Informal developers, patrons, and the state: Institutions and regulatory mechanisms in popular housing

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ABSTRACT

Black markets and shadow economies are coming into the bright light of research and policy making (not only) in the sector of popular housing. Now termed 'self-help housing', squatting in the cities of developing countries is increasingly seen as a solution much rather than a problem. Based on John Turner's seminal work, state regulation of the sector and public provision of housing in particular, are criticized as unrealistic, unacceptable to large parts of society, and highly counterproductive. In this neopopulist perspective (that has striking parallels to a neoliberal one), it is the informal sector that offers the main potential for fulfilling the shelter needs of rapidly growing urban populations. Its promotion is a centerpiece of 'enabling' or 'assisted self-help' strategies now promoted by many agencies headed by the World Bank (though in hardly any place translated into systematic policies). Apart from boosting supply, one objective of interventions is the upgrading and eventual legalization of illegal settlements. At the same time we observe a certain weariness: Would not the mainstreaming of informal enterprises make them lose their main competitive advantage, their not being subject to cumbersome rules and procedures imposed by state bureaucracies?

The paper puts some of the assumptions underlying self-help housing promotion under scrutiny by looking at the context of informal economic activities in general. It starts by analyzing developers' decision to operate outside the legal framework as based on a rational preference. That the costs of formality are prohibitive for all but a few privileged groups-and thus acceptable for rent-seekers rather than genuine entrepreneurs-is nowhere demonstrated more clearly than in the housing sector. According to our hypothesis, however, is not a clear-cut choice between a regulated and an irregular environment, but one between different sets of constraints. This is because various and modes of regulations-emphatically called a 'system of extralegal norms' by Hernando de Soto-exist in different segments of the informal sector which are not necessarily, and not for all types of enterprises, less complex and more appropriate than the state apparatus. Outside interventions are then unlikely to succeed if not accompanied by changes in the formal and/or informal regulatory framework.

Among the questions the paper seeks to answer are the following:

What are the rules of the game in various segments of the informal economy, and in illegal housing in particular?
Which agents (actors, institutions) are imposing and implementing these rules, and which instruments do they apply in order to do so?
How are formal and informal systems of regulation interlocked?
What are the specific chances and constraints of a certain regime in terms of capital accumulation, investment, growth, and equity?
How can policymakers intervene in a system that is principally closed to them?
Are there examples of successful adaptation of formal regulation in order to accommodate a larger share of economic activities?

ESF/N-AERUS: International workshop - Leuven and Brussels, Belgium, 23-26 May 2001

N-AERUS: Network-Association of European Researchers on Urbanisation in the South
http://www.naerus.net