The panel of experts, moderated by Edward Lucas, a senior editor at The Economist, discussed the role the shadow economy can play in a country’s prosperity, and the best policies to promote the ‘right kind’ of shadow economic activity.

Jan Švejnar, founder and Chairman of CERGE-EI, argued that many countries, including rich ones such as Britain (where it represents 12% of the overall economy) rely on their shadow economy—whether in terms of unreported sales by businesses to over-the-counter derivatives.

Peter Sanfey, Deputy Director, Country Stategy and Policy at the EBRD, described how research shows that people working in the informal sector are poorer and less happy.

Tina Fordham, Chief Global Political Analyst at Citi Research, saw the shadow economy as the result of what she termed ‘vox populi risk’. When citizens and businesses do not trust the state or other social institutions they are more likely to operate outside of legal structures. In this respect Lucas raised the idea that the shadow economy may be a symptom of wider problems.

Andrei Kirilenko, Professor of the Practice of Finance of the MIT Sloan School of Management, pointed out that shadow financial activity is also generated by a lack of trust. The increasing popularity of services such as Bitcoin stem from the failure of public markets.

This distrust and dissatisfaction has helped Zopa, a world-leader in Peer-to-Peer finance flourish. Giles Andrews CEO of Zopa pointed out that his firm provides a way for small investors and businesses to bypass existing financial institutions.

Collectively, the panel felt that imaginative technological solutions, such as this, could provide a way to bring more shadow economic activity into the light.

Background Reading

Podcast—Edward Lucas in conversation with Jan Švejnar


About the Speakers

Giles Andrews is CEO of Zopa, the world’s first and Europe’s leading P2P lending business. Zopa has lent more than £750m and reached approx 2% market share in new personal loans in the UK. It has also been voted ’Most Trusted Personal Loan Provider’ in the Moneywise Customer Awards for the past 5 years in a row and won Moneyfacts “Best Personal Loan Provider” and “Best Customer Service” (in all of financial services) awards in 2014 and 2015. Andrews spent the first ten years of his career pursuing his passion for all things automotive. This included co-founding Caverdale in 1992, a start-up taken to a £250m revenue motor retailer and sold in 1997. After an MBA at INSEAD he ran his own consultancy business whose clients included Tesco and Tesco Personal Finance and which also provided start up advice and early stage funding for new businesses, until co-founding Zopa in 2004.

Tina Fordham is Managing Director and Chief Global Political Analyst at Citi, the first and only chief political analyst on Wall Street. With Citi since 2003, she advises leading institutional investors and corporates on the implications of macro political developments. Fordham serves on the International Advisory Board for the foreign policy think tank Carnegie Europe, and is a member of the World Economic Forum's Strategic Foresight Group and the Aspen Institute. She has been named in the “Top 19 Economists on Wall Street” and “Top 100 Most Influential Women in Finance”.

Peter Sanfey is Deputy Director for Country Strategy and Policy within the Office of the Chief Economist at the European Bank for Reconstruction and Development (EBRD) in London. He is responsible for the analysis of economic developments and reforms in south-eastern Europe, and he engages in research and publications on a range of topics covering the whole transition region. He is also a Senior Common Room member at St Antony’s College and an associate of SEESOX (South East European Studies at Oxford). Sanfey graduated from Trinity College Dublin in 1985 with a B.A. (first class honours) in Economics, and received his Ph.D. in Economics from Yale University in 1992. He has published widely in academic journals and is the co-author (with Christopher Cviić) of: In Search of the Balkan Recovery: the Political and Economic Re-emergence of South-Eastern Europe, published by C. Hurst & Co. publishers (UK) and Oxford University Press (US).

Jan Svejnar is the James T. Shotwell Professor of Global Political Economy and Director of the Center on Global Economic Governance at Columbia University. He focuses his research on (i) the effects of government policies on firms, labor and capital markets; (ii) corporate, national, and global governance and performance; and (iii) entrepreneurship. Svejnar is also a founder and Chairman of CERGE-EI in Prague (an American-style Ph.D. program in economics that educates economists for Central-East Europe and the Newly Independent States). He is a Fellow of the European Economic Association and Research Fellow of the Center for Economic Policy Research (London) and Institute for the Study of Labor (IZA) in Bonn. From 1992 to 1997, Svejnar served as the Founding Director of the Economics Institute of the Academy of Sciences of the Czech Republic. In 2008 he was one of two presidential candidates in the Czech Republic. He received his B.S. from Cornell University’s School of Industrial and Labor Relations and his M.A. and Ph.D. in Economics from Princeton University. He is the author and editor of a number of books and has published widely in academic, policy, and practitioner-oriented journals.

Andrei Kirilenko is the Professor of the Practice of Finance at the MIT Sloan School of Management. Prior to joining MIT, Kirilenko spent four years at the Commodity Futures Trading Commission (CFTC) where he served as chief economist between December 2010 and December 2012. In his capacity as Chief Economist, Kirilenko has been instrumental in building capacity on cost benefit considerations for the Commission's rules. He chaired two subcommittees of the CFTC Technology Advisory Committee: the Subcommittee on Data Standardisation and the Subcommittee on the Automated and High Frequency Trading. He also represented the CFTC at the Systemic Risk Committee and the Systemic Data Committee of the Financial Stability Oversight Council. In 2010, Kirilenko was the recipient of the CFTC Chairman's Award for Excellence (highest honour). Prior to joining the CFTC, Kirilenko spent twelve years at the International Monetary Fund working on global capital markets issues. His scholarly work has appeared in a number of peer refereed journals and received multiple best-paper awards. Kirilenko received his PhD in Economics from the University of Pennsylvania, where he specialized in Finance.

Edward Lucas is the Energy, Commodities and Natural Resources editor at The Economist. He also writes obituaries, book reviews and leaders. He has more than 30 years' experience dealing with the countries of central and eastern Europe, with postings which include Berlin for the BBC in 1988, stringing for The Economist in communist-era Czechoslovakia and later in the Baltic States, and being editorial director of the Economist Intelligence Unit in Vienna. In 1996 he became Berlin correspondent and in 1998 Moscow Bureau Chief. After returning to London in 2002 Lucas worked for the Britain section and then became the Central and East European correspondent. He also worked for the International section, becoming its editor in 2010. He is the author of Deception, a book about Russian espionage, published in March 2012. His first book was the The New Cold War published in February 2008.