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Informal Sector in India: Meaning Concept and Classification

After reading this article you will learn about:- 1. Meaning of Informal Sector 2. Origins of Informal Sector 3. Clarification and Definition of Concepts 4. Size and Dynamics of Informal Sector 5. An Urban Phenomenon?  6. Employment Modality 7. Social Identity of Informal Sector 8. Organization and Protection of Informal Sector 9. Policy and Globalization of the Labour System.

Contents:

  1. Meaning of Informal Sector
  2. Origins of Informal Sector
  3. Clarification and Definition of Concepts
  4. Size and Dynamics of Informal Sector
  5. An Urban Phenomenon? 
  6. Employment Modality
  7. Social Identity of Informal Sector
  8. Organization and Protection of Informal Sector
  9. Policy and Globalization of the Labour System


1. Meaning of Informal Sector:

The term, ‘informal sector’ dates from the early 1970s when it was coined by Hart in a study on Ghana to describe urban employment outside the organized labour market. This category includes a great diversity of occupations characterized by self-employment.

These activities were not registered anywhere and were often clandestine in nature or at any rate outside the framework of official regulations. The improvised and inadequate manner whereby this took place demonstrated that the people engaging in them lived mostly in poverty and were to be found at the bottom of the urban landscape.

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The concept quickly became popular when the International Labour Organization (ILO), as part of its World Employment Programme, sent out missions to examine the employment situation outside the modern, organized, large-scale, and capital-intensive sectors of the economy. The first of these country reports investigated Kenya and the Philippines.

These studies were followed by reports that examined the particular features of the ‘informal sector’ in a number of Third World cities such as Calcutta, Jakarta, Dakar, Abidjan, and Sao Paulo.’ To supplement these case studies, the ILO commissioned a number of more analytical essays such as those authored by Sethuraman (1976) and Kanappan (1977), and the World Bank published a paper by Mazumdar (1975).

As a result of the way the concept had been framed and the attention it subsequently drew from development economists and policy makers in particular, the informal sector became, to a significant extent, associated with the economy of the large cities of Africa, Asia, and Latin America. Most of these cases concern societies with a predominantly rural-cum-agrarian identity in which the process of urbanization began relatively recently.

The dynamics of this spatial shift in settlement patterns include the declining importance of agriculture as the principal source of economic production and the expulsion from village habitats particularly the growing proportion of the land-poor peasantry.

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However, this transition has not been marked by a concomitant expansion in the metropolis of ‘technologically advanced’ and ‘modernly organized’ industries, aimed at enabling the accommodation of this newly mobile section of the population from the rural hinterland.

Only a small part of the labour that reaches the urban areas manages to penetrate the ‘secure’ zones of regular, more-skilled and hence better- paid work. The majority of migrants must be satisfied with casual labour which is unskilled or pseudo-skilled, has no fixed working hours, provides a low income which, moreover, fluctuates significantly and, finally, is only available seasonally.

The description of the informal sector is characterized by analytical vagueness. In order to indicate the wide repertoire of occupations, commentators often confine themselves to an arbitrary enumeration of activities which one comes across walking through the streets of the Third World metropolis.

Included in this parade are market-stall holders, lottery-ticket sellers, parking attendants, vendors of food and drink, housemaids and market women, messengers and porters, ambulant artisans and repairmen, construction and road-building workers, trans­porters of people and cargo, and shoe polishers and newspaper boys.

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Numerous occupations on the seamy side of society such as pimps and prostitutes, rag pickers and scavengers, quacks, conjurers and confidence tricksters, bootleggers and drug peddlers, beggars, pickpockets, and other petty thieves are not omitted.

It is a colourful arrangement of irregularly working people that scratches around for a living close to or at the bottom of urban society and which, in the overwhelming majority of cases, both lives and works in extremely precarious circumstances.



2. Origins of Informal Sector
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The division of the urban economy into two sectors can be seen as a variant of the dualism theories that had gained currency at an earlier time. Basing himself on colonial Indonesia, the Dutch economist Boeke voiced the idea at the beginning of this century that native producers had not internalized in their behaviour the basic principles of the homo economics.

Unlimited needs and their deferred gratification in accordance with a rational assessment of costs and benefits did not stand at the forefront of the peasant way of life in the Orient. What marked the orient was the immediate and impulsive indulgence of limited wants.

This colonial doctrine of what Boeke referred to as homo socialis would return in later development studies as the image of the working masses in underdeveloped countries obstinately refusing to respond to the primacy of economic stimuli.

The rejection of the axiom that there is a real difference in rationality and optimization behaviour between western and eastern civilizations ended in the construction of a new con­tradistinction in post-colonial development economics, namely that between the countryside and the city. This spatial contrast corresponded more or less with a sectoral division between agriculture and industry.

Western mankind was superseded by the city-industrial complex as the dynamic factor, against which village and agriculture were seen as static and diametrically opposed.

The new dualism theory, like its precursor, was associated with the rise of capitalism as the organizing principle of economic life. While the bulk of the peasants in the villages were attributed an outlook restricted to subsistence, modern industry was expected to concentrate outside the agrarian sector and in the urban milieu.

According to this line of thinking, the contradiction between both sectors was indeed not of a fundamental nature but merely reflected different stages of social development which corresponded with the traditional-modern di­chotomy.

The dualism concept in this sense was used first by Lewis (1954) and subsequently by Fei and Ranis (1964) with the aim of examining the outflow of superfluous labour from the rural subsistence economy and to trace the arrival of this labour in urban growth poles as part of the gradual expansion of non-agrarian production.

The evolution of social transformation in developing countries is, in this scheme of interpretation, similar to the capitalist process of change that took place in the Atlantic part of the world in an earlier phase. It is against this background that the latest version of the dualism model, now under discussion, should be understood.

Urban agglomerations are not growing exclusively or even predominantly as centres of technologically advanced industrial production along capitalist lines. In addition to the presence of an economic circuit that does fit this description, there is also a sector consisting of a plethora of activities of a completely different nature.

Key terms such as ‘modern management’ and ‘capitalist organization’ appear to be scarcely relevant for this sector. The combination of a slow pace of factorized industrialization, the presence of excess labour due to increased demographic growth and the expulsion from the agricultural economy, are given as the principal causes leading to a dualist system in cities of the Third World.

The lower echelons in this bipolar order consist of the mass of the working poor who have a much lower rate of productivity than those in the technologically advanced section of the economy. To the latter, this rapidly increasing segment of urban population, as yet and perhaps forever, cannot obtain access.

Can the wide range of activities which informal-sector workers have to depend on for their survival be seen as ‘traditional’? This is the stereotypical notion of those modes of pro­duction in which emphasis is laid on their old-fashioned and outmoded character.

They depend on fairly simple occupational skills and employ very meagre as well as inadequate tools. The sparse availability of means of production based on superior technology results in a return on labour that is almost always quite low. A consequence is that, in order to scrape together a minimum income, the working day is extremely long while the work is also so physically demanding that poor health is a common occurrence.

