Introduction: Approaches To The Informal Economy

Introduction: Approaches To The Informal Economy Tamar Diana Wilson Department of Anthropology University of Missouri, St. Louis Introduction Scholars who study the origin, dynamics, and persistence of the informal economy divide theoretical approaches to that economy in a number of ways. Most distinguish only three approaches (e.g, Bhowmik 2010a; Chen et al. 2006; Perry and Maloney 2007; and others). These include the dualist, the structuralist (sometimes known as the neo-Marxist approach) and the legalist (sometimes known as the neoliberal approach) (see, e.g. Wilson, 2005). The dualist approach is associated with the International Labour Organization (ILO) and its allied Regional Employment Program in Latin America and the Caribbean (PREALC, Programa Regional para Empleo en América Latina y El Caribe). Early on researchers in these organizations envisioned an informal sector autonomous from the modern capitalist sector. It was held to have come into existence because of lack of adequate economic development and represented a safety net 205 ISSN 0894-6019, © 2011 The Institute, Inc. 206 URBAN ANTHROPOLOGY VOL. 40(3-4), 2011 for low-skilled rural-to-urban migrants seeking to earn a livelihood any way they could. Victor E. Tokman is one of the main proponents of this approach as concerns Latin America. The structuralists, on the other hand, stress the linkages between the formal and informal economies and underscore that the latter is subsumed and exploited by the former. They tend to focus on informal wage workers whose employers avoid paying or following legislated labor laws. These wage workers are often subcontracted or otherwise hired informally by formal enterprises. Alejandro Portes is one of the main proponents of this approach. The neo-Marxists/structuralists who look at the informally self-employed stress their linkages with the formal economy. Thus Bromley (1978) points out that many of the self-employed in petty commerce are commission sellers or dependent workers who have linkages with formalized large-, medium- or small-sized businesses or even multinational firms whose products they vend. They thus form part of a “disguised proletariat.” The legalist approach is most closely associated with Hernando de Soto and his associates in the Peruvian Institute for Liberty and Democracy (ILD, Instituto Libertad y Democracía.) They see the informal economy as a hotbed of emerging entrepreneurs, constrained only by unnecessary, slanted, and superfluous legislation. They tend to focus on the informally and semi-informally self-employed. Although they do not use the term “counter-hegemonic,” their argument that those in the informal economy are rebelling against the bureaucratic legislation imposed by a mercantilist state that favors elites, suggests that counter-hegemony is a feature of the informal economy. Although a surplus labor force migrating from rural to urban areas was the original focus of studies of the informal economy (and remains an important datum), the legal and political aspects of this economy soon came under investigation. Anthropological studies, concerned primarily with the Wilson: INTRODUCTION 207 self-employed, investigated its relationship to the state (e.g., Brumfiel 1994; Clark 1988). Both neoliberals and neo-Marxists agreed that it originated not only in hyperurbanization but in the avoidance by employers (or the self-employed) of burdensome tax and labor legislation (e.g., Castells and Portes 1989; Cross 2000; De Soto 1989; Portes 1994; Schneider and Enste 2000). For example, Castells and Portes (1989: 12) maintain that the informal economy is “a process of income-generation characterized by one central feature: it is unregulated by the institutions of society, in a legal and social environment in which similar activities are regulated” (emphasis in the original). Portes (1984: 115-116) notes that comprehensive, and often imported, labor legislation adopted in developing countries such as Peru, Colombia, and Mexico, and accompanied by a large surplus labor force, leads companies to avoid labor costs and thus earn higher profits. Portes (1994: 125) proposes four categories of minimum labor standards: basic rights, civic rights, survival rights, and security rights. Basic rights include proscriptions on child labor, involuntary servitude, and physical coercion: these are underwritten by global consensus. Civic rights include the rights to free association, collective representation, and free expression of grievances: these have been endorsed by democratic nations. Security rights include rights against arbitrary dismissal and rights to retirement compensation and survivor’s compensation. Survival rights include rights to a living wage, to accident compensation, and to a limited work-week. Portes argues that basic and civil rights should be incorporated into labor legislation worldwide, but that survival and security rights “are best left to bargaining between workers, employers, and governments” since they depend on “local conditions” (Portes 1994: 124). The assumption is that if the whole package of rights is legislated, there will be an impetus to informalization of the workforce. 