Informal sector Market can tackle poverty

Posted: March 11, 2012 in Informal sector
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By Dr Yunxian Wang and Dr Kyoko Kusakabe

RECENTLY vendors in the Papua New Guinea (PNG) city of Lae took its city council to court arguing that the city’s urban municipal athority has only regulatory power in line with health standards, not the power to ban the markets within vendors’ premises (The National, January 27, 2012). It shows in any democratic society, powerless people have the channel to express their grievances. At the same time, it indicates the debates on informal markets do not remain just in theoretical circle. Having access to informal markets is important in developing countries for poverty alleviation, food security, income generation and services, not only for massive small producers, but also for consumers particularly women.Urban authorities and many people brand market, street vending or other forms of livelihoods in informal sector as illegal. This would imply that people’s perception on informal and local economy is debatable, and more critically policy might have attached insignificant importance to the roles of the informal economy. Theoretical Debates There has been huge volume of discussions on informal economy in the Asian context. Informal activities often take place in congested private place or public open space, particularly in urban areas, hence create controversy in any society, as urban space tends to be highly political and involves various interests. In theoretical debates, many people view market and street activities as important source of income and contribution to household livelihoods. Likewise women’s business activities in the urban space have contributed largely to empowerment of women. The informal nature and stereotyped gender roles make women subject to harassment, and therefore organizing has been the issue. There is also a different perspective that looks at how street vending can revitalize urban spaces and bring life to human activities. Local market and street vending can be translated into tourist attractions and add to the beauty of cities. This is usually the case in the context of the developed countries. Nevertheless, in many of the Asian countries, local markets have also developed towards tourist attractions, such as Chatucha Market in Bangkok. In PNG, the economy and government revenue have been fuelled by the extractive industries. Therefore the discussion on economic growth has been centered on the effects of certain big projects such as PNG LNG project while the informal economy was only seriously tapped recently. Value of Informal Economy The informal economy in Asia is vibrant. In Thailand, the informal economy accounted for 45.6% of Gross Domestic Product (GDP), and in Cambodia, around 80% of GDP and 95% of employment come from the informal sector. In Mongolia, the informal economy contributed 17‐20% of GDP in 2005. In Mongolia, better income‐earning opportunity and bankruptcy of the state‐owned enterprises have pushed people to engage in informal economy. In spite of the illegal status of street vending, the policy makers in the above three countries agreed that street vending is necessary for the livelihoods of the urban poor and their national economy. In PNG, although the informal economy is not counted into the country’s GDP, a sample survey of 1265 informal sector participants conducted by Institute of National Affairs in 2001 finds that 60% of the respondents claimed to rely solely on informal sector as source of income and livelihoods. Same study conducted in 5 urban centers (Lae, Madang, Mt. Hagen, Port Moresby and Rabaul/Kokopo) revealed that 89% tend to embrace a positive attitude towards the informal economic activities. Such positive attitude is derived not only from their access to cheaper goods and services, but also the support towards the small traders who earn a livelihood in an honest and diligent way. In an economy like PNG where scale agro‐business on green and fresh products is not well developed, the local open‐air markets are important engine to pull the rural produce to urban centers, and to lift rural people out of poverty. There is direct link between the land resources the small trader families own and the profit they make from the markets Hegemonies against Informal Economy In spite of the active existence and recognition of the role of informal economy, by and large, informal economic activities in Asia‐Pacific region have been treated unfairly in legal and policy perspectives. Informal economy participants are excluded in the social security system and urban development planning. In contrast to the positive public opinion is the harsh policy toward informal economy from formal institutions. In Thailand, vendors are seen by policy makers as roots problems such as pedestrian and traffic obstruction, and city sanitation. In Cambodia, harassment from market security and police was the most serious complaint from market participants. Registration is a feature of informal sector development policy in transitional Mongolia, but due to the complicated process and short benefit, small vendors can hardly get license on time and guarantee their business period. There have been harsh clear‐up actions towards informal activities in PNG. As shown in Lae city streets, the hard‐hearted actions towards the informal economic activities from local authorities and law enforcers were of the concerns of littering and food hygiene. However, it is argued that such reasons used against informal trading activities are not sound enough. Interest conflicts among the stakeholders are the real reasons of clearing up the informal activities. Asian counties are no exception. In China with the economic development, the number of rural‐urban migrants has reached 221 million. They work mainly in informal economy in the cities and are mostly exploited and harassed. Targeting rural‐urban migrants, the city management authorities are most aggressive in their law enforcement to maintain city image. There are numerous cases that aggressive clearances have led to strong reactions towards the city management and caused open confrontation. Regarding the aggressive and coercive forces applied in the various forms of law enforcement towards informal economy, political scientist Kathleen Staudt conceptualizes them as ‘the grand and petty hegemonies’ which people comply, resist and negotiate. The grand hegemony refers to the policy hegemony which admires the glory of formal economy and ignores the role of informal economy in the livelihood of the ordinary families. Informal economy participants have no access to institutional and financial support, and market facilities etc. The petty hegemony lies with the rent seeking behaviors of the law enforcers who try to exercise the power in their hand to extract some benefits from the powerless. The public power is abused and out of control, which has caused the conflicts not only between informal participants and law enforcers, but also between the institution and the public. Myths on Informal Economy The contrasts of public opinion and harsh and even violent actions towards informal economic participants reflect the perception of development, whether it is people centered and inclusive, or only accountable to the authority and privileged urban elites. Certain myths also have led to suppressing approach towards informal economy. Little contribution to GDP or hindrance to development: People think that what the informal economy participants produce is not counted in national production, therefore it is insignificant to the national economy or even perceived as hindrance to urban development. It is to be noted that it is the problem of the national accounting system that informal economy is not counted in national production, rather than the nature of informal economy. Damage to city image: Informal activities spoil the image of a city. However, bad images of cities are not created by informal local markets, but by high crime rates. Without opportunities and alternatives for livelihoods, if petty trading is further prohibited and chased away, people would resort to crime. PNG has many extractive industrial enclaves already. It should not develop the urban enclaves from rural poor and residential enclaves within the urban centers. Rich and privileged people cannot live at ease in the enclaves secured by high fence, dogs and guards. If all the citizens are to enjoy the benefit of economic expansion, the development approach has to be inclusive and pro‐poor. Informal economy as temporary existence: Many informal economic activities indeed will develop into more established small business. Big capital will also occupy market share and squeeze out the space of informal economy. However, it is noted that informal markets will not disappear and hegemonic forces will not chase away completely the informal activities, as long as the household income barely meets the expenses and people are fighting for survival. End remarks Informal economy is the employer of the majority of poor people in most developing countries. Public opinion support indicates that informal economy is the friend of people. In practical terms, informal market and trading are also the sources of fees collected by the police, market security and tax collectors. The law enforcers and informal economy participants should be friends, rather than foes. Dr. Yunxian Wang is a Senior Research Fellow of the Economic Policy Research Program under the Wealth Creation Pillar, the National Research Institute. Dr. Kyoko Kusakabe is an Associate Professor at the Asian Institute of Technology in Bangkok, Thailand. Read more: http://www.pngperspective.com/news/informal-markets-can-tackle-poverty-and-empower-women/

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