An argument against the tendency to portray the informal sector as traditional and ‘pre-capitalist’ is the fact that among the enor­mous variety of activities that fall under this category, very many in fact were created by the capitalist transformation of the urban milieu.

It would be misleading to suggest that the observed urban dualism is shaped, on the one hand, by a dynamic growth pole marked by advanced technology and innovative organizational management and, on the other, by a more or less static circuit of long-established, miscellaneous, and stubbornly surviving but outdated pre-capitalist activities.

Instead of speaking of a gradually disappearing contradic­tion between ‘modern’ and ‘traditional’, or capitalist versus non-capitalist, in my opinion what should be emphasized is the drastic restructuring of the entire economic system whereby the interdependence between different sectors needs to be identified as the most important element.

This conclusion is in part derived from an appraisal of the transformation which took place in the western world over a period of more than a century and for which the dual processes of urbanization and industrialization were of major importance.

Without wanting to suggest that societies that until recently were rural/agrarian are currently experiencing a similar process of change, I would nevertheless like to draw attention to the fact that what is now referred to as the informal sector, characterized by many different forms of self-employment and petty commodity production, has for a long time remained a marked feature in the urban economies of the northern hemisphere as well.

Research on the various forms of the informal sector in developing countries, as it has been conducted since the 1970s, is handicapped by the virtual lack of comparison with the very profound changes in the organi­zation of work and labour which went together with the emergence of metropolitan economies elsewhere in the world in the last two centuries.

This lack of historical perspective coincides with the disciplinary background of the majority of researchers, mainly development econo­mists and policy makers, who have little affinity with the need to understand the problem stated in a time span; they see little need for highlighting instead of obfuscating the continuing effects of the past on the present.



3. Clarification and Definition of Concepts
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One of the first ILO reports on this subject discussed the informal sector by focusing on a set of characteristics: ‘easy entry for the new enterprises reliance on indigenous ownership, small scale operations, unregulated and competitive markets, labour intensive technology and informally acquired skills of workers’ (ILO 1972).

The assumption behind this description is that the opposite of all these features applies to the formal sector of the economy In this definition, which is built on an implicit contrast, it is not the type of but the way it is practiced that is used as the differentiating criterion In slightly different formulations, and supplemented with new suggestions, the above list o characteristics is found in a myriad of later studies.

It is certainly possible to question the inclusion of some of these traits. For example, highly trained formal-sector professionals such as lawyers or accountants often run their businesses in a manner which does not satisfy the criterion of large-scale operation.

And again, it is just as misleading to presume that at the bottom echelons of the urban economy newcomers can establish themselves without any trouble as vendors, shoe polishers, or beggars.

Furthermore, features that were initially accorded great importance as the foreign origin of capital or technology, the use of mainly waged labour, the large and impersonal distance between the supply of and demand for commodities and services- appear, on closer examination, not to constitute the watershed between formal and informal.

The easy answer to this criticism is that urban dualism must be understood not by assuming the validity of each and every separate characteristic but rather by looking at the total fabric in an ideal-type construction.

Informal would then be the whole gamut of economic activities characterized by small scale, low capital-intensity, inferior technology, low Productivity predominantly family labour and property, no training or only that obtained on the job , easy entry, and finally a small and usually poor clientele.

In this formulation, the emphasis lies on the subdivision of the urban economy into two independent circuits, each with its own logic, structural consistency, and dynamics.

Another form of the concept of economic dualism derives from the contrast made between an activity which is officially registered and sanctioned by official legislation and that which is not. The term informal, in this case, refers to operations which are kept out of the sight and control of the government and in this sense are also denoted as the ‘parallel, underground or ‘shadow’ economy.

The legal recognition on which the formal sector can rely is not only expressed in the levying of taxes but also in the promulgation of various protective regulations.

The much easier access to the state apparatus enjoyed by the owners or managers of formal-sector enterprises leads to disproportionate advantages in the granting of various facilities, such as credit and licenses, as well as the selective use of government ordinances as to what is permitted and what is not.

The privileged treatment claimed by formal-sector interests creates disadvantages or even renders criminal informal-sector activities when, for instance, these are seen as a hindrance to traffic on the street or as threatening ‘public order Unregulated activities may also clash with the prevailing state ideology In the former socialist regimes of central and eastern Europe, producers supplemented their income with transactions on the black market both outside and during official working hours.

The conversion of the party leaders in post-Maoist China to free-market thinking went together with the legalization of various economic activities of an informal nature which, until then, had not been allowed or to which a blind eye had been turned.

When first using the concept. Hart did not omit to draw attention to the criminally inclined nature of some of the activities he enumerated. The association of informal with subversiveness or illegality is partly a result of an unwillingness to recognize the economic value of these goods and services.

It should also be realized that excluding this great army of the deprived from access to space, water, and electricity, only encourages them to make clandestine use of these services and to contravene public health instructions.

Yet the authorities are not slow to conduct large-scale campaigns against such violations of the law. In any case, it is clear that the government is not absent in this milieu but, on the contrary, actively concerns itself with disciplining the sector.

Furthermore, the dividing line in the two-sector model has to be drawn very differently when it comes to the observance of legislation and official regulations. There is a tendency to conceive of the informal economy as an unregistered, unregulated, and hence untaxed circuit.

This, however, ignores the ease with which power holders, particularly the personnel in government agencies responsible for implementing formal regulations and laws, see this industry as their private hunting ground once it has been made invisible.

Moreover, it would be a great distortion of reality to dissociate phenomena such as fraud, corruption, demands for the payment of speed, protection money, and bribes and, more generally, the conversion of public resources into private profits, from operations in the formal-sector economy where they primarily occur.

This goes a long way in explaining why not only the legal incomes of politicians and policy makers, who are part of the elite, but also the basic salaries of many low-ranking health-care workers, police constables, and teachers, lag far behind their incomes of an ‘informal’ nature.

The third and last variant of the formal- informal-sector dichotomy is related to the existence of bifurcated labour markets. A first feature to be discussed is the degree of division of labour. Formal-sector labour is usually performed in a complex work organization that consists of a set of specific tasks which are interrelated but are hierarchically and differently valued and which, to differing degrees, require previous training.

The small scale, in combination with the low capital intensity, of informal- sector employment implies very little or no task differentiation and requires skills and knowledge which are picked up in daily practise.

Due to a lack of accurate and ongoing or periodical data collection, there is little known about the size, origin, and composition of the working population in the informal sector. The labour statistics which are maintained are mainly restricted to the supply and demand of permanent workers, who are recruited and dismissed on the basis of objectified criteria in the higher echelons of the urban economy.

This registration is a result of, as well as condition for, greater control of the economy by official regulations. It is, therefore, not very surprising that studies of employment and labour relations have primarily focused on the upper segment of the urban order.

