Good or bad – the argument persists

FEW people think that the black economy is all bad. There are certainly some aspects that yield benefits. One pro-consumer view is that the existence of the black economy compels legitimate businesses to be more innovative and efficient so that their products and services are more appealing than those offered by the illegal competitors.

Then there is the macroeconomic defence that it provides employment, boosts economic activity and supports the formal economy.

Among the strongest proponents of the informal economy are those who believe in its capacity to improve the lives of the poor. One of these advocates is a global research-policy network called Women in Informal Employment: Globalising and Organising (WIEGO).

In a 2002 booklet titled Addressing Informality, Reducing Poverty: A Policy Response to the Informal Economy, the US-based WIEGO asserts that governments need to develop innovative and supportive policies that recognise the informal economy’s contributions.

WIEGO also contends that there are a lot of outdated and inaccurate views on the informal economy. Below is how it addresses this matter:

Some people are convinced that the black economy will help reduce poverty

The Old View: The informal sector is the traditional economy that will wither away and die with modern, industrial growth.

The New View: The informal economy is increasing with modern, industrial growth – accounting for more than half of the new jobs in Latin America and 80% of new jobs in Africa. In India, more than 90% of the labour force is in it. It is a feature of economic transition as well as capitalist industrialisation.

The Old View: It is only marginally productive.

The New View: Virtually everywhere the informal economy is efficient and resilient, creating jobs. It is a major provider of employment, goods and services for lower-income groups. It contributes significantly to GDP.

The Old View: It exists separately from the formal economy.

The New View: It is linked to the formal economy – it produces for, trades with, distributes for, and provides services to the formal economy.

The Old View: It represents a reserve pool of surplus labour.

The New View: Much of the recent rise in informality reflects the decline in formal employment associated with structural adjustment and global competition. It reflects not only the incapacity of formal firms to absorb labour, but also their unwillingness to do so.

The Old View: Most of those in the sector are entrepreneurs of illegal and unregistered enterprises seeking to avoid regulation and taxation.

The New View: It should not be equated with the criminal or illegal economy. It is made up of non-standard wage workers as well as entrepreneurs and self-employed persons producing legal goods and services, albeit through irregular or unregulated means.

Most entrepreneurs and the self-employed are amenable to, and would welcome, efforts to reduce barriers to registration and related transaction costs and to increase benefits from regulation. Most non-standard workers would also welcome more stable jobs and workers’ rights.

The Old View: Work in the informal economy comprises mostly survival activities and thus is not a subject for economic policy.

The New View: Informal enterprises include not only survival activities but also stable enterprises and dynamic growing businesses. All informal enterprises are affected by economic policies.

The Old View: It comprises mainly unregistered businesses.

The New View: It comprises not only informal enterprises but also informal jobs, including employees of informal firms, casual day labourers, and domestic workers as well as industrial outworkers and other non-standard workers in both informal and formal firms.

The Old View: It comprises mostly street traders and very small-scale producers.

The New View: It is made up of a wide range of informal work arrangements – both “resilient old forms” and “emerging new ones” (temporary and part-time jobs plus home-based work for high-tech industries). Its two basic segments are informal enterprises and informal jobs.

The Old View: It is unregulated.

The New View: Some informal enterprises – such as street vendors – are highly regulated, so much so that regulations are impossible to enforce or comply with and are often not clear either to local authorities or to vendors. Regulations become a tool of harassment and control, not a way to encourage economic contributions of street vendors. On the other hand, the employers of most informal wage workers often seek to avoid complying with labour legislation.

The Old View: Because it is unregulated and untaxed, many working in the informal sector are wealthy.

The New View: Average incomes are lower in the informal economy than in the formal economy. A higher percentage of people working in the informal economy are poor. Most of the wealthy in the informal economy are micro-entrepreneurs who hire others. The poorest are, typically, informal wage workers, especially industrial outworkers.

The Old View: To regulate the informal economy is unnecessary interference with its workings.

The New View: In today’s globalised economy, the active role of government is needed in the regulation of economic activities, including the informal economy. Clear rules and appropriate legislation are needed to regulate the relationship between governments, foreign investors, local enterprises, and the workforce.

The Old View: Street traders are to blame for crime in the inner cities.

The New View: Criminals are a threat to the business interests of both formal and informal enterprises.

The Old View: It does not contribute to economic growth.

The New View: It contributes substantially to the economy and needs to be encouraged and facilitated.

The Star- Errol Oh