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informal sector

  Those parts of economic geographies beyond official recognition and record through which people engage in social reproduction outside formal systems of control and remuneration but often in close relationship with formal economic geographies.

The informal sector is, by definition, difficult to pin down and to characterize. It reveals the lack of clear distinction between, say, work and non-work, culture and economy, legality and illegality. The economic geographies of illegal drugs, for example, are, at all levels of the production and distribution chain, both a means of sustaining and engaging in formal circuits of social reproduction and a subversion of them. Lubell (1991, p.11) is forced into a minimalist position:

After years of controversy … two characteristics have emerged as operational criteria for identifying informal sector enterprises: small size … and the extent to which an enterprise avoids official regulations and taxes.And, for much informal activity a further criterion — its localism — might be added. But, more fundamentally, the question of evaluation is important as much informal activity may be valued in ways which differ in principle as well as in practice from those adopted in the formal economy.

Thus the very nature of the informal sector and its differentiation, between and within different regions of the world, makes a precise and uncontested definition almost impossible. It is a chaotic conception in that, although all \'informal\' activities have one absence in common — a lack of formal surveillance — their diversity and multiple relations with formal economic geographies, themselves subject to frequent but not always well-publicized illegalities, serves to break down any notion of coherence. Enzo Mingione (1991) notes that informal activities may be ranged along various continua: formal-informal; legal-illegal (not provided for in law); monetary-non-monetary; public-private. The informal sector is also characterized by a range of scales of activities from the individual, part-time activity (e.g. taxi driving, do-it-yourself) to small-scale commercial service and manufacturing activities (e.g. window cleaning, prostitution) and takes place throughout the world economy (Pahl, 1984; Portes et al., 1989) although its relative importance in sustaining levels of social reproduction varies.

This diversity points to the wide variety of activities which constitute the material relations of the informal economy. They include handicrafts, shoe repair, machinery repair, street marketing and the bazaar economy, domestic labour, painting and decorating, car-watching, dog-walking, baby- and home-sitting, casual labour, the provision of personal services and, in some Local Exchange and Trading Systems (LETS) which operate with a currency separate from that within the formal economy, the provision of costly professional services or highly skilled labour.

Participation in the informal economy and even within tightly circumscribed components of it may take place for a wide variety of reasons ranging across: considerations of opportunity costs and convenience (it is often easier personally to undertake many tasks of domestic labour than to arrange and pay to consume the services of formal providers); sheer enjoyment in the acts of production, exchange and consumption (see, for example, Crewe and Gregson, 1998 on car boot sales); a need to evade formal controls and surveillance — as in the highly commercialized and sophisticated global production and circulation of illegal drugs (Castells, 1997) or in their local distribution and sale and in the sale and disposal of illegally acquired goods; a wish to develop social contacts and to participate in an autonomous community of interaction (e.g. Lee, 1996); the provision of an outlet for goods and services produced in whole or in part by economies (economic geographies) of regard (Offer, 1997); a means of addressing social exclusion from formal economic geographies (e.g. Williams, 1996); or as a means of resistance to, and possible explorations of, alternatives to formal economic geographies (e.g. North, 1999).

More generally, and with special resonance in the Third World, the informal sector is seen both as a problem of underdevelopment and as a solution to it (see Portes and Schauffler, 1993 for a review of these arguments). It is associated with the absorption of unemployment highlighted in a series of reports produced by the ILO during the early 1970s (see Lipton, 1982, ch. 4) which prioritized employment over growth and recognized the informal sector as labour-intensive and as a highly flexible sector alongside and in mutual formative relations with formal, often capital intensive, industrialization.

The low productivity and high labour intensity of most informal activities makes them attractive as a means of absorbing unemployment. Survey evidence (e.g. Gilbert and Gugler, 1982; Lubell, 1991) suggests that between 40 and 70 per cent of the labour force may work in the informal sector in Third World cities where petty trading is the predominant form of informal activity. Clearly, the informal economy contributes substantially to the absorptive capacity of cities (see, e.g. Rogerson, 1992). Local economic geographies, such as the increasingly sophisticated and extensible LETS schemes and their equivalents throughout the developed world, enable some participants to make a living — in part, at least — outside the formal market economy.

Nevertheless, in their \'populist\' (Lipton, 1982) reports, the ILO recognized that productivity and hence incomes were low in the informal sector and recommended measures to increase productivity, not least by removing restrictions from the informal sector and advancing credit, organizational and marketing assistance and research and development funding to find technologies that will remove drudgery whilst not replacing labour. There are clear links here with E.F. Schumacher\'s (1973) advocacy of small-scale, labour-intensive technology whereby conventional notions of development — such as productivity, for example — are inserted into models which stress the primacy of people in the development process (\'economics as if people mattered\' — to quote Schumacher\'s subtitle) and point to fundamental requirements of social reproduction such as employment, ecological sustainability (sustainable development) and labour-enhancing (in both senses) intermediate technologies. These notions also infuse local informal alternatives within developed societies.

