did so. For
example, the Bank of England, the Banque de France, and the Federal Reserve are
all private institutions that function behind a smokescreen of being public
agencies.







It's always been the case that private interests
corrupted public institutions and worked to deprive citizens of the ability to
act purposefully under an ideological veil of liberty. But in the past, they
tried to hide it. The public wasn't supposed to know what actually went on
behind the scenes and indeed modern social science was invented to ensure that
they never knew. What makes neoliberalism new is that they now boast about it
and even claim that it's in everyone's interest to diminish public goods and
use whatever is left for private ends—that's what neoliberalism is.







It's a naked grab for public resources and it's also a
shift in the fundamental dynamic of capitalism from production for profit
through sales tow varieties of rent-seeking. In fact, Western capitalism is now
a system for extracting rents, rather than producing profits. Rents are income
secured by political privilege such as the dividends of patents granted to Big
Pharma or the right to control distribution of recycled movies. This has got
nothing to do with competitive or free markets and much opposition to where we
are now is confused as a result. Sometimes I think western capitalism has
reverted to the Old Regime that it once replaced—from King George and the East
India Company to George W and Halliburton. If so, we need another liberal
revolution, but it won't take place in the North Atlantic societies.











In your recent work,
you refer to The Great Transformation, which invokes Karl Polanyi's famous
analysis of the
growth of 19th century capitalism and industrialization. How can Polanyi
help us to make sense of contemporary global economy, and where does this
inspiring work need to be complemented? In other words, what is today's Great Transformation
in light of Polanyi?







First of all, the
Great Transformation is a brilliant book. I have never known anyone who
didn't love it from the first reading. The great message of Polanyi's work is
the spirit in which he wrote that book, regardless of the components of his
theory. He had a passionate desire to explain the mess that world society had
reached by the middle of the 20th century, and he provided an
explanation. It's always been a source of inspiration for me.







A central idea of Polanyi's is that the economy was
always embedded in society and Victorian capitalism disembedded it. One problem
is that it is not clear whether the economy ever was actually disembedded (for
example capitalism is embedded in state institutions and the private social
networks mentioned just now) or whether the separation occurs at the level of
ideology, as in free market economics. Polanyi was not against markets as such,
but rather against market fundamentalism of the kind that swept Victorian
England and has us in its grip today. The political question is whether politics
can serve to protect society from the excesses produced by this disembedding;
or whether it lends itself to further separation of the economy from society.







And I would say that Polanyi's biggest failure was to
claim that what happened in the 19th century was the rise of "market
society". This concept misses entirely the bureaucratic revolution that was
introduced from the 1860s onwards based on a new alliance between capitalists
and landlords which led to a new synthesis of states and corporations aiming to
develop mass production and consumption. Polanyi could not anticipate what
actually happened after he wrote his book in 1944. An American empire of free
trade was built on a tremendous bureaucratic revolution. This drew on
techniques and theories of control developed while fighting a war on all
fronts. The same war was the source of the technologies that culminated late in
the digital revolution. Karl Polanyi's interpretation of capitalism as a market
economy doesn't help us much to understand that. In fact, he seems to have
thought that bureaucracy and planning were an antidote to capitalist market
economy.







If you ask me what is today's great transformation, I
would prefer to treat the last 200 years as a single event, that is, a period
in which the world population increased from one billion to seven billion, when
the proportion of people living in cities grew from under 3% to around half,
and where energy production increased on average 3% a year. The Great Transformation
is this leap of mankind from reliance on the land into living in cities. It has
been organized by a variety of institutions, including cities, capitalist
markets, nation-states, empires, regional federations, machine industry, telecommunications
networks, financial structures, and so on. I'm prepared to say that in the
twentieth century national capitalism was the dominant economic form, but by no
means all you need to know about if you want to make a better world.







I prefer to look at the economy as being organized by
a plural set of institutions, including various political forms. The Great Transformation
in Polanyi's sense was not really the same Great Transformation that Marx and
Engels observed in Victorian England—the idea that a new economic system was
growing up there that would transform the world. And it did! Polanyi and Marx
had different views (as well as some common ideas), but both missed what
actually happened, which is the kind of capitalism whose collapse is constitutes
the Great Transformation for us today. The last thirty years of financial
imperialism are similar to the three decades before the First World War. After
that phase collapsed, thirty years of world war and economic depression were
the result. I believe the same will happen to us! Maybe we can do something
about it, but only if our awareness is historically informed in a
contemporarily relevant way.











