Institutional Transformation and Informality in Azerbaijan and Georgia

Abstract

The end of Soviet rule in the South Caucasus was followed by a decade of economic and political instability. Failed democratization and stalled transition to a market economy encouraged the continuity of informal socio-economic practices deeply rooted during the Soviet period. In the immediate post-communist period, people in the South Caucasus widely employed informal practices both as private safety nets in daily life and as long-term coping mechanisms, which, due to the weakness of state institutions, were often indispensable. The reliance on informal structures, rather than on formal institutions, in the 1990s was as widespread as in many other former Soviet regions. However, due to the economic growth and political transitions of the last decade in Azerbaijan and Georgia, the region’s socio-economic and socio-political landscapes have begun to change. Yet, little is known regarding the extent to which the institutional transformation and formalization are challenging the importance of the informal sector: inter-personal connections, reciprocal exchanges of favours, individual informal networks, informal entrepreneurship and other forms of informal relations in the former Soviet Union (fSU). With a primary focus on two case studies — Azerbaijan and Georgia — this chapter examines the relationship between informality and institution-building in the post-communist South Caucasus.