The Informal Economy and its Enemies

Neoliberalism underpins Wanathamulla and Slave Island evictions


Women are a crucial component in the Informal Economy

A thriving bazaar

by Kumar David

The informal sector of the economy is the bedrock of an open society in third-world countries. When the bulldozers of the UDA roll in, there is no place the poor can run, nowhere to hide. The assault of the regime’s corporate-state neoliberalism on the Informal Economy (InfEc) is a paradoxical turning of tables on Karl Popper who preached that the great facilitator of an Open Society was capitalist individualism. The PPP (Popper-popping-paradox) then is that free market capitalism in poor countries is predicated on authoritarianism thus exploding the capitalism-freedom marriage that Popper so artfully brokered. Left to themselves, the poor that is the majority in third world nations, seek self-supporting collective structures, Popper’s antihero.

This essay is a book-review of sorts where I inject local context into the generic discourse in "The Dilemma of the Informal Economy" by Sriyan de Silva. The monograph, published by the Employers Federation of Ceylon, 214 pages in length, has just come hot off the press. I have drawn on Chapter 5 for my purposes in the first part of this essay. The chapter has a jaw breaker of a title but it is about the flimsy property rights and underlying travails of the small people who earn their livelihood through InfEc.

InfEc consists of small and very small businesses; itinerant vendors, pavement hawkers, small repair joints, the ubiquitous 3-wheeler walla, small contractors and craftsmen. The littlest fellow could be the wewalkaraya who mends your rattan chair; at the more ambitious end would be the leader of a clique of four or five bass unnahes who did that balcony extension for you. The residents and families of Slave Island and Wanathamulla are only in the minority a proletariat (workers employed by companies or the state); a significant majority are self-employed in the informal sector.

Sunil Samadheera who was abducted in Wanathamulla last week after a heated argument with Gota, was a fish vendor, a hawker at a mallu lalla, typical of an informal sector person. Read Tisaranee Gunasekera’s story and watch Sunil’s embedded video exposé after his release thanks to a Wanathamulla citizen’s outcry:

My topic today is not to add indignation to yet another outrage. No, what I am pointing at is that Sunil was a self-employed informal sector guy, like the majority of his neighbours. This is where SR’s (folks of poor taste call him Sriyan) monograph serves my purpose. Of course SR says not a word about the ‘slum’ clearance programmes in Colombo under the leadership of Gota and the UDA (so please don’t white-van him), he hardly mentions Lanka, but the monograph and especially Chapter 5 provide a generic framework within which I can locate the class and economic content of the ongoing UDA-Gota-Raj agenda. At the human level it is an obnoxious attack on the poor and a theft of their homes and land, but if you look at the underlying dynamics of the politico-economic change that is taking place in many parts of Colombo, then you will see that the informal economy is being driven out and the city is being fortified for the thrust of privileged classes and foreign and local businesses.

Pieter Keuneman presided over the protection of housing rights for the poor (some say he went too far); today, unpardonably, the Communist Party is inextricably sucked into the biggest neoliberal binge in the history of Lanka. Yes the biggest! The ventures of Rajapaksa Raj will have a greater long-term neoliberal impact than JR’s unregulated market opening. This is not industrial capitalism, but the twaddle of shopping malls, luxury apartments, currency and stock market trading offices, gaming joints, and 5-star tourist hot-ills that the subaltern can only gaze at from afar. This is the neoliberalism for which people are being driven out of their homes and malls erected over the dead bodies of the economically weak; it is the graveyard of the informal economy.

Chapter 5 in summary

SR’s chapter takes its point of departure from the Peruvian Economist Hernando De Soto’s The Other Path: The Invisible Revolution in the Third World (1989) and blends it with the work of Elinor Ostrom on the Commons or Common Pool Resources. De Soto is the most important figure in the study of the InfEc and his life’s work was to explore the contribution of the sector to third-world society and encourage it to overcome obstacles. InfEc employs up to 70% of the population in some African countries and India and maybe a third or more in Lanka – I am not sure, but it is estimated at 15% in some Western countries so clearly it must be much higher here. The definition of the informal sector excludes employed workers and it should exclude traditional farmers and fisher folk, but SR is ambivalent about whether the latter two categories belong to InfEc. The sector’s contribution to the economy is usually not included in national accounts, or imperfectly included as it operates below the radar of taxation, registration and regulation. The author (SR) says that in many developing countries 50% or more of the national economy is contributed by the InfEc – he does not suggest a figure for Lanka.