208 URBAN ANTHROPOLOGY VOL. 40(3-4), 2011 De Soto (1989: 208-210), on the other hand, associates the informal economy with the rise of a mercantilist state, under which authoritarian politics favoring an elite take precedence over market forces. Bureaucratic politics leading to restrictive legislation and the necessity to have links with persons of influence in order to enter formality dampens expansion and diversification of enterprises, with the result that formal firms cannot employ the rapidly urbanizing rural population (De Soto 1989: 213). As a result those who have recently migrated to the cities find employment in the informal economy. Both neoliberal De Soto and neo-Marxist Portes find the “problems” of the informal economy in the legislative policies of the state. For Portes the basic problem is imported, comprehensive labor legislation not adapted to the needs of the domestic economy; for De Soto it is due to distortions in state legislation that favor elite groups. Both find “surplus labor” as a result of rural-urban migration to be one of the root causes of the expansion of the informal economy, though Portes attributes this to dynamics of capitalist development. Both identify its continuance with the existence of bad (De Soto) or superfluous (Portes) laws. Portes focuses on the situation of informalized labor working for a salary, De Soto on the situation of independent entrepreneurs. Cross (1999: 580, cited in Cross 2000: 36-37) defines informal economic activity as “’the production and exchange of legal goods and services that involves the lack of appropriate business permits, violation of zoning codes, failure to report tax liability, non-compliance with labor regulations governing contracts and work conditions and/or lack of legal guarantees in relations with suppliers and clients.’” Cross (2000: 37, 44) retreats from this strict definition, however, by arguing that an enterprise (or individual) may comply with some regulations (such as acquiring a permit), but not with others (such as paying taxes): thus there is a grey area of “semi-informality” (see also Maldonado 1995: 726). Notably, there are differences Wilson: INTRODUCTION 209 between scholars concerning whether the illegal economy, such as drug-dealing, prostitution, or pilfering from the government or businesses for resale, is a category separate from the informal economy. Cross (2000: 31) points out that this is another grey area since vendors may sell pirated products (such as CDs or DVDs) which contravenes intellectual property rights, the state may consider tax evasion illegal, and the death or maiming of workers may occur under sweatshop conditions. The Case of Street Vendors Throughout the world the informal economy has alternatively been tolerated or repressed by national and local governments. This is especially (but not exclusively) true of street and market vendors, about which there are several articles in this issue. Examining a number of highly populated urban areas, Daniels (2004: 503) points out that there are thousands of street vendors in all of what he calls “mega-cities” in the world including Tokyo, Bombay, Lagos, São Paulo, Mexico City, Dhaka, New York and Karachi, as well as Los Angeles, Manila, Cairo and others. The ambiguous status of vendors is related to the massive number of regulations that can lead to both confusion and corruption. As Bromley (2000: 20) points out: At the street level in most Latin American, African, and poor Asian countries, neither vendors nor inspectors and police have much detailed knowledge of the regulations, and so enforcement is often ad hoc. Long periods of tolerance are interspersed with short waves of persecution. In the occasional crackdowns, non-compliance with a great variety of obscure laws, codes, and regulations can be invoked to justify displacements, confiscation or arrest. 210 URBAN ANTHROPOLOGY VOL. 40(3-4), 2011 Bribes and fines that never make their way into municipal coffers are also common. Writing of indigenous Nahuatl-speaking vendors from the Alto Balsas region in the state of Guerrero who vend a variety of arts and crafts in a number of Mexican cities, Cowen (2005:34) tells us that: Many locales require permits from sellers of arts and crafts. In reality, these permits give police a means to extort bribes. A common tactic is for the police to claim that the permit has expired (whether or not it has) and then require an extra payment on the spot. Sometimes the permit will never be made to the seller in the first place. This kind of corruption can be found in many (though not all) Mexican cities and throughout the world. Bribery and corruption are common problems other informal enterprises face as well, and a number of scholars point out that it is one of the “costs” of informality (e.g., De Soto 1989; Maldonado, 1995). In a study of street and market vendors in Guadalajara and Mexico City during the regime of Porfirio Díaz (1877-1910), Martí (1994) attempts to explain the alternation between periods of repression and periods of support (or tolerance) by looking at contradictions in three policy objectives at the municipal level. The first was a revenue maximization policy. Although large merchants contributed most funds to municipal revenues, street and market vendors supplied from 5 to 10% of the total. Thus, while merchants might protest the presence of street and market vendors, they were useful in contributing to revenue maximization, important to these growing cities (Martí 1994: 317-318). The