Student Viewpoint

Informal/Illegal Markets and Democratic Governance in Latin America

Written by Carela Mendez, Government Major (C'19)            


Informal/Illegal Markets and Democratic Governance in Latin America


On March 21st, Professor John Bailey, Mr. Juan Carlos Garzon-Vergara, and Mr. Alvaro Santos gave a seminar on informal/illegal markets and democratic governance in Latin America. This talk focused on the informal and illegal market sectors in Mexico and Colombia. The research collaboration between a lawyer, economist, and policy expert made for very interesting dialogue since all parties came from different professional backgrounds and held different opinions.

Before talking about informal sectors it was necessary to talk about the state itself. Professor Bailey spoke about how the state is the one that defines what is legal or illegal while informal social authority figures define what is licit and illicit. It is within  this matrix that the different markets of Latin America emerge. The legal market is at the intersection between what is licit and legal, like selling fruits at a super market. The informal market comes at the intersection of what is licit but illegal, like selling fruits on a street corner without collecting taxes for the state. The illegal market is at the intersection of what is illicit and illegal like selling drugs.

Colombia and Mexico were prime cases for studies of informal markets because 40% and 30.2% of their respective GDPs comes from the informal economy.

With this framework in mind, the discussion dove deeper into the informal sector. Mr. Garzon-Vergara looked at possible solutions to manage the informal sector such as incorporating the informal sector into the formal sector or declaring informal activities illegal in order to condemn them. However, Mr. Santos was quick to mention that this led to other problems. For example, how should a government account for all the small-scale street vendors? Furthermore, Mr. Santos took into account that informal activities are not necessarily negative. For example, the lady that sells bananas on the side of the street is not hurting anyone and her sales might be her only way to make money. What advantages or disadvantages arise when governments declare such business illegal and are forced to mete out punishment?

The various questions that came up in regards to the gray areas of the informal sector were fascinating to listen to. It was particularly interesting to hear from students like Diana Marin, who is collaborating as a research assistant with the project. Ms. Marin expressed her concern with oil theft in Mexico. In Mexico, oil theft is a rampant issue. Third parties illegally steal oil from reserves and sell the oil to American companies that are almost always unaware that they are purchasing stolen oil. Ms. Marin expressed her concern about the distinction between legality and illegality in this case because the oil thieves are acting in the illegal sector but the companies who are purchasing the stolen oil are in a gray zone because they are technically purchasing stolen oil, which is illegal, but at the same time they are often unaware that their product was obtained via illegal means.

Questions like Ms. Marin’s made for a very interesting Q&A discussion following the panelists renarks. As they challenged one another with different questions, researchers and students alike encountered even more questions more along the way. There is definitely much more reserach to be done in this field!