The wide range of activities within the informal economic geographies is suggestive of close links between the formal and the informal economy. In fact Lubell (1991) reports that backward linkages to formal sector suppliers are relatively strong whereas forward linkages are limited to households and other informal sector producers (see dual economy). But such relationships are extended by bartering between commercial enterprises — a system of exchange designed to reduce transaction costs in the acquisition and sale of intermediate goods — and by payment of wages in kind using the outputs produced by enterprises faced with drastic cash-flow problems in the transitional economies of eastern Europe. But the ambivalent and complex relationships between informal and formal economic geography are also apparent in schemes using use values rather than currency as a means of payment of wages and salaries. In early 1998, for example, Oxfordshire County Council in the UK considered a replication of schemes elsewhere in the formal economy of paying its labour force in part with tokens exchangeable at local supermarkets in order to reduce on-costs of employment — especially National Insurance — and so, notional at least, to redirect flows of money absorbed by national social security schemes into the local geographies of public service provision and retailing.

Thus, the informal economy straddles most of the dualisms noted by Mingione, dualisms which are useful only in that they point to their inadequacy in describing the informal sector. Very few people would not normally participate in the informal economy on a regular basis and many would, consciously or unconsciously, participate in it in ways considered formally to be illegal. Unpaid domestic labour comprises a major part of the informal sector (Offe and Heinze, 1992) and in the UK its contribution to the social reproduction is estimated at between 40 and 120 per cent of GDP (Murgatroyd and Neuberger 1997).

Thus for Fernand Braudel (1985, pp. 23-4), the informal sector is one of the \'several economies\' evolving within the world economy. It is a:

shadowy zone, often hard to see for lack of adequate historical documents, lying underneath the market economy: this is … basic activity which went on everywhere and the volume of which is truly fantastic. This rich zone, like a layer covering the earth, I have called … material life or material civilization. These are obviously ambiguous expressions. But … a proper term will one day be found to describe this infra-economy, the informal other half of economic activity, the world of self-sufficiency and barter of goods within a very small radius. … This layer of activity … has reached sufficient proportions to attract the attention of several economists: some have estimated that it may represent 30 or 40% of the gross national product, which thus lies outside all official accounting, even in industrialised countries.Given the complexity, scale and motivation of participants in the informal economy it should, perhaps, be considered less as an \'other\', defined in terms of formal economic relations — what it is not — than in terms which reflect the highly restricted and uniform notions of the \'economic\' emanating from the supposed normality of the formal economy: a discourse with profound significance for surveillance and social control.

Although the total value of its production and consumption can — by definition — only be estimated, one estimate suggests that the so-called black economy (which may be defined as paid work without official record or regulation) amounted to between 7 and 16 per cent of the European Union\'s (EU) GDP in 1998 compared to around 5 per cent in the 1970s. These figures correspond to between 10 and 28 million jobs concentrated largely in labour-intensive sectors with low levels of profitability like agriculture, retailing, construction and catering as well as in modern innovative sectors. The geography of the informal economy is also highly variable. In the EU, for example, between 29 and 35 per cent of GDP is accounted for by the black economy in Greece, whilst in Finland the comparable figures range between 2 and 4 per cent.

However, despite the fact that its growth generates powerful social and political consequences — it is, for example, highly gendered (Waring, 1989; Williams and Windebank, 1998) and unequal (remuneration is often well below official minimum wage levels although the heads of informal enterprises generally receive incomes above such levels (Lubell, 1991)) — the ideological significance of the informal sector for the state is ambiguous (see e.g. Khosa, 1992). One reason for this is that the informal sector not only offers employment but, in so doing, also contributes to a sometimes violent, even murderous form of social control beyond the state in cities throughout the world. This is the informal equivalent of the controls exerted by capitalist markets — the so-called invisible hand or, more accurately — the iron fist in a velvet glove (see, e.g. Watts, 1994). The state not only loses tax revenues but also records as informal transactions that take place outside the tax collection and regulatory systems. Thus the ability of state surveillance to define and constrain \'normal\' behaviour is threatened with the emergence of informal economic geographies, autonomous economic geographies such as LETS or the appearance of non-standard currencies. It is this potential of informal economic geographies which engenders a suspicion verging on outright opposition by official agencies/states.

