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Convergence and Divergence in the Informal Sector

Debate: A Focus on Latin America, 1984-92

CATHY A. RAKOWSKI”

Ohio State University, Columbus

Summary. - Over the years, the “informal sector debate” has increased its complexity and expanded

its ambit. For this reason, academics, policy makers, and practitioners frequently have difficulty under-

standing a phenomenon referred to by a term used in different ways and supported by data produced

through a variety of methods to fit competing agendas. The objective of the present paper is to explain

the debate, particularly for 1984-92 as applied to the informal sector in Latin America. The paper identi-

fies the approaches/perspectives and personalities involved in the debate, assesses points of agreement

or divergence, and clarifies policy implications.

1. INTRODUCTION

World Development has long served as a forum for

the conceptual, methodological and policy debates

surrounding the informal sector.’ In 1978 the journal

published a special issue edited by Ray Bromley with

articles by Caroline Moser and Victor Tokman on

issues under debate for that period; Moser subse-

quently updated her article for a 1984 issue of

Regional Development Dialogue. Lisa Peattie’s

polemic and much cited critique of the informal sector

concept appeared in World Development as did

Tokman’s policy proposition for a heterogeneous

informal sector.3 This paper both updates the debate

for 1984-92 - especially as it took place in Latin

America - and attempts to make sense of apparently

competing paradigms and policy recommendations.

The paper begins with an overview of contemporary

issues and approaches, followed by a comparison of

each of four major approaches. The final section sug-

gests where the debate is likely to go as the 20th cen-

tury draws to its conclusion.

Moser identified the critical issues of the 1970s

and early 1980s as the relationship between concep-

tual definitions, research methodologies, and policy

proposals; the reasons for the persistence of the sector;

and its capacity to generate growth and employment.4

For Moser, the importance of the informal sector con-

cept was primarily “a consequence of the fact that -

under the prevailing conditions of twentieth century

capitalism - small-scale forms of production are not

disappearing (a marked difference from the process of

capitalist development which occurred in nineteenth

century Europe).“5 The issues cited by Moser remain

valid, but some dramatic changes have taken place

since 1984. These include a new assessment of the nature of informal activities, their relation to the state,

and their role in development.

2. THE CHANGING DEBATE

Change is exemplified by the growing acceptance

among academics and policy makers that under cer-

tain conditions (e.g., structural adjustment, recession,

excessive regulation) many informal activities are

valuable economic endeavors (as opposed to their past

classification as “marginal”). Change also is reflected

in the notion that informal activities are, possibly, a

necessary (integral) stage or long-term component of

developing market economies - a new path to capi-

talist development. The restructuring of production in

the global economy, recession and debt crisis in Latin

America, the resurgence of neoliberal economic and

democratic political ideologies, and long-term and

new guerrilla activity (especially in Central America

and Peru) encouraged this revaluation of informal

activities and shifted discussion to issues of equity,

competition, and power; the importance of macroeco-

nomic versus social welfare objectives and of macro

versus micro-level policies; and the role of private

versus public sector agents in promoting “genuine”

development. New issues crop up periodically, such

as-most recently-a consideration of (a) the role of

*This paper is a modified version of Chapter 3 (The

Informal Sector Debate, Part 2: 1984-1993) in Cathy A.

Rakowski (Ed.), CONTRAPUNTO: The Informal Sector

Debate in Latin America (Albany: State University of New

York Press, forthcoming) and is published with their per-

mission. Final revision accepted: November 12, 1993.

501

502 WORLD DEVELOPMENT

right- and left-wing ideologies and democratization in conceptualization and policy formulation, 6 (b) how a

growing informal sector can reshape work, social organization, and state-society relations, and (c) the

impact of informal sector responses to macroeco- nomic policy and state authority. 7

Debaters have changed too. The informal sector

debate described by Moser was almost exclusively the

domain of development economists and academic social scientists. They were joined in the 1980s by

private voluntary agencies and other nongovernmen- tal organizations, community organizers, business

leaders, politicians and political parties, and social planners. Whereas the debate once took place primar-

ily in consultant reports, UN documents, scholarly publications, and at universities, think tanks, profes-

sional meetings or in government planning offices, the contemporary debate extends to a broader arena-- the popular press, television, chambers of commerce and

business organizations, labor unions, legislative bod-

ies, the offices of international donor agencies, and a variety of public and private spaces.

Content has changed. Definitional concepts and methodology are still debated, s but relative impor-

tance has shifted. In the 1970s, much energy was

expended arguing over terminology and whether the informal sector was half of a dichotomy (economic

dualism) or an extreme on a continuum. In the 1980s, new terms emerged leading debaters to focus more

on understanding the phenomenon regardless of the label used. 9 By 1992, terms such as informality (operating outside or on the margins of the regulatory

context) were used interchangeably with in- formal activity, sector or economy; self employment or disguised wage work; subcontracting; microenter-

prise; the underground or black market economy; and casual work. Terms such as economic dualism, con-

tinuum, petty commodity production, marginality, and traditional sector had fallen from favor.

Accordingly, the people who engage in informal activities are equally likely to be called "the poor,"

"unprotected workers," "informals," "entrepreneurs," and -- occasionally -- "petty producers" and "casual labor."10

The popularity of the informal sector concept among policy advisors and governments arose from a convergence of interest in poverty issues, the need for a policy instrument, H the difficulty of translating the academic-intellectual debate into policy, the visibility

of the activities labeled informal, and competing pres- sures (by informals, labor unions, shopkeepers, the middle class, etc.) on the state to take action (whether that be repression, promotion, or tolerance). Other

factors reinforced this focus on the informal sector, including economic factors (growing size of the sec- tor, economic crisis and slow growth, expanding poverty, the need for efficient use of resources, scarcity of financial resources) and cultural, political,

and ideological factors (imported concepts such as underground economy and black market, democrati- zation and the importance of informals as con-

stituents, popularization of neoliberal ideology regarding deregulation and a conservative interna-

tional policy environment, a reconceptualization of informality from one of marginalization to one of entrepreneurial and capitalist endeavors). ~2

Governments, international financial institutions, and

private foundations found in the concept a common language to coordinate their activities and, in the case

of governments, to improve their access to interna- tional welfare funds earmarked for income-generating

activities. In part, the popularity of the informal sector concept comes from its ability to bridge diverse ana-

lytical and policy approaches, while its drawback is the inability to integrate approaches or improve ana- lytical usefulness. 13 A sketch of the major approaches

and perspectives which have dominated since 1984 illustrates. A logical starting point is the ILO

(International Labor Organization) position -- more commonly known in Latin America as the PREALC

approach.