The distinction between
states and markets really underpins much of what we understand about the workings
of world economy and politics. Even when we just say "oh, that's not economic"
or "that's not rational", we invoke a separation. How can we deal with this
separation?







This state-market division comes back to the bourgeois
revolution, which was an attempt to win freedom from political interference for
private economic actors. I've been arguing that states and markets were always
in bed together right from the beginning thousands of years ago, and they still
are! The revolution of the mid 19th century involved a shift from
capitalists representing workers against the landed aristocracy to a new
alliance between them and the traditional enforcers to control the industrial
and criminal classes flocking into the cities. A series of linked revolutions
in all the main industrial countries during the 1860s and early 70s—from the
American civil war to the French Third Republic via the Meiji Restoration and
German unification—brought this alliance to power.







Modernity was thus a compromise between traditional
enforcers and industrial capitalists and this dualism is reflected in the
principal social form, the nation-state. This uneasy partnership has marked the
relationship between governments and corporations ever since. I think that we
are now witnessing a bid of the corporations for independence, for home rule,
if you like. Perhaps, having won control of the political process, they feel
than can go ahead to the next stage without relying on governments.  The whole discourse of 'corporate social responsibility'
implies that they could take on legal and administrative functions that had
been previously 'insourced' to states. It is part of a trend whereby the
corporations seek to make a world society in which they are the only citizens
and they no longer depend on national governments except for local police
functions. I think that it is a big deal—and this is happening under our noses!







Both politicians and economic theorists (OliverWilliamson got a Nobel prize for
developing Coase's theory of the form along these lines)
are proposing that we need to think again about what functions should be
internal to the firm and what should be outside. Perhaps it was a mistake to
outsource political control to states and war could be carried out by private
security firms. The ground for all of this was laid in the late 19th
century when the distinction in law between real and artificial persons was
collapsed for business enterprises so that the US Supreme Court can protect
corporate political spending in the name of preserving their human rights!
Corporations have greater wealth, power and longevity than individual citizens.
Until we can restore their legal separateness from the rest of humanity and
find the political means of restricting their inexorable rise, resistance will
be futile. There is a lot of intellectual and political work still to be done
and, as I have said, a lot of pain to come before more people confront the
reality of their situation.











What role do
technological innovations play in your understanding and promoting of shifts in
the way that we organize societies? Is it a passive thing or a driver of
change?







I wrote a book, the
Memory Bank: Money in an Unequal World
(read it here, with the introduction
here), which centered on a
very basic question: what would future generations consider is interesting
about us? In the late '90s, the dot com boom was the main game in town. It
seemed obvious that the rise of the internet was the most important thing and
that our responses to it would have significant consequences for future
generations.







When I started writing it, I was interested in the
democratic potential of the new media; but most of my friends saw them as a new
source of inequality – digital exclusion, dominance of the big players and so
on. I was accused of being optimistic, but I had absorbed from CLR James a
response to such claims. It is not a question of being optimistic or
pessimistic, but of identifying what the sides are in the struggle to define
society's trajectory. In this case the sides are bureaucracy and the people. Of
course the former wish to confine our lives within narrow limits that they
control in a process that culminates as totalitarianism. But the rest of us
want to increase the scope for self-expression in our daily lives; we want
democracy and the force of the peoples of world is growing, not least in Africa
which for so long has been excluded from the benefits of modern civilization.
Of course there are those who wish to control the potential of the internet
from the top; but everywhere people are making space for themselves in this
revolution. When I see how Africans have moved in the mobile phone phase of
this revolution, I am convinced that there is much to play for in this
struggle. What matters is to do your best for your side, not to predict which
side will win. Speaking personally, Web 2.0 has been an
unmitigated boon for me in networking and dissemination, although I am aware
that some think that corporate capital is killing off the internet. A lot depends
on your perspective. I grew up learning Latin and Greek grammar. The
developments of the last 2-3 decades seem like a miracle to me. I guess that
gives me some buoyancy if not optimism as such.







It's obvious enough to me that any democratic response
to the dilemmas we face must harness the potential of the new universal media.
That's the biggest challenge. But equally, it's not clear which side is going
to win. I'm not saying that our side, the democratic side, is going to beat the
bureaucratic side. I just know which side I'm on! And I'm going to do my best
for our side. Our side is the side that would harness the democratic potential
of the new media. In the decade or more since I wrote my book on money and the
internet, I have become more focused on the threat posed by the corporations
and more accepting of the role of governments. But that could change too. And I
am mindful of the role the positive role that some capitalists played in the
classical liberal revolutions of the United States, France and Italy.











