Officially Despised Yet Tolerated: Open-air Markets and Entrepreneurship in Post-socialist Countries

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Officially Despised Yet Tolerated: Open-air Markets and Entrepreneurship in Post-socialist Countries
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   OFFICIALLY DESPISED YET TOLERATED: OPEN AIR MARKETS AND ENTREPRENEURSHIP IN POST-SOCIALIST COUNTRIES Ruta Aidis, Faculty of Economics and Econometrics, University of Amsterdam ABSTRACT This research is an explorative study of “entrepreneurial” activity at open-air markets (OAMs) in post-socialist countries. Based on a study of 65 traders at the largest OAM in the Baltics, we address the following questions: a) To what extent can these traders be considered entrepreneurs or proprietors? and b)What unique functions do OAMs fulfill in the post-socialist environment? According to our study, most traders do not have a registered business, operate using renewable trading license, are female, middle-aged, have no employees and started trading out of economic necessity. As a result, we consider these traders to be proprietors and not entrepreneurs. In addition, regardless of their classification, our analysis indicates that that OAMs and OAM traders fulfill a number of important social, political and economic roles in the transitional environment. 1. INTRODUCTION … open air markets are often seen as especially dangerous and immoral places. This is particularly the case in the former communist countries where such speculative activity was condemned for many years as "parasitic" and is still seen as immoral. (Sik & Wallace, 1999, p. 709)   This paper focuses on the economic and social roles played by open-air markets (OAMs) in post-socialist countries. OAMs exist on a continuum of trading activities from extremely informal to more formalized and regulated places of exchange. However all OAMs have informal characteristics such as 'low entrance  barriers' and the flexible participation of vendors. They also embody the concept of the market in its most raw and direct form namely face to face interactions (Sik & Wallace, 1999). Though OAMs are a global phenomenon, studies in Central and Eastern European countries highlight the unique quality of OAMs in post-socialist countries (Sik & Wallace, 1999; Czako & Sik, 1999). For example, OAMs in post-socialist countries tend to specialize in durable goods such as clothing, footwear, appliances, dishes, toys, lighting fixtures, videos, compact discs and most often display seasonal variation in the goods on sale. In post-socialist countries, OAMs have survived and in many cases thrived during the transition process. OAM traders experienced a dramatic shift from engaging in illegal and condemned ‘entrepreneurial’ activity to a legal and increasingly more open existence. OAM trading also experienced profound changes to the macro environment including the dismantling of the socialized retail sector, the disappearance of the Council for Mutual Economic Assistance 1  (COMECON), the opening of borders, the weakening of the state, the growth of consumer culture and the dramatically decreasing standard of living for many citizens (Sik & Wallace, 1999). OAMs occupy a unique position in the transitional environment by blurring the traditional division between formal/informal economic activities since in many cases, OAMs have been   institutionalized but are not yet formalized (ibid.). Though many OAM traders engage in international trade, these activities are largely unrecorded since in general, OAM traders do not register their precise trading activities. Issues related to morality and legitimatization are also brought to the forefront  by OAMs. Viewed as dangerous and immoral places, OAMs are often a source for inexpensive goods for a significant portion of the population (ibid.). In addition, OAMs tend to promote the mingling of diverse ethnic groups in terms of both local ethnic minorities and by attracting traders from abroad. OAM trade relationships have also been shown to illustrate the importance social capital and the investments in relationships, which can act as a supplement or substitute for lack of financial capital (Sik, 1994). The basic definition of 'transition' in the post-socialist context refers to the switch from a centrally planned economy to a market-based economic system. What this definition implies is that the 'market' economy did not exist in former socialist countries. But on a small scale, trade based on market principles (i.e. flexible prices  balancing supply and demand) did exist within the former socialist countries frequently in the form of OAMs. In most cases, OAMs were 'despised' by official ideology but tolerated by local officials. In this way, one could say that the continuing existence of OAMs fulfill an important function as a bridge between the capitalism of the pre-communist states, the informal economy of the communist period and the  present capitalist orientation (Sik & Wallace, 1999). After the collapse of the Soviet Union, it was widely believed that price and trade liberalization along with privatization would eliminate the distorted marginal markets tolerated under central planning 2  and would hence result in the disappearance of the informal sector of the economy (ibid.). Further, competitive forces and price liberalization would ensure the dominance of the new capitalist market system. More than ten years later, we see another reality has emerged, one characterized by a thriving informal sector. We