Given the above-mentioned characteristics, the alternative name for the informal sector as the zone of unorganized or unregistered labour is understandable, and just as clear as a third synonym, the unprotected sector. There are simply no legal rules concerning either entry into this sector or the conditions and circumstances under which informal-sector labour is put to work.

If some elementary standards have been introduced—such as the fixing of a minimum wage, the ban on labour which is deleterious for health and the environment, and the prohibition of child labour or practices of bondage—machinery for their enforcement is lacking. The organized, registered, and protected character of formal-sector labour is in diametrical opposition to this situation.

In terms of organization, there is another advantage enjoyed by formal-sector workers, namely the possibility of setting up their own organizations in order to defend their common interests when dealing with employers or the government.

This form of collective action increases the efficacy of the existing protection and is, at the same time a means of extending this protection. In the informal-sector landscape, trade unions are only rarely encountered. This absence contributes further to the maintenance of low wages and to the social vulnerability and miserable conditions of employment in this sector.

The introduction of the concept ‘informal sector’ has irrefutably drawn attention to the jumbled mass of activities—unregulated, fragmented, and infinitely diverse whereby a large part of the working population manages to survive, usually with a great deal of difficulty. Research on urban employment in the past was almost always restricted to labour in factories and other modern enterprises.

Its recurring themes were the rural origin of the new working population, its adjustment to an industrial lifestyle, and the labour relations in these large- scale enterprises. With the shift in focus from the formal to the informal sector, the long- fostered idea that the large mass of workers who have not been incorporated in the labour process in a regular and standardized manner should, in fact, be seen as unemployed has been done away with.

On the other hand, the discussion on the informal sector has begged more questions than it has answered. This is the result of a lack of precision in the definition, where everything that is not regarded as belonging to the formal sector is categorized as ‘informal’. This assumption, made very early on, gives a distinctly tautological slant to the difference made between the two sectors.

The dualism that has been discussed above relates sometimes to the labour market, sometimes to the economic circuits with different modes of production, and, in other cases, to permissible versus clandestine or plainly criminal economic activities.

There is often a combination of all these variants with the implicit or explicit suggestion that the different criteria of the dual division run parallel to each other. I fundamentally disagree with this idea. One of the definitional problems arises precisely from the discord between the different dimensions of the dualism concept.

For example, it is simply not true that informal- sector workers produce goods and perform services only or even principally for clients in their own milieu, just as it is true that innumerable formal-sector commodities find their way to informal-sector consumers.

Furthermore, formal-sector regulations are often avoided by transferring some or even all business activities and industrial production to the informal sector. These are only some arbitrarily chosen examples, amongst many, of the interdependence of the two sectors.

It is significant that authors who base their work on empirical research are often the most critical of this dual conceptualization. From my own long experience of studying rural and urban labour relations in western India, I conclude that the concept is useful in an ‘ideal’ sense only. I believe that the informal sector cannot be demarcated as a separate economic circuit and/or a segment of the labour force.

Instead of a two- sector model, there is a much more complex differentiation of the urban economy which should be the point of departure for structural analysis. The reduction to two sectors, the one capitalist and the other non- or early capitalist, does not reflect the reality of the much greater complexity of work and production.

A final objection of perhaps greater importance is that, in assuming such a dualist system, the interrelationships between the various components of the economy threaten to be lost from sight. Instead of splitting up the urban system into two sectors, I want to emphasize the fragmented character of the total labour market and the need to see these fragments not as mutually exclusive, but as connected. This argument is central to my analysis.



4. Size and Dynamics of Informal Sector
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Estimates of the size of the informal sector are not very precise and the figures which have been reported for various countries or cities differ greatly. This is a variation which does not, however, necessarily signal real differences in economic structure or developments over time.

The most frequently cited estimates fluctuate between 30 and 70 per cent of the urban workforce. This very broad range is indicative of the serious lack of terminological clarity.

Since the first use of the concept, a trend of upward correction has become apparent—both of the total number of workers and the proportion accounted for by the informal sector. Virtually all recent studies on this subject assume that at least half of the population in large Third World metropolis can be categorized as belonging to the informal sector, while this proportion is even higher for the smaller-sized cities and towns.

The changing criteria used—including the nature of the work (industry, trade, transport, or services); the scale of operation (more or fewer than ten workers for each enterprise); use of other production factors than labour (energy and technology)—virtually exclude a systematic comparison of the estimates for different places and years.

Based on official statistics, derived from the requirement to register the formal- sector labour, Visaria and Jacob estimated that, in 1972-3, 18.8 million of the total of 236.7 million working people in India belonged to the formal sector.

In 1991 their number had increased to 26.7 million out of a total of 343.5 million. Hence, in both the first and last year, formal-sector employment came to less than 8 per cent of the total workforce (1995: 14).

I may add here that I have little confidence in the completeness and reliability of the figures on which these estimates are based. Moreover, it should be realized that the data banks on employment and labour relations collected by international organizations such as the ILO and the World Bank are not much better.

A serious methodological problem is that on both sides of the dividing line the working population is constituted very differently. Even the use of the term ‘economically active’ is of problematic significance for the informal sector. Women, the elderly, minors, and even the less able often participate in the work process, although their labour power is neither always nor fully used.

This also applies to the labour power of able-bodied male adults at the peak of their physical strength. The ratio of earners to non-earners in homogeneous, informal-sector households is higher than that in pure formal-sector households.

On the other hand, the working members of formal-sector households are more permanently employed. But to estimate that, of the working members of informal-sector households only one in eight is a woman—as Papola calculated on the basis of research in Ahmedabad—indicates significant under-registration in terms of gender (1981: 122).

Similarly, until recently there has been systematic underestimation of the extent of child labour. The information to be found in the same source, that children constitute only 8 per cent of the workers in non-registered hotels and restaurants, is highly unlikely The actual proportion of these young ‘helpers’ between 5 and 14 years must be at least double this figure.

The length of the working day in the informal sector is considerably greater than that in the formal sector and work often continues into the night. There are also no weekly off days, while annual festivals are celebrated much less or not at all.

On the other hand, there are far greater seasonal fluctuations in the annual work cycle. The net effect of all these factors for the size and intensity of the labour power in the formal and informal sectors is difficult to ascertain. In order to obtain an insight into the living conditions of the poor masses, empirical research at the level of the household deserves priority.

It is possible to understand the relative elasticity with which unemployment, greatly fluctuating incomes and other adversity are countered only by assuming that many, if not all members of households at the bottom of the urban heap—regardless of age, sex, or degree of physical ability—are, or want to be, partially or completely incorporated in the labour process.

The specific nature of work arrangements in the informal sector seems to suggest a gradual continuum from employment to non-employment rather than a sharp break. The consequence of this peculiarity is that permanence and security are not marked features of informal work performance and that irregularity and vulnerability dominate instead. This particular trait of the informal sector makes an analysis of the labour market an extremely arbitrary and even disputable matter.

