The informal sector: A reappraisal

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The informal sector: A reappraisalKamal Nayan Kabra aa Dept. of Economics, Indian Institute of PublicAdministration, New DelhiPublished online: 15 Jun 2007.

To cite this article: Kamal Nayan Kabra (1995) The informal sector: A reappraisal, Journal ofContemporary Asia, 25:2, 197-232, DOI: 10.1080/00472339580000121

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197

The Informal Sector: A Reappraisal

Kamal Nayan Kabra*

During early 1970s, development studies, particularly those dealing with employment, incomes and equity, saw considerable attention being given to what is termed the "informal sector" (IS)-(ILO, 1972) a term often used as a synonym for the "unor- gan~sed sector. "1 The latter term is of much older vintage and has been used to denote production units of small size, including handicrafts, which have "domestic or non- organised character" and some of them may be ~eated as parts of the "non.monetary" sector (GOI, 1951, 12 and 24-4). After working with dualistic models (consisting of the "modern" and the "~adifional" sector), it became evident that the Lewis process did not materialise to bring about absorption of "surplus" labor in wage employment through modernisation and growth (Lewis, 1954, Peattie, 1987, 854-5). On the contrary, the problems of unemployment, equity, low living standard and unbalanced and sharply differentiated smactures became more acute in most parts of the Third World (Brandt, 1980). It was during the process of examining the experience of development planning, especially with respect to employment and equity and rele- vance of the concepts, theories and strategies of development of the 1950's and 1960's that the concept of the "informal sector" (IS) emerged as a means of systematically comprehending some aspects of the economic and social situation of the LDCs, particularly the nature of unemployment and underemployment, (Hugon, 1990, 75: Peattie. 1987, 855) organisational forms of economic activities (Arndt, 1988, 225-26, Myint, 1985, 26) and for devising viable and feasible strategies, policies and programmes for fuller employment, equity and growth. It was also implicit in the Marxian writings on the petty mode or form of production and the Soviet concept of multi-structural form of society (Kotwal; 1979, 2-3, 1003 Levkovsky, A., 1987, 106-119: Moser, 1978, 1057). The essential point implicit in the IS theorising was that underdevelopment cannot be grasped in terms of universal averages and as a homogeneous phenomenon as was implicit in the development literature of the 1950s and 1960s. It atterapts to capture some of the diversity and differentiation endemic to underdevel- opmont (Nasreen Khundker, 1988, 1264-5).

Over the years a number of theoretical and empirical works have appeared on the subject (Bromley, 1978, Sethuraman, 1981, Bremsn, 1976 Bromley and Gerry 1979, Todaro 1987, Turaham and others, 1990). The diversity of views and controversies on

*Dept. of Economics T Indian Institute of Public Administration t New Delhi. ]om~a/of Conte.mp~ary As/a, Vol. 25 No. 2 (1995)

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the IS have generated some confusion, both semantic as well as substantive, especially owing to the fuzziness of the concept (Peattie, 1988). However, while many may not explicitly make use of the concept in developmmt policies and pl2nning there is a trend to the contrary as well. Resurgence of liberalisafion with accent on market mechanism and privatisation in develolmaent policy tend to ignore the issues raised by the wideswead wevalence of the IS though, ironically, these processes, including those of structural adjnstment, have led to greater info~-mlisation2(King, 1990, 199, Thomas, 1990, 202).

It is our intention to critically examine some impormm formulations about the concept, characteristics and casual factors of the IS in the next section. Then, we exa~aine, selectively, some of the critical features of the IS as revealed by some recent empirical studies. Section-III attempts to go in to the forces and processes which contribute to the phenomenon of the IS. We bring together our main contentions in Section IV, which is followed by the concluding Section dealing with some policy issues.

According to ILO's Kenya Mission, the IS is basically a manifestation of dualism in the LDCs. It contrasts the key character~'cs of the IS and the formal sector as more or less bipolar worlds (ILO, 1972, 5-7). While it does not find evidence of its "links with the other ('formal') sector" (p. 6), somewhat perplexingly it "lays great stress on the pervasive importance of the links between formal and informal activities" (p. 7). While the concept of the IS has descriptively been presented in term of ease of entry, low resource-base, family ownership, small gale, labour-intensive and adapted technology, um'egulated but competitive m~rkets and informal processes of acquiring skills, the ILO study marks some advance over the then prevailing understanding of unemployment and poverty in the LDCs, singe just low average income, lack of work (low demand for labour in relation to supply), low level of savings, etc. would not be able to capture the basics of underdevelopmenl.

Compared to the theories of disguised unemployment which visualised zero or low m~ginal productivity of labotu-ea-s, what with proclivities of idling (may be involuntarily) symbolised by the metaphor of bird-watching, 3 (Sen, 1960), the IS concept enables one to recngnise the working poor, whose diverse activities "far from being only marginally productive" but, given the level of capital equipment and technology are "economically efficient and profit-making." It was also contended that the cause of low and differential incomes in the IS could hardly .be presumed to lie exclusively within the sector itself (ILO, 1972, 5). This amounted to an implicit recognition of the intimate }ink.¢ between the IS and the economic system as a whole. As a result, the IS represents an adaptive response to various political economy pressures and structural and behavionral rigidities causing low and skewedly distributed incomes, lack of income ea~tn~ opportunities for the millions and inadequate supply of wage goods at prices affordable by the poor.s Furthermore,

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contrary to the dualistic assumption of"waditional" technology, the ILO mission re- alistically recognised the simple but adaptive nature of IS technology.

However, a composite view of the IS did not emerge from the ILO studies. There was little recognition that in ~_,-klition to self employment and family labour in various forms, wage labour (regular and casual), work by apprentices, etc., were also operating on a large scale in the IS. Not only there was confusion regarding IS-formal sector linkages, but the question of the character and basis of the linkages which define its relationship, for instance, of subordin~'on or superordinafiun (Sethuraman, 1981, N. Khandker, 1988, 1264; Hugen, 1990, 74) with the other sectors, was not even raised. The demand side factors which influence the nature of goods and services emanating from the IS also escaped attention. The contrast between the formal and the informal was too stark to be empirically sustainable. It tended to ignore the diversity within the two sectors, i.e., both common and disparate features, and the continum of organisational forms prevalent in real life, as revealed by many studies, which highlight the role of judgmental factors in separating formal from informal activities (Thomas, 1990, 91; Chandavarkar, 1988, 1260).

It appears that the linl~ between the characteristics of the IS, its c~sative factors, operational mechanism and continued reproduction in ever more complicated forms and on an expanding scale remained unspecified and unexplored. In fact, the concept tended to be applied largely to the urban sector - a tendency which persists in many writings (Todaro, 1987).*

However, a number of empirical studies regarding the IS in the cities of many I.DCs followed the lead given by the ILO mission (Sethuraman, 1981, Select Bibli- ography). An exercise to present an overview of these studies led to the following defmitiun of the IS, "It consists of small scale units engaged in the production and distribution of goods and services with the primary objective of generating employ- merit an0_ incomes to their participants, notwithstanding the constraints of capital both physical and human, and know how ''I (Sethuraman, 1981, 17).

This is too general a view which fails to bring out the d/fferent/a specffica, tl~ raison detre, mudos operaud/and modus v/~endi of the IS.* Aflerall, where would one not find economies without small scale economic activities under the constraints of capital and knowhow either in the first or even the second world? It does not even suggest why would the dominant and the generally prevalent, ascendent Forms ofproduction would fail to become universal to varying extents in countries with different social systems and levels of development, leaving space for diversity of forms of production in specific sectors and activities (Smith, 1984; Chevalier, 1982) and their methods of interaction? It seems these studies of what was prejudged in an ad-hoc rammer to constitute the IS in the Third World cities threw up some features at a dmcripfive level, The broadest possible common points of these empirical studies seem to have been cobbled up in the above definition. Thus empirical studies revealed

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what one set out to discover and hence the concept was in a way inherent in the hypothesized system. As Nattrass (1987, 862-863) has shown, the IS has some common overlapping features with the formal sector, the reserve army of labour and marginalised segments of society but none of these three can be fully covered by the IS. The same is the case regarding small scale, labour intensity and adminiswafive non- coverage, as none of these features are exclusive to the IS. It is on such grounds that such a convincing case is made about the fuzziness of the IS (Peatfie, 1987, 856-858), though to argue, on this basis that the concept is counter-productive and has been developed "by groups with quite different axes to grind" (Ibid, 852) is, as we intend to show below, to misread the implications of the diversity, heterogeneity, interaction of economic institutions and the role of a precise definition in scientific discourse and policy-analysis. 9

Such descriptive and eclectic definitions may help identify units broadly belong- ing to the IS, be they in New York or New Delhi, and even in the rural sector ofthe Third World, (Mukhopadhyay, J. K., 1992, 13) but without specifying how and why they originate, evolve and persist and why and to what extent are they marked off from the rest of the economy except for differences in the scale of operations and those arising from shortage of capital or wage employment. It is also not clear whether it is intended to broadly identify the small sector with the IS. Even if it did, what happens to vast qualitative differences between, say, shoe-shine boys, pavement shop-keepers, part-time newspaper hawkers, rikshaw pullers, wayside fortune tellers, etc. on the one hand, and T. V., automobile and elecuic repair shops run by "self employed" persons, artisans (like tailor, blacksmiths, goldsmiths, etc.) and a small unregistered factory with, say five or ten, hired workers? Or informal activities under the wings of or as parts of "formal" activities (like selling of government lotteries by street hawkers, hiring of sub-contractors and casual, piece rate workers by the corporate and public'- sector construction companies, pavement sale of the products of big industrial companies, recycling wastes from the FS in order to supply the same to the FS, etc.)7 (See chart for a more detailed listing and classification of the IS activities.) Unless the concept of the IS took into account these diversities from "penny capitalism "l° (Tax, 1953) to inWa-sectoral differences and a subsidiary form of production and bring out their essential analytical essence, it would not help one understand the phenomenon of diverse forms of hiring labour organizing production placed under the rubric of the IS.

It may also be recognised that a phenomenon like the IS is neither spatially nor temporally uniform. Overtime it undergoes a process of wansforraation in its internal and external relationships and in size. Any abistorical approach to the IS would hardly be able to capture its diversity, varying degrees of cohesion, li~k~es with the rest of the economy and future directions, in addition to the diversity of organisational forms and technologies - their origins, adaptation and evolution, etc. (Bienefeld, 1979).