3. MAKING SENSE OF THE DOMINANT APPROACHES

(a)

The ILO-PREALC (structuralist) approach

Bromley summarizes the direction in which the

ILO-PREALC tradition has moved since 1983:

The attitude taken by most advocates of the informal sec- tor concept who have followed the ILO line is that defin- itional questions are unimportant, and the existence of the sector is just as obvious as the existence of a Third World or a middle class... The ILO version of the con- cept has mainly served to promote a social democratic ideology and reformist agenda for the Third World. It has provided encouragement for appropriate technologies, indigenous enterprise, and local self-help, and it has advocated an increased government role in supporting and nurturing informal sector enterprises.~4

PREALC is a policy-oriented organization and

think tank comprised primarily of economists. Its approach is presented in the joint-authored publica- tions of PREALC, and in the writings of Victor Tokman, Jaime Mezzera, Gustavo Mfirquez, and Vanessa Cartaya. ~5 Despite widespread criticism, pro- ponents of the ILO-PREALC approach continue to use a dualistic definitional concept 16 (modern/infor- mal) linked to size of business (small), type of

employment or way of doing things and way of orga- nizing production (self employment, family firms, low levels of capital, unsophisticated technology), and outcomes (low productivity, low incomes, survival strategies). This approach has evolved over time,

while conserving the essence of its argument.

INFORMAL SECTOR DEBATE 503

Proponents still focus on labor markets and argue that

the informal sector results from an excess supply of

labor caused by the nature of industrialization (e.g.,

capital intensive), worker characteristics (low skill, poorly educated, age and sex), rural-urban migration,

and rapid growth in the urban labor force. 17 Informality is still equated with poverty (since the proportion of nonpoor TM in the sector is relatively low). 19

There have been some important changes in the ILO-PREALC approach. First, labor market segmen- tation has become more important than human capital models as a tool for analyzing labor markets. 2°

Second, case studies and analyses of productive units complement census and survey analyses. Third, costs

of legalizing and content of laws and regulations are

accepted as contextual variables which impact infor-

mality and productivity without being a cause of informality: "operating outside the margin of the law is the result of a certain form of production within a

structural context characterized by an excess labor supply and a low demand for well-paid jobs. ''21

Fourth, PREALC analysts seldom refer to informal activities as "traditional" although critics argue this is

implicit in the modern-informal point of segmentation used in labor market analyses. 22 Finally, proponents

emphasize the heterogeneous nature of the informal sector 23 which is caused by economic conditions

(prosperity, recession) and policies (structural adjust-

ment, welfare subsidies, etc.). Heterogeneity is

evident across industry sectors and subsectors -- e.g., differences between informal manufacturing,

services and commerce; self employment, domestic servants (individuals) compared with microenter-

prises (productive units); owners compared with workers of microenterprises; and income segmenta-

tion. This approach identifies at least two types of infor- mal activities -- the survival strategies of the perma-

nent poor (people with deficient human capital or tracked into marginal jobs because of their character-

istics) and the "conjunctural" unemployed (who have lost jobs or whose incomes have declined due to eco-

nomic recession, crisis, and structural adjustment policies). 24 PREALC analyses point to a role in the

1980s for the informal sector as a social welfare and

employment "safety net" in countries which have no welfare system. PREALC also recognizes a third,

small group -- entrepreneurs (owners of microenter- prises) with growth potential. The PREALC approach proposes that the primary path to development and to poverty alleviation is macroeconomic policy which emphasizes expanding modern sector employment and incomes. But propo- nents of this approach also advocate a complementary package of mutually reinforcing policies to address the myriad factors which impact job creation, produc- tivity, and income. 2s

(b) The underground economy approach

This second approach is also structuralist. It has

been called alternately the black market approach, the

underground approach, the word-systems approach, and even the "Portes" approach. 26 Since the term

underground is used in several writings, this is the

label used here. The underground approach evolved in the noneco-

nomic social sciences and academia; it has roots in neo-Marxist and dependency traditions dissatisfied with the ILO's economistic model. 27 Policy relevance

has not been of primary concern; contributing to

knowledge and theory development have been. The

cultural anthropologists and sociologists who predominate, however, share a basic neo-Marxist

ideology which focuses on exposing class conflict,

exploitation of labor, and the spread of imperialism

through worldwide economic restructuring. Their agenda includes revealing the different causes and

forms of labor exploitation in diverse settings, includ-

ing the more developed countries of Europe and North America.

Underground proponents reject economic dualism and reveal the way in which forms of production,

productive units, technologies, and workers are integrated into local, regional and international

economies. Underground language includes terms

such as industrial restructuring, the internationaliza- tion of capital, and flexible specialization; "informal

economy" and "underground" are the terms preferred

over informal sector. Research on the underground

assesses relations of production (especially mecha- nisms for subordinating labor), circuits of accumula-

tion (e.g., linkages between informal activities and large firms), class cleavages, and the (re)organization

of production under changing economic, institutional, social and legal conditions. Research includes labor

market analyses (using survey and census data) and case studies of specific industries and their workers. 2s

Since "informal economic processes cut across the whole social structure," research focuses on the "social dynamics underlying the production of such conditions. ''29

Despite a long-standing debate between Tokman and Portes, 3° there are many points of agreement

between the underground approach and the PREALC

approach. Both focus on forms of production, identify economic restructuring and/or crises as factors in the expansion of informality and its changing role in the 1980s, and accept the heterogeneity of the informal economy:

the informal sector is structurally heterogeneous and comprises such activities as direct subsistence, small- scale production and trade, and subcontracting to semi- clandestine enterprises and homeworkers.., the infor- mal economy simultaneously encompasses flexibility and exploitation, productivity and abuse, aggressive

504 WORLD DEVELOPMENT

entrepreneurs and defenseless workers, libertarianism and greediness. 3I

Both see a link between informality and impover- ishment of workers (although they differ on important

details): "most individuals engaged in informal eco-

nomic activities are poor... \[but\] informal economic processes cut across the whole social structure." The

informal economy "is not a set of survival strategies performed by destitute people on the margins of soci-

ety... It is a specific form of relationships of produc-

tion, while poverty is an attribute linked to the process of distribution. ''32

Despite differences in terminology, essentially

both conclude that informality is the "expression of

the uneven nature of capitalist development" in peripheral societies. 33 Finally, both agree that infor-

mal economies can be growth economies under cer- tain conditions: technological advancement, an export

orientation, and relative autonomy (when not inte- grated into vertical hierarchies of subcontracting). 34

Although not policy oriented, underground propo-

nents agree with the advisability of a heterogeneous policy package and the need for state intervention to

reduce inequalities, limit exploitation, and support

entrepreneurial endeavors.

