Return to the Overcoming Consumerism Index

This article originally appeared in

New Scientist Magazine

It is used here for purposes of review - we like this magazine and encourage you to subscribe if you agree.

How the other half lives

Most of the world's population live independently of the formal economy. Recognising this, says Teodor Shanin, is the key to removing poverty and inequality. He invented "peasantology" - the study of how people survive in the "informal economy". He tells Fred Pearce why Western economists are failing the poor

 Teodor Shanin is a sociologist. He was born in Vilnius - "that much I know. But which country? That is harder. My father was born when Vilnius was in Russia, my mother when it was in Germany and I was born when it was in Poland. Now it is the capital of Lithuania." He studied sociology in Jerusalem, then at Birmingham University, before starting on his life's work: the Russian peasantry. He is a professor at the University of Manchester and rector of the Moscow School of Social and Economic Sciences. He was made an OBE in the Queen's Golden Jubilee birthday honours list


What is the informal economy?

The concept emerged in Africa 25 years ago. Researchers began to notice that there was no economic explanation for how the majority of the population survived. They didn't own land. They didn't seem to have any assets. According to conventional economics they should have died of hunger long ago, but they survived. To understand this, researchers looked at how these people actually lived, rather than at economic models.

They found that their way of life was completely the opposite of how a human being in an industrial society survives. They didn't have a job, pension, steady place to work or regular flow of income. Families held a range of occupations from farming and selling in the market to doing odd jobs or handicrafts. Their aim was survival rather than the maximisation of profit. Rather than earn wages, labour was used within family enterprises, or shared out among the village. Researchers discovered the same way of life in Latin America, in South Asia - even in Italy.


Is this a global phenomenon?

Yes. I remember going to Italy in the 1980s, when Italy and Britain both had very high rates of unemployment. But while I saw the unemployed everywhere in northern cities in England, in Italy I could not find them. Everyone was employed doing something, in hundreds of very informal ways. Much of it I don't suppose the taxman knew about. The informal economy is global. In some places it becomes the black economy, and merges into criminality. But often it is perfectly legal; just people working with family and friends to get by.

The conventional view is that every country operates somewhere on a continuum between the state-run economy and the pure capitalist economy; between left and right. Countries can move along this line, of course: if capitalism isn't working, the state can intervene and vice versa. After the fall of communism, eastern Europe inevitably tried to embrace capitalism. But the truth is that most of mankind lives outside this model. So we find in the former Soviet economies that while officials are trying to privatise the economy, most people are living in the informal economy that is neither communist nor capitalist.

You've done most of your research in Russia. What did you find?

That Russia is basically a developing country. That the peasants survived not through socialism, but through the informal economy. We explored this by winning the confidence of the peasants. I don't believe in doing research by going to a village, filling in a questionnaire and driving away. They always laugh as you leave because of all the lies they've told. My researchers lived in their villages for eight months. They were under orders not to do anything for the first two months, just to be recognised as human beings. I told them to bring water from the well for an old woman, to gossip in the village about the price of bread. That's all.

As they began to trust us, we looked at the real economics and politics of the villages, not what they said in Moscow or what the leaders in the villages said. We learned that about 50 per cent of their economic activity was unofficial. In the beginning they feared we might use the information in a way that would prejudice them. In the end they told us the truth.

How did the informal economy work in Russia?

In Soviet times, most peasants worked in the collective or state farm. They learned to use the collective to supply their informal economy, which revolved around a network of family and neighbours. We discovered they lived mostly from produce grown on their own small plots of land. They did other things to help them get by. One neighbour might steal a vehicle loaded with feed from the field of the collective and bring it to his private yard. Another could repair cars. Another would swap such services for meat from his livestock.


How did they take to capitalism after the fall of communism?

Less than you would think. Abolishing the collectives looked like the obvious thing to do in 1990. The peasants hated them, or so it seemed. Foreign advisers said private farms would be more efficient. But the more the government pushed in this direction, the more the peasants objected. They resisted it as much as they did the original collectivisation, because by now collectivisation formed part of their economy. Today, many of these ex-collectives and state farms survive in a kind of symbiotic relationship with private farms. The majority of people are worse off. But there are no signs of mass hunger and the services by and large have not collapsed.

Considering the chaos of the formal economy, this is remarkable. Teachers still go to teach and scientists go to their laboratories even though they may not have been paid for six months. Under normal economic rules, there is no explanation for this. Why would they go? The answer is that their "jobs" help maintain social and family networks that allow them to survive outside the collapsed formal economy. They might grow vegetables in the institute gardens, use laboratory equipment or run their own small businesses, run taxi services with company cars or just trade in skills and goods among their fellow workers. Sociologists can understand this, economists cannot.


This sounds more like the Third World than an industrial economy.