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:lhe/n~rnml Sector 20 |

Thus the trealment of the IS has to go beyond the urge to define it in terms of some simplistic formulations arrived at mainly on the basis of the compulsions of data collection and compilation. ~1 This is all the more necessary because most of the prevalent def'mitions and analyses of the IS, are descriptive, eclectic, ahistorical, adhoc and narrowly focused. They rarely allude to its diversity of economic and social relations as also the commonalities. In so far as the IS is taken as the residual of what is taken to be the formal sector, these definitions seem methodologically to be based on the principle of the excluded middle. Moreover, these definitions generally proceeded in terms of some tacit norms with respect to the organisational forms, scale of operations, nature of equipment and technology and relationship with the rest of the economy and government, specially inadequate integration with the labour, capital and consumer goods markets (Myint, 1985, 222-2). The informal activities are generally considered a legacy of traditional activities and are treated as highly location specific, though empirical studies do take note of the mobility and adaptability reflected in some of the newer activities of the IS (Sethuraman, 1981). These definitions display inadequate understanding of the forces which give rise to simultaneous, interconnected and even joint operation of the lower and higher forms of production. 12 Hence the characteristics of the IS are sought to be deduced from various empirical studies, which in turn, carry a strong imprint of the initial, a priori hypothe- ses concerning the IS. Moreover, it becomes very difficult to weave together the diversity of features seen in the IS as it exists and has existed even during the colonial period of the Third World countries and in the earlier phases of the presently industrialised countries. ~3

However, no attempt to analytically develop the concept of the IS can afford to ignore its origin and empirical corelates. Hence the following section is devoted to a description of some salient characteristics of the IS as revealed by various field studies.

II

It is generally observed that in many countries, particularly in the Third World, there are a number of people who supply a number of goods by way of production or by way of exchange and perform a number of services like repair and maintenance services, personal and professional services on the basis of their own resources of finance, equipment, traditional, inherited or locally acquired or adapted skills, labour and generally with the help of family labour though to some extent, labour hired under different sets of conditions is also used. ~4 Finance can at times be borrowed from the traditional, local sources i.e., the informal money markets, (Chandravarkar, 1988, 1260). Lately in some countries, banks, cooperatives and public agencies too have stepped in to provide finance to the IS. Of late, such activities have increased in terms of (a) number and variety of activities (b) nun~ber of persons engaged in these activities and (c) in terms of value of output and extent of capital equipment used in

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these activities. '5 Despite their diversity and relative isolation, these activities have some common features, variety of links within themselves and with the rest of the economy. They may well be taken to form an identifiable entity. The arguments which attribute arbitrariness peculiar to "economists in an accounting mode" of treating "a bundle of enterprise characteristics" or "a way of doing things as a sector seem to deny the essentials of the analytical process of "sectorisation" or "sector- split,' in so far as they club together transactions and activities which have something in common which is of analytical interest and marks them off from the rest" (Stuvel, G., 1986, 94), notwithstanding the inevitable linkages outside the sector (Peattie, 1987, 854-5; Khundker, N., 1988, 1264).

However, all these activities and their notable size, are not entirety new. Even during the colonial period there emerged a floating and amorphous bazaar sector with only tenuous and intermittent links with newly emerging "modern" sector in most of the colonies (Fitzgerald, 1987, p. 56). One can say that this bazaar sector consisted, on the one hand, of a number of traditional activities which were on the decline and, on the other hand, of some new activities in which the thrown-outs from the u'aditional occupations were trying productively reestablish themselves (Brett, 1973, 283-31 l).

With the development efforts undertaken after decolonisation, both conventional and newer types of such activities have continued to increase, making use of personal labour, family labour and to some extent hired labeur. ~6 These activities generally draw upon the labour which has failed to t'md a niche for itself in the organised, modern public and private sector activities. The overall contribution of such activities, generally organised on a small scale as own account enterprises, in the occupational structure and GDP (and at times, even in exports) of the developing countries remains substantial and noteworthy. As a result, the absolute number of hired workers engaged in such activities and organisations may be quite large iT.

Following the theories of dualism, the IS is generally supposed to be characterised by traditional technology. If it were really so, the techonogical frontiers of the IS would be practically static. Empirical evidence, particularly concerning newer activities in manufacturing and repair/maintenance services, indicates that the IS technology is not necessarily traditional and unchanging. Starting from many cases of new but simple technology and relatively low capital intensity, there also obtains traditional technologies in certain segmenst of the IS. It is non patented, self-generated, and/or privately owned and sold technology which can generally be seen in the newer activities in the IS. These technologies show signs of innovations in products, processes, designs, choise of raw materials, leading to emergence of new occupations and capacity to adapt to new circumstances (King, 1974, 219-223; Aryee 1981, 93- 95).

The informal sector in manufacturing (often combining production and direct sale to the users) and repairing generally uses modified technology, involving raw materials produced by or recycled from newer organised sector activities. These

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The/nftnmml Szo~" 21B

activities are located both in the home areas as well as in the areas the poor people migrate to. The technology is adapted to limited access to capital and markets, small scale of operations, demand for low priced goods and services from the poor, special local requirements of small towns, etc. Decline of the Jajmani system in a country like India often transforms certain personal services like those of washerman, barber etc. into the IS rather than into full fledged formal, modem activities. These new market based IS activities still remain in the sphere of conm)dity circulation and do not form part of commod/ty production (Lenin 1977, 337). Availability of family labour, the need for women and children to work as secondary earners, need for and possibility of second job by the formal sector workers, inadequate labour absorption in the organised activities and availability of informally acquired (learning while working) and hereditary skills tend to make for relatively higher labour intensity in the IS. Evidence from many studies (Sethuraman, 1981, Turnham, 1990) suggests these features.

However, there are some activities, like production of footwear and clothing in which the technology does not differ substantially between artisanal and factory production (Scott, 1979, 125). Technological dualism, marked by discrete cleavage rather than continuity among various IS activities had an important place in the theories of dualism. In various IS activities there is a good deal of technological diversity; the common features being the relatively simple, lniniaturised, adapted technology with low capital and high labour intensity. It may be noted that every advance in technology does not necessarily make for a universal discarding of precapitalist forms of production and their replacement everywhere by more advanced capitalist forms. Lenin demonstra~ such a trait in the brush making industry during the 1880's in Russia?' It means one need not postulate a unilinear and mechanical relationship between advanced techniques and higher forms of production..Afierall, the availability of techniques is not a sufficient condition for their adoption.

There is little government recognition, recording and regulation of these activities owing to their decenwalised, small scale and non-registered character? 9 Tns governments have tended to ignore their systematic monitoring may be because the sectoral linkages of each specific activity may be limited. "['lley come up without seeking any authorisation from any public agencies (ease of enuT) and have an equal ease of exit. They do not follow many labour laws, many are not covered under the factories Act and evade most of the direct and even some indirect taxes.

The IS shows impressive sectoral diversity. In its essence, the IS is neither confined to urban areas nor to industrial activities. Small peasant farmers, who sm'vive in the face of increasing spread of capitalist farming and the associated trend of rising size of ownership and operational ho l ing , are important components of the IS. They generally pay land revenue and are recorded by the revenue ~ini.gtrafion

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Such contact with government does not compromise their basic character as lower form of production which survives despite the emergence of higher forms of production like capitalist fanning by large landholders or plantations by companies. Even the use of high yielding modem purchased inputs and intensive, scale neutral techniques by the small family farms do not transfer them from the net of the IS to modern capitalist fanning, because the labour market relations, the law of surplus accumulation, the law of average rate of profit etc., acquire limited applicability while informal decision making, organisational and marketing practices, inadequate integration with other markets and large dependence on family labour continue to remain pervasive.

Yet another example of IS activities is small sized retailing, though such small shops may be registered under the municipal and state laws and pay taxes. Even hawkers or non-sedantic street vendors may be required to obtain municipal licence and pay tahe-bazari (vending rights fee). Public bodies to help these sectors may register the retailing units. None of these licences/regiswations/support/~yment of taxes would make for their exclusion from the IS. It implies that absence of formal contact with government can be neither total nor a defining feature of the IS. In actual practice, either such units are not recognized by the government for any regulation, or are merely licensed or, are required to be licensed (e.g., by local bodies) but are too small, scattered, and numerous to be regularly recorded, regulated or monitored in their operational aspects, from the perspective of ensuring their continued reproduction. It has been shown that "hawking is often a strategy born of desparadon" and the local authorities harass them in the interest of organised wade (Natwass, 1987, 871). It is on the basis of such reasoning that it has been suggested that "(I)n adequate regulation is a consequence and not a cause of informal production. "° It is debated whether excessive laws and regulations or bad/unenforceable laws spawn informal/ illegal activities (Thomas James, 1992, 1969).

Can one infer from this that the inforraals participate in the economic arena but have poor or little participation in the political processes, especially in the sense of access to public organisations and laws (Ownes, 1987)? Or, further that the non- recognition and non-regulation by the governmental agencies of the informal sector activities is reflective of lack of direct voice in politics by the informals, except through touts and intermediaries or just formally (as distinct from substantively) by means of adult franchise? It has been suggested that the enforcement of regulations (like e.g, licensing or professional qualifications) on informal activities "depends upon bodies over which these people (i.e., the informals) have no control and is carried out to the extent that dominant interests may require at any given moment" (Davies, 1979, 91).

For one thing, does political participation always invite regulation, be it of restrictive, positive, and/or promotional variety? If it be so, would one say that societies in which the state adopts a classical laissez fa/re stalr~ are societies in which

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2/~¢/nfuraml Sector

the private economic agents have poor political participation? It is true that there are linkx between economic and political participation. However, this should affect the nature, form and purposes of the linkages between economic and political participation, rather than the prevalence or absence of such a link. Specially, if political and economic participation is taken to mean the prevalence or absence of democracy, the question would demand a different kind of understanding than is implied by lack of or very general and tangential nature of governmental regulation and recording of informal activities. It may be mentioned that the informal sector activities and the informals in the labour market can be seen in largely comparable numbers with similar contribution to economic life in both the Third World democracies and in Third World dictatorships or authoritarian regimes, and to a lesser extent even in the developed countries. 2~

Is the IS characterised by absence of entrepreneurial response and prevalence of conventional patterns of earning livelihood? It has been suggested by some that such small scale and largely unrecorded supply of goods and services in a fairly decenwalised manner through limited commoditisation in a number of LDCs is taking place because "the smacture of governments and economic activity in most Third World countries effectively squeezes out the entrepreneurial element of economic activity, an element that is key to employment, capital formation and growth" (Soto H. de, 1989, 56). Those who take this kind of view suggest that these activities "fall outside the parameters of economic activity measured by the state and subject to its laws" (Soto, 1989, 56). This view implies as though the Third World has adopted the most statist and anti-private entertrise policies, which is just not correct. Further, informal activities are, infact, an entrepreneurial, albeit small and constrained, response tailored to the resources of the actors involved and the pattern of demand in the context of widespread poverty and oganised sector's rigidities. There are hardly any specific government regulations covering such activities. 22 Thus, there is a paradox involved in the position that these activities emerge because government policies and interventions in the economic sphere squeeze out the entrepreneurial element out of these activities though, according to the same view, these activities also fall outside the parameters of state recognition, reviews, recording and regulation! What the IS represents is coming into play of a low level of enmepreneurship at an early stage of its evolution. This is owing, on the one hand, to limited command over money capital and access to organised financial markets that the informals have, and, on the other. to the emergence of unequal competition of the monopolies, even at the initial stages of growth of capitalism in the Third World. 23

This could however be taken to imply that the entrepreneurial initiative defying public regulations must necessarily find expression in the form of informal supply of goods and services outside the parameters of governmental laws and recording. As Soto suggested "economic actors who rebel against the system" build "their own systems" (Soto, 1989, 59). However, if it be so, it is not clear why these activities should have for their main characteristics low resource base, simple, adapted or

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conventional technology, small scale of operations, linkages limited largely to the local market, etc. If these latter characteristics are the more generally seen features of these informal activities and it is because of these features that they are not amenable to either economic regulations by the state or regular and systematic recording by public agencies, it is clear that they cannot be the result of thwarting or snuffing out of entrepreneurial capabilities and initiative by the state. On the cont.-y, such activities represent a powerful response by small resource holders with limited access to formally marketed technology, finance, markets and skills to make the best out of their resource endowment in a socio-economic environment which does not give them large purchasing power, command over and access to resources for setting up or participation in regular production facilities, though, in an overall context, at a relatively low level of productivity.