second was a subsistence goods maximization policy. Vendors supplied basic foodstuffs and other goods to a poorly paid labor force, thus lowering pressures on the wage (see also Portes and Walton 1981: Ch. 3 for an expansion of this argument about the informal economy in general and more contemporarily). Vendors thus ensured the subsistence of the working class employed by wealthier groups (Martí 1994: 318). Wilson: INTRODUCTION 211 The third was a compliance with the federal government’s emphasis on the progress and modernization of the state, with the assumption that the public presence of street and market vendors flew in the face of those goals (Martí 1994: 319). The contradictions within each, and between each, policy objective lead to an ambiguous treatment of vendors. These often conflicting and conflict-ridden policies still exist in countries around the world, and can be seen as partially explaining the alternating repression/toleration policies. Seeing street and market vendors as a “traditional” sector indicating lack of development and therefore challenging the modernist vision of the state is common throughout the developing world (Bromley 2000; Cross 2000; Cross and Karides 2007). This idealization of modernism can be seen when officials clear the streets of vendors during visits of foreign dignitaries or during international events. Modernization and “revitalization” projects often aim at the removal of street traders from historic centers and parks, plazas and boulevards that may be visited by foreign tourists (Silva Londoño, 2010). For example, Setsabi (2006: 142), relying on accounts in local newspapers, shows how evictions were “closely associated with state visits of dignitaries” in the capital city of Masero, Lesotho. Thus evictions took place in September 1988 when Pope John II visited the country, and anticipating evictions, street vendors demonstrated for their rights prior to the visit of South Africa’s Nelson Mandela. Bhowmik (2010b: 40-41) relates how street vendors in Seoul, South Korea were “forcibly evicted” with the help of gangsters cooperating with the police during international events such as the 1986 Asian games, the 1988 Olympics, and the 2002 FIFA World Cup Tournament. Such evictions are also common in various cities in Mexico. These can be seen as politically driven cosmetic attempts to avoid being seen as an undeveloped, non-modern economy and nation, despite the fact that informal economic activities and even street vendors 212 URBAN ANTHROPOLOGY VOL. 40(3-4), 2011 are present in cities of the developed world and often valued by local governments as a tourist attraction. The Informal Second Economy in Socialist/Communist Countries Despite their central planning, the informal economy, sometimes called the shadow economy or the second economy, surges up in socialist as well as core, semiperipheral and peripheral capitalist countries. In writing about the unsanctioned trade between socialist Burma (now Myanmar) and neighboring Thailand, Tannenbaum and Durrenberger (1990: 282) are careful to point out: “’Formal’ and ‘informal’ are not economic facts. They are categories relevant not to the working of economic systems, but to government measurement policies… What is in the informal is what is not in the formal, and the latter is defined by government policy.” Thus, at the beginning of the new millennium, two legislative initiatives pushed many of the self-employed into the informal economy in Cuba: the imposition of a greater tax burden on the self-employed and also, and echoing Tannembaum and Durrenberger’s point, the reduction in the number of types of self-employment considered legal (Eckstein 2010: 1051). Dollar remittances fueled the development of many small enterprises, some of them informal, and also infused the black market (Eckstein 2009: 1052). Remittances from abroad also increased three types of inequality that the revolution had sought to erase: dietary inequality as those without dollar remittances had to survive on rationed goods; race-based inequality since most remittance senders were among the white population that had fled Cuba, while blacks remained behind; and an urban bias for remittance receivers that eroded the government’s attempt to equalize rural-urban income differences (Eckstein 2009: 1053). Wilson: INTRODUCTION 213 Addressing “economic illegalities” in Cuba, part of which involve informal income-generating activities, Ritter (2005) finds at least six reasons for the informal/illegal economy in Cuba. First, prerevolutionary “small-scale cottage industries” continued to survive until the present (Ritter 2005: 348). Second, because of a rationing system which supplied everyone with the same basket of goods, some of which were not wanted and some of which were prized by any given family or individual, many sold the goods they did not want and bought those they did (Ritter 2005: 347). Third, and concerning outright illegal activities, there was pilfering of state property, justified by “a general attitude…that state property belongs to no one and to everyone, so that if one person does not help himself to it, someone else will instead” (Ritter 2005: 349). Fourth, there is an economic duality between the peso-based economy characterized by state-mandated rationing and low wages, and the dollar or more recently convertible peso economy with prices