The underground approach also differs from the

PREALC approach in important respects, including

its attribution of motive for subcontracting, interpreta-

tion of the consequence of linkages with the "formal"

sector, and assessment of the nature of segmentation

and the direction of future economic change.

Proponents emphasize that informality is present in

both peripheral and advanced economies and that

peripheral economies are themselves "modem;" both

informal and formal activities are "features of capital-

ism which fufill necessary functions for the accumula-

tion of capital. Above all, there is disenfranchisement

of the institutionalized power conquered by labor... in a two-century old struggle. ''35 Thus, the under-

ground approach rejects the subtle notions of social

marginality and inefficiency which -- for some work-

ers and work -- remain implicit to the PREALC approach. Firms "go underground" -- large firms sub-

contract to small firms, large firms engage in illegal hiring practices -- to lower costs associated with pro-

tective labor legislation. The informal economy is a "process of income generation characterized by one central feature: it is unregulated by the institutions of society, in a legal and social environment in which

similar activities are regulated. ''36 "Informalization" is a mechanism to reverse the costly process of proletar-

ianization, weaken the rights of workers and unions, and disenfranchise a large sector of the working class

--

with the acquiescence of the state in the interest of renewed economic growth. 37 Informalization is "an

instrument wielded by different participants in the

class struggle and the outcome is to alter class struc-

ture" and privilege. 38 For this reason, workers in the

informal sector tend to share characteristics subsumed

under the heading of "downgraded labor" -- they

receive fewer benefits, receive lower wages, and have

poorer working conditions, prerequisites for their entry into the labor market. State-supported informal-

ization grants competitive advantage. Economic activities can be informalized passively when state

regulation is extended selectively (e.g., to large firms,

but not to small scale firms) or actively when some firms and private interests gain a market advantage by

avoiding some state controls (e.g., selective applica-

tion of regulations encourages the subcontracting of

production to small firms or the hiring of a casual labor force not subject to stability and benefits)) 9

Because of their size, small firms are more flexible --

they can avoid the costs of regulations applied to large firms and can respond more quickly to changes in the

market. In what would appear to be merely an argument over semantics, proponents of the underground

approach claim the informal sector represents not a segment of the labor market (as PREALC argues), but

a segment of the economy. This means that "the fun-

damental cause for the maintenance and growth of an

informal sector.., is the juxtaposition of extensive labor legislation.., and an abundant labor supply. ''4°

This is only a shade different from the PREALC posi- tion that "laws are not the cause of informality... operating outside the margin of the law is the result of

a certain form of production within a structural con-

text characterized by an excess labor supply and a low demand for well paid jobs. ''4a Despite significant overlap in their positions,

underground proponents have been highly critical of the PREALC definition of the informal sector as small scale, easy entry, or a way of doing things. The under-

ground approach proposes "informality" should he conceptualized alternately as a "status of labor" --

undeclared and noncontractual, lacking benefits and paid less than minimum wage; "conditions of work"

--

hazardous, unprotected; "form of management of some firms" -- fiscal fraud, unrecorded transactions,

family firm; and as the "nature" of work-- extralegal, unprotected. 42 The policy implications of informality and the consequences for the welfare of workers can be laid out clearly. 43 One of the most important policy

contributions of this approach is case study evidence that informality is not limited to peripheral economies, but is also typical of advanced economies.

It is a strategy used by firms -- both large and small -- to cut costs, improve competitiveness, and guarantee

flexibility in firm management and employment. A critical shortcoming of the approach is the virtual impossibility of operationalizing the concept for aggregate data analyses -- censuses and surveys include no variables with information on compliance with regulations and exclude many types of self-

INFORMAL SECTOR DEBATE 505

employment which can be classified as informal, including home-based subcontracting of women as

part-time workers. Therefore, case studies -- expen-

sive, time consuming, not easily generalized to other settings -- must be carded out. 44

(c)

The legalist or ILD-de Sort approach

Issues of regulation and extralegality are at the heart of a "new star" in the debate -- the Peruvian Hemando de Soto and the think tank of primarily

economists and lawyers he founded, the ILD/Instituto Libertad y Democracia (Institute of Liberty and

Democracy). This approach is neoliberal and does not rely on economic modeling or academic research; its

ideological position is neoliberal. Terms such as

"moral," "efficient," "rational," and "democratic" season its publications. It purports to be based on the

real world economics Peattie advocates -- the study

of entrepreneurs (through surveys, in-depth inter- views, and case studies of subsectors and organiza- tion) and of the institutional constraints (through legal

analysis and interviews) which make informality a

rational economic strategy. Its arguments "blend well with.., descriptions.., of the advantages of 'flexible

specialization' as implemented by cooperatives of microenterprises in central Italy" and elsewhere. 45

Proponents differ with both the PREALC and underground assessments of the primary causes and outcomes of informality and on the role of the infor-

mal sector in economic growth. While the structural- ists would focus on "cleavages in economic and social

composition between formal and informal

economies" and "infer that the proper role of the state is to help equalize differences," the legalists would

argue that "cleavages are not structural but legal, bureaucratic, of state making." There are also impor-

tant points of convergence -- although each would use a somewhat different language, they would agree

that linkages between the sectors disadvantage those in informal work and that the informal sector plays an important role in peripheral economies; but structural- ists want to improve the situation of workers, while

legalists argue worker protection would lead to loss of jobs. 46

Ghersi, a legalist, critiques the structuralist (ILO-

PREALC) focus on labor markets as confusing effect with cause by defining informality in terms of size or scale of operation. He accuses other structuralists (net-Marxist anthropologists mainly) as blaming the