These activities are on a small scale, which is a reflection, on the one hand, of loss of direct control over a good part of the means of production by the peasants, artisans and petty producers, and, on the other hand, of the monopolisation or dispro- portionate control over such resources by a small minority of already established and well connected industrialists. However, the entire small sector or microenterprises sector does not have informal characteristics, particularly its modern, incorporated or formally registered segment?' Similarly, there are self-employed, highly skilled professionals like lawyers, doctors, architects, etc. who, like the modern small industries, do not form a part of the IS, even when their scale of operations is small. ~ Thus what is regarded by Soto as a result of limitation of entrepreneurial talents may, infact, and more appropriately, be regarded as a flowering of entrepreneurial talent and skill as adapted to the specific configuration prevailing in most of the Third World countries.

It is incorrect to treat the entire IS as a non-market sector. What the IS is involved in is a kind of market to which the classical or perfectly competitive market theories would hardly apply. The bazaar sector, a te~m used for this genre of activities, may refer to small, localised, ~ . .ented markets in which commoditisation has a re- stticted scope in the sense that some of the linkages, both backward and forward, may not be in the market sphere. Often, it is just commodity circulation, not commodity production, though small commodity production too forms a part of the IS. It is an early phase of market development. The diversity of the IS leads to many different kinds of interface with markets. Many informal activities are organised by the formal uni ts 26 either by way of subcontracting or production by subsidiary units or, by way of a second job in the IS, by small entrepreneurs organising activities complementary to the formal sector, with or without appropriate authorisation, like authorised and unauthorised railway vendors and porters providing services complementary to train travel run by large public enterprises (Kabra, K.N. 1986). The linkages of the IS activities with the formal sector, and the superior strength of the latter v/s-a-v/s the former operate through market relations, i.e., through price determination in labour, money and commodity markets or though political organisafions and laws. 27

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The IS has been regarded by some as "mechanisms which develop to promote and maintain income differentials" (Birkbeck, 1979, 181). It is through market relations that these income differentials come abuut38 Birkbeck maintains that, 'Whe overall development of garbage picking is intimately related in its economic organisation to big industry, not only in Cali, but throughout the whole of Colombia. If the steel indusa'y is in crisis, so are scrap iron collectors. If demand for waste paper goes up, so do prices, and in all probability the number of garbage pickers as well. It has been shown how the garbage recycling business is cbaractefised by a hier~- clay of vertical ]inks which extend from factory to the garbage picker "(lbid, 181). Dif- ferent type of markets and market relations than those obtaining under the dominant, classic or formal and perfectly competitive capitalist markets cbaracterise the IS. As an analyst maintains, "a highly skewed distribution of income has led to the fragmentation of market, limiting their rate of expansion "(Scott, 1979, 124). Segmentation of the labour market and the IS are closely associated phenomena as "the existence of markets is not a matter of black and white but one of degrees" (Amdt, 1988, 226). The IS tends to produce for the markets and evolve a distinctive composition of its output. It arises, on segmented the demand side, from the involutionary pattern growth and the associated pattern of distribution of income and wealth which makes it necessary for the IS to produce goods and services afforded by the working poor.

The low income groups have demand for goods at a price too low for the organised sector producing enterprises. Either low cost production or recycling of second- hand goods can meet the demand of such sections. The IS produces many of these goods and services at a low cost as the "informal operators avoid overhead costs, taxes, and the restraint of minimum wage legislation" (Davies, 1979, 95). For many of these wants of the poor, there may well be formal sector products but priced beyond the paying capacity of the poor. In fact, the IS, by keeping the working class cost of livin~ low, helps reduce wages for the organised sector formal employees as well. Then, the IS also produces luxury and artistic hand made goods for the well to do by means of artisanal production. Thus the IS, providing income earning opportunities to those treated as "surplus," meets the survival needs of the poor who cannot have a tomorrow without the IS.

As for the operation of labour market relations in the IS, it may be mentioned that it would be incorrect to treat it purely as a self employed sector. Apart from personal labour, one may fred family and hired labour under various modes of payment, operational conv'ol and remuneration, hiring out of land and equilxnent, putting out system or outwork, sharing of returns, etc, in various informal activities.

Informal activities generally involve either wage employment or self employment. Both these forms of activities can be found as either pure informal activities or as a mix of formal and itfformal activities, i.e., informal activities undertaken by

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Enl .~rprise*

Pol or small Entre ~renenrs

(Illustrative list)

INFORMAL ACTIVITIES

I I I I

Voluntary Natural Economy Supp!y (traditional, (Activities for / non-registered, direct exchange) non-profit

activities) Reg~ul~ Cas[ ua 1

Jointly To I n f o ~ T o F ~ with Formal Enterprises Sector Sector Activities (Direct and Sub-Contracted)

1. Agriculture (Peasant/Family Fanning) 2. Petty trade, sale of lottery tickets 3. Small and cottage industrial units

of labour

Ow•[-account Workers without establishment

To I~ormal Enterprises

(Illustrative list) 1. Repairs, maintenance 2. Recycling of waste and garbage 3. Transport

(Arfisanal, small commodity production)4. Shoe-shiners, cobblers 4. Small service establishments 5. Hawkers, retailing and manufacturing 5. Real estate 6. Newspaper hawking/cure retailing 6. TransIxn't, Rickshaw owners, 7. Personal services

single truckers, taxi operators, hand or bullock-cart pullers

7. Recycling of waste and garbage (tailors, carpenters, blacksmiths, Pan shops, .s.weets makers and confectioners, goldsmiths, shoe-makers etc.

8. Personal services

1. The informal activities are either legal or exWa-legal and generally excludes illegal activities but may be stretched to include some open, widespread illegal activities tolerated by law enforcing agencies, either when they serve dominant interests or when the social, political, economic and human costs of enforcement are very high.

2. These activities are often found in a mixed form, at times even with formal activities. 3. Domestic production, natural economy, small commodity production (petty pro-

duction), small capitalist production (penny capitalism), extending to primm'y, secondary as well as tertiary sectors are the main forms of production of the activities covered by the informal sector.

4. It cannot by its nature advance any claim¢ of being exhaustive. * Both informal enterprises and labour supply may be by formal enterprises and employees from the formal sector.

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formal entities (multiple employment) or informal activities undertaken along with formal activities or informal method of hiring labour, organising sales, procurement, etc. adopted by formal sector units. This diversity can be better conceptuafised by di- viding informal activities into two groups: (i) Informal activities based on labour power i.e. by seeking wage employment in informal enterprises or, casual work in formal ones; and (ii) informal activities based on entrepreneurial role in a small, limited and often adaptive manner. It can involve personal/family labour along with some hiring of labour (See Chart).

A good part of these activities are by people whose main contribution is labour power, but failing to hire out their labour power, (both involuntarily and voluntarily) they work on their own account with whatever limited resources of fmance, technology, organisation, access to market etc. they can muster. This group of activities is often described as activities of self employed workers. Analytically, it may be better to treat these as activities of poor entrepreneurs. Here the separation of the direct producers and their means of production is incomplete. This is what is known as petty production in Marxian writings.

However, informal entrepreneurial activities are undertaken by persons with many different backgrounds. There are a number of informal activities in the form of repair and maintenance services, street hawking and retailing, some personal services, etc. which are organisod by persons who provide, besides their labour, their control over finance, technology, managerial skills and risk taking capabilities as well. These activities are considered decentralised on account of their spatially decenwalised, unregistered and small scale nature and informal ways of acquiring inputs ~nd selling outputs, as also because of the fact that they try to escape governmental regulations. Their clientelle too, in some cases, may be of poor people for whom they provide certain services and goods in a manner that their prices remain affordable.

The entrepreneurial activities undertaken in the informal sector me generally the main source of "mixed" income of the persons concerned. However, those informal activities which thrive under the wings of the formal sector may not provide the main source of income. However, informal activities based on hiring out of labour a~e generally the main source of incomes. Many of these activities make use of low wage labour, mainly drawn from some disadvantaged social groups like tribals, socially and economically backward ethnic and caste groups and poor immigrants. In some cases unskilled and semi-skilled persons and persons with ou!d~ted skills may belong to this category.

It is also useful not to overdo the dichotomy between wage-labour and self employment; "no such clear cut dichotomy exists" and "there are a number of intermediate forms between the two "pure" states" (Scott, 1979, 105; Davies, 1979, 88, Charmes, 1990, 28). These forms of use of labour in social production are cominen- surate with the intermediate forms of production, which successively evolve from

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domestic industry, of the natural economy variety, outwork, artisanal or petty production with fixed, local demand, small commodity production and small capitalist industry tO capitalist mf~ufsclming unilS of varying sizes (Lenin, 1977, 335-388). Later, capitalist service enterprises also emerge on the scene. In late developing economies, the processes of involutionary growth give further imperas to segmentation of labour market and consequent variety of forms of labour deployment at variance from the "standard" wage labour form like what Myint calls "household fn'ms" (1985). It is in the explication of these varied forms of market relations that the historical processes leading to the growth of the IS become relevant.Various ahistorical conceptions of the features of the IS present it as an arbitrary mix of these elements. It fails to identify the social groups, swata, classes and occupational groups which embark upon the informal activities under different historically evolving patterns. The concept of the IS attempts to capture these historically evolving diversities in their mutual relationships.

All these historically evolving activities in their diverse organisational forms operate through markets, and cover a variety of goods, services, factor markets and informal money markets. It means there exists pervasive linkages between the formal and informal segments of an economy, though such informal activities are relatively more pervasive in countries at a low level of development of their productive forces and larger socio-economic inequities. It has been observed that there is a large IS in countries with low per capital income ~ y , 1992, 8). Or, to put it the other way round, large scale prevalence of informal activities reflects low productivity, underdevelopment and inequities. There is a continuous hierarchy from the most formal to the most informal with varying degrees of integration with the market processes.

One thing common to many approaches to the IS is to treat it as a residual category. Almost tautologically, it is w~im~ined that all those who are unable to enter the formal sector belong to the informal sector. This is followed by a list of various categories of activities which are excluded from the formal sector. Often the formal sector is identified with the corporate sector. In this sense the non corporate sector is identified with the informal sector. Another variant of the same approach is to equate the small scale industries sector with the informal sector (N. Banerjee 1988, 73, and C.S.O., 1980, 135).