Final Question. I would
like to ask you about the distinction between formal and informal economy which
you are famous for having coined. How did you arrive at the distinction? Does the
term, the dichotomy, still with have the same analytical value for you today?








Around 1970, there was a universal consensus that only states could organize economies for development. You were either a Marxist or a Keynesian, but there were no liberal economists with any influence at that time. In my first publication on the topic (Informal Income Opportunities and Urban Employment in Ghana, read it here, pdf)—which got picked up by academics and the International Labor Organization—I was reacting against that; the idea promoted by a highly formal economics and bureaucratic practice that the state as an idea as the only actor. In fact, people in Third World cities engaged in all kinds of economic activities, which just weren't recognized as such. So my impulse was really empiricist—to use my ethnographic observations to show that people were doing a lot more than they were supposed to be doing, as recorded in official statistics or discussed by politicians and economists.






Essentially, I made a distinction between those things
which were defined by formal regulation and those that lay outside it. I posed
the question how does it affect our understanding in the development process to
know more what people are doing outside the formal framework of the economy.
And remember, this came up in West Africa, which did not have as strong a colonial
tradition as in many other parts of Africa. African cities there were built and
provisioned by Africans. There were not enough white people there to build
these cities or to provide food and transport, housing, clothing and the rest
of it.







In my book on African agriculture, I went further and
argued that the cities were not the kind of engines of change that many people
imagined that they were, but were in fact an extension of rural civilizations
that had effectively not been displaced by colonialism, at least in that
region. Now if you ask me how useful I think it is today, what happened since
then of course is neoliberal globalization, for want of a better term, which of
course hinges on deregulation. So, as a result of neoliberal deregulation, vast
areas of the economy are no longer shaped by law, and these include many of the
activities of finance, including offshore banking, hedge funds, shadow banking,
tax havens, and so on. It also includes the criminal activities of the
corporations themselves. I've written a paper on my blog called "How the
informal economy took over the world" which argues that we are witnessing the
collapse of the post-war Keynesian consensus that sought to manage the economy in
the public interest through law and in other ways that have been dismantled; so,
it's a free-for-all. In some sense, the whole world is now an informal economy,
which means, of course, that the term is not as valuable analytically as it
once was. If it's everything, then we need some new words.







The mistake I made with other people who followed me was
to identify the informal economy with poor slum dwellers. I argued that even
for them, they were not only in the informal economy, which was not a separate
place, but that all of them combined the formal and informal in some way. But
what I didn't pay much attention to was the fact that the so-called formal
economy was also the commanding heights of the informal economy—that the
politicians and the civil servants were in fact the largest informal operators.
I realize that any economy must be informal to some degree, but it is also
impossible for an economy to be entirely informal. There always have to be
rules, even if they take a form that we don't acknowledge as being
bureaucratically normal like, for example, kinship or religion or criminal
gangs. So that's another reason why it seems to me that the distinction has
lost its power.







At the time, it was a valuable service to point to the
fact that many people were doing things that were escaping notice. But once
what they were doing had been noticed, then the usefulness of the distinction
really came into question. I suppose in retrospect that the idea of an informal
economy was a gesture towards realism, to respect what people really do in the
spirit of ethnography. I have taken that idea to another level recently in mywork on the human economy at the University of Pretoria in South Africa. Here, in addition to
privileging the actors' point of view and their everyday lives, we wish to
address the human predicament at more inclusive levels than the local or even
the national. Accordingly, our interdisciplinary research program (involving a
dozen postdocs from around the world, including Africa, and 8 African doctoral
students) seeks ways of extending our conceptual and empirical reach to take in
world society and humanity as a whole. This is easier said than done, of
course.







Keith
Hart is Extraordinary Visiting Professor in the Centre for the Advancement of
Scholarship and Co-Director of the Human Economy Program at the University of
Pretoria, South Africa. He is also centennial professor of Economic Anthropology at the LSE.











Related links










Faculty Profile at U-London


Personal webpage


Read Hart's Notes towards an Anthropology of the Internet (2004, Horizontes Antropológicos) here (pdf)


Read Hart's Marcel Mauss: In Pursuit of a Whole (2007, Comparative Studies in Society and History) here (pdf)


Read Hart's Between Democracy and the People: A Political History of Informality (2008 DIIS working paper) here (pdf)


Read Hart's Why the Eurocrisis Matters to Us All (Scapegoat Journal) here (pdf)









Print version of this Talk (pdf)