also find that the traditional prescription of stabilization, liberalization and privatization advocated by the Bretton Woods Institutions has not  been nearly as effective as expected. "Entrepreneurship" in many cases is flourishing albeit in a marginal and small-scale manner. Scase (2000) questioned the extent to which small business owners in transition countries can be classified as entrepreneurs or as proprietors. According to Scase, the difference between the two classifications lies in the attitudes of the founder-owners, especially towards trading and capital accumulation (ibid.: 5). For Scase, an entrepreneur is mainly in pursuit of capital accumulation and long-term growth and will forgo personal consumption in order to invest in their business (2000, p.6). In contrast, a proprietor "owns" capital assets which for Scase can take the form of property, technology or even human skills, but the proprietor is not interested in utilizing these assets for the purposes of long-term capital accumulation (ibid.). Instead, the proprietor will usually consume any profits generated from their business activities in order to sustain a specific standard of living and lifestyle rather than re-invest in their business (ibid.). Scase identifies that "potential" proprietors are those business owners who like OAM traders "handle cash" within the context of face-to-face relations with customers (2000, p.10). The main difference between an entrepreneur and a proprietor is one of motivation. Though these categories seem rigidly separated, they are not, and Scase acknowledges that a  business owner may switch from a proprietor-orientation to an entrepreneurial   orientation. Authors who have studied OAM traders are generally less interested in the classification of OAM traders but focus on the importance of the market  penetration aspects of OAMs through small-scale entrepreneurship (Sik & Wallace, 1999). One can also question the relevance of applying definitions of entrepreneurial  behavior developed to describe the situation in developed western countries to transition countries. Smallbone & Welter (2001) highlight the distinctive character of entrepreneurship in transition countries as taking more extreme forms due to the generally hostile macro economic environment. This paper addresses the following research questions: Question 1 : To what extent can OAM traders be considered entrepreneurs or  proprietors? Question 2 : What unique functions do OAMs fulfill in the post-socialist environment? Data was collected on OAM traders in the largest OAM in the Baltics located in Gariunai, Lithuania. Beyond personal opinions and some anecdotal evidence, little is known about the traders at Gariunai. No previous research has been systematically conducted there. This is surprising given what seems to be the significance of Gariunai for regional economic development. Our study finds that according to Scase’s definition, the majority of traders at Gariunai would be considered proprietors and not entrepreneurs. Most traders are mainly concerned with consumption of their profits rather than with re-investing them towards business growth. However the hostile macro economic environment described by Smallbone & Welter (2001) and characterized by declining purchasing  power and increasing governmental regulations of private businesses may also play an important role in shaping the attitudes of OAM traders. Though we would agree that at this time, most OAM traders would not be classified as entrepreneurs. Further, OAMs seem to play an important role in facilitating market penetration and providing an economic means for household survival in post-socialist countries (Sik & Wallace, 1999). The positive and negative externalities of OAMs highlighted by our study have further implications for the government’s role in either stimulating or interfering with OAM trading activities. This paper is structured as follows. Section two presents a brief overview of other studies done on OAMs in post-socialist countries. Section three presents the method used to collect our data and a description of the OAM "Gariunai" in Lithuania. Section four presents a selection of descriptive statistics for OAM traders at Gariunai. In section five we present a summary of important issues raised as a result of our analysis. The paper ends with a discussion in section six. 2. STUDIES ON OAMS There exists an extensive literature on the role of informal markets in developing countries (Jagannathan, 1987; Hill, 1986). The specific study of OAMs in Central Europe was introduced by Polyani in 1957 (see Sik & Wallace, 1999, p. 698). According to Polyani’s definition, the OAM was a place to exchange simple goods   (ibid.). However, Polyani’s definition has been found to be too limited. Bohannan & Dalton (1962) expanded the definition to view OAMs as sites of exchange in which the actors and their social, cultural, political and economic characteristics influence the manifestation of the market principle (ibid.). To date the largest and most systematic study of OAMs in a post socialist country was conducted by Czako & Sik (1999). Through participant observation, data was gathered on four OAMs in Hungary. Czako & Sik find that there is a path-dependent relationship between OAMs and the commercial system in COMECON countries. As a result, OAMs have played an important function in responding to consumer demand not satisfied by existing formal venues. For example, currently OAMs supply the need for cheaper products than are available in normal retail outlets, especially clothes (1999, p. 733). Among their findings Czako & Sik observed that though most OAM traders were male, most of the consumers were women especially older women. Small-scale and anthropological studies of OAMs have also been carried out in Bulgaria (Konstantinov, 1994), in Poland (Iglicka & Sword, 1999) and in Uzbekistan (Kaiser, 1997). A study by Wallace et al. (1999) further investigates the role of social capital for small-scale traders in post-communist countries as a means to minimize the risks of market exchange. Wallace argues that the lack of formal regulation and  protection necessitates the development of various forms of informal social control through networks and alliances (ibid.). 