victim by identifying informality as a problem of mar- ginal cultures and values which cannot compete in an advanced economy. In his opinion, informality (with small size as a consequence) is the only rational choice for people in light of the high cost of legality. 47 The legalist approach has had a profound impact on revising the image of the informal sector (from vic-

rims to survivors, from parasites to heroes) and on pol-

icy. 48 Its ideas have been incorporated rapidly into the

work of neoliberal economists, policy advisors, and

nongovernmental organizations (NGOs). 49

The legalist concept of "informality," "informal

activities," "informals" or "informal sector" shares with the PREALC approach notions of dualism and

the marginalization of certain actors or activities -- in this case referred to as "entrepreneurs." In contrast

with underground proponents who emphasize produc-

tive strategies of large firms, de Soto and other legal- ists emphasize income-generating efforts and expen-

diture-saving activities of small firms. They discard assumptions (d

la

ILO and some academics) that

informality represents marginalization, that Peruvian (Latin American) culture is incompatible with the

kind of entrepreneurship found in advanced countries, and that the problems of Latin American economies

are the result of extemal factors (e.g., imperialism).

Although legalists frequently refer to informals as

"poor entrepreneurs" and romanticize them as strug-

gling against great odds to provide needed goods and services, they see in them the hope for competitive

capitalist development -- if only the state will get out of the market and eliminate the bureaucratic maze and

costs associated with legalizing business operations.

While Portes recognizes "elements of truth" to the discussion of overregulation, bribes and costs, he is

highly critical of the notion that an unregulated econ- omy offers a "magical solution" to Latin America's problem of underdevelopment. 5° This romanticizes

the self-employed and owners of microenterprises. It

does not consider their structural subordination or the

exploitation of microenterprise employees by entre-

preneurs (since their main competitive advantages are keeping the cost of labor low and flexibility -- includ-

ing to hire and fire as needed). The legalists and PREALC agree on some points.

These include the notion that informal activities serve as a "safety valve for societal tensions ''5~ and are "sur-

vival strategies" undertaken by the poor -- but with great ingenuity and entrepreneurial spirit. 52 But where

a sense of choice is implicit in PREALC analyses, the legalists emphasize that the informals are forced into extralegality (and poverty). This is because of dis-

criminatory state regulations and costs which advan- tage powerful economic interest groups, because they

have no property rights and -- hence -- no access to

credit, and because they suffer from unfair competi- tion. This is an alternative concept of segmentation --

between privileged enterprises and nonprivileged. 53 If legality is a privilege of those with political and eco- nomic power, then the informal sector is the people' s "spontaneous and creative response to the state's

incapacity to satisfy the basic needs of the impover- ished masses" and to the system which has "tradition- ally made them victims of a kind of legal and eco- nomic apartheid ''54 which they have fought and --

506 WORLD DEVELOPMENT

with hard work and ingenuity -- survived. This is in

contrast to PREALC' s gentler position that informal- ity stems in part from the redundancy of a large

segment of the labor force and the "inability" of a

capital-intensive industrialization process to absorb this labor.

Legalists accuse underground and PREALC pro- ponents of seeing the poor as "passive objects in need of assistance programs. ''55 According to legalists, the

poor are the backbone of a country's economy, risking

all their assets in daily transactions,

provid\[ing\] vital services and enhancing a nation's human resources through the development of craft and entrepreneurial skills and increased capacity to educate themselves and their children, help\[ing\] to reduce imports and indebtedness by providing goods and ser- vices,

and constructing necessary infrastructure (hous- ing, markets, transportation systems): 6 In other

words, they create wealth -- albeit unrecognized offi-

cially as such -- which is why they represent a

genuine path to development.

If this entrepreneurial spirit were legalized and nurtured rather than fettered and suppressed.., a burst of compet- itive energy would be released, living standards would start rising, international trade would increase, \[and\] developing countries could service their huge and debili- tating external debts more easily: 7

There are important points of convergence. The

underground and legalist approaches share a notion of

selective informality -- firms/informals break only specific (unfair, disadvantageous) laws and regula- tions. 58 Legalists agree with PREALC on the charac-

teristics of informal activities -- including scale of

operation, rudimentary technology, organization of production and form of insertion into the market --

but see these as a consequence of state regulations and their costs, not a result of the human capital character-

istics of individuals or short-term conjunctural condi- tions: 9 Finally, legalists and underground proponents share the notion that dealing with growing and persis-

tent informality/informalization has contributed to

ambivalent or contradictory behavior on the part of the state. The underground approach calls this the "informalization of the state" through the selective application of rules and regulations, while legalists refer to it as the state's conscious acts to defend the

status quo,

respond to privileged interest groups and adjust to the reality of an informal sector which won't

go away. Both approaches recognize citizens' dependence on the informal sector to supply goods and services the state cannot or won't. 6° Furthermore, the state both tolerates many small, extralegal firms (while others are harassed) and stimulates some informal activities as a way to resolve social unrest or promote political

patronage. Where the underground argues that

informalization is not a social process developing outside the purview of the state; it is instead the expression of a new form of control.., the loss of formal control over these activities is compensated by the short-term poten- tial for legitimation and renewed economic growth that they offer,

underground proponents argue that the state selec-

tively applies regulations and looks the other way when large firms unable to compete engage in illegal subcontracting and other practices. 6~

A fundamental and probably insurmountable dif-

ference between the PREALC, underground and

legalist positions is the role they propose for the state in development and democratization. While PREALC

and underground proponents stress the need for state

intervention; legalists and neoliberals in general argue against state intervention. 62 Legalists also see infor-

mality as the key to democracy, as popular resistance to an unfair and overly intrusive state:

if the main reason for the existence of legal institutions is to protect individual rights and property from third par- ties, permit orderly access to productive activity, and facilitate harmonious interaction.., it is understandable that, when people are discriminated against, many will rebel...