The attempts to subject non-standardized and irregular work to quantitative analysis in terms of exact measures and clear counts might stem from a research methodology which is based on formal-sector notions.

The recurrent complaints from researchers about the chaotic appearance and lack of transparency of the informal sector should be seen in this light. This explains why sociological and economic analyses of the labour market are so strongly distorted in favour of data collection on formal-sector enterprises. Of course, the small size of this sector does not at all justify this bias.

The contrast between the top and bottom of the urban economy is easy to describe. In the broad social spectrum between these polar ends, however, where informal and formal labour merge into each other, there is no clear dividing line. Consequently, I conclude that the image of a dichotomy is much too simple and can better be replaced by the idea of a continuum.

The first studies of the informal-sector concept created the impression that this segment of the urban economy functioned as a waiting room for a rapidly increasing stream of migrants pushed out from the rural economy. It was merely meant to be their first ‘stay’ in the new environment.

The work that they performed provided them with craftsmanship and stimulated them to develop their talents as micro-entrepreneurs. Those who completed this apprenticeship successfully would in the end cross the gap which separated them from the formal sector.

The promise of social mobility expressed by this optimistic scenario, however, appears in practice to be fulfilled for only a tiny minority. Time and again the results of numerous investigations show that a very considerable proportion of informal-sector workers are born and raised in the city and, at the end of their working lives, have not come much further than where they started.

A completely different dynamic, in an institutional and not an individual sense, arises from the idea that the informal sector is nothing more than a transitory phenomenon caused by the massive expulsion from the agrarian-rural economy.

Given that the growth of formal- sector employment is slower than would be necessary to accommodate fully and immediately the size of this exodus, there is a temporary excess of people in the lower layers of the urban system.

As economic growth accelerates, the need for and significance of employment in the informal sector declines and eventually little or nothing of this ‘buffer zone’ will remain. In my conclusion, I shall show that this representation is nothing more than hopeful expectation.



5. An Urban Phenomenon?

One of the shortcomings in the debate on the informal sector is the unflagging preoccupation with the urban economy. It is difficult to maintain that there is dualism in the urban order and that the countryside is in contrast characterized by homogeneity.

To be sure, the peasant economy in toto demonstrates a number of features which are very similar to informal-sector activity. This is true for the way production takes place and it is also reflected in the pattern of employment.

On the other hand, it is not so far-fetched to classify plantations, mines, or agro-industries in the rural areas as formal-sector enterprises, as they possess most of the dominant characteristics of this category. Why attention in the majority of studies on this subject is then focused on the urban economy?

This preoccupation appears to originate in two misplaced suppositions: first that the countryside is almost exclusively the domain of agriculture and, second, that agricultural labour is performed by a virtually homogenous peasant population. We are concerned here with a monolithic image which does not allow a sectoral division in terms of formal and informal.

Moreover, this three-compartment (one rural and two urban) model seems to indicate the direction of social dynamics: peasants migrate to the city where they find work and an income in the informal sector before making the jump to the formal sector of the economy.

Against this line of reasoning inspired by wishful thinking, I maintain that regardless of the reservations that one may have about the validity of the informal-sector concept, it is both theoretically and in practice impossible to declare that this concept is exclusively applicable to the urban domain. There are some other researchers who share this view and focus attention on dualist features manifest in the organization of agrarian production.

Analyses based on the comprehensive totality of economic activities, irrespective of whether they are located in urban or rural areas, emphasize the small volume of formal-sector employment in India. As mentioned earlier, for example, Visaria and Jacob (1995) arrived at a figure of not more than 8 per cent.

According to them this extremely skewed division is primarily caused by the dominant position of the agrarian working population, consisting almost exclusively of informal-sector workers. The ratio of 92:8 is so highly uneven that it cannot be considered as a sound basis for sectoral analysis.

This leads me to exclude agriculture, both in terms of production and labour, and to employ the formal-informal dichotomy as a framework of analysis for all other branches of the economy together (in other words, without dividing them according to city or countryside).

It is a point of departure which takes care of my objection that there is a tendency to see the informal sector only as an urban phenomenon and helps to highlight the magnitude of informal non-agrarian employment in the rural economy.

Skilled crafts of all sorts, trade and transport, as well as services in differing degrees of specialization have always been important occupations in the past as well as at present. The size and importance of this non-agrarian work performed either as the worker’s main or subsidiary activity, has increased significantly in many parts of India in recent decades.

Table 1 illustrates the shift in the composition of the workforce in the last twenty years—the declining importance of employment in agriculture in the face of the growth, particularly in informal-sector activity in other economic sectors.

Agriculture and Non-Agricultural Worker classified according to Formal/Informal Sector 1972-3 to 1987 - 8

Even if all possible criticism of the accuracy of the figures, in Table 1, which are derived from government statistics, is taken into account, the data are still sufficiently robust to provide an insight into the trend of economic transformation in the long term. First, agricultural employment declined from 74 per cent in 1972-3 to 65 per cent fifteen years later.

During the same period, non-agricultural labour rose from 26 to 35 per cent. The number of people employed in agriculture increased from 61.8 million in the first year to 113.6 million in 1987-8. According to another study, non-agricultural work was the main source of income for one out of four men and one out of six women in all rural households in India at the end of the 1980s.

The growth indicated by these figures is principally propelled by activities which fall under the informal sector. The annual rate of increase in this sector is 4.9 per cent more than double that of the formal sector.

It is important to observe that an acceleration in the diversification of the rural economy does not correspond to an increasing formalization of employment. One example concerns the emergence of a major agro-industry in the south of the state of Gujarat: every year huge armies of migrant labourers are mobilized from nearby Maharashtra and other catchment areas for the large-scale harvesting and processing of sugarcane; at the end of the campaign, they return.

I will discuss in the conclusion, this stagnation of formal- sector employment is a more general phenomenon which goes far beyond the city-country contrast; hence, it must be understood in a broader context.



6. Employment Modality:

Self-employment is described in a large part of the literature as the backbone of the informal sector. When introducing the concept. Hart mentioned this as the most significant feature. ‘The distinction between formal and informal income opportunities is based essentially on that between wage earning and self-employment’ (1973: 86).

Subsequently, many authors expressed themselves in a similar vein. A quite arbitrary example is Sanyal who, in an analysis of informal-sector policy states, without any reservation or empirical evidence that the majority of the urban informal-sector population lives from the income gained from self-employment.

This is, of course, the well-known image of the army of odd-jobbers and jacks-of-all-trades that travel around in the open air or survive from put-out work performed at home, but always do this on their own account and at their own risk.

In such descriptions, emphasis is laid firmly on the ingenuity, the stamina, and the alert reaction to new opportunities demonstrated by these small-scale self-employed workers and last, but certainly not least, on the pride they show in being their own bosses.

Some authors speak of these workers as mini-entrepreneurs and tend to describe the informal sector as a breeding ground for more sophisticated entrepreneurship which, as it is larger-scale and capitalist, can only be developed in the formal sector.

