State Against the Invisible:
The case of Georgian Informal Economy

Abstract

Informal economic activity is one of the most challenging and controversial aspects of human behavior: it challenges personal morality and legitimate state authority, but at the same time is a mean of individuals' survival during the economic breakdown and political uncertainty.

The paper analyses the persistence of the Georgian informal economy during the transformation. The informal economic activity flourished in Georgia during the Soviet regime. It continued to be significant portion of GDP in early period of independence. But in the second half of 1990s in spite of political and macro-economic stabilization the progress in the building of market supporting institutions, the volume of the informal economy has not decreased.

Analyzing the possible reasons of the persistence, the paper argues that the structuralist, rational choice and legalist approaches lose explanatory power in the Georgian case. The main argument of the paper is that both the formal institutions and informal economy are affected by orthogonal factors and the change of the former cannot predict change of the later. The paper explain the persistence of informal economy by the stability of the system of accepted cultural values that go beyond the Soviet legacy.

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