It is clear that the treatment of the informal sector as a residual category cannot bring out the nn~lytically distinctive, evolving and mixed features of the sector. It amounts to adopting a static view of the IS, implying as though it were a consciously chosen, theoretically neat organisational f o ~ . Similarly, non corporate sector too cannot be considered informal. Many non corporate entities have features similar to the corporate ones concerning the nature and scale of operations, nature of technology, nature, form and extent of marketisation, decision making and motivational

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The/a~lml Sector 211

framework and the nature of relationship with the rest of the economy. Such units choose to rewain non-incorporated for a variety of reasons like the fear of loss of direct control, disclosure of trade and technology secrets, absence of need for external finance, preference for partnership with relatives and friends, ~_n2_chraent to family tradition, desire to avoid public scrutiny and regulation absence of drive towards expansion, limited risk taking capacity, etc.

It is also correct to consider the entire small scale industry sector a part of the informal sector. Many small units could be corporate units. In terms of technology, product-mix, location, organisational and management practices and linkageS with the rest of the economy and the organised national markets, they could be qualitatively similar to the large or the medium sector. Actually such an identification is ahistorical. Ex/stence of a /a rge /n /b~ml sector represents a phase in the/argely unique evolutimary path of each economy in which the standard and dominant or- g~ni~tional forn~s and technologies fail to become generalised and ~miversal. "Ntis is l ~ l y to be the case even when generalized commodity production is extensive and market relations have become, by and large, powerful and predominant.

Similarly, it is incorrect, as seen above, to hold that the informal sector is an urban phenomenon only. Neither is the entire rural sector informal. Large capitalist f ~ s and organised trade in primary commodities in rural areas, besides a num[~-r of rural public services, belong to the formal sector. A good deal of artisan production, individualised production and services and, in fact, almost every type of activity seen in the urban informal sector may easily have mumt/s muumdis its rural counterpart as well. 29

The concept of penny capitalism developed by Sol Tax captures some of the elements of the informal sector. Based on a study of Guatemalan Indian economy, Tax considers such societies as capitalist on a microscopic scale.

According to him, in such economies, every man is his own fh'm and works ruggedly for himseff. Exchange does take place though on a small scale. Trade is generally undertaken directly by the producers. Thus there is private enterprise and competition and commerce, though perhaps little credit and machines. This kind of economy has features common to the IS. Thus the IS need not be considered either pre-capitalist or non-capitalist, k is underdeveloped, small scale capitalism, elements of which may survive into later phases too.

One atlribute of the IS, related to the sector's administrative non-regulation and non-recording, is t l~t many of its activities are often described as illicit, illegal, alegal or quasi-legal (Jagannathan, V. 1987, 3-4). Empirical studies of the IS enumerate many criminal and illegal activities like stealing, pick-pocketing, smug- gling, illicit brewing, drug peddling, etc. to illustrate the seamier side of the IS. Criminal and illegal activities me deviant and marginal activities and are generally not tTeated as a part of the economic phenomenon. Hence unless such activities

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become a substantial and reckonable part of the economy, producing goods and services and not just affecting illegal transfer, there seems to be little justification of tre.~tlng these activities as a part of the IS.

However, there are many activities which infringe, to varying extent, some laws and regulations like tax laws, locational laws, labour-laws, rules regulating entry, price and distribution controls, quality standards, immigration laws etc. Though "illegality can be found everywhere in the economy, from criminal activities (increasingly important in some Latin American coumfies) to simple tax evasion by well established firms," (Tokman, 1990, 96), it is often observed that many IS activities like hawking, pavements stalls, illegal slum housing, workshops in un- anthorisod building, hiring of child labour, provision ofpersonal, repair and maintenance services m-e violating or ignoring some legal requirements. As Hugon pots it, "These activities operate on the fringe of the laws; some me illegal, but most are alegal and tolerated by the authorities. The dominant features of these activities me that they slip through tax net and social controls, run without any book keeping and are based on systems of work organismion in which waged employment plays a minor part" (1990, 73; also J a g a n ~ a n V., 1987, 3-4).

Thus, it can be said that many, though not all, IS activities violate some laws, restrictions, prohibitions, licensing requirements, etc. One can say that there is some overlap between the informal economy and the black economy (Kabra, K. N. 1982, 53-4), but the two are not synonymous. However, it would be incorrect to u'eat violation of laws and regulations as a deflnin~ feature or a factor aiti"""~l to the very emergenee of the IS activities. In fact, it has been argued that uon-observence of laws is one of the results of operating informally, rather than its cause (Tohnmn, 1990, 96).

How about the connection between the IS and poverty as different fl'om its role in income diffenmtials? Since a large sized IS is an important femere of underdeveloped economies and most of the IS activities are chmacterised by relatively low productivity technology, there is a strong co-relation between poverty and the widespread prevale~ze of informal activities. It is also true that the IS is also marked by large income differentials. It means that compared to the formal sector, which generally encapsules higher income brackets, (though low wage pockets are not uncom- mon; seen increasingly in the form of casaalisation of wage labour), the IS is marked by the prominence of low income occupations and activities. However, we have sec~ that the IS is not based entirely on various kinds of labour deployment. It also comprises micro entrepreneurs, petty emergent capitalists, informal money market fln2nciers, informal professionals and various other petty and incipient capitalists. It c'm easily be seen that the incomes of inch micro ~ will be f ~ higher than those of even some of the waged workers in the ftnmal sector. W~thin the IS itself, there are incmne inequalities (Cnmnzs, 1990, 26). It was seen above that there is likely to be am overlap between the uppertail of income dism'bation of the informal sector and the lower end of income spread in the formal sector ('rhomas, J.J., 1990,

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7 h e / n ~ r m a l S e c ~ 213

152). What emerges from the above is that strict generaiisations about low income levels and universal poverty in the IS may not be true indicators of the conditions prevailing in the ~ , because of the essential heterogeneity found in the IS.

There are some attempts to contrast the dominant motivational and behavioural pauems of the informals vis-a-ris those prevailing among the formsl emifies. Such attempts to dichotomise profit maximizing behaviour of the form2] sector and the gross output maximising behavionr of the IS me rather simplistic and misleading based as they me on a priori as~lmpti'ons and me derived axiomatically from the assumed ownership and organisational features of the formal sector and the IS. This kind of postulates regarding the IS seem to be on some preconceived notions about the nature and character of the IS as the polar opposite of the formal sector. This amounts to non recognition of the continuum of organisatinnal-institutional vari- ations of various activities in the LDCs leading to differentiation of the IS from the formal activities and the mixed character of both in terms of various formal and informal attributes. In other words, neither the formal sector is bereft of all the traces of informality nor the IS is shorn of formst features in every respect. It is the overall character on the basis of the balance of predominant features as related to the key variable/variables and the macro systemic and historical context that one can place an activity in either the IS m" the formal sector.

III

The preceding account makes it clear that the activities covered under the rubric of the IS are at a Iowa" stage of economic development, represent various and mixed fmms of economic m'ganisafion and are connected with and me generally subordinate to, what me regarded as the "formal" and relatively more advanced sectors which, however, fail to becmne universal. It shows a high degee of diffaemi~on, relative tenacity ~ adaptability of various Incapitalist forms of peasant, artisan md small scale production of goods and services and related forms of Ins~elmm and usury capital. It is incorrect to treat these persistent, petty forms of production, ringing from ontwodc, baying-up, domestic economy, artisan pmductim and small ¢o~,mKety p m d m i m to ~imple capitalist cooperatiee as indepmdem and unconnected aed having an mtonomons, endogenous logic of their own. "lhey me inuimic to the late and post colonial capitalism which neither develops productive forces nm" production relmions to the same extent and in the same mould as took place under its classical and early antecedents. It underlines the empirical reality of "capital- /sins."

It has been suggested inmany pe~epfive accounts oftbe evolution of cal~alist industry that it proses through m ~ y differmt forms and staSes and that some o f~e older forms survive evm whon the domination of the economic sceae proses into the hmb of the meet advanced, Uege .care md highly capital intemive md techaologi- tally dynamic industrial eatmprises (Dobb, 1972, 131-161). For instance, Lenin

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showed that "capitalist domestic industry is met with at all stages of the development of capitalism in industry, but is most characteristic of manufacture. Both the small peasant indusU'ies and large scale machine industry manage very easily without domestic industry" (Lenin, 1977, 446). A large number of studies since then have brought out the factors which facilitate the creative tenacity of small production and the existence of different forms of industry and other economic activities.

For one thing, the separation between insmunents of production and direct producers is incomplete and takes place gradually through a process of differentiation of agriculture and industry, of agricultural workers and industrial workers and the tendency of the peasantry to turn into petty bourgeois (Lenin, 1977). To this may be added the impact of the characteristic features of modern economic growth, especially in the Third World countries, with large annual additions to the labour force and difficulties in pushing up the rate of accumulation and labour absorption. The new techniques tend to involve increasingly large scale of production, rising amounts of capital per unit of output, a quick rate of obsolescence and spatial and ownership concentration (Duller, 1982, 1-12). Both in the early induslrialised market economies and newly industrialising economies, these factors reduce the labour absorptive capacity of the secondary sector. With the primary sector already "supporting" a dis- proportionately large part of the population, this factor heightens the pressures from the side of labour force to fred for themselves various simple activities consistent with their resources through which they can fend for themselves. The IS in the LDCs is in a big way a response to such an involutionary pattern of industrial growth, a spontaneous response by the reserve army of labour without any meaningful formal or informal system of social security. To them, the IS becomes the social security, enabling them to survive, though, may be by making constant downward adjustment in living and working conditions.

This process is supplemented by the receding affordability frontier in terms of the prices at which most of the industrial goods and modern sector services become available on the market. The reserve army of labour and the self employeds (conventionally termed unemployeds and underemployeds i.e., the informals) cannot afford to buy these goods. Hence there arises a steady demand for low priced, albeit low quality, goods and services and certain Iraditional items of consumption which the IS is well equipped to produce in the shanty towns, slums, small towns and in the rural areas. Such IS activities are thus, in a sense, population industries. The IS thus represents a variety of forms production which arise in response to the inability of the dominant mode of production to cater to the needs of employment, income earning opportunities, social security and supply of affordable goods and services to a large part of the labour force and small business. The diversity in term of size, techniques, organisational forms, product-mix, etc. of such dispersed, spontaneously emerging activities by persons with limited resources give rise to organisational and operational heterogeneity which is the hallmark of informality.

