THE INFORMAL ECONOMY - A CASE-STUDY IN UNRESTRAINED COMPETITION

The New Labour government in Britain ir the first post-deregulation re gime in Europe and the first to attempt to re-regulate the labour mark et. In particular, its welfare-to-work programme and New Deal for Lone Parents are aimed at shifting activities from the informal to the for mal economy, and at enlarging labour market participation. Ils commitm ent to social justice and inclusion is closely linked to increased emp loyment opportunities and a responsibility for contributing to nationa l prosperity. The new programmes must also reconcile these aims with t he retention of the flexibility that it sees as giving Britain a compe titive edge over other European Economies. In order to combine efficie ncy and equity, increased participation must not involve excessive tra nsaction and enforcement costs. The problem is that those at present e ngaged in the informal economy (and especially in undeclared cash work while claiming) do not have strong incentives to cooperate with the n ew schemes. This paper uses the example of the informal relations of t axi-driving in a small town to illustrate the paradoxes of this situat ion. It is a case study in the rational strategies of individual actor s, which collectively frustrate each other; and in the difficulties of starting collective action for mutual restraint of competition. The N ew Labour government must solve many such problems if its policies are to succeed.