Informal economy could soon dominate world markets, says labour specialist
The informal economy would be another name for poverty in that this segment of the economy is a response to poverty, as a survival strategy. According to estimates made by famed Peruvian economist Hernando De Soto, the World Bank and the ILO, about 1.9 billion people work in the informal economy world-wide and an equal number are dependent on it.
These facts were revealed by Sriyan De Silva in presenting his book on “The Dilemma of the Informal Economy” at its launch in Colombo last week. Mr. De Silva is a lawyer, a productive writer, a monographer and a labour specialist. The publication was undertaken by him for the Employers’ Federation of Ceylon (EFC) which would participate in the discussions at the forthcoming conference of the ILO and to enable the EFC to share its contents.
The book provides a global perspective, he said. Almost half the world population’s and the majority of the world’s poor are part of the informal economy numbering 90 per cent of the entire world economy. He said that La Salada, South America provides an example of dependency where it consists of about 30,000 small stalls by entrepreneurs and is open three days a week from late at night to about 5 am and is visited by a quarter million people each week.
He said that people travel 15 hours to buy goods for re-sale and this market generates about US$22 to 44 million a week.
The formal and informal economies are inter-connected and informal businesses supply products to the formal economy and he pointed out that a poor business environment affects those operating in both economies, though business in the formal economy have a better capacity to minimize their adverse impacts.
Mr. De Silva pointed out that anthropologist Keith Hart lived for a while in the slums of a city in Ghana to become acquainted with the informal economy and wrote the first article on the subject in 1973. He said that the publication in 1986 by the Peruvian economist De Soto provided the first detailed revelation and analysis of how the informal economy of a developing country (Peru) operated.
His extensive work on the informal economy was able to shift the focus from the perspective of treating this only as a problem to countries to one of viewing it as a response to abject poverty and destitution. He said that De Soto was emphatic that those involved in the informal economy were not the problem but the solution.
He said that Chapter 5 of his book deals with such highly complex issues like capital, property rights and common pool resources. In the book, he said he has also dealt with the complex subject of Common Pool Resources which are neither privately or state-owned such as forests, fresh water lagoons and streams, irrigation systems and ground water basins which provide a means of livelihood and sustenance to people.
He said that the exploitation of such resources would lead to their destruction or disappearance, so that their use by the beneficiaries should be based on agreed systems of common rules aimed at preserving the resource and sharing its benefits equitably.
The rationale for Chapter 6, he said is that the absence of adequate jobs in the formal economy and employment generation contributes to the expansion of the informal economy. Chapter 8 addresses issues relating to the International Labour Standards of the ILO relating to the informal economy and labour laws, while Chapter 9 talks about formalizing the informal economy. He has brought together several reasons for the existence of the informal economy, while another Chapter analyses the positive and negative aspects and thereafter addresses the difficult question of whether ‘informals’ move to the formal economy.
In his book he said he has addressed the key issues as to whether the informal economy should be formalized by first explaining that the answer must depend on what is meant by ‘formalization’.
He dwelled on Keith Hart’s interesting observation as to whether the global economy is itself becoming informal and if so how this would affect their perspective of the formal and informal economies within national boundaries.
It would be interesting, he remarked, to see how the informal economy will play out when emerging economies become the dominant players in the global economy.