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71~/~rmal Sector 215

Even the larger and better organised prime movers of the domJ~=ant mode of production find themselves up against various constraints arising from the markets and their segmentation, public policies and international factors which limit and reduce their rates of relmn to levels unacceptable or unsafiating for a variety of reasons. The prevalence of various informal modes of obtaining labour supply, physical inputs and access to markets and various methods of circumventing cost escalating laws and at the same time the availability of methods which are extra legal or illegal but increase returns come to acquire appeal to and acceptance by the formal sector entities. Thus the IS activities and forms of organisation no longer exist outside the arena of the formal sector only; they come into existence and flourish as adjuncts of the latter too. In fact, formal sector workers take to informal activities to supplement their incomes, and at times move out of it to undertake small, independent informal work. There develops a certain degree of symbiotic relationship between certain parts and forms of the formal and the IS. This too is a major factor in the genesis of the IS.

Thus one can say that what came to be termed during the 1970s as the IS is, infact, nothing new and has been recognised in a limited way long time ago, though under different labels and for different purposes than as a characteristic feature and manifestation of underdevelopment. Actually the transitional forms of production are very difficult to capture in theoretical abswactiens because of"instability and in- definiteness of economic categories" (Lenin, 1977, 442). The contrast between formal and the IS is, infact, a contrast between highly developed capitalist forms of organisation and their relatively underdeveloped historical antecedents which continue to survive and subsist in various mixed and adapted forms under various conditions in their rich diversity and in their newer incarnations. In so far as the relatively advanced forms of economic organisation are treated as "formal" and their lxedecessors at various stages of evolution and operating in various combinations are treated as informal, often there is a mistaken presumption as though the two are unconnected worlds and follow different laws of evolution and working, rather than constituting a complex, highly differentiated unity. As Lenin pointed out in the context of Russia "The simplicity is simply touching: 'capitalism = 'factory industry' and factory industry = what is classified under this heading in official publications" (I977, 457).

Another way of looking at the info~cc~J sector can be in terms of the analytical fi'amcworks and theories dealing with micro production units like finns, households, and corporations and the production structure or sector they constitute by means of mutual interactions. The mains~eam economics, particularly in the tradition of the neoclassical economics, assumes well organised personified fh'ms with well defined legal structure concerning rights and obligations based on the motivation and capabilities of the entrepreneurial and financial resource holder/holders. The i'nm is taken as a black box and its internal organisation and relationships are not discussed as these are not considered relevant. Nor is there any recognition of transactions costs and the complications arising from principal-agent relationships in the intra finn relation-

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ships (Eggertsson" 1990, 3-25, Zukin, S. and DiMaggio, P., 1990, 5-9 Perrow, C. 1990, 123-131). Under this approach, the firms differ with respect to their prodil~- mix, size, location, etc. but in terms of behavioural characteristics, motivation and responsiveness to changing market situation and internal organisational features and relationships among owners, financiers, shareholders, managers and workers, they are assumed to be uniform. It is such economic entities and their market relationships based on price signals and commercial exchange which are taken to constitute the formal sector. Any departure from the standard organisational format, pattern, relationships and internal organisational features playing crucial non-market roles through related mechanisms are taken to constitute inforu~ality. The informal sector comprises such entities exhibiting various degrees of informality. The neoclassical paradigm does not even recognise the existence of such production units, such relationships, organisational forms and relationships and the universe they constitute. Apparently it is not in a position to explain the emergence and functioning of the informal sector, its intrasectoral relationships as well as the relationships with the fol~nal sector entities.

Thus the prevalent views on the IS as a set of activities with common features in sharp contrast to those of the formal sector are rather simplistic, descriptive and, methodologically, based on the neoclassical paradigm of the theory of firm and market structures and the principle of excluded middle. These views appear to be similar to what Lenin has called the Narodnik view of the handicrafts industries as "economically homogeneous, something sufficient into itself" and which stood in a stark conwast to capitalism (lbid, 456). 31

In fact, the terms like IS tend to imply a set of economic activities which are qualitatively different from the predominant capitalist forms of economic activities. The latter are highly organised, make use of advanced technology, related to processes of incessant accumulation and follow certain well def'med rules and laws. Most economies see the coexistence of such diverse forms of production, indicating that the organisation of economic activities can take extremely varied forms ranging from the most primitive to those representing a high level of development of capitalism with a number of Wansitional stage between the former and the latter. What is important to emphasise is that these diverse forms work together under the umbrella of capitalist production with asymmetrical relations between the formal and the informal. 32

It may thus be concluded that the IS represents fairly well known and anticipated suuctures of economic activities with their technical, social and cultural specificities. It means the IS is not something altogether specific to the present day LDCs as one can see the existence of a fringe of informal activities in advanced industrialised capitalist countries as well. However, in the developed countries, the IS does not have the same.roots, role and salience as it has in the LDCs. Even the factors contributing to the persistence of the informal activities and the emergence of new ones in the developed market economies are different from those relevant for the LDCs) 3

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/a f~m~ 1 ~ 217

"I'nc industrialised "socialist" countries had such a complete elimination of private property in the means of production, entrepreneurship, and statised, central plan directed functioning of economic units that it could not legally allow the existence of any inform~l, decentralised, privately owned and managed activities. Such informal activities provide a lot of flexibility to the opc~tion of the system in the use of labour power, supply of goods and services and for making adjustments in technology in response to the factor endowment, market demand and prices, particularly at the local level. ~ Thus, by leaving little legal scope for m~king planned use of informal activities, the socialist countries deprived themselves of an important avenue for bringing about adjustments in the system by creating a second string to the bow and for energising creative responses from suppliers of various inputs whom the state sector could not mobilise or whose needs the state sector could not adequately meet, though the underground existence of such a second economy is widely known. ~ The contrast between the industrialised capitalist and "socialist" countries in connection with the existence of informal activities highlights the functional-structural factors tending to the emergence and role of the IS.

As for the Third World countries, there is a need to draw a distinction between the factors which led to the emergence of the IS during the pre-colonial and the post- colonial periods (Brett, 1973, 226-305). As indicated earlier, many informal activities emerged during the colonial period: some were just the continuation of the traditional activities with minor adjustments, though with new found relationship with the newly introduced industrial and capitalist forms of production. There also emerged new informal activities in response to the introduction of large scale import of manufactured goods, export of primary products, decline of traditional crafts and introduction of modem factories leading to the growth of urbanisation. In the altered scheme of the social division of labour, those rendered superfluous and/or unable to find new work opportunities drifted into the IS, as landless agricultural workers, pzuperised small and marginal tenant farm.s, or as migrants to city slums hoping for wage employment in the formal sector (See chart for a more comprehensive picture).

In most of the LDCs, capitalism made its debut first in industry in a limited and lop sided manner. This was not accompanied by growth of capitalism in agriculture for quite some time, (even though production for exports and urban centres or "com- mercialisation" developed) leading to persistence of peasant farming or, of modified feudal agriculture. Had these countries undergone the "English" pattern of seeing capitalism first in agriculture, causing massive landlessness but without their absorption in industry (owing to late beginning and colonial domination), there would have occurred massive pauperisation. But the process of depeasamisation was slow in most of the LDCs as an adjunct of limited capitalist industrialisation (Leys, C., 1987, 46-47 ~rut Scott, C., 1984, 7). Apart from overcrowding agriculture as landless and p a u ~ artisans or with tiny land holdings, a !arge number of people had to fred new sources of earning their livelihood. The modern factory industries did not create

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wage employment on a scale anywhere near the number of people whose traditional callings were virtually destroyed. Thus, there emerged a fairly large sized floating population, a kind of reserve army of labour, which in the urban areas sought to eke out a living by adopting various informal activities and in the rural areas persisted with their agricultural and artisanal callings. As Lenin maintained, "it is extremely important to point to the significance of capitalist domestic indus~ in the theory of the surplus population created by capitalism" (Lenin, 1977, 451). In the rural areas, they survived as weakened artisans, often seeking agriculture work either as landless labourers or on their tiny family holdings or surviving as tenants-as-will. As more and more modem factory induslfies and modem infrastructure covering power, transport and communications developed in the Third World countries, a number of subsidiary and subordinated informal activities made their appearance not only in production of goods but also in the provision of a number of services of both conventional and new variety.

The IS in the post-colonial Third World owes itself, among other things, to the involutionary pattern of indusffial growth and structural retrogression. 36 With non- availability of effective income earning opportunities to a large number of persons, the informal sector in agriculture, industry and services absorbs the increments to the labour force as a sort of sponge. Thus the technology, product-mix, ownership concentration, location, surplus flows, import intensity, elite orientation and capital intensity of the industries developed in the Third World could involve a large part of the labour force and consumers only by means of the IS linked with the formal sector in many input-output linkages but without having meaningful or proportional access to government support and key inputs like finance, transferred technology, etc. (ILO, 1972, 503-5). Hence, it is not true that the IS and modem industries are unrelated: rather it is a specific form of relationship.

Much of the difficulty in conceptualisation or even recognition, let alone understanding of the aetieology of the regular and systematic existence of the unorganised or the informal sector arises from the prevalent methodology and conceptual framework of understanding developed market economies or cases of early or classical capitalist development and the attempts at nearly wholesale extension of the appli- cation of these categories to the Third World (Hart, 1973, 61; Weeks, J., 63-4). The theoretical models of a perfectly competitive economy failed to take into account various imperfections or increasingly large size of firms or high degree of monopolistic concentration. While this has been recognised and alternative models of market economy in the form of imperfect competition, monopolistic competition, barriers to entry and oligopolistic development have been evolved, there has been inadequate, if any, recognition of the prevalence of pre-capitalist, small and tiny, archaic, atavistic, insufficiently integrated economic units displaying a variety of ingenious organisational forms. Even the concept of underdevelopment as developed under the influence of mainstream economics could not incorporate the phenomenon of the IS under its fold, at least not until the 1970s.

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Findings of economic historians in these respects could hardly influence the theories of mainstream economics. Similarly, most theoretical models of capitalist and market behaviour are based on a very sharp separation of the family and the finn, i.e., families are taken, basically, as suppliers of labour and organisers of consumption, while firms are buyers of labour and organisers of production whose internal organisation, motivational and behavioural complexities are assumed away, as pointed out by new institutional economies (Zukin and DiMaggio, 1990, 3-9). Even in the most developed market economies such a sharp differentiation between family and firms does not exist, particularly in many branches of production, particularly in artisanal production, fanning, dairying, trade and provision of many services including some highly sophisticated ones? 7 Similarly, the survival of small scale production units is well known in most of the market economies, even to the extent of being a distinctive features of some economies like that of Japan (Morishima, 1983, 101- 103).

Given such a theoretical framework and analytical tools, it is not surprising that the unorganised or the informal sector, characterisod by family based units of production or supplementation of family income by employment in informal activities at wages which may even be lower than the cost of maintenance and reproduction of labour power, often falls to be recognised as a distinct phenomenon, needing specific analytical categories and separate treatment. These activities have a low degree of socialisation in terms of input supplies, particularly, labour supply. Their degree of separation from family (as a distinct social institution) and emergence as firms or as labour associated with the firms, is incomplete. Then, the informal activities are generally carried out on a relatively small scale. To a certain extent, this sector despite its large size, is a pointed departure from the prevalent and dominant model of capitalist economies, whether in the developed or the developing economies. The phenomenon of the IS, on the contrary, represents an operational fusing together of the family and the firm, sought to be captured by the phrase "household fern" by Hla Myint (1985). However, it is incorrect to view the informal sector as non-capitalist or, non-socialist. It is an assembly of lower forms of production subordinated to and caused by the specific rate and pattern of the evolution of the dominant mode of production, and is related to it in many constantly reproduced sets of relationships. (See the Chart for an overview of the IS in its diversities as well as commonalities.)