Under this unrestrained apology for the free market, not only are informal workers trained and hardened in the struggle for daily existence-one can recognize here the profile of self-made men who started small—but once mature, they are able to develop into true captains of industry

Another and more critical school of thought is represented by authors who describe and analyze the informal sector in terms of petty commodity production (see Smith 1985). In these writings the emphasis lies on the limited room for manoeuvre in which the self-employed have to operate.

These works also discuss the dependence of the self-employed upon suppliers who overburden them with poor quality or overpriced products, moneylenders who charge extortionate rates of interest for short-term loans, street vendors who are easy prey for the police, sex workers who are in the hands of their pimps, slumlords who demand protection money, home-workers who can offer no resistance in the face of the practices of contractors or agents who commission their work, etc.

What is portrayed as own-account work carried out at the risk of the producer is in fact a more or less camouflaged form of wage labour. There is a wide diversity of arrangements which actually show great similarity with tenancy or sharecropping relationships in agriculture, where the principle of self-employment is so undermined in practice that the dependency on the landowner is scarcely different from that of a contract labourer.

This is true for many actors operating in the informal sector such as the ‘hirers’ of a bicycle or motor taxi who must hand over a considerable proportion of their daily earnings to the owner of the vehicle, or for the street vendors who are provided their wares early in the morning on credit or commission from a supplier and then in the evening, after returning the unsold remainder, learn if and what they have retained from their transactions.

The facade of self-employment is further reinforced by modes of payment which are often associated with informal sector practices. For example the sub-contracting of production to home-workers is a common occurrence.

Piece-rate and job work suggest a degree of indepen­dence which differs from the relationship between regular wage workers and employers. In the latter case, the time worked is the unit of calculation of the wage, while the wage is also paid regularly—per day, week, or month.

The actual payment of this regular wage confirms the status of the worker as a permanent employee. Putting-out and one-off jobs, on the other hand, are in this aspect much closer to self-employment. And last but not least, there is no valid reason to describe wage labour as a phenomenon that is inextricably bound with the formal sector.

The informal sector landscape is covered with small-scale enterprises that not only make use of unpaid labour, requisitioned from the household or family circle, but even more of personnel hired for a special purpose.

This does not, however, always take the shape of an unequivocal and direct employer-employee relationship. There are different intermediaries— those who provide raw materials and then collect semi-finished or finished products from home workers, or jobbers who recruit and supervise gangs of unregistered workers—who function as agents for the ultimate patron. In all these cases, it would be incorrect to construct a sharp contrast between self-employment and wage labour corresponding to the informal-formal divide.

Such a division would also conflict with the occupational multiplicity that is characteristic of casualized labour. The bulk of these workers is continually in search of sources of income and performs a wide range of odd jobs within a relatively short time period—a week, a day, or even a few hours.

These activities sometimes appear to be characterized by self-employment, sometimes by wage labour, and sometimes by a combination of both. For those involved, the nature of and the manner in which they perform these jobs is not of importance, but what they will pay is.

The necessity not to specialize in one occupation but to show interest in a multitude of diverse activities arises from the seasonal fluctuations which are inherent to informal-sector economy.

The alteration between the dry and the wet season, or between summer and winter, corresponds with the uneven annual rhythm of a great deal of these open- air occupations. During unsuitable seasons much less use, and sometimes no use at all, is made of the services of building and road-construction workers, quarrymen, brick makers, street vendors, itinerant artisans, and other street workers.

But significant fluctuations throughout the year also occur in the demand for labour for numerous activities which take place in roof- covered and enclosed spaces. In their case, it is not the climatic conditions but the changing demand in the annual cycle of certain commodities and services that is the main factor.

The months preceding, the wedding season are a period of peak production for the manufacture of embroidered saris, while religious festivals also give a large but temporary incentive to associated industries.

The same applies for the great variety of workers in the tourist industry. Cessation of production, or perhaps a sudden spurt, can be determined by stagnation in the supply of raw materials, cuts in the electricity supply or availability of transport, and price rises or falls. It is a characteristic of informal-sector employment that the use of labour, in size and intensity, is seen as derived from all these market imperfections of a structural or conjunctural nature.

In other words, the business risk is passed on to the workers. They must remain available for as long as there is need of their labour, not only in the daytime but also in the evening and at night. Periods of over employment are then followed by shorter or longer periods of enforced idleness.

However, they can derive no rights from this pattern of irregular or suddenly changing working hours in the form of wage supplements or continued payment of wages for hours, days, or seasons during which work was stopped or dedined in intensity.

The excessive subjection of labour to the highly variable demands made by the production process arises from the presence of an almost inexhaustible labour supply, if not actually then at least potentially This reserve army consists of men and women, both young and old, who differ from each other more in the degree of previous experience and suitability than in the preparedness to make the required effort for the lowest possible price.

To speak of super exploitation of wage workers by employers in the informal sector, but then to regard the self-employed as responsible for their own degree of exploitation, gives, in my opinion, an exaggerated picture of the differences between both categories and ignores their similarities.

The standardization of the conditions of employment in the formal sector of the economy—in terms of wage scales, length of the working day, security, and social benefits— equally applies to obtaining access to the sector. This observation implies that recruitment and promotion are subject to fixed rules related to training, seniority, and other objectively determined qualities of the workforce concerned.

Conversely, access to industry in the informal sector is characterized by much greater coincidence and arbitrariness. This difference is, of course, consistent with the more permanent employment in the formal sector and the much more casual and shorter-lasting jobs which dominate in the lower zones of the labour hierarchy Without wanting to contest that access to employment in both sectors can be differentiated on the basis of these criteria, I would like to add that these differences become blurred when increasing pressure is put on the formal-sector labour market. When supply also exceeds demand in this sector, the standardized rules make way for more subjective considerations in the selection policy.

Formalized labour arrangements then appear to be anything but free of arbitrary personal preferences and prejudices which are more often used to describe practices of recruitment and dismissal in the informal sector.

The conclusion that I draw from the above is that the diverse modalities of employment do not confirm the image of a dualist but rather of a fragmented labour market.

The distinction made between the two sectors is further complicated by the manner whereby the occupants of formal and informal labour positions try to build fences or barriers in order to guarantee access to the conquered niche of employment for candidates hailing from their own circle, with maximal exclusion of ‘outsiders’.

The latter are those who do not belong to the category of close family members, neighbours and friends, nor are they members of the same caste, religious group, tribe, linguistic group, regional or ethnic group.

Of vital importance for the organization of the labour market is a pronounced state of fragmentation that is expressed in the innumerable compartments of employment, of which some assume a fluid form while others are demarcated by fairly hard partitions in both the higher and lower levels of the economy.



7. Social Identity of Informal Sector:

The very broad spectrum of activities grouped together under the concept of the informal sector is performed by heterogeneously composed categories of working people. Despite the diversity, there are still a number of common features in the social profile of these masses. In the first place, these workers have little or no formal training and the majorities are often totally illiterate.