3. METHOD Pilot survey  It's 4:30am in October. It is cold and dark but not silent. I'm actually being  jostled about as buyers race past me clutching carts and bags in order to make their purchases of shoes, gloves, winter coats, but also light fixtures, movie videos even wallpaper. This is Gariunai, the largest open-air market in the  Baltics. It operates all year round; rain, shine or subzero temperatures. Working conditions are harsh. Sales begin at 4 am and by 10:30 am many traders have already closed shop or are taking down their stalls and most of the charter buses with Latvian, Estonian or Lithuanian license plates are  gone. A pilot survey of Gariunai, Lithuania’s largest OAM was conducted from October to December 2000. Ten visits were made to Gariunai and a total of 65 semi-structured interviews were carried out on a random basis with traders at the market. The interviews occurred on different days of the week and at different times of day in order to obtain a more balanced sample. The semi-structured interviews were conducted in either Lithuanian or in Russian 3  and all the respondents were able to communicate freely in one of the two languages . Gariunai Under the Soviet system, “private” trading was limited to basic goods such as handmade clothing and food products (berries, mushrooms, honey, homemade jam, etc.) and was permitted in designated market areas. These market areas were usually located in the center of cities (such as Vilnius) but the number of buyers and sellers   outgrew market areas within city limits and so in the mid 1980’s local officials created a new market in an area called "Gariunai" located about 10 km outside of Vilnius proper. Gariunai has been in existence for over 15 years. Gariunai has gone through many changes. As with many informal markets, most individuals associate a level of criminality with Gariunai. This association is reasonably substantiated given Gariunai’s history. In the early 1990's during the initial "transition" chaos in Lithuania, Gariunai exploded into a massive market selling a wide range of legal and illegal goods. In those days, one could come to Gariunai to  buy a new winter coat, a used western-made car or an automatic pistol. Racketeering was prevalent as were incredible profits. According to one trader, after a day of good trading, you could buy yourself a used car, and in a week, you had earned enough money to buy a house. Initially, Gariunai was simply a vast expanse of land on which stalls were erected, wares put out and packed up again everyday. Following Lithuania's independence (circa 1991), the further development and administration of Gariunai changed. Currently Gariunai is made up of four distinct areas: the new market, the old market, the Belarussian market, and the fringe markets. There is also a massive used car market located on the other side of the highway. The administration of Gariunai is divided between two private enterprises and the municipality. In recent years, the enterprise administering the new market area of Gariunai has built cement garage-like stalls to house some of the traders. Restroom facilities and a rather large café-restaurant have also been built on the outskirts of the new market territory 4 . In order to trade at Gariunai (in the old and new markets), traders are expected to possess a trading license 5  and to pay a daily market fee. According to Lithuanian law, a license holder pays a flat fee and is allowed to engage in trading activities. Traders are currently expected to keep a record of the goods they sell but they do not have to officially declare these sales or pay tax on them. As a result, all the goods that are sold with a license are not officially recorded. Those traders outside the  boundaries of the designated old and new markets are sometimes expected to pay a daily market fee but otherwise are unregulated. Gariunai is open six days a week (closed on Mondays) and trading occurs from 4am to 1pm. The main trading days are Tuesday, Thursday and Saturday. On Tuesday and Thursday most "bulk" trades are conducted early in the morning whereas on Saturday most buyers are individual buyers from Lithuania. The number of traders is constantly shifting at Gariunai and varies due to the day of the week and seasonal influences. There are no official statistics regarding the number of traders at Gariunai 6 . A rough count of traders on a busy day (Tuesday, Thursday and Saturday) is approximately 4,000 stalls. On the less busy days (Wednesday, Friday and Sunday) there are approximately 1,000 - 2,000 stalls. Many traders work in teams of two individuals (often husband-wife teams) so on a busy day we could expect approximately 8,000 traders and on a slow day 2,000 - 4,000 traders to be working at the market.
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