The informal economy also poses profound questions about the legitimacy and developmental effectiveness of the formal economy. Nevertheless, one strategy of development (see, e.g. Santos, 1979; Dickenson et al., 1983) is to organize the informal economy and integrate it more fully into the formal. More positively, the continuing dynamism of the informal sector points to the demonstrable possibility of the construction of social relations of production and consumption \'beyond the market paradigm\' (Mingione, 1991). However, as the conclusion (Portes and Itzigsohn, 1997, p. 247) to a series of empirical studies of the informal economy in the Caribbean (Portes, Dore-Cabral and Landolt, 1997) suggests:

No longer can these activities be conceptualised as a vestige of a pre-capitalist past awaiting incorporation into modern capitalism. Instead, they have themselves become elements of the new stage of capitalist development in the region. … The diversity of informal enterprises … reflects the material and social resources that different groups can bring to bear on the new, unconstrained market. The harsh competition that it creates for urban middle and lower sectors will undoubtedly yield extraordinary entrepreneurial successes, along with exacerbated poverty and suffering.(RL) References Braudel, F. 1985: Civilization and capitalism 15th-18th Century, vol. I: The structures of everyday life. London: Fontana Press. Castells, M. 1997: End of millennium. The information age, economy, society and culture. Cambridge, MA and Oxford: Blackwell. Crewe, L. and Gregson, N. 1998: Tales of the unexpected: exploring car-boot sales as marginal spaces of contemporary consumption. Transactions, Institute of British Geographers NS 23: 39-53. Dickenson, J.P. et al. 1983: A geography of the third world. London and New York: Methuen. Gilbert, A. and Gugler, J. 1982: Cities, poverty and development: urbanisation in the third world. Oxford and New York: Oxford University Press. Khosa, M.M. 1992: Changing state policy and the black taxi industry in Soweto. In D.M. Smith, ed., The apartheid city and beyond: Urbanization and social change in South Africa, ch. 15. London and New York: Routledge, 182-92. Lee, R. 1996: Moral money? LETS and the social construction of local economic geographies in Southeast England. Environment and Planning A 28: 1377-94. Lipton, M. 1982: Development and underdevelopment in historical perspective. London: Methuen. Lubell, H. 1991: The informal sector in the 1980s and 1990s. OECD Development Centre Studies. Paris: OECD. Mingione, E. 1991: Fragmented societies: a sociology of life beyond the market paradigm. Oxford and Cambridge, MA: Basil Blackwell. Murgatroyd, L. and Neuberger, H. 1997: A household satellite account for the UK. Economic Trends 527: 63-71. North P. 1999: Explorations in heterotopia: local exchange trading schemes (LETS) and the micro-politics of money and livelihood. Environment and Planning D: Society and Space 17: 69-86. Offe, C. and Heinze, R.G. 1992: Beyond employment: time, work and the informal economy. Cambridge and Oxford: Polity Press. Offer, A. 1997: Between the gift and the market: the economy of regard. Economic History Review 50 (2): 450-76. Pahl, R. 1984: Divisions of labour. Oxford and Cambridge, MA: Basil Blackwell. Portes, A. and Itzigsohn, J. 1997: Coping with change. The politics and economics of urban poverty. In A. Portes, C. Dore-Cabral, and P. Landolt, eds, The urban Caribbean Transition to the new global economy, ch. 8. Baltimore: Johns Hopkins University Press, 227-252. Portes, A. and Schaffler, R. 1993: Competing perspectives on the Latin American informal sector. Population and Development Review 19 1: 33-60. Portes, A., Castells, M. and Benton, L.A., eds, 1989: The informal economy: studies in advanced and less developed countries. Baltimore: Johns Hopkins University Press. Portes, A., Dore-Cabral, C. and Landolt, P., eds, 1997: The urban Caribbean: transition to the new global economy. Baltimore: Johns Hopkins University Press. Rogerson, C.M. 1992: The absorptive capacity of the informal sector in the South African city. In D.M. Smith, ed., The apartheid city and beyond: Urbanization and social change in South Africa, ch. 13. London and New York: Routledge, 161-71. Santos, M. 1979: The shared space. London and New York: Methuen. Schumacher, E.F. 1973: Small is beautiful; economics as if people mattered. New York: Harper and Row. Waring, M. 1989: If women counted: a new feminist economics. London: Macmillan. Watts, M.J. 1994: Development II: the privatization of everything? Progress in Human Geography 18 (3): 371-84. Williams, C. 1996: Informal sector responses to unemployment: an evaluation of the potential of Local Exchange and Trading systems (LETS). Work, Employment and Society 10: 341-59. Williams, C.C. and Windebank, J. 1998: Informal employment in the advanced economies: implications for work and welfare. London: Routledge.

Suggested Reading Crewe and Gregson (1998). Offe and Heinze (1992). Santos (1979).



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