The arguments of De Soto, Ostrom and others as communicated by SR can be summarised as follows. People in the informal sector are poor, do not have strong property title to their homes and lands, lack legal and political clout and have difficulty in raising bank credit. In view of the contribution the sector makes to the economy and its massive contribution to livelihood and employment, it is a moral and economic imperative of government to assist by providing land title, lines of credit and protection of homes. Then there is the matter of Common Pool lands and facilities. The idea of the Commons is not new, vide Goldsmith’s "Sweet Auburn loveliest village of the lawn" for the sentimentally inclined, and Chapter 27 and 28 of Capital-1 for the truth about the genesis of capitalism. [En passant, SR suggests that in England, in the nineteenth century, power holders opted for pluralism and inclusive institutions thanks to the pressure of "relatively wealthy and affluent people". I think otherwise, it was the blood sweat and tears of the working people and two centuries of struggle that forced change].

To return to InfEc and to SR’s text, the author and the sources he quotes make an impassioned plea for protection, sustenance and promotion of informal sectors. Ostrom’s emphasis on Common Pool resources has local resonance; the eviction of the poor from homes, lands and livelihood entails curtailing services and resources to tenement blocks and wattas (garden precincts) previously enjoyed in Common. The individual’s right to survive and Common Pool resources are both under attack. I am obliged to repeat myself before moving as these have not been elaborated from the focus of the informal economic sector before. What is happening now is not only an attack, in a humanitarian sense, on subaltern peoples; it is also an economic project to destroy Colombo’s informal economy in the guise of beautification to make way for the neoliberal dream of a new hegemony.

Chapter 9

The strongest chapter in the book is the ninth on "Formalising the Informal". Chapters 5 and 9 are the longest and most important in Sriyan de Silva’s thirteen chapter monograph, but I will provide brief comments on five others as well anon. The discussion in Chapter 9 is about:

* The resilience of the sector. For example when the ex-USSR descended into abject destitution in the mid-90s and greedy oligarchs ripped off state assets with the advice of the IMF and American academia, it was the mushrooming of informal enterprises that prevented even worse starvation and despondency.

* Village and Township Enterprises (VTE) in the middle years of Deng’s reforms in China were robust responses energising China’s vast rural mass. They started as cooperative or collective enterprises under the leadership of local Communist Party and country level local governments. As they prospered and subdivided they evolved into a thriving semi-formal sector. They are semi-formal in that they have a formal relationship with local government, pay taxes and can win bank credit, but at the same time they are not formal capitalist business enterprises. If one reverts to old categories, the best label to stick on them is petty-bourgeois small enterprises. Their main focus is trading, eating houses, marketing local agricultural outputs, and only limited manufacturing.

* There is a sensitive and intelligent discussion in the chapter on whether the informal sector will wither and die as a country transits from a developing status to a more developed economy with strong formal firms. SR’s answer is not definitive and leans towards "not for decades".

* SR poses but is less ambivalent about another crucial matter. Should policy make an effort to formalise the informal sector. He takes the position, and I agree, ‘No don’t push, rather give the sector the help it needs to grow (recognition, credit facilities, information facilities, productivity and education improvement) and leave it to some to prosper beyond the informal to formal business enterprises if they can’.

I would like to develop these ideas further but that would go beyond the remit of a review; go buy the book if you are interested.

The rest of the book

Chapter 3 is a good primer for a student who would like a more formal definition of InfEc beyond the rough and ready sketch in my third paragraph. Chapter 10 has an interesting title "Impact of Globalisation" but the discussion is limited in scope. SR occupied some big-shot capacities in the ILO and IOE (L for Labour, E for Employer. Life is so schizophrenic!) in Geneva, years ago. Chapters 7, 8 and 10 on legal systems, business environments and labour standards reflect this experience.

The book is clearly written and easy to understand; if anything the author is loquacious; what do you expect, he is a lawyer. Sriyan de Silva is a productive writer and monographer; a web search brings up about 25 short works, studies and pamphlets. This one is pretty good.

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