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156 Fighting the Diseases of Poverty
structures, including poorly defined property rights, excessively
bureaucratic rules for business, and an absence of the rule of law in
many middle and low income countries mean that large sections of
the population are forced to seek employment in the informal
economy. The informal economy tends to be disjointed, which
implies that it would be difficult for potential insurance companies
to take advantage of economies of scale. At the same time, the diversity
and transience of such workers and their dependents means
that enrolment is difficult and costly, if not altogether impossible.
The International Labour Organisation estimates, for example,
that between 1990 and 2000, 85 per cent of all new jobs in Latin
America were created in the informal sector. In Zambia, only 10 per
cent of the workforce is employed in the formal sector. Accordingly,
in sub-Saharan Africa only around 25 per cent of the work force is
enrolled in health insurance schemes and most of those have been
civil servants or employees of large multinational companies (Shaw
& Ainsworth, 1995).
The size of the informal economy in many lower-income countries
is directly attributable to weak governance. As Peruvian economist
Hernando de Soto has convincingly argued, a lack of enforceable
property rights and contracts, coupled with excessive regulation and
bureaucracy, stifles the creation of legitimate employment opportunities
(de Soto, 2000). A recent World Bank study found that, on
average, it takes a business in a rich nation six procedures, 8 per cent
of income per capita, and 27 days to become legally recognized. In
poor or lower-middle-income economies, by contrast, it takes an
average of 11 procedures, 122 per cent of income per capita, and 59
days. These relatively high costs mean that to a large extent,
economic activity in such countries is informal. The same study
found that weak property rights and heavy business regulation have
an especially adverse effect on the ability of women and the poor to
join the formal sector, despite the fact that such regulation is often
designed to protect them (Wofford & Shanahan, 2004).
By presiding over such destructive governance, governments not
only diminish the ability of their citizens to create wealth, but also