Thus, informality is the road to reform and infor-

mals are a political force which can generate both true

democracy and a rational, competitive, market econ- omy. 63

The legalist approach has had a profound impact in numerous settings, and think tanks similar to ILD

have been established in other Latin American coun- tries and in some African countries. 64 The themes of

costs of regulation, democracy, politics, and power are woven through publications on economic develop- ment. Hopenhayn includes in his definition of the informal sector that it is an expression of crisis, a new way of coexisting, democracy, and rational choice. 65

He calls it the "solidarity economy" characterized by social conscience, organizational culture, capacity for

action, popular creativity, mutual aid, dedication and innovation. "Popular solidarity" is seen by some as a

means to moral, democratic development in civil soci- ety 66 and a strong entrepreneurial sector is seen as a means for stabilizing political systems. 67 There is

growing consensus on the need to legitimate the space of the informal sector in civil society 68 and that extralegal status discourages beneficial government intervention. 69 This problem has led to the growing importance of nongovernment organizations (NGOs) in providing assistance to informal finns and the self-

employed. Among the major criticisms to these arguments is that the legalist argument "hides" economic causes of informality such as limited demand for labor, lack of

INFORMAL SECTOR DEBATE 507

access to capital and markets, exploitation of infor-

mals by large firms, and the real role of the state.

Informality may be a symptom of the breakdown of the state. For instance, Portes argues that small enter-

prises have managed to survive by taking unfair advantage of state regulation of large firms. Thus, legality is a burden for large firms, not the privilege

touted by the legalists. Additionally, removal of regu-

lation and labor protection could "make large firms more agile and competitive and this could reduce the

competitiveness of the informals. ''7° Many of the most profitable activities would cease being profitable were

markets liberalized. Discriminatory divisions within the informal sector 7~ are not addressed by the legalist

approach; but studies of labor market segmentation

carried out by PREALC and independent researchers

find that microenterprise workers are the most disad- vantaged and exploited segment of the labor force.

This gives small firms their competitive advantage. Many analysts find morally questionable support for

a form of production based on the exploitation of

workers. 72 Final criticisms of the legalist approach focus on

their research methods -- including accusations of

biased sampling procedures and sloppy interviewing, and use of inappropriate econometric models. 73 In

light of methodological shortcomings, PREALC com-

missioned studies of the costs of legality in various Latin American cities. Studies found that costs varied

widely across settings as did the advantages and dis-

advantages of size or legality; only certain costs were important obstacles to legality. TM Other studies find

that even informal entrepreneurs question the promo- tion of legal status because they fear it is the first step to the introduction of new taxes and control, 75 and

studies from Mexico have found that few microentre-

preneurs mention lack of legal status or cost of regula- tion as an obstacle to business success. Credit and lack of access to raw materials are the main obstacles cited. 76

The importance of the work of de Soto and other

legalists may be that it "illustrates crucial interlink-

ages between ideas, local conditions, intellectual envi- ronment, and global support. ''77 They are responsible

for drawing attention away from the characteristics of workers, activities, and exclusively economic factors in development and toward the role of institutions, power and politics in development: "A country's

entrepreneurial reserves do not automatically function properly, they do so only if prevailing institutions allow them to. ''78

Cartaya 79 sees

a potential for the three preceding

approaches to serve as complementary paradigms pointing to a set of processes of differing origin but a singular direction -- the generalization of forms of work and contractual relations different from the model of salaried, stable, protected work touted as the model of growth in the 1970s. Each approach con-

tributes empirical knowledge and points out critical

issues. The ILO approach contributes information on

the technical basis of production, self-employment,

and responses to excess labor supply. Some net-

Marxist structuralists contribute information on the way in which certain productive forms and producers are "marginalized" from benefits, disabled competi-

tively, exploited, and subordinated by large firms in ways that contribute to capital accumulation (hence,

development). The underground approach provides

information on the economic and regulatory rationale behind flexibility in hiring and production as a result

of changes in the world economy. 8° A group she calls

the neoliberals (which includes the legalists and

NGOs engaged in microenterprise promotion) con- tribute information on entrepreneurship and the

impact of institutions and state intervention on infor-

mal activities. This notion of complementarity is appealing and, in fact, reflects a precedent set by those

involved in microenterprise development and entre-

preneurship promotion. "Entrepreneurship," "microenterprise develop- ment," "poverty alleviation," and "popular initiatives"

are concepts associated with the growing visibility in

the 1980s of nongovernmental organizations and

private programs targeting the poor. They have been

joined by offices at international donor agencies and private business groups which support small enter-

prise development. 8~ These organizations have

become important participants in the informal sector debate in the 1980s and their organizational model has

been adopted by diverse groups throughout Latin

America. Their approach borrows concepts and ideas they find useful from both the structuralists and the

legalists.

(d)

The microenterprise development approach

The proponents of this approach are action ori-

ented, not interested in conceptual issues, and are only marginally concerned with theories of the origin of

microenterprises (used synonymously with informal sector and poverty). Typically neoliberal in economic

orientation but also social welfare oriented, they feel comfortable with legalist arguments which reinforce

their own sense of faith and confidence in the ability of the poor to defend themselves and survive. Because

they accept notions of stratification, exploitation, and privileged sectors of society, they seek to "level the playing field," expand jobs, and improve productivity and income. Some also aim to "empower" either indi- vidual entrepreneurs or disenfranchised groups and communities through business assistance and devel- opment of organizational skills and capacity. Their focus is practical and they promote, fund, and carry out programs which address the needs of the poor.

Many stress basing needs assessments, plans, and pro-

508 WORLD DEVELOPMENT

grams on "participatory research" -- knowledge acquired through interaction with informals -- and on

evaluations of the practical experience of programs promoting microenterprise development. While these organizations have no formal label,

their umbrella organizations, pamphlets, evaluations, instructional manuals, and papers are most easily

identified by the use of the terms "poverty alleviation"

and "microenterprise ''s2 and by their focus on practical

action for social and economic change. The term

"microenterprise" is typically linked to credit, solidar- ity groups, and training in marketing and accounting. 83

NGOs engaged in microenterprise development

rapidly embraced the types of micro-level interven- tions advocated by the legalist school (many of which also were supported by PREALC). Some observers

say NGOs see de Soto as a "potential savior" and his informal sector as the "new economic hero" who can

"provide a sounder basis for development than skepti- cal bureaucracies and traffickers in privileges," and

behind whose products and services lie "sophisticated calculations" and "risk-taking ability. ''s4

The practical nature of NGOs and their use of

an integrated approach to poverty alleviation and

microenterprise promotion are illustrated by a pam-

phlet published by ACCION International (circa 1986) in which the following description combines de

Soto's arguments with elements of both the PREALC

and underground approaches:

The informal sector is the vast market economy that has developed in Third World cities without imported eco- nomic models, government subsidies, or foreign aid. Its tenacious growth, despite enormous obstacles, gives new meaning to the term "free enterprise" in Latin America

•..

all micro-businesses are labor-intensive, small-scale and usually family owned and operated• Capital inputs are minimal, and the enterprises rely almost exclusively on indigenous resources and markets.., transactions take place outside economic mainstream; they are not taxed, licensed, safety-inspected nor are they registered in the national income accounts. Micro-businesses create jobs . . . increase national income.., provide vocational training.., supply needed goods and services.., promote a broad distribution of wealth (as a basis for economic democracy.., particu- larly for women and the unskilled...). Far from obstructing development, the informal sec- tor represents the single most generative source of new jobs and income for the majority of the population and promises to strengthen a broad-based private sector in Latin America.