Even when the overall growth of capitalist production is fairly well advanced and is, in certain spheres, in keeping with the trends seen in the main cenues of capitalist Vov, th, one finds that the IS is taken as a departure from the norm, as a kind of a persistent legacy of the past as well as the emergence of new but non-typical or other than the dominant forms of production. Non-recognition of this phenomenon, in all its import, particularly in the case of countries experiencing late capitalist development, may be, to some extent, owing to the overpowering influence of the acquired or imitative theoretical models. It is a reasonable hypothesis that a production system,

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which tends to become increasingly concentrated and centralised, and experiences "involutionary growth," would lead to emergence of micro enterprises, various methods of labour deployment, multiplicity of forms of organisation, degrees of socialisation and adoption of technology of different vintages. The IS is, in fact, the epitome of the multiple unevenness o f capitalist development, particularly late capitalist development.

Since such unevenness is greater in the case of late developing economies, (economies which by themselves are a prime example of the unevenness of world capitalist development), it is inherent in the nature of their capitalist development that they would be characterised by the simultaneous existence of many different forms of production, particularly in organisational and technological aspects, with discretely differentiated levels of productivity and socialisation. For one thing, unevenness of development leads to differences in the capacity to organise production. While some entrepreneurs would be in the forefront of technology, investment and marketing, others would be in the process of making a transition from either peasant farming, trade or informal money markets to more up to date industrial forms of production. It is this ensemble of different forms of production in the context of an emergent mode of production marked by a high order of multiple uneveuriess, representing creative adaptive response to serious bottlenecks holding back development which constitutes the essence of the IS. But its creative adaptive features make some varieties of informal activities outlast any specific stage of development and make them survive into many relatively advanced societies as elements imparting a certain degree of flexibility to the basic organisationai forms, and scope to human ingenuity and creativity.

IV

If our reasoning above is valid, it follows that the IS does not simply represent continued existence of archaic, pre-capitalist forms of production, organisation and technology. Rather, it also show the adaptation, evolution and emergence of new forms of production, and organisation in a variety of ways other than the standard, textbook organisational model of a private-enterprise market economy. Ownership, organisational and managerial pluralism seems to be an objective necessity of any complex, modem economy marked by multiple differentiation among workers, resource holders, consumers, regions, and habitats. Given the historical conjunctural specificity, structural complexity and socio-economic differentiation of the LDCs, a large and variegated IS appears as a functional response which is being increasingly appreciated by the analysts, policymakers and planners.

The line of reasoning adopted above marks a departure from the understanding of the IS in terms of various rural-urban migration models. These models tended to treat the IS largely as a self employment, transitory station of the rural migrants waiting to be absorbed in the urban economy as waged workers. Notwithstanding the rich empiricalcontent and deft handling of the analytical issues in terms of the push and pull factors and the economy's limited absorptive capacity, and the diversity of

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lhc/albrmal Sector '~1

the IS, its causative factors, and its relationships with the better organised segments of the economy, the separation between self employment and wage employment was too sharp and pointed to be in tune with reality marked by many mixed, interrelated and inadequately differentiated forms of labour deployment. It also ignored the large absolute size of the urban population and the inability of either import substituting or export oriented industrialisation (both inadequately rooted in local soil) to productively engage all or most of the new urban en~ants in the labotu" market. Then this view does not even seem to recognise the array of informal activities found in the rural areas, as also various illegal, semi-legal and alegal informal activities.

A number of other attempts to conceptualise the IS in terms of some important and commonly observed features, or a synthetic resume of various features are, we have already seen, too descriptive and adhoc. Moreover many departures from and exceptions to these general features also reduce the validity and utility of such attempts at synthesis. Additionally, it is somewhat arbitrary to determine the relative significance of one set of "common" features vis-a-vis another, owing to the ambivalence and diversity of the IS.

These attempts indicate the difficulties in conceptualisation of a phenomenon like the IS. Apart from its heterogeneity, it exists in a variety of different conditions and fullfils different roles. Inevitably, it partakes the imprint of the setting in which it emerges and operates, making it difficult to hammer out a neat definition. Almost every sector seems to have direct or indirect existence of informal activities which are related to the formal sector in many ways. So much so that even the most formal sector like the government or the corporate sector have segments and crevices in which the informals get entry and the former have to interact with the informal entities. The implication of all these considerations, therefore, is that one has to identify the key variable/variabies in terms of which one may focus on the essential and distinguishing features of the IS.

It appears that the organisational institutional variables constitute the core of the IS (Tokman, 1990, 95 Peattie, 1987; 858). The nature of informal activities, whether in terms of deployment and remuneration of labour, ownership, conlroI and ogani- sation of the means of production, ease of entry, scale of operations, choice of the product-mix, inter-action with similar or more formal activities, etc., seem to derive from the flexible oganisational methods these activities employ, a veritable institutional laissez-faire (Wiles 1977, 53-6). The key variables or "unit of analysis" reflecting informality, (Tokman, op.cit) therefore, are the organisational institutional factors, which may be placed under the rubric of the "form s of production. "38 These forms of production in their totality and on the basis of the dominant and the most pervasive form of production may be taken to constitute the mode of production. These forms of production relate to individual activities, micro units and sectors, while the mode of production refers to the national economy as a whole. Thus in any mode of production two types of forms of production obtain: those largely similar to

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the dominant mode of production and those which are not so, being a variety of subsidiary, subordinate forms of production, which in their totality are treated as the IS.~

It is this kind of the IS whose origins, nature, features, and methods of operation and persistence we have discussed in the foregoing parts. In view of the controversies over the concept and definition of the IS, its heterogeneity and ambivalence and the manner in which the IS in different economies differ from each other, one may be sceptical about the continued use of the concept of IS, as, e.g., Ivan Illich seems to be (1981, 31), while many others argue for its total rejection, as typified by Peattie (1987, 851-8). Ironically, similar factors have been used to weave together a common "definition" by the earlier analysts of the IS. Both the attempts seem flawed (N. Khundker 1988, 1263-5). Though the term IS may not portray either a uniform or a unified picture of the great diversity in conditions and forms of production, particularly, in the Third World, it seems to suggest some basic and co~mJon institutional and organisational tendencies (rather than cut and dry features) on the basis of which one may identify certain activities as being informal. The attempts to make the concept of the IS represent the observed features of certain activities and occupations, not conforming to the pattern obtaining in the mainstream and dominant activities and occupations in terms of a synthetic summing up could not go far. However, certain analyses of underdevelopment during the colonial and post-colonial periods tended to highlight the processes and/actors which contribute to the coexistence of these muMple and lower forms ofproduction. This became possible by the replacement of the descriptive empirical approach and a mechanical extension of market categories by analytical historical, institutional approach and the consequent theoretical innovations.

The term IS which emerged under the former approach does not seem to involve any conflict with the latter approach and even the approach recommended by those who want no more the IS (Peattie, 1987, 858). The dichotomy between the formal sector and the IS cannot be very sharp and marked by a clear and unbridgeable divide. In the continuum of the organisational institutional diversity, one has m introduce a line of demarcation between the two somewhat broadly and in a rough and ready manner. But this does not compromise the essential, qualitative divide between the universes of these two, one way symbiotically interrelated sectors. Thus the term IS understandably becomes a popular short hand description and may well provide in- tellectual help to policy and political processes of conscious transition to higher and more homogeneous modes of production.

However, the Concept of the IS does not ipso facto imply any particular theory of underdevelopment: whether a neo-dualist theory, or a theory of involutionary economic growth, or of a theory of underdeveloped capitalism. It is a popular and short hand description of the results produced by various processes of underdevel-

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opmem and persistent, largely disfunctional, differentiation. It implies the inade- quacy and malappropriateness of the extension of certain concepts like unemployment, disguised unemployment, full employment, prevalent methods of computing national income, etc. to the underdeveloped world which just cannot be understood as the earlier incarnations of the forms of activities and relationships seen by the industrialised market economies.

Thus the IS represents an apt portrayal of a part of the complexity of modem underdevelopment. It also provides a method of systematic ordering and understanding of this complexity and heterogeneity and relating it to the better organised segments of the economy. It shows that among the multiple forms of production, other than the dominant, powerful and formally organised ones, there are many informal ones which, according to the specific features of the products, work force, traditions, demand, availability of resources, needs of the formal sector, habitat and location, take many flexible and simple forms. Thus these forms of production display a high degree of responsiveness and flexibility to answer the complex needs of late developing societies. Recognition of these forms under the rubric of the IS is a useful step for more realistic, non-imitative development policies.

Not that the IS approaches by themselves represent a complete, self contained alternative model. The main point emerging from the recognition of the IS is that any meaningful approach must not neglect it, particularly because the conventional development theories popularised during the 1950s and 1960s could not in their aggregative, one dimensional, imitative and arithmomorphic approach capture meaningful, realistic and historically specific views of the nature and process of underdevelopmem. It is in this context that one finds it possible and useful to use the term IS not as a locus of all the empirically observed features in terms of the scale of production, skills, interface with government and organised formal markets, location, nature of technology and product-mix, etc.. Rather, it is an umbrella or portnaanteau term (Chandravarkar, 1988, 1260) for varieties of elemental oganisational institutional arrangement, other than the well defined, chiselled and the most powerful organisational forms typical of the mode of production obtaining in the countries of the Third World. This approach also shows how these informal forms may persist even at more advanced stages as elements imparting flexibility and responsiveness to various specifics neglected by the market processes, though without the kind of salience the IS acquires in the Third World context.

Understanding of underdeveloped societies in terms of the factors and processes sought to be represented by the concept of the IS, provides a useful theoretical means to understand the social structure of the Thirld World societies (Levkovsky, 1987). The "vernacular" activities sectors, (I. Illich 1981, 29-51) provides the wherewithal of maintenance, reproduction and participation to the poor and the underprivileged sections of society. The nature of this sector explains the marginalisation of a large

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number of people, who lack "voice" in the management of their societies. It is true that universal adult franchise in most of the poor societies entitles the informals to participate in the political and cultural processes but the nature of their informal activities prevents their empowerment (Friedmann, J. 1989). Development strategies and policies have to devise means to involve and empower the informals if there has to come about a break from the mirage of "development" pursued so far.

V

It seems to be widely recognised that the IS, with its origins both in the functional structural features and the emerging trends in the development experience of the Third World counUies, does not necessarily represent an ensemble of activities on their way out. The immediate support it provides in terms of livelihood and participation to millions of the most indigent sections of the developing societies and the way it acts as a buffer protecting the system from the onslaughts of the deprived sections with no space in its formal parts, there is little wonder that growth and strengthening of the IS is regarded as the "other path" ushering in an "invisible revolution" in the Third World (de Soto, 1989; Thomos. J. 1990-91).

