Rethinking the role and function of the informal economy

by Nilio Gumbs 28.JUN.11

In the last two decades, the number of people plying their trade along the streets of Kingstown has increased immensely. The latest official count in 2010, put the number of vendors at 1085 in Kingstown. Accompanying their activities is an abundance of wooden stalls strewn along streets creating an unsightly feature in the city.{{more}}

The clearing of the streets, of Kingstown of vendors may bring some relief to many Vincentians pedestrians who view such economic activities along the walkways as a nuisance.

Let us not be fooled, tourism is the main revenue earner in this country and it’s the responsibility of the government to ensure that this country has a competitive tourism product, given exogenous and protean factors that can impinge on our tourism sector. This does not belie the fact that the government needs to pay greater attention to the informal economy.

The informality of this sector is characterized by the absence of a permanent legal residence, small operations with minimum startup capital and few overheads. These vendors can be classified as a survivalist, self employed class of persons working outside the formal economy, paying little or no taxes or making minimal or no contribution to tax revenue. However, they produce goods and services whose production and distribution are perfectly legal, but lack any regulatory framework. Their activities and contribution to the nation’s economy and society are unrecognized, unrecorded, unprotected or unregulated by public authorities.

The relocation of these vendors to an area where they can ply their trade should not bring closure to the issue, but invoke debates leading to a greater understanding of the source and composition of the informal economy. In addition, the debates should lead to the development of an appropriate policy framework and strategies which recognize the potential of the informal economy; so too its implications for employment, gender equality and poverty. The treatment of the vendors also brings into focus the question of human rights and governance.

The formal economy will never be a catalyst for total employment in this country. The limited absorptive capacity of the formal economy is a constraint to the creation of new jobs. A bloated public sector – bursting at the seams – and a small private sector, have created a burgeoning informal sector generating much needed (self) employment.

Working in the informal economy has enabled many women to become masters of their own destiny and help to promote greater gender equality. About 60 to 80 per cent of people in the world who work in the informal economy are women. It is discernable that the majority of the street vendors in this country are women also. We ought to remind ourselves that in St.Vincent and the Grenadines, at least 51 per cent of households are headed by females, many of whom work in the informal economy to support their family.

Research has shown that the majority of the workers in the informal economy are poor, primary school achievers and the least educated in society. There is a growing conversion between economic development, poverty and human rights. According to Pierre Sane, “Poverty is not a standard of living or even certain kinds of living conditions: it is at once the cause and the effect of the total and partial denial of human rights”. More often than not, we see Sane’s theory playing out in SVG. Poverty does not afford the same access and privileges to institutional resources as is the case for the more well to do among us.

Many governments in developing countries have put politics above economics, creating many of the negative features of the informal economy. According to Sweden International Development Agency (SIDA) report (2004), informality is partly caused by lack of good governance. The growth of the informal economy can be traced to the inappropriate, ineffective, misguided and badly implemented macroeconomic and social policies.

Many developing countries have awakened to the fact that the informal economy is critical to employment, economic development; hence there is a greater need to bring these workers into the formal economy. Believe it or not, Jamaica, per capita, has the second largest informal economy in the world after Brazil. In the early 1990’s there were an estimated 225,000 higglers in Jamaica. Successive governments have sought to empower these informal workers by building “Arcades” in Kingston and many other parishes, enabling vendors to conduct their trade. A large number of these informal workers are now part of the nouveau riche (rich, but lack the social graces).

In the 1990’s, the Chinese government took a greater interest in the informal economy as a means of encouraging self-employment. They began addressing the issue of unemployment as a result of mass redundancies which accompanied the intensification of state enterprise reforms.

The Durban Metropolitan Local Government in South Africa had initiated the “Durban Informal Economic Policy 2001” that was so successful in incorporating street traders, that it was expanded to incorporate other categories of workers who were not benefiting.

In India, the National Labour Commission in 1999, formulated legislation for the sector which recognized informal workers alongside those in the formal economy to provide greater protection and recognition for the informal sector.

There needs to be a greater recognition of the contribution of the informal economy and its potential to generate employment, rather than be viewed as an expedient category of workers (by any government) who can return to streets of Kingstown every four years when election bells starting ringing.