Abstract
We argue in this note that the principles of validity need fresh understanding to explain the elements of private ordering exhibited in the vast swathes of informal markets around the world. Informal markets, by definition, lie outside formal legal systems and yet display a tenacious stability in their norms. We show that these norms are valid because they are driven by reputation rather than any higher order of law. In doing so, reputation drives efficacy into validity. By remolding Kelsen’s ideas on validity into Hart’s internal point of view, we show how reputation drives efficacy into validity. We illustrate this idea through a case study on a centuries-old footwear cluster in Agra (India).
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Notes
- 1.
A notable exception is of course Lon Fuller. See Klink & Lembcke in this volume.
- 2.
According to recent ILO estimates, the informal economy provides employment to 71% of nonagricultural workers in sub-Saharan Africa, 71% in Asia, 51% in Latin America and 47% in the Middle East and North Africa.
- 3.
Idiosyncratic knowledge is similar to Polanyi’s tacit knowledge (Polanyi 1966). It denotes specific knowledge that cannot be easily transferred from one individual to another nor can be aggregated for generalization (See also, Williamson 1975, 1979). If idiosyncratic knowledge is in play, the underlying governance structures and contractual arrangements become highly transaction-specific and are unique. The low degree of formalization of these arrangements means that third parties (for example courts) cannot assess them and hence cannot enforce them. As a consequence the trust relation between the parties involved becomes central to running the transaction successfully. Thereby the routines and practices for maintaining the trust relation also become part of the shared idiosyncratic knowledge.
- 4.
Until independence, the business was dominated by Muslims and Jatavs (a lower caste). But most of the affluent Muslims left for Pakistan during the partition-induced migration, and Agra’s shoe industry began deteriorating with poor Jatavs in their unorganized cottage units. When the Punjabis arrived in Agra, they noticed the skills of the Jatavs and poor Muslim shoemakers. They also noticed that: (a) there was a lack of market connectivity, and shoemakers had a tough time finding customers since they could not travel far; (b) the shoemakers themselves were shoe sellers, and selling came at the opportunity cost of making; and (c) shoemaking was done in a very informal and unorganized manner. Further, working with leather was not a taboo within the Punjabi community as it was within traditional Hindu upper castes. In addition, the migrant community was badly in need of a sustainable income, and the potential of footwear trading in Agra caught their attention.
- 5.
See Homans (1950, p. 295).
- 6.
See also, Westerman’s chapter in this volume for a larger exposition on validity as reputation.
References
Hart, H.L.A. 1994. The Concept of Law. (Second Edition, with a Postscript edited by Penelope A. Bulloch and Joseph Raz). Oxford: Oxford University Press.
Homans, G.C. 1950. The Human Group. New York: Harcourt, Brace and World Inc.
Jellinek, G. 1905. Algemeine Staatslehre. 2nd ed. Berlin: Verlag von O. Häring. https://archive.org/stream/allgemeinestaat00jellgoog#page/n366/mode/2up/search/normative+kraft+des+faktische.
Kelsen, H. 1970. Pure Theory of Law. Berkeley: University of California Press.
Polanyi, M. 1966. The Tacit Dimension. Chicago: University of Chicago Press.
Williamson, O.E. 1975. Markets and Hierarchies, Analysis and Antitrust Implications: A Study on the Economics of Internal Organization. New York: Free Press.
———. 1979. Transaction-Cost Economics: The Governance of Contractual Relations. Journal of Law and Economics 22 (2): 233.
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Goyal, Y., Westerman, P. (2018). A Short Note on the Validity of Rules Guiding Informal Markets. In: Westerman, P., Hage, J., Kirste, S., Mackor, A. (eds) Legal Validity and Soft Law. Law and Philosophy Library, vol 122. Springer, Cham. https://doi.org/10.1007/978-3-319-77522-7_9
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