Second, they have no source of income besides the earnings from their own labour. Even the acquisition of the most simple tools—a shovel and basket or bowl for carrying earth in the case of road workers; a barrow, oil lamp, and scales for a street vendor; a little wooden box with polish and brushes for shoe polishers—represents an investment which beginners cannot afford out of their own savings and for which they have to take a loan. The moneylenders operating in this sector charge a high interest rate even for the small amounts and short-term repayments which they grant.

The acute lack of creditworthiness of informal-sector workers is closely connected to a third feature: the extremely low wages which they receive for their strenuous efforts. It is precisely these paltry returns that force informal-sector workers to make use of all hands, big ones as well as nimble fingers, which are available in their household.

In the case of migrants, this leads them to leave behind ‘dependent’ family members who are no longer (or not yet) able to work to an extent that would at least compensate for the extra costs needed for their maintenance.

In this weighing up of pros and cons, a role is also played by how much of the income should be spent on housing. In order to keep this expenditure as minimal as possible, seasonal migrants in particular make do with a very primitive roof over their heads, improvised from waste material that happens to be available, or they even set up a bivouac under the open sky Migrants who establish themselves for longer periods far from home may sometimes hire living space together, in the case of single men, or attempt, if accompanied by wife and children, to find their own accommodation preferably with water and sanitary facilities, however primitive, in the immediate vicinity

A fourth feature is the much higher participation of both women and children in the informal sector of the economy The vulnerability of this labour force has also to be understood in gender and age tems. Even more exploited and subordinated than men are children and women.

A wide variety of studies has documented the magnitude, identity, and conditions of work of both these categories. Finally, informal work has a low status.

This is partly the sum of the features mentioned in the preceding paragraphs in combination with the substitutability and irregularity of the work, and partly the result of the socially inferior origin of this workforce- in India the large majority of them are members of backward or Untouchable castes. Although the word ‘coolie’ is no longer fashionable, the derogatory connotation implied by its use in the past covers quite well the lack of respect that is associated with this sort of work.

The strenuous physical effort that is often demanded goes with sweat, filth, and other such bodily features which bear the odium of inferiority and subordination. Besides being tainted with the stigma of pollution, these characteristics also undermine the health of the workers in a way which leads to their being prematurely worn out. In addition to all these hazards, the women and children are often exposed to sexual harassment. Female and child domestic servants are at risk from their employers, and such members of work gangs from the foremen.

Lack of dignity results from their inability to cope with misfortune, such as illness, or to save for the considerable expense involved in important life-cycle rituals which have to be observed. By taking an advance on these occasions they try to meet their social obligations even though it leads to a form of labour attachment to their employer or an intermediary, which restricts even further their already limited room for manoeuvre.

Does it follow from the above that informal-sector workers have a style of living and working in common with each other which could categorize them as belonging to one homogeneous social class? In comparison with the labour aristocracy employed at the top of the formal-sector economy—permanently employed, well educated, with a daily rhythm in which work and free time are sharply marked, reasonably well paid and hence creditworthy, living in reasonable comfort and consequently aware of their social dignity and respect-the many-times-greater army of workers without all these prerogatives form one uniform mass.

But closer examination reveals that there is no simple division into only two classes. At the very broad bottom of the economic order there are striking differences between, for example, migrants forced to wander around various sites of employment in the open air and labourers who operate power looms or other simple machines in small workshops. It is true that the textile workers go every day to work for the same boss, at least for the time being, but they cannot derive from their regular employment at the same site any claim to decent treatment or even the right to a minimum form of security.

In an earlier work I classified informal-sector workers into three classes: First a petty bourgeoisie who, besides the owners of mini-workshops, self-employed artisans, small traders, and shopkeepers, also include those who earn their keep as economic brokers or agents, such as moneylenders, labour contractors, intermediaries who collect and deliver piece-work and home work, and rent collectors.

Compared with the lower ranks of formal-sector labour, the income of this category is not infrequently on a much higher level. In reports which tend to value the informal sector as a breeding ground for entrepreneurs, the emphasis lies on the right type of behaviour.

Those who belong to this social category set great store by their relative autonomy-they exhibit a need to avoid subordination to others in general and an aversion to wage dependence in particular-and show, by good bourgeois attributes such as thrift and hard work, that they are striving to improve their individual positions within the social hierarchy.

Second, the subproletariat, who subsume the largest segment of informal-sector workers, consists of a colourful collection of casual and unskilled workers who circulate relatively quickly from one location of temporary employment to another. It includes both labourers in the service of small workshops and the reserve army of labour who are recruited and dismissed by large-scale enterprises according to the need of the moment.

The sub proletariat, also include itinerant semi-artisans who offer their services and (paltry) tools for hire at morning markets, day labourers, home workers, vendors, and the long parade of occupations practiced in the open air, including the shoe polisher and messenger.

They differ from the residual category by having, if not a permanent, at least a demonstrable form of accommodation, and by keeping a regular household even if all the members are not always able to live together as a family.

This is achieved by a labour strategy that is based on a rational choice of options which are time and place bound and by attempts to invest in education, health, and social security even though the irregularity of their existence and the inability to accumulate consistently, excludes any firm plans for the future.

Although their misery (from which many often escape into drunkenness) is great, these workers are still distinguished from the category of the last resort which I am inclined to describe as ‘paupers’.

These are the lumpen, the dregs of society with criminal features, whose presence nobody values. They are the ‘declassed’ who have often broken contact with their family or village of origin, who have no fixed accommodation, and who maintain no regular contacts with other people in their immediate environment.

These people not only lack all means of production but also do not have the labour power and stamina needed to be able to meet their daily minimal requirements in full.

Thus alienated even from the means of consumption, they easily fall into a state of pauperization and form a ragbag of crushed, broken-spirited rejects-single men, widows or divorced women with children, children without parents, the mentally or physically handicapped, and the superfluous elderly.

It is important to note that this classification does not mean that an unambiguous, clearly hierarchical formation of three discrete social strata has crystallized. A household can consist of members who have been absorbed in the labour process in various ways; it is not always the case that all members of one household work in either the formal or informal sector.

A consequent lack of consistency in terms of class position and associated lifestyle is, however, rectified by part of the household sometimes breaking away or being pushed off to form a new household.

The fluidity in the transition between the different social classes, as well as shifts in the proportional distribution among them that occur over time, under influence of contraction or expansion of the economy, mitigate against a division which is either unduly rigid or too static. It is hence empirically not easy to delimit the largest segment of the working population, the sub proletariat, from the other collectivities.

Upward and downward mobility are both possible, in theory, and occur in practice at all levels to some degree, although it is very exceptional for this mobility to apply for one individual all the way from the bottom to the top or vice versa. In most cases, mobility is limited to much shorter movements.