Though the IS represents an elemental and spontaneous evolution of the forms of production, it would hardly be fair to leave the IS to the mercy of these very forces particularly when the stronger, better endowed and better placed formal sector is provided so much support by public policies and planning in different Idcs. Left to itself, the IS may lead to constant downward adjustment in the living and working conditions of the informals. Hence, the need for public intervention to overcome its relative disadvantage and to improve its access to various means of viable growth.

This raises the question of the objectives of such intervention. What should the state try to achieve with respect to the IS7 How are these objectives related to the place of the IS in the course of development? If development implies basic transformation of the system in order to overcome its multiple unevenness with a view to scale rising heights of productivity of resource use, would it follow that the public policies should try to achieve a better and closer integration of the various segment of the economy? Would such integration imply some conscious public initiatives and actions for over- coming the elements which impart inform~ity to the activities of this sector? Since this appears to be a long term endeavour with the likelihood of success only up to a point (beyond which new and different kind of forces emerge to sustain various IS activities), some inherent limitations seem to apply to the attempts to inject growing doses of formal sector Waits.

The informal activities carve out a lasting and creative niche for themselves, and in the process may partake, in some cases, a ce~ain degree of illegality as well. Thus, the IS becomes a means for limiting the effectiveness of various public interventions. Thus improving the effectiveness of public interventions and creation and constant

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updating of the data base for the IS become outcomes incidental to the IS policies. Public policies for the IS are a part of the process of making good the neglect of the IS by the state. Given the prevasiveness of the IS, the objectives of State intervention must necessarily be derived from the needs of this sector and the economy e.g., as a means to contribute to equity, firm up and expand income earning oppurtunities, etc.

One generally comes across a set of suggestions which intend to improve the IS's viability, technology, organisational design, access to markets, credits, public support, etc. The model suggested is such that one gets the impression that the whole exercise is geared towards formalisation of the IS. The idea seems to be to help it get absorbed in the body of the formal economy. This perspective tends to ignore the needs of the IS, its role in the economy as also the factors which give rise to it. To recapitulate, the overall nature and processes of development are such that multiple forms of production emerge and survive, making the IS a fairly durable phenomenon. Various public policies may help the informals to overcome, to varying degrees, their disabilities regarding entry, operation, extended reproduction, access to inputs and support systems, relative strength, exit, etc. But there would continue to operate macro, systemic, micro and socio-economic factors which would make for the persistence of some notice able differences regarding the organisational and operational practices and economic relations among various economic activities. The relative importance of various informal forms may vary over time but the diversity of forms as such is unlikely to become totally marginal and negligible.

The purpose of the IS policy, therefore, cannot be one of its formalisation. The purpose of these policies has to be that of helping the informals to overcome their general and specific disabilities and disfunctionalities over time and see to it that the one way domination of the IS by the formal is reduced. In brief, the objectives of state policies and plans for the IS should be (1) to help them improve their access to public support, credits, markets, and labour, to gradually improve the skill of the workers, teclmi.'ques of production, and quality of goods and services. This would help to improve the socio-economic conditions of the informals leading to greater self reliance. In this way, the capacity of the informal to receive positive impulses from the better organised segments and to be able to respond to them may be enhanced. However, this process should not curb their ease of entry, higher degree of freedom in the choice of organisational and management models and styles, and quicker, and less unen- cumbered adjustment to local needs.

(2) Some of the IS activities are vestiges of the past. They survive mainly for want of better and viable alternatives in required numbers and forms. These activities are at best transitional. The IS policy may well aim at improving and updating these traditional callings till such time as the non-involutionary development processes absorb the manpower engaged in them. Even then, there would be a need to presearve some of these activities contributing to cultural enrichment, preservation of the heritage and giving both consumers and producers a greater sense of self actualisa- tion.

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(3) Some of the IS activities suffer on account of the prevalence of some archaic exp[oitative organisational and business practices, like putting-out system, outwork, usurious practices, casualisafion of labour, t ied loan and marketing, drugery, child labour, product ion of dangerous goods or use of polluting and hazardous raw m ~ a l s and methods of production, etc. Apparently, the policy goal in such cases

have to be to introduce measures to change, modify or put an end to such practices or regulate them on the basis of some commonly accepted norms, consistent with the character and capabilities of the IS.

Such regulatory interventions also help generate d?ta base which may contribute to better poficy interventions. In fact, systematic regulation of the IS improves the quality of the formal sector regulation, as the latter inter-mingles with or adopts IS traits in order to evade and frustrate public regulation.

Despite its size and significance, the IS has so far been able to evoke little public policy response. It reflects the inability of the informals to wield political power and influence commensurate with their numbers even under various democratic regimes. It may also be taken to indicate that some socio-psychological barriers separates the informals from various professional elites having a relatively large voice and a hand in the pol icy processes. One may also point out that some special and non- conventional pol icy measures are required for the IS. Neither many precedents nor much understanding regarding such pol icy measures are available. These factors point to the need for various non-governmental initiatives for organising self help measures by the informais. Such measures may lead to increased voice and participation by the IS for becoming active participants in and beneficiaries o f micro-level development planning and policies.

Notes

1. A large number of other terms like the survival sector, the non structured sector, transitional activities, subsistence economy etc. have been used to describe these activities. It is reported that some thirty terms me onmmtly bektg used to describe this llenomenon, p. 129. see, Lachaud, J. P., p. 129, (1990).

Urban Informal Sector and the Labour Madcet in Sub-uthanm Africa," in Tumham, D., Salome, B., and Schwesz, A. (ed.) (1990). ~ e / n ~ m a l Sector Revisited, Paris, OECD.

2.Thomas, J.J. has maintained that under recessimuuy pressureJ, the governments in many countries were fmdin 8 it difficult to provide besic univerud services like education and the gap was often filled by "mf .onnal activities (1990, op. 202~ What Thomas calls fit a somewhat high sounding way, "Infor- malisation of the State" can be seen in a good mensme in many LDC~ on account of several sources chinch and the prevalent order of priorities. Evidence from Latin American and African studies on the IS also show that adjmtmem policies led to growth of the IS. Tokman, Victor E, (1990) "Infor- mal Sector in Latin American: Fifteen Years Later," in Turnham and others (ed.) op. ctt p. 106. Kenneth King, "Emerging Trends in Africa: A Briefing Note for New Studies" in Ibld. says, "large groups are to be redeployed, from the public service into self-employment in one African country. Equally the major import iibendnauon associated mm adjtistment poficies could swell the informal sector through factory clmures, and alter the nature of wink in some trades, e.g., tailoring" (p. 199).

3. Such views which represent the IS es "slagnant, non-dynamic and a net for the unemployed and for ~inly-vefled idleness," are attributed by the ILO Mission to "a leap of imagination" and abeence of considerable opermess of mind" (ILO, 1972, p. 5).

4. Charmes, J. (1990) shows that "the informal sector worker generally makes a higher contribution to national output than the minimum wage (twice as high, indeed, in three of the four cities surveyed by

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ILO and in Tunisia). Productivity is much higher thin per capita GNP, the coefficient varying from I to over 6, in "A ~ Review of Concepts, Definitions and Studies in the Informal Sector, in Tumham and others, (ed,), op.cit p. 39. As Nasreea Khundker maintains, the research on the IS has shown that "the poor are also productive" (1988, 1263). See also Weeks, (1973), Peattie (1987).

5. These aspects have been noted explicitly on the basis of both empirical and theomical resemches during the last two decades following the ILO study. King, (op.ciO suggests thst "some attempt mint be made to situate the informal economy within a pmlicular historical pettem of development" (p. 200). A Svavey of Latin American Studies relates the IS to "the relative insufficiency of labour absorption in modem sectors" in a"stmcun'al e n v ~ where population g~w at a faster rate and assets were more concentrated than in today's developed countries in historically comparable periods" (Tokrmm, op.cit, 95). He notes that "as the eapimlist form of production prevails, informality can only develop m market s~m~__ ~ left out by capitalist development" (95-96). On the basis of African studies, it has been pointed out that "infonnal" or non-official activities cater to basic needs that the formal system is unable to meet: housing, clothing, training, healtlr, a~, entertainment." Hugon, P. in Tunthem and othen (ed.) op.cit, p. 77.

6. Recent writings based on many studies and surveys show that the IS is no stranger to the rural areas, King shows that "In the 1980s, there seem to be Some poim in re-concepmelising the IS as the ordinary economy cuttin 8 across rural and udmn areas, agriculture and commerce, across survival skills and income-generating strategies." "Informal Sector: African Experiestce" in Tnmham, D. and others (ed.) op.cit p. 145. Also. Mehmghlin, S., "Skill Training for the Informal Sector. Analysing the Success and Limitations of SuppoN Programmes" in Ibid. p. 158.

7. A similar, but perhaps more adhoc, definition of the IS, confining it to the adam sector is given by Todam (1987, 591), "that pen of the mtam economy of the LDCs characterised by small competitive individtml or family f 'ms, petty retail trade and services, labour-intensive methods of doing things, low levels of living, poor wodfing conditions, high birth rates, low levels of health and education, etc. It often provide a major source of urban employment and economic activity." This, somewhat inelegant "defmition" or rather description of the IS, appears to be very broad except the reference t o " m ~ l ,cale," and"eden" economy. Therehavebeensomeexercisestospecifyhigldyspecificand arbia, ary quant/tat/w tests (///m number of v~0r/~rs, years of schooling, etc.) for memb~sh/p of the LS, Sethuramm quoted in Charmes (1990, 13). By aod large we have excluded such descriptive and eclectic empirical studies of the IS in many cities.

8. The IS, stands in contrast to the "fonnal," which is generally taken to show the features of capitalist industrial, mercantile and service enteqnis~s. Naturally, it cannot predate modem capitalism. However, in diffemat capitafist countries, the IS emerges through ~d~f.emnt pro~s..ses under different compulsions and at different stages of developmmt. the pettem of IS m indusmahsed madtet economies 0ike moonlighting, second job, direct exchange of labour, black economy, etc) is vastly different from the pattem seen in the Third World through involutionasy growth.

9. For a debate which clarifies these issues, See, Peattie, L., (1987), Chandravarkar, A, (1988) and Khtmdker, N. (1988). The expheugion by Na~nm, N. J. (1987) in terms of a verm diagram and a triangle helps to reduce some outstanding confusions.

1(1 T~kman, V. F,, op.cit, says that "the informal workers are tndy capitalist ent,©p~e~eurs in developm 8 counties." He dubs it "petty capitalism" p. 107.

11. Omrmes maintains that "these definitions are linked with the existence and content of the available statistical sources used to measore the l~monmam, sources wblch later affected the specific methods of investigation used to arrive •t an understanding of the IS" (op. ci:, pp. 11-12).

l z ~ ~ i ~ . _ , ~ , t , 0 . , ~ w t ~ - ~ ~ e r ~ level ~ ~ of a ~ ,mt~ .~ ~IS ." More specifically,'the IS zs of gnmer eraponance m coontnas vatha more nmked agnculua~ dmm¢/e~ and with a lower per capita GNP level " ~ p. 17). It is dear that since the c ~ e s with low productivity have • large IS, the latter repteseats low productivity, lower forms of production.

