Elena Panaritis caught Francis Fukuyama in Puebla, Mexico, at a festival of ideas, a day after he had laid out the crises stacked on the world’s agenda: democracy under strain, anxiety about AI, inflation eating into growth, climate divisions splitting societies. The same list that had dominated Davos six weeks earlier.
Her question was where informality fits into all of it.
His answer reframes the entire subject. Informality is not a symptom of poverty. It is a symptom of institutional distrust — and distrust is the one thing every country on that crisis list has in common.
Property rights are a trust technology
Fukuyama starts with the definition:
“Informality really has to do with the lack of formal institutions, property rights, and a system for adjudicating disputes involving property. You need institutions which are trusted rules that people agree to use in order to settle disputes and prove ownership.”
The operative word is trusted. A land registry is not a filing cabinet; it is a shared agreement that the paper inside it means something. And that agreement is corroding:
“There’s been a decline in trust in institutions across the board — government, political parties, scientists, labor unions, corporations. All of these institutions that structure society are losing the confidence of people.”
Then the consequence, delivered almost casually, which is the most unsettling line in the episode. We have long taken for granted that once you hold a piece of paper showing you own a piece of land, that is settled.
“That may not be true any longer.”
Courts and cadasters are not immune to the collapse in institutional confidence. They are downstream of it.
Rich countries are not exempt
Panaritis presses the point she has spent a career documenting: informality is transcendent. It shows up in very poor countries and very rich ones. In Latin America and Africa, prevalently — but also, prevalently, inside the European Union.
Her explanation is not corruption but sediment. Layer upon layer of rules, regulations, and administrative requirements accumulate until an individual can no longer find a predictable procedure for the simplest question: what do I need to do to prove who I am?
She offers a case she deliberately keeps anonymous. A woman in an EU country, educated, holding an ID and a passport, with papers that were all formal and all properly registered. She spent eleven years trying to prove to the system that she was in fact formal.
Those eleven years had a price beyond frustration. For that entire period, she was out of the market.
Why it is technically illegal and not remotely criminal
The sharpest exchange in the episode is a definitional one, and it clears up the confusion that dogs this subject.
People persistently file informality alongside poverty, illegality, and tax evasion. Tax evasion is a crime — an intentional one. Informality is something else. Fukuyama draws the line precisely:
“Informality is technically illegal, but it’s driven by social forces other than an intention to commit a crime.”
Panaritis extends it: you can be informal without being illegal, simply because you cannot prove your identity. You may hold a license — but the wrong one. And the discretion over which license gets issued, and how, may itself be the irregular part.
Her example is Mohamed Bouazizi, the Tunisian street vendor whose self-immolation triggered the Arab Spring. He was not a criminal. He was a man whose papers did not match the counter he was standing at.
What it actually takes to fix
Asked what a country would need, Fukuyama gives an unglamorous list — all of it state capacity:
- Institutions able to register property, and to keep those registers updated
- A court system capable of adjudicating disputes over property
- Courts that are fair, and reasonably quick
He lingers on speed, because slowness is its own form of denial. There are many countries where you effectively cannot litigate, because a decision takes six years. Panaritis interjects: “Or eleven.”
And then the condition that sits underneath all three: even with a functioning state, if people do not trust it, they will not obey its commands. That, he says, is now a problem in an increasing number of countries.
Institutional reform is a political problem, not a technical one
Panaritis asks the practical question. If a government invited them to a roundtable and said we know where we want to go, how do we get there — what is the answer?
Fukuyama refuses the technocratic framing:
“All institutional reforms are grounded in politics. Politics is really about power. You don’t create an institution and have it work properly unless it has power behind it.”
For property rights, that means more than courts. It means enforcement. He tells the story that makes it vivid: in Nigeria, a middle-class family leaving their house must post a sign reading “This house is not for sale” — because in their absence, someone can turn up, claim the property, and sell it out from under them.
That is not a legal gap. The law is clear. It is an enforcement gap, and a government too weak to close it produces exactly the swindles and fraud you would predict.
Panaritis, drawing on her own World Bank years, names the professional failure this creates. There is a point where policy advice simply stops — either because advisers judge it imprudent to keep giving, or because they no longer believe it will produce an outcome. The development paradigm defaults to what is easier to talk about: macroeconomic adjustment, inflation control. Difficult subjects, but ones with a manageable cast — a central bank, a finance ministry, a treasury.
Institutional reform has too many players who all must align before anything moves. So it gets left alone.
Nobody sees it, which is the core problem
Would popular demand help? Fukuyama’s answer is that political change never runs purely bottom-up or top-down. You need both: leadership that can assemble a coalition around a clear goal, and grassroots support, civil society, and other actors pushing behind it.
Panaritis reaches for the closest analogy — climate change. Still unsuccessful, she concedes, but it did require enormous bottom-up awareness before anything moved at all.
Fukuyama agrees the awareness campaign is the right instinct, and explains why informality specifically needs one:
“Most people don’t recognize what it is. They don’t see it, and they don’t understand how detrimental it could be.”
“It’s invisible,” Panaritis says.
“Right.”
That invisibility is not incidental. It is the reason 5.8 billion people can live inside a problem that has no name in mainstream policy debate — and why the first task is not reform but recognition.
Asked whether Reality Check analysis — the methodology that traces every historical layer of rules that has bottlenecked a country, applied in Peru with considerable success — could be part of the answer, Fukuyama is direct: it is a useful methodology for establishing the extent of informality and putting people on the path to doing something about it.
Takeaways
- Informality is a trust failure before it is a legal one. Registries and courts only work if people believe in them.
- Legal ownership is not the same as secure ownership. A title deed is a claim about institutions, not about paper.
- Informal is not criminal. It is driven by social forces, not by intent to break the law — which is why enforcement-first responses miss.
- Slow courts are denied courts. A six-year adjudication is a right that does not functionally exist.
- There is no purely technical fix. Institutional reform requires power behind it, meaning leadership above and pressure below.
- Recognition comes first. A problem this large stays unsolved largely because most people cannot see it.
Reality Check with Elena challenges mainstream narratives and reveals the often inconvenient reality on the ground. Watch Episode 2.