8. Organization and Protection of Informal Sector:

One of the most common criteria for the operationalization of the formal-informal-sector dichotomy is whether or not labour has managed to get organized. The protection enjoyed by workers in large-scale and capital-intensive enterprises is the result of action taken by them for the collective promotion of their interests, including wage levels, rules for recruitment, promotion, and dismissal, hours of work, and secondary terms of employment.

Not all those who have found a niche in the formal sector are in fact members of such trade unions.

On the other hand, it is even less common for workers in the informal sector to join together in an effort to improve their position. Still, this has actually occurred in a limited number of cases and it is interesting to observe that these initiatives arise from or focus on very vulnerable groups.

This applies, for example, to the Self-Employed Women’s Association (SEWA) which is based in Ahmedabad. In Kerala, both within and outside agriculture, different trade-union like organizations have been established with the explicit objective of reinforcing the rights of informal-sector workers.

Becoming acquainted with the occasional successful experience is relevant for answering the question of how the emergence of trade unions can be facilitated in the lower echelons of the economy. There is hardly any difference of opinion concerning the urgent need for such a course of action. Why then, with a few exceptions, are they absent in the informal-sector landscape?

The explanation must be sought firstly in the subaltern identity of these working masses and the manner in which they are absorbed in the labour process. The workers concerned are mostly young men and women who belong to the lowest levels of the social hierarchy, who can often neither read nor write, and who have arrived in an alien environment as migrants.

They manage to survive with casual and irregular work which often gives them the appearance of being self-employed. The work performed is not connected with a fixed location but is subject to constant change. Besides having to move from place to place looking for employment they also need to engage themselves in a variety of different activities at intervals of a year, season, week, or even day

This profile of occupational multiplicity demonstrates how difficult it is to bring together in an organization these casual, unskilled, itinerant, fragmented, and poverty-stricken masses on the basis of their common interests.

Furthermore, any attempts at unionization made in the separate branches of informal-sector industry, come up against barriers erected by employers and their agents, such as intermediaries and labour contractors.

This resistance is sometimes expressed in the form of intimidation or instant dismissal of workers who not only try to press for their own interests but also for those of others. Even worse, it can come to actual violence or the terrorizing of labour activists by gangs of thugs or hired killers whom the employers don’t hesitate to use.

Are the existing trade unions established by and for formal-sector labour who have per­manent jobs, are better trained, and usually higher paid, aware of the miserable state of the masses who populate the lower zones of the economy?

And more important still, can they be persuaded to see these irregular workers, with low social visibility and fragmented into unconnected, Huid segments, as potential members of their organization? The answer seems to be ‘no’, or at least ‘hardly at all’.

This disinclination arises partly from all sorts of practical problems such as, for instance, the difficulty involved in mobilizing an amorphous and floating multitude on the basis of shared interests. The task set is further complicated by the necessity encouraging these differing and diverse interests to have bargaining dialogue with a very great number of micro-employers.

This effort requires large overhead costs which would be impos­sible for members who belong to the economically most-vulnerable categories to finance. Furthermore, experience shows that the needs and problems of informal-sector workers are quite different from labour arrangements in the formal sector of the economy.

These differences in needs demand a type of organization and promotion of interests of which conventional trade unions have little experience, many of them not at all.

Even more important, the union leadership is not prepared, in the light of these much wider aims, to reformulate its mission and to operationalize the new agenda into a concrete plan of action. In the final analysis, the trade unions close ranks to restrict access.

The miserable lot of informal-sector workers is not seen as a challenge but as a threat to the much better deal—the outcome of a long-lasting struggle for a reasonable degree of security, prosperity, and dignity—enjoyed by labour in the formal sector.

The strategy of fending off the mass of excluded workers explains why, con­versely, the latter feel little affinity with the recognized trade-union movement. Both the union leadership and members do not appear to unduly worry themselves over the question of how they could contribute to improving the lot of the informal workers and instead tend to see them as scabs.

They regard the reserve labour army with scorn, as it supplies the strike-break­ers who unscrupulously accept the jobs, temporarily made available by formal-sector workers who have gone on strike, in the hope of being able to occupy them permanently.

Only in recent years, and under the pressure of stagnating or even declining levels of employment in the formal sector, have the established labour organizations dropped their indifferent or even hostile attitude.

At the initiative of the International Congress of Free Trade Unions (ICFTU), a conference was held in 1988 on the transformation of the international economic order and the concomitant trend of in-formalization of employment modalities.

It had become clear to insiders as well as outsiders that the trade-union movement was threatened with marginalization by its exclusive concentration upon a relatively small elite engaged under formal terms of employment.

The leadership finally realized that a large part of the working masses did not recognize the trade-union movement as an ally in the struggle against deteriorating working conditions. The unions that were members of this international federation were urged to make the informal-sector issue a high priority one.

A report that appeared only a year later de­scribed as a first aim the formalization of the gigantic army of unprotected and unorganized workers (ICFTU 1989).

They should enjoy the same legal protection as employees in the for­mal sector. It will be clear that this demand was characterized by a woefully inadequate sense of reality. Moreover, it demonstrated a very poor understanding of the dynamics of the informal sector.

The formula to achieve this new goal was confined to the suggestion about accelerating what, according to conventional wisdom, would be the predictable result of the process of economic development. It was a naive supposition, and after this recommendation very little has happened in the routine practice of trade-union activities.

The lack of support from the established trade-union movement does not mean that informal-sector workers passively accept the labour regime forced upon them. Many make efforts, often repeatedly so, to combat the insecurity and miserable conditions of employment by trying to negotiate a somewhat better deal with their particular employers.

They do this by emphasizing their subordination and loyalty to their patrons in exchange for which they appeal to the patrons’ discretionary power to grant favours.

Given the abundant supply and limited demand for labour, employers are bent upon reducing even further the already small space in which the massive army in search of work must operate. Thus they use all sorts of arrangements which lead to a curtailment of their employees’ room for man oeuvre.

Mechanisms to tie the worker further to the employer, such as providing an advance on salary or paying in arrears show similarities with forms of un-free labour which occurred in the past, but differ from them by a more articulated contractual and capitalist slant.

Against this background, it is understandable why much labour resistance assumes the shape of sabotage, obstruction, avoidance, and other deeds of covert protest, summarized by the term, ‘weapons of the weak’.

Despite the severe sanctions which are brought to bear on attempts to form a common front and openly express latent feelings of solidarity, collective signals of resistance are the orders of the day in the informal sector. Reasons discussed in the preceding paragraphs explain why, for example, strikes ‘suddenly’ break out, rarely spread to the whole branch of the industry, and also die out relatively quickly. The weak capacity to resist makes it understandable why these actions are usually spontaneous, local, and short in duration.

But there is also in part an under-reporting of some forms of resistance, as they occur infrequently, or not at all, in employment under formal conditions. The registration of labour resistance has been unduly focused on the nature and course of the social struggle in the formal sector.

Proto-trade unions, such as those that existed in Europe’s pre-industrial past, could be an interesting point of departure for comparison with the manifestation of labour unrest and industrial action in the informal sector of the economy of today.

