Beyond legal capitalism to the informal and criminal economy
Every human activity has a shadow-side, a negative and destructive aspect which is one we usually prefer to ignore. Since entrepreneurship is a natural form of social activity, what is the shadow-side? The answer is criminality, and immoral and unethical behaviour. As Rehn and Taalas (2004) argue, we cannot ignore the role of criminality in entrepre¬neurship. They propose that the study of entrepreneurship operates within an 'unconscious legalism' and that we should consider that entrepreneurship, which they define as the enactment of social networks, can operate outside the legal-market nexus. Historically, entrepreneurs have operated at the margins of, or outside, the law at certain times in most societies. To pretend otherwise is to opt for a sanitised and artificially whole-some narrative of entrepreneurial history. In the nineteenth century, British merchants traded in slaves and opium, activities which were legal at the time but which had known moral consequences. These trades are now illegal but human and narcotic trafficking continue to be major activities worldwide. The activities have not changed fundamentally, simply the legal frameworks. Conversely, entrepreneurship was illegal in Eastern bloc socialist societies, yet 'black market' enterprise flourished. When the socialist system collapsed, entrepreneurship was legalised. This strengthens the case for viewing enterprise as a fundamental aspect of human social behaviour, in which the relationship with socially imposed legal frameworks changes over time.
Entrepreneurship is not in itself a moral concept, being neither 'right' nor 'wrong', good nor bad. It is too simplistic to say that 'what is legal is entrepreneurial, and what is illegal is criminal and therefore not entrepreneurial', although this argument is politically more convenient than the alternative position: that entrepreneurial activity may rake place either within or outside the legal framework, and therefore there are entrepreneurial activ¬ities which will be illegal and hence criminal in some societies at certain times. Entrepreneurs often do not like legal frameworks, seeing them as restrictive, yet they are vital in creating conditions for trade and commerce. However, the essential point is that there are types of entrepreneurial activity of which society approves because they are morally acceptable, and there are other types of activity which are disapproved because they are ethically undesirable, or just plain wrong. This argument may be uncomfortable, because it forces us to accept that the slave and drug traders, together with other profit- opportunists operating outside the law, are entrepreneurs of a kind. The distinction we have to make is about the entrepreneur's moral responsibility for the choices which he or she makes, and that we have entrepreneurs who choose to behave ethically, in ways which society approves, or unethically, because society proscribes their activity. Therefore the important distinction is between ethical and unethical entrepreneurial behaviour.
In all countries there is a significant amount of economic activity taking place in what is termed the 'informal' or 'grey' economy. Not all of the business activities are illegal; there
are legitimate trades being practised such as car sales and repairs, building work and many other activities by 4get-rich-quick merchants', but the people performing them are not registered as businesses or self-employed, and the transactions take place outside the legal and fiscal systems. These are informal and technically illegal, so workers, customers and suppliers have no legal safeguards against fraud or defective goods or services. Beyond the informal sector is the criminal economy, where the activities themselves are illegal, including theft, smuggling, narcotic trading, violence and so on. One problem with this sector of the economy is that the informal and criminal do not simply run in parallel but converge and intermingle.
In societies which have poor legal enforcement, or where the legal system is oppressive from a business perspective, informal and criminal enterprise will flourish. The business environment in those countries will be unattractive for legal entrepreneurs and as a result the forma! economy will not grow. The situation in Zimbabwe in 2005, when the Mugabe government demolished the shanty towns where thousands of people operated informal businesses to survive in a failed economy, is an outstanding example. Where criminal or political organisations have established networks of illegal businesses, such as in Southern Italy and in parts of Northern Ireland, they tend to intimidate and place legitimate businesses at a disadvantage. The judgement we have to take is that, although people running these organisations are demonstrating entrepreneurial skills (amongst others), the informal and criminal enterprises do not help, but rather undermine, social and economic progress in societies which have sound legal frameworks for enterprise.
The challenge and opportunity for entrepreneurship researchers, policymakers and prac-titioners is how to reduce the informal and develop the formal enterprise sector. We need to understand better the similarities and distinctions between entrepreneurial and criminal behaviour and how people can progress from informal to formal activity. From a social perspective it might seem desirable to close down the criminal enterprise networks, but this is much easier said than dcme. However from an academic perspective it would be useful to gain insights into how they operate and the lessons which can be learned from them.