Although new to the informal sector debate, microenterprise promotion has evolved from poverty alleviation activities dating from the early 1960s. Some began as charitable and disaster relief organiza- tions operating in rural and urban areas, 85 while others were founded specifically to bring multinational cor- porate funds to the aid of the poor in Latin American cities where these corporations had business interests.

Some started out as Christian youth movements and peace corps equivalents, movements with altruistic desires to contribute to the making of a better world. 86

International groups predominated in the 1960s, but

by the late 1970s, they were almost equally likely to be international or local in origin. Local groups often had

financial support from and strong ties to international groups, especially during the first five years of opera-

tion. Charitable and welfare organizations started with

short term goals, but their work turned out to be never-

ending. As a result, many found their organizational structure "institutionalizing" and their staff "profes-

sionalizing." From direct assistance and welfare, they were transformed over time into organizations which

focused on "helping the poor help themselves." By the early 1970s, their work concentrated on working with

neighborhood or village groups on self-help initiatives and grassroots economic projects. 87

For these NGOs, the shift from charitable work and services to income generating activities was a nat-

ural outgrowth of their collective and cumulative

experience in helping organize community groups.

Additionally, the expansion of the informal sector,

especially in the poor neighborhoods where NGO activities concentrated led to an awareness of this sec-

tor of people in unregulated, unlicensed, low resource, "marginal" activities which were critical to the sur-

vival of the poor, especially women (who predomi- nated as heads of poor households). 88

The 1970s marked the promotion of empowerment

and social welfare through economic growth. NGOs

found their clients excluded from formal credit sys- tems and disadvantaged by lack of access to training

and productive inputs. The underlying ideology and practical experience of NGOs gradually shifted pro-

grams in the direction of increasing access to resources. Initially, the political contexts in which NGOs operated and their negative experience with

government-supported programs encouraged them to

keep their distance from state agencies. NGOs focused on creating a niche where they did not com- pete with governments or multi or bilateral agencies. 89 The kinds of programs (e.g., credit) and service (training) offered by NGOs require different technical and financial skills than did community development programs. 9° NGOs established a pattern of dialogue and networking among themselves 91 (and gradually incorporated international donors), having found

through experience that exchange of information is a critical resource to improve the impact of their work. They developed models for evaluating the effective- ness of programs, and networking helped overcome limited access to funding for research and program evaluation and for staff training. 92

The NGOs of the late 1980s and early 1990s have been expanding their role. Despite the time and resources which NGOs as a group have invested in the

INFORMAL SECTOR DEBATE 509

poor, a tremendous amount of need remains unmet. NGOs have begun to assume a role of catalyst for

micro and macro-level policies and they engage in dialogues with governments and the private sector. 93

In fact, the private sector-- business leaders, founda- tions, corporations -- has created new, local-level

NGOs for promoting microenterprise development through "massification" -- applying the NGO method and philosophy on a broader scale to help increasing numbers of entrepreneurs and poor families. 94

Massification and overcoming institutional obstacles demand government and private sector collaboration. In direct contradiction with the legalists, NGOs stress

the most important role for governments is to provide the appropriate policy environment for microenter- prise development. 95

4. CONCLUSION

The preceding discussion reveals several impor-

tant trends: the language of the debate has become simpler, the conceptual framework and discussion of

theory less macroeconomic and academic, and propo- nents of different approaches appear to speak to each

other's concerns and critiques. In part, this may be explained by the natural evolution of ideas and meth-

ods over time, and by improved access to the growing body of literature. Certainly the importance of the informal sector as a policy phenomenon must have had an impact since it would have created a demand

for analyses and policy recommendations framed in

terms easily understood and applied by planners and policy makers and readily explainable to interest groups and the general public. Complicated theories

-- e.g., neo-Marxist -- may have fallen from favor

because of their low potential for contributing to eco- nomic policy and their assumed contradiction with neoliberal democratization processes. Other logical

possibilities include the demand from politicians, social welfare advocates, NGO personnel, and infor- mals themselves for clarification of ideas and discus- sions. Proponents of different approaches may have addressed their own frustrations in communicating

with each other. In doing so, proponents for each approach have been influenced by ideas from the approaches with which they debate. This results in a significant move toward an alternative approach

which may be more flexible, comprehensive, and use- ful for analyzing complex socio-economic systems. Some differences, however, may be insurmount- able and some issues have not been adequately addressed. The political ideologies underpinning each approach are not compatible -- e.g., state intervention

is bad, state intervention is good, the nature of state intervention should change; protect modern industry, protect microentrepreneurs, protect exploited workers of both, empower the poor and powerless. Proponents

of each argument probably will resist an eclectic or

integrated approach through which a third party

selects what he or she considers the most useful ideas

from competing approaches. Still at issue is to what

extent the state should be involved and in what way.

For instance, should the state support small firms (through credit, technical assistance, and training) or

large firms (through macroeconomic policies), or should it withdraw from intervening in the market

(deregulation, debureaucratization and privatization).