The protection enjoyed by formal-sector workers arises from a gradual shift in the balance of power between capital and labour over a period of roughly one hundred years. The introduction and implementation of separate legislation for protecting labour (in the same way, although not to the same extent, that the rights of capital were safeguarded) would be inconceivable without the intermediary role of the state.

What has been the role of national and local government in regulating the informal sector of the economy? For one thing, the impression often created that there is absolutely no official interference is incorrect.

Where there is universal suffrage, which is actually exercised with reasonable freedom in India since Independence, the political system cannot afford to ignore completely the working masses which make up the majority of the electorate.

This consideration is of relevance for explaining why minimum wages have been fixed for landless labourers, why the practices of illegal labour contractors are restricted, why various ordinances regulate the movement of migrants, and why violations of the prohibition of bonded labour are punishable by law, to mention just a few examples.

In many states of India, there are detailed rules regulating employment for many occupations, even for casual labour that is limited to particular seasons of the year. What is lacking, however, is an effective machinery to implement these regulations, as well as the appointment of an adequate number of officials responsible for their enforcement.

Moreover, civil servants who are allocated inspection responsibilities in practice make use of their mandate to obtain extra income; it is an example of the abuse of public authority for private advantage that occurs at all levels of bureaucracy.



9. Policy and Globalization of the Labour System:

After the ‘discovery’ of the informal sector, amazement was expressed in many publications that such a large part of the population survived or even thrived on it. The reaction of the authorities was evidence of the need felt for regulation.

At the same time, the way in which regulation took place made it clear that this involvement was not motivated so much by the desire to improve the lives of these workers but arose largely from irritation over their escape from government control.

In this negatively coloured assessment, the informal sector was seen as a conglomerate of activities which were inconvenient and caused trouble. The parasitic or openly criminal features attributed to these workers reinforced the tendency of the government to protect the public and the economy from these ‘useless, unhealthy, or downright dangerous^ elements.

Bicycle taxis and peripatetic vendors were driven from the streets, while ‘unfavorably’ located slums, if they were not razed to the ground, were removed from public view by enclosures. City beautification was the slogan which in many countries was used to justify this persecution and banishment.

The plea for a more positive attitude, first made by the ILO in particular, was the beginning of a new direction that at least promised to end the open hunt on informal-sector workers and their trades. The argument in support of this policy was that the returns from these activities not only provided a living for those involved but also that they were of genuine use from a more general economic perspective.

In order to increase the efficiency and effectiveness of this sector, an extensive package of supportive measures was recommended, varying from better training, more (and more accessible) credit, expansion of the markets for informal commodities as well as services, to, finally, greater tolerance in issuing government permits.

Whether these proposals should be understood as reflecting a policy of formalization remains unanswered, as most of them were never implemented.

A scenario with which policy makers felt more at ease was to not involve themselves with the informal sector at all, in either a positive or negative sense. The persecution and unbridled mania for regulation by bureaucrats at all levels was discontinued but without switching over to active protection.

A well-known and influential advocate of this formula, with a very strong neo-liberal leaning, is De Soto, who has created great enthusiasm for it among leading politicians and international agencies (De Soto 1986).

This is understandable, as the policy of non-state intervention he advocated tends to leave the existing relations of deep-seated inequalities in the distribution of property and power untouched and goes on to legitimize a situation which guarantees the domination of formal-sector interests, both capital and labour.

I have already indicated in the preceding discussion that in populist-inspired interpretations of the informal-sector phenomenon, attention has been focused, to a significant extent, on self-employment as an important element in the definition of the sector.

To suggest that these workers operate on their own account and at their own risk leads to an analysis focusing on micro-entrepreneurship with all its positive features: ingenuity, versatility, boldness, industriousness, and flexibility.

This is also an image that pleases these neo-liberal politicians and policy makers because, in their perception, success or failure is purely an affair of the actors themselves as individuals. They feel no need to look for the causes of this success or failure in the structure of society, of which informal-sector workers form such a major segment, nor in the unequal opportunities which are inherent to it.

The continuous formalization of employment in the urban and rural economy did not eventually materialize. In most cases, including India, there has even been a reversal of the trend- a chipping away of the formal conditions of employment which are being replaced by casual and short-term labour arrangements as part of an overall change in the organization of industrial production.

An example is the closure of textile factories in Bombay and Ahmadabad.

In these locations, power looms for the manufacture of rayon were transferred to thousands of small-scale workshops in new urban growth poles such as Surat . The new international economic order demands the addition of more capital to the industrial process, but this takes place in a manner that guarantees the availability of abundant labour and the payment of very low wages, and provides employment only when needed.

The pattern of employment still runs along informal-sector lines, to the extent of becoming, in recent decades, an ideological maxim, a credo. What is heralded as the ‘flexibilization of production’ is actually contracting-out of work, replacing time-wage with piece-rate and permanent with casual workers.

This trend implies not only a deterioration in the working conditions of formal- sector workers, but also undermines the role of the trade unions which have promoted the interests of this privileged section.

The further implementation of the recent policy calls for the dismantling of the existing labour legislation. In addition to a considerable drop in wages, the inevitable result is a cutting back of the social-security benefits that have been built up over many years and, in the end, a reappraisal of perceptions of dignity and self-esteem.

The decline in the quality of workers’ lives has been exacerbated in many developing countries by the simultaneous introduction of structural adjustment programmes. These schemes, imposed by the World Bank and the International Monetary Fund (IMF), have included a drastic reduction in subsidies which kept food and transport prices low, and of expenditure meant to facilitate public access to education, health, and housing.

Labour in an Integrating World is the title of the 1995 World Bank Annual Report. According to this document, the dualism that determines the organization of the labour market arises from the unjustified preferential treatment of formal-sector workers.

In this view, the labour arrangements in the informal sector are not perceived as a problem, or as modalities of employment which contribute to the perpetuation of poverty Rather, they are recommended as a solution to the situation of immense deprivation suffered by such a large part of humanity.

The argument made for the withdrawal of state involvement in the labour system, for the repeal of existing protective legislation, and for the abolition of more effective enforcement of minimum-wage regulations, is part of a political-economic doctrine founded upon the unfettered freedom of the market as the guiding principle.

The organization of economic production, in a period of growth characterized not by a lack of labour but of capital, benefits the latter at the cost of the former. The providers of work, under these conditions, pay the lowest possible price after the rejection of social-security rights which, directly or indirectly, require wage supplements.

The crumbling away of the welfare state where it had previously existed, as well as its halting development where it had only just begun to come into sight, can be seen as confirmation of a trend in which the slowly advancing emancipation of labour in recent decades appears as if it were being reversed into subordination and insecurity.

The progressive polarization of social classes accompanying these dynamics has given rise in Europe to a debate which concentrates on the inclusion-exclusion contrast, which seems to mark the return of the old dualism concept in yet another form.


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