State coercion and the fledgling enterprises in Sharaqpur (2014)

This study is based on a survey of 100 small scale enterprises based in Sharaqpur, a small town near Lahore. The study aims at understanding the dynamics of small scale entrepreneurs as they interact with with the government on their path of survival and growth. The study provides an inventory of workable recommendations requiring changes in the laws, regulations, and attitude that these industrious entrepreneurs face on daily basis.

It’s a wonder in itself that in modern age—when states purchase the latest information systems available, and hire the shrewdest statisticians out of the college to keep an eye on every single paisa transferring from one hand to another—how informal businesses manage to remain invisible before the state’s eye, keep working and growing? States continuously devise different regulations, and send their officials to control the phenomenon of informal economy. But like the many heads of hydra, the more the cut, the more heads emerge. The phenomenon needs to be studied.

The Peruvian economist Hernando De Soto studied this phenomenon and found that problem was not with the informal economy, the problem was with the state. The presence of very complex regulations, purposeless official procedures and corrupt officialdom not only pushed the informal entrepreneurs into informality but it closed the doors of lawful possession of property for them. De Soto, who took more pride in calling himself an activist instead of an economist, also conducted an experiment. When the regulations were softened, the procedures were simplified and property rights were easily available, most of the informal businesses got them formalized.