determined by the market (Ritter 2005: 350). Fifth, and comparable to reasons for the development of the informal economy in core, semiperipheral, and peripheral capitalist economies, are high taxes and restrictive licensing, which small entrepreneurs seek to avoid (Ritter 2005: 350). Finally, nonsanctioned economic activities are necessary for survival since wages in pesos cannot cover basic necessities (Ritter 2005: 351; see also Eckstein 2009). In China, too, there is a vibrant informal economy. As elsewhere in urbanizing countries, most informal self-employment is undertaken by rural-to-urban migrants (Xin 2001). Xin (2001: 79, 84, 85) finds that better educated individuals enter the informal economy in Jian City, Shandung province, while the less educated tend to take on informal wage work. Seventy percent of the informal self-employed were satisfied with their employment, more than the percentage satisfied with either informal or formal wage work (Xin 2001: 78, 85). The informally 214 URBAN ANTHROPOLOGY VOL. 40(3-4), 2011 self-employed also tended to earn more than informal or formal wage-workers, the latter earning least (Xin 2001: 85-86). A survey of 60 villages in the six provinces of Hebei, Liaoning, Shaanxi, Zhejaing, Hubai, and Sichuan showed that nonagricultural informal self-employment is also alive and well in rural regions (Mohapatra et al. 2007). Dividing informal self-employment into high and low productivity subsectors, Mohapatra el al. (2007) find that the more highly educated married males whose fathers were also self-employed tend to flow into the high productivity subsector, which is becoming quite successful; the low productivity subsector, including the production of handicrafts, however, is dying out. They conclude that high productivity “self-employment in rural china is a sign of development, not distress” (Mohapatra et al. 2007: 178). Whether the findings of Xin and Mohapatra et al. prove true in the urban informal economy of other Chinese cities or villages is still open for research. The Articles in this Double Issue Refugees are even more socially and economically marginalized than immigrants, whatever negative political or economic pressures may have forced the latter into the migration stream. Research in the Kakuma Refugee camp on the Kenya-Sudan border led Oka to explore the various types of informal economic activities that sustain and normalize the lives of its 90,000 refugees from a number of African countries. Somali traders, for example, though not resident in the camp, provided retail and wholesale goods to small stores run by refugees. Oka looks especially at the provision of foodstuffs. He underscores the ability of the informal economy to “fill in gaps left by relief efforts.” Among other things, food allotments by relief agencies may not be culturally appropriate, and are traded by some Wilson: INTRODUCTION 215 refugees living in the camps and bought by others. Although this is the case for those who receive remittances or who have been provided employment by UNCHR or the World Food Programme, even those without these benefits will sell the food they receive. The buyers then use these foodstuffs to entertain fellow refugees in their homes, increasing the sense of community, and, Oka argues, mitigating the turn to domestic or other interpersonal violence. Oka’s findings show how social and economic exclusion can lead to the growth of informal income-generating activities, his findings that such activities can strengthen community and combat feelings of marginalization in the context of refugee camps is an important contribution to the literature. Bob-Milliar and Obeng-Odoom examine the relationship between the informal economy in Ghana and the State. The government of Ghana alternates between suppressing the informal street economy and protecting it in the interests of presenting a populist face to garner political support. The authors show that many nongovernmental organizations, which they consider as part of “civil society,” are working for the welfare of the street traders. They hold that there are three competing perspectives on the informal economy in Accra: some view it positively as a source of employment for the otherwise unemployed, others negatively as provoking congestion and filth on the streets, and still others as a source for retaining political power through policies they enact that take street traders into account. Yeoh addresses the problem of the use of public space by sidewalk vendors in Baguio City, the Philippines. Many of those vendors are rural-to-urban migrants searching for a livelihood in temperate zone cities. There are continuous conflicts between owners of established shops and the sidewalk vendors over the appropriate use of public space. Yeoh argues that “colonial spatial imaginaries” that led to the erosion of indigenous land practices are imbricated in the definition of urban aesthetics upon which negative views of street vending are based. As in 216 URBAN ANTHROPOLOGY VOL. 40(3-4), 2011 other cities around the world, the government maintains an ambivalent relationship with the vendors, who are sometimes harassed for being a nuisance and sometimes viewed positively as a tourist attraction. Street vendors are not the only group who are informally self-employed. Nading looks at informal aluminum recyclers in Managua, Nicaragua. He