13. For instance, during the early stages of capitalist develo . . . ~ . . i n Engl~d, the empir ica l .co~q~. of what is now called the IS was recognised by End!s, F. in his ~ / * , o n s o~b~e Work/aS C h u m Eog/and in 1844. He wrote, "ll~. 'Surplus l~ulatlon of Enl~ .hn& "keeps bo~.. a~d soul togetl~r .by begging, stealing, sLre~-sweepmg, collecting manure, pushing ,,hind-carts, driving donkeys. It ts astmisl~g in what devices, this 'suq~m population takes refuge' (p. 16). In these forms, the IS may well represant various institutional devices for the task of primitive accumulation and such pressures m to be present evm now Otablb, 1989).

14 .Based on a synthesis of many emorical studies. A symhesis of many models would need (i) to take "acconnt of the heterogmeity of the IS, specifw.ally the duality between unskilled wodKers and small scale employers, md (h') to explain not only the movemmt of worken D~i the IS to the fomml sector, but also the movement from the formal sector to the IS" (Thomas, J. J., op. cir.).

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228 JCA 25:2/Kabm

15. Turoham, D.and others, (op.cit) for a great deal of evidence on this issue, l~miculady Charmes, J. op.cit. Mukhopodhyay, J. K. (1992) mmtion that in many l~fin American countries, 30 to 60 percent of the workforce is engaged in IS or illegal activities (ix 8).

16. Hugon (op.cit, 7.76) refers to "the wide-range of work status and labour markets in udam areas." These diversifies in the forms of labour use and labours markets in url~m areas in the IS "anse. from any of its features like sesmented" labour market, job sean:h model or "staginS-poat" or "survival strategies" model of the IS, and wage fisidity characteristics of the organised sector which is "able to pay wages far in excess of the income of population as a whole and was able to pay these wages by virtue of competitive advantage denied indigenous small scale enterprises" (Weeks, 1973, 63-4). See Thomas, J. J. (op.ci~ pp. 90-91).

17. Many estimates place the number of IS workers between 20 to 70 percent of the urban labour force (Charmes, J., op.ci~, Sethumman, 1981, op.cit).

18. Lenin concluded: "Thus the growing resort to domestic industry was caused in this case by progress in technique (drilling mecldne), and progress in capitalist e~ploitation (the labour of women md gids being cheaper)." This example shows how domestic indusUy *'by no means eliminates the concept of capitalist nmnufacture, but, on the contrary, is sometimes, even a siSn of its ~urtker deve/opment" (Lenin, 1977, 418 - italics not in the original).

19. Charmes, J., op.cit, makes a useful point that there is a convergence between statistical and ackr/n/strat/ve non-p~gistration of the IS activities (p. 14). It can be seen that even if some statistical survey or methods can be initiated to collect data about the IS, their administrative coverage is difficult to come abom.

20. As Hugon maintains. "These activities are a means of circumventing laws and regulations....Tbey are also a response to onderdevelopment and poverty" (op.cit p. 74).

21. Empirical evidence on various facets of the IS cited by Charmes, J. (op.ciO, cover a large number of Third World countries with vastly different types of political regimes. Peattie (op.ciO Cstes Chillenn scholars to the same effect (1987, 852).

22. Tokman, V. E., op.cit "Policy interventions cannot be limited to the IS" (p. 108. 23). "A more recent approach to informal activities postulates that, contrary to the common belief, the informal workers are truly capitalist entreppmeun in developing countries. They have shown a capacity to manage businesses, in highly unfavourable situation" (Tokman, V. E., op.cit, 107).

23. As Thomas, J. J., avers, "However, since the uppedimit was US $100,000 in capital terms for small scale finns in the programme it was clear that many of India enteq3dses in question were much larger than emerprises normally considered pa~ of the IS" (p. 152. Also, Nattnms, op.ci~ 863).

24. Fields, G. S. (1990) ~Labour Market Modelling and the Urban IS: Theory and Evidence in Tumham and other (ed.) op.cit, p. 64 also makes this point.

25. King K., op.cit, on the basis of African experience concludes that "The degree to which the informal economy is embedded within households that work in the fonnal sector is vely high and is by no means restricted to the extreme cases such as Uganda or Ghana" (p. 142).

26. African experience of asymmetrical relationship between the two sectors arises from the nature of market relations between the two sector. As Hngon (op.cit) explains, " the IS generates a strong intermediate demand and a weak intermediate supply. In other words, the modem sector provides the intermediate inputs and much of the machinery but generates little of the final demand for the IS" (p. 74). The phenomena of this kind are generalised by Myim (1985, 28) when be say that *'connecting pipelines" between sectors are not "free-flowing" but are ~clogged up," creating weak links between sectors.

27. Many empirical studies have provided evidence of large income differentials in the IS and between the informals and the formal sector ponicipants, specially in view of the role of the IS in explaining poverty. A typical statement runs as follows. "It was noted that evidence from a number of countries indicated some overlap between the upper-tail of the income distribution of those in the IS and the lower-tail of the income distribution of those in the formal sector and this suggested that care was necessary when considering the relationship between the IS and poverty" ~ a s , J. J., op.cit, 152).

28. Discussing the sectural composition of the IS, C'harmes, op.cit points out that in rural atom, informal activities are mainly manufacturing, with trade and services concentrated in ~ areas" (op. 26).

29. An analysis of the dynamics of the relations between the IS and the formal sector, poflicularly in the context of capital accumulation and enhancement seems to lead Hngon, P., op.cik to conclude that "the dynamics of the underdeveloped society is that of mutual adjusunent of capitalist and co- capitalist activities" (p. 77). It seems the co-capitalist activities refer to petty capitalist and prow- capitalist IS.

30. It has to be realisod that, apart from shemetical weaknesses, even in practical tenm, it is difficult to define the IS on the basis of its observed "common" fentums. Because of the heterogeneity of the IS,

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The/nSormal Sector 229

one may come across exceptions to almost every observed trait and different "mixes" of vanons features under different conditions.

31. Lenin gave two examples of such diversity of forms of pnm'uctions. One consisted of work in homes for capitalists, village atlisans, pure artisans, and partly commodity producers, partly subordinated to capital, entirely subordinated to capital and wage labour (/b/d, 454-455). Similarly, another diversity pointed out by Lenin was in the combination of industry with agrieulture. It took the following six fonm:

IJNatural agriculture with domestic industres. 2.Naturel agriculture combined with artisan production in industry. 3.Natural agriculture combined with small conunodity production in industry. 4.Natural agriculture combined with wage-labour in industry. 5.Commercial agricultm~ combined with small cormnodity production in industry. 6.Wage labour in agriculture combined with wage labour in industry (]bid 382-385).

"It seems paradoxical that the growth of small (sometimes even 'independent') industrial should be expression of the growth of capitalist manufacture: nevertheless it is a fact. The 'independence' of such 'handicraftsmen' is quite fictitious. Their work could not be done, and their product would on occaasien have no use value,/,¢there were no comwctiou, with other detailed operations, with other parts of the product. And only big capital ruling (in one form or another) over a mass of wogkers performing separate operations was able to and did create this connection."

32. Some of these specifieities of informal activities found in the industrialised market economies arc sought to be captured by Ivan Tlllch in his concept of"shadow work" and "shadow economy" (Illich, I., Shadow Work, Boston, Marion Boyars, 1981). He says, "Looking at early nineteenth century history, I find that with the progress of monetization a non-monetized and complementary hemisphere comes into existence" (p. 1). He elaborates that "It is a subsistence activity," it feeds the formal economy, not social subsistence. Nor is it urqcmid wage labour, its unpaid peffomance is the condition for wages to be paid" (p. 100).

A recent work (Offe aad Hein~, 1992, Chap. 2) has brought out some additional factors giving rise to informalism in the industralised capitalist economies. Do-it-yourself (DIY) activities, non- monetmy exchange and non-market organisation of labour process have tended to expand beyond family, rela6ons, friends md neighbonrz into networks of exchange and "cooperative circles" As sup- plemonts to the main forms of production. Heavy incidence of taxes on wage cost, rising transactions costs in labour market, availability of time on account of persistence of unemployment and consequent low opportunity cost of commercial purchase of services in the market facilitate the emergence of informalism in the indostralised market economies.

33. Dobb, (1972, 161) refers to the "urban localism" of domestic and manufacturing sector. 34. Menshikov, S., (1990) The Economic Structure of Socialism: An Attempted Prognosis, Moscow,

Novosti PreSs Agency. 35. Structural retrogression may be understood as the inability of the secondary sector employmem to

grow in step with the growth of industrial output, emergence of the tertiary sector as the main ceutn'botor to the GDP and decline in the relative share of agriculture in the GDP but without a per- ceptible fall in its share in the occupational stngtu~.

36. This kind of a sepmatiun between the family and the rum may be attributed to apertheid of pmdm:tion and consumption, as Ivan llfich puts it (op.cit 2). An interesting example of the mixture of various or~g~isational forms is the constngtiun of residential houses in most Third World countries where thzs durable use consumer goods is generally produced by the consumers themselves through hired labour and contractors and outside the formal sector.

37. Tokman (op.cit, 96) says "The institutional framework becomes the main definitional variable for Pones as well as, more ~ent ly , for de Soto (1980)." See also Peattie (1987, 858).

38. Davies, R., (1979, 101-10"~) makes a similar point, though even the "subordinate peripheral" sector or ectivities are treated by him as a subsidiary mode of production, unlike our ueating the latter as a form of production, a usage which he explicitly refuses to accept.

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Cambridge, CUP.

POLITICAL ECONOMY OF ENVIRONMENT IN THAILAND

b y Phi l ip H i r s c h

Thailand's rapid economic growth in the 1980s, and its apparent push toward NIC-dom in the 1990s, has many sides to it and many losers as well as winners. Increasingly apparent is the cost in human and ecological terms, making environmental issues central to the con- tinuing debate over development strategies. Fundamental to the mainstreaming of environmental issues in Thailand has been the incorporation of peripheral areas and marginal population groups into the wider economy, so that resource conflicts have multiplied on the periphery as well as in the country's economic heartland. Moreover, the environmental implications of Thailand's development are not contained by national borders. The move toward integration of a mainland Southeast Asian regional economy is intimately bound up with resource and environment questions.

This book investigates the political economy of environment both through detailed case studies of change faced by Thailand's still rural population, and through examination of broader process affecting peripheral areas as they are integrated into the national and international economies. The dilemmas of resource conflict in forest reserve areas receive particular attention. An epilogue considers the intemationalisation of the environment within the new regional economy.

P/b ISBN 971-8639-06-3 168 pages US$10.00

J O U R N A L O F C O N T E M P O R A R Y A S I A P U B L I S H E R S P.O. Box M a n i l a , Ph i l i pp ine s 1099

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The informal sector: A reappraisal

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