Well as I said, Russia to me is a developing country, with a large informal economy.


Intellectually this is interesting, but does it matter practically?

Yes. It explains why much economic planning in Eastern Europe does not work. And if you want to help the poorest people in the world you have to understand how they live. Sometimes the news is better than we think. In 1993, the formal economy in Russia was worsening. I remember when an American professor came to visit me in Moscow to ask about Russian hunger. I told him my students were out in the villages and reported hardship, but no signs of hunger. He said he didn't believe me. He had seen the official farm production statistics. He left very displeased. Soon, because of concern in the West, the US and Germany sent trainloads of food parcels. Of course, the Russian Mafia took them and sold them. None got to the countryside. But there was no hunger because most food was being produced in the informal domain.


What does the informal economy tells us about how to help people in this kind of crisis?

Don't give them food, whatever the official statistics say, if it is available on the informal market - the black market, if you like. You might just end up undermining the local markets. They might really need help in improving transport infrastructure or food processing technology.


There was another crisis in 1998 when the rouble collapsed. How did the peasants do then?

Even better. That crisis improved the situation in the villages very considerably. The majority of Russian economists believed what they had been told by the West, that the only way to survive in the post-communist world was to take loans from the world community. That was the policy of the government. So when Western companies left, deciding they could never make any money, Russia feared the worst. Within a year most of the offices in Moscow belonging to Western companies had closed. But as food imports went down, the shops filled with Russian food. Russian farms filled the gap. Often their goods turned out to be much better. So the crisis improved Russian agriculture.

Step by step, it has become clear that the crisis was good for Russia, urban as well as rural. The economic conditions have been improving since 1998. This is not accidental. Russia has begun to regain control of its own economy. The main danger to the economics and livelihoods of developing countries, including the former Soviet Union, is dependency. You have to control your frontiers before you can begin to control your own economies. It is a very important lesson - and the complete opposite of what the IMF or George Bush would tell you.


Would it be going too far to say that informal economics reflects the dominant way of living on the planet?

The modern formal economy needs only about a quarter of the global workforce. The other three-quarters are engaged in survival through the informal economy. It is a necessity for polarised, unjust societies. It happens in urban as well as rural areas, especially squatter settlements. The core of the informal economy is not peasant farming, but family and neighbourhood relationships of mutual support. So while the informal economy is seen - if it is seen at all - as the political economy of the margins, when you put it all together you can see it is not marginal at all.


As capitalism becomes more global, is the informal economy declining - or will the peasants inherit the Earth?

I think it is zigzagging. It depends on conditions. Industrial economies are much more imposing. But this imposition has its limits. In Russia we have seen the collapse of the state without the rise of a fully functioning capitalist model. In this vacuum the informal economy takes over. Look at what has happened in Argentina, where the banks won't give people their money and they are moving out of the cash economy and engaging in swapping and barter. Even in England, you find people in the villages who have got fed up with the rat race and have started to farm their gardens and take part-time jobs. Not everyone wants to live in the formal economy. The informal sector can make you more a master of your destiny.


You are often called the father of peasantology. How did it happen?

My family is Jewish. I was part of the war generation. I was in prison when I was 10. At 17, after the war, I went to Palestine to fight in the Israeli army. After the creation of the state of Israel, I went into social work. At the same time I studied sociology in Jerusalem. Then I went to Britain to do a PhD at Birmingham University. I wanted to study the role of the intelligentsia in the Russian revolution, but my supervisors said I wouldn't be objective because my father had been a student at the time of the revolution. They said I should study Russian peasants instead. It was an open field. I realised that we did not understand peasant societies at all. So I began to work on this and became one of three founders of what became peasantology.


Hardly a mainstream discipline...

One of my teachers said I was a bright student with an unfortunate tendency to choose esoteric topics. But I was researching more than half of mankind. And it so happened that I hit the right moment because of the Vietnam War. Suddenly, there was a flood of interest. I became a hero among academics opposed to the Vietnam war. I was one of the few people able to explain why the Vietnamese peasants didn't want to be liberated by the Americans.


The Soviets must have liked that. How did you got on with them?

Not well. I started to go to Russia during the 1970s, on exchanges. But I wouldn't let them limit whom I met. So they took away my visa. There was a scandal and the British stopped the exchanges. After three years, the Russian scientists got fed up with not being able to come to the West, and they came crawling. I got my visa back. Then came perestroika. I began to link up with Russian sociologists, bringing them to Britain to study, and working there. In 1990 I began my research in rural Russia.


So are we all Third-Worlders now?

It is a very important element of what is going on. Western scholarship used to impose itself on the developing world. Actually we can learn from them as much as they can learn from us.

From The New Scientist Magazine

Return to the Overcoming Consumerism Index

See also The Alternate Economy