reveals that their identity as artisans is more salient to them than their identity as small businessmen with a drive to formalize. In fact, formalization as a possibility is often viewed negatively. The poor, for whom items produced by formal firms are unaffordable, buy the pots and pans the aluminum recyclers fashion. The artisans also sell decorative items to the middle class, to tourists, and even internationally. Nading argues that “economic involution” as represented by these informal artisan workshops is a response to neoliberal policies underpinning globalization. The artisans use inputs from junk dealers who buy the metal from garbage pickers. This shows the interlinkages among a variety of informal income-generating activities. The existence of an informal economy in socialist societies such as China has been mentioned above. Looking at the phenomenon of “chain sales,” often portrayed by the Chinese government as illicit “pyramid schemes,” and generally thought of as part of a counterfeit economy, Festa argues that this underground industry “takes pains to affirm orthodox political and economic values.” Known as part of Pure Capitalist Operation, these chain sales fall between legal cracks and are often seen by it participants as a “secret” opportunity the government has extended to the poor, despite the occasional involvement of privileged sectors of the population. Participants in chain sales show solidarity with one another in a quasireligious fashion. Festa explores in depth the tensions between the chain sellers’ self-identification and government policies. He argues that chain sellers, located in the interstices of the economy, are far from being counterhegemonic and endorse Wilson: INTRODUCTION 217 norms common in China, thus challenging DeSoto’s analysis of informal economies. Looking at the informal economic activities of a Hindu population living in shanty towns on the outskirts of Lisbon, Portugal, Cachado underscores the failure of the formal economy to provide housing for these immigrants, leading them, from the 1980s onward, to develop their own informal housing. Some pushed, however, for relocation into more formal housing or left Lisbon entirely, to seek their fortunes in the United Kingdom. Hiding their informal income-generating activities from social workers who could facilitate their relocation (though some wished to remain where they were), women sell foodstuffs, beverages, and imported or locally sewn traditional Indian clothing from their homes. Cachado holds that the building of informal housing and women’s provision of goods and services to the Hindu community arise due to that community’s social and economic exclusion. Such informal activities can be viewed as a creative resistance to these types of exclusion. Ahmad’s discussion of corruption in the Pakistani media departs from the other articles by looking at corruption as central to the informal activities of the mass media. He also underscores that media in some of Pakistan’s cities rely on a superexploited and informalized workforce. Journalists in the rural tribal regions, where conflict is rampant and their lives endangered by violence, are not paid at all, for example, and have no offices from which to work. Ahmad pinpoints the fact that under both civilian and military regimes, journalists were expected to portray the government in a positive lights. If they did not do so they might be tortured or assassinated. Those who toed the line were often given bribes or placed on the payrolls of government agencies. On the other hand, unpaid “correspondents” in the city might often pressure or coerce individuals or organizations to fund their journalistic activities. 218 URBAN ANTHROPOLOGY VOL. 40(3-4), 2011 The articles in this issue range from looking at the struggles of street vendors (Bob-Milliar and Obeng-Odoom, Yeoh) and aluminum recyclers in artisan like workshops (Nading), through pyramid schemes in China (Festa) and the development of informal economic pursuits under conditions of social and economic marginalization and exclusion (Cachado, Oka), to the informal practices of journalists in the mass media (Ahmad). Each adds to the political and legal theorization of informal economic practices; i.e., in each it is shown how the political and/or legal environment shapes the ways in which actors respond to their economic and social situations. Almost all the populations under consideration are objectively marginalized in their societies of origin or destination. Many are subjected to uncaring or corrupt governmental practices. Yet many show the vibrant agency of a subaltern people in the face of their economic and/or political circumstances. As both neoliberals and neo-Marxists argue, the growth of the informal economy is partially related to legislative policies of the state, whether these be corrupt, as in Pakistan, or misguided, as in Ghana or the Phillipines. Nonetheless, in some cases the “informals” are filling niches where there is an absence of legislation. as in China, or making do on the margins, as in Lisbon and in the refugee camps. There may be linkages not only between the formal and the informal economies, but linkages within the informal economy itself as shown by the activities in the Kakuma refugee camp and among aluminum recyclers in Nicaragua. 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