Bending the bars of the iron cage: Bureaucratization and informalization in capitalism and socialism

Despite some important similarities, capitalism's informal economy and socialism's second economy are not functional equivalents or structural counterparts. An informal economy is the product of efforts to circumvent accountability to the explicit rationalizations of regulatory bureaucratization. It operates according to principles disparate from those of the rules of internal labor markets but congruent with the market principles that coordinate the formal economy. In the centrally planned economies of state socialism where informalization responds to the contradictions of redistributive bureaucratization, the embryonic market relations of the second economy are incongruent with the bureaucratic principles that coordinate the formal economy, and in fact, stimulate the institutionalization of transactive market relations and the expansion of property rights inside the socialist enterprise. As a sphere of activity relatively autonomous from the state, the second economy is a source of fundamental change remaking the economic institutions of socialism.