One neglected issue is how to achieve the appropriate and efficient institutional environment needed for democracy and a market economy. 96

Not resolved is whether or not (or how) the self- employed and small enterprises should be included in

decision-making and policy formulation -- ignoring them may produce considerable diseconomies, waste,

inefficiency and hardship, and may produce no con-

crete benefits to larger scale enterprises. 97 Are there necessary limits to microenterprise support? There is

some evidence that microenterprise intervention can

be "generally inefficient, highly discriminatory, sus- ceptible to paternalism, favoritism, corruption, and

victimization." Perhaps it is more important to "regu- late broader economic, social and physical environ-

mental conditions which affect numbers, types, and

sizes of small enterprises, than to support or constrain individual enterprises on a highly selective basis. ''98 What are the implications of promotion of the

informal sector for changing the balance of power, for long-range planning, for implementation of programs

and plans, for the legitimacy of the state? Bringing

informals into the policy arena and supporting microenterprises may lead to empowerment and democratization, but will it lead to a more rational and

competitive economy? Perhaps informals will

become merely one more officially recognized inter- est group able to gain special privileges which disad-

vantage other groups. The demands of the informal sector tend to be concrete and pragmatic and the infor-

mals support those groups and institutions which pro- vide the goods and services they need to survive. 99 In addition, including informals in decision making may require advocacy programs and government efforts

for building grassroots constituencies. It is unlikely that state officials will reduce their patronage potential

or give up their authority and privileges.~°° Also at issue is the "menu" approach to policy and programs which characterizes many microenterprise

advocates and even Tokman's policies for a heteroge- neous sector: toss in and stir deregulation, tax reform, access to credit, technical assistance, economic effi- ciency, education and training, linkages between for- mal and informal sectors, macroeconomic policies to

promote large firms, policies to "graduate" small firms to middle-size and formal status, improved pro- tection for subcontracted workers, etc. ~°l More study is needed on the interactions among these and on their

510 WORLD DEVELOPMENT

differential impact/outcomes under diverse condi- tions.

There is substantial agreement on the need for pol-

icy changes to accelerate growth and improve the wel- fare of the poor, but there is disagreement on how to

go about doing this and how to accomplish policies of great magnitude. Still debated is whether the infor-

mals should or can be incorporated into formal sectors (e.g., legalized, taxed) or provided special privileges

and subsidies even if it is unlikely they can graduate to formal status. 102

In a context of economic crisis and scarce resources, priorities need to be established. Who

should establish them? Major differences of opinion

on appropriate policies are even rampant among those who promote small enterprises and among interna-

tional development agencies. 1°3 The debate has not

evolved sufficiently to achieve consensus over a com- prehensive strategy for economic development and poverty alleviation. 104

Some ideological differences between approaches

also may be insurmountable. Is the problem one of directing scarce resources at amelioration of poverty,

low productivity requiring human capital and techni- cal change, worker exploitation by both small and

large firms? Should the most dynamic firms be pro-

moted, should the playing field be leveled, or should competition be allowed to weed out the most effi- cient? Would expansion of the formal sector or the

informal sector be a better means of creating jobs and increasing production? Should policy focus on "mod-

em" activities for export markets or on small enter- prises that cater to local markets? Some argue that

informal work may be rational and efficient in the short run, but in the long run economic and social

gains depend on the achievement of much higher pro- ductivity levels through the creation of more efficient

units of production which can draw labor into more

highly organized sectors where there is better protec- tion of property and contractual rights and higher wages and benefits. 105

Finally, can development occur through consensus

and can consensus be achieved in socioeconomic sys- tems through a coalition of support encouraged by the active leadership of policy makers? Or will develop-

ment and poverty alleviation depend on a centralized, technocratic, authoritarian regime which may have

to use coercion to introduce significant policy changes? 1°6

These are issues which should be debated through the 1990s.

NOTES

1. The term "informal sector" -- first conceptualized by Hart (1971, 1973) and disseminated by the International Labour Office (1970, 1972) -- most commonly is used to refer to size (scale of operations), level of technical sophisti- cation, productivity, and income levels. Small-scale activi- ties are associated with unsophisticated techniques, low lev- els of productivity, and incomes below those of "modern" jobs. Alternative definitions include informal activities as survival strategies, petty commodity production, and entre- preneurship. See Moser (1978), PREALC (1978), and de Soto (1984).

2. Peattie (1987).

3. Tokman (1989).

4. Moser (1984).

5. Moser(forthcoming).

6. Annis and Franks (1989); Cameron (1989).

7. Franks (forthcoming); Cameron (1989).

8. Roberts (1991); Portes and Sassen-Koob (1987); Biggs, Grindle, and Snodgrass (1988).

9. Peattie (1987).

10. The plethora of terms and diversity of meanings led

Peattie to refer to "the conceptual swamp which.., engulfed so many" and Cartaya to refer to the "confused world of the informal sector." See Peattie (1987), p. 851; Cartaya (1987, 1988).

11. Tokman (1987a); Tendler (1988); Peattie (1987).

12. Tokman (1987a, 1987b, 1989); Mezzera (1991); P&ez S~iinz (1991).

13. Peattie (1987), p. 851-857. In her much cited article, Peattie concludes that the concept should be relegated to "an item in the history and sociology of ideas" which contributed to the identification of problems in the functioning of a com- plex economy, gave standing to a variety of economic activi- ties which otherwise would probably have been ignored in pol- icy, and opened a space for considerations which might be called political or moral. She cautions that lumping diverse activities together and separating them conceptually from others to which they are linked will make it harder to carry out analyses and arrive at useful conclusions. But Peattie's is nearly a lone voice; definitional issues simply are no longer considered critical and are treated as distractions to understanding informal activities and addressing the needs of the poor and of the economies in which they operate. Ironically, it is her comment on the concept as a "real phe- nomenon" in policy and planning which has attracted atten- tion, rather than her central argument that the term is not useful, is "fuzzy," obscures analysis of central issues, and is counterproductive for research and policy formulation. In

INFORMAL SECTOR DEBATE 511

fact, there is support for integrating diverse approaches into a multifaceted, comprehensive approach. See Bejar (1987) and Hopenhayn (1987).

14. Bromley (1990),p. 338.

15. PREALC (1987, 1990);Tokman (1987a, 1987b, 1989, 1990, 1991); Mezzera (1987, 1990, 1991); Gustavo M~quez (forthcoming); M~quez and Portela (1991); Cartaya (1990, forthcoming); Cartaya and Garcia (1988); Cartaya and

M~quez (1990).

16. Mhrquez (forthcoming) and Cartaya (forthcoming) argue that their commitment to a dualistic terminology is explained in great part by the way in which the concept is operationalized. The form of operationalization is itself constrained by the assumptions underlying census and sur- vey instruments (e.g., a market economy) and the limited range of census and survey variables useful for measuring informality (e.g., number of workers, worker classification, etc.).

17. Because of the conviction that informality is an urban phenomenon, PREALC has focused its research on large urban areas -- especially capital cities. Regrettably this pre- cludes an assessment of the relative importance of informal- ity in secondary cities, towns and rural areas. Moser (1984) and Long and Roberts (1978) find ample evidence of infor- mality in secondary cities and towns, and Liedholm and Mead (1987) argue that informality in Africa is more wide- spread in rural areas than in urban.

18. The disagreement over the links between poverty and informality are the proverbial half full-half empty cup argu- ment. PREALC's position is that if figures show that 70% of those in the informal sector are poor and that 62% of the poor work there, this is evidence that informality and poverty are virtually synonymous. Portes and de Soto on the other hand (and Cartaya, forthcoming) argue that these same figures are evidence that poverty is almost as important a problem for formal/modern sector workers and/or that wage employment in "modern" activities is no guarantee of a move out of poverty. In fact, private formal sector employees in certain industry subsectors tend to have the lowest incomes in those sub-sectors (for instance, transportation).

19. Tokman (1987a, 1987b); Mezzera (1990, 1991); P&ez S~linz (1991).

20. Mezzera (1990); Mhrquez and Portela (1991).

21. Tokman (1990), p. 22.

22. Portes (1989).

23. Tokman (1989); Mhrquez (forthcoming); PREALC (1987, 1990); Mezzera (1991).

24. See Tokman (1987a, 1987b); Mezzera (1987, 1990, I991); Mhrquez and Portela (1991). Although most analysts agree that structural adjustment has contributed to the expan- sion of poverty (at least in the short run), some also see struc-

tural adjustment policies as a long-run solution to poverty because they encourage economies to "become outward ori- ented and achieve rapid rates of economic growth." See Biggs, Grindle and Snodgrass (1988), p. 159.

25. See Mhrquez (forthcoming); Mhrquez and Portela (1991); Tokman (1989, 1990); Mezzera (1987, 1990); Carbonetto (1984).

26. In the early 1980s, Manuel Castells, Alejandro Portes and a group of Latin American sociologists organized a work- ing group to study and discuss case studies of the informal sec- tor in different settings, primarily in Latin America. The group expanded gradually over time to include graduate students and European sociologists studying "black markets" and under- ground economies in Europe and the United States. Two con- ferences were organized by Portes and held at Harper's Ferry. The second conference culminated in an edited volume: Portes, Castells, and Benton (1989).

27. See Bromley and Gerry (1979).

28. See Portes, Castells, and Benton (1989); Beneria and Roldiin (1987); Rold~m (1985); Fern,'indez-Kelly (1983); Armstrong and McGee (1985).

29. Castells and Portes (1989), p. 12.

30. Tokman (1987b); Portes (1989).

31. Pones and Sassen-Koob (1987), p. 31.

32. Castells and Portes (1989), p. 12.

33. Peattie (1990); Portes and Sassen-Koob (1987); Castells and Portes (1989); Portes, Castells and Benton (1989); Feldman ( 1991 ).

34. Pones, Castells and Benton (1989), pp. 302-303.

35. Castells and Portes (1989), p. 11.

36. Castells and Portes (1989), p. 12.

37. Roberts (1991); Pones, Castells and Benton (1989), p. 308; Castells and Portes (1989), pp. 26-27; Safa (1987); Portes (forthcoming).

38. Portes, Castells and Benton (1989), p. 398.

39. Portes, Castells and Benton (1989), p. 299; Castells and Portes (1989), pp. 26-27.

40. Portes and Sassen-Koob (1987), p. 38.

41. Tokman(1990),p. 22.

42. Portes and Sassen-Koob (1987); Castells and Pones (1989).

43. Portes (forthcoming).

44. This is why many underground analysts resort to some variation on the PREALC form of operationalization -- e.g.,

512 WORLD DEVELOPMENT

self-employment, unpaid family workers, and size of enter- prise -- to arrive at statistical estimates of the relative im-por- tance of informality (see Portes and Sassen-Koob, 1987).

45. Portes (forthcoming).

46. Annis and Franks (1989), pp. 10, 12-13.

47. Ghersi (1991).

48. See Bromley (1990, forthcoming).

49. See Biggs, Grindle and Snodgrass (1988); Jenkins (1988).

50. Portes (1991).

51. de Soto (1989), p. 243.

52. Bromley (1990), p. 328; Main (1989).

53. Mfirquez and Portela (1991), p. 8.

54. de Soto (1989),p. xiv-xv.

55. de Soto (1989),p. 242.

56. Bromley (1990, forthcoming); de Soto (1989).

57. Main (1989), p. 15.

58. de Soto (1989), p. 12; Portes (forthcoming).

59. Mftrquez and Portela (1991), p. 8; de Soto (1989), p. 185.

60. Interestingly, de Soto both argues that informality is widespread (responsible for 42.6% of all housing in Lima, 93% of the urban transport fleet, 83% of all public markets), and that it is "traditional" and "institutionalized." He cites records from as early as 1920 referring to efforts to control land invasions and the state's acceptance of invasions as an accepted means of acquiring property (de Soto, 1989, pp. 37-52). In fact, street trading was first addressed in law and policy in 1594 and numerous laws between 1915 and 1970s cite efforts to regulate vending (pp. 75-78). In 1965 the state legally recognized minibus operators, in 1971 informal transportation systems and organizations were incorporated into the design of transportation policy, and by the 1980s organizations of informals had their own political candidates (pp. 78-87, 110-117).

61. Castells and Portes (1989), pp. 26-27. Bromley (1985) addresses the issue of informalization when he discusses the "paradoxical relation between official repression and the evi- dent functionality of small enterprises." He cites the follow- ing factors encouraging repression: (a) elites and govern- ments hold negative stereotypes of the poor, (b) unionized workers and political parties have been disinterested in the problems of petty entrepreneurs, (c) governments may use sporadic repression to impress elites while in fact doing noth- ing serious to eliminate informal enterprises, (d) persecution may concentrate on enterprises which are unacceptable or unimportant to the urban economy and on those targeted by

pressure or interest groups, and (e) governments may not understand the importance of these activities or the linkages between microenterprises and large firms subcontracting to them (pp. 328-329).

62. Bromley (1990), p. 339; PREALC (1987, 1990); Portes (forthcoming); Bromley (forthcoming); Biggs, Grindle, and Snodgrass (1988).

63. de Soto (1988), pp. 29-31,234.

64. Jenkins (1988).

65. Hopenhayn (1987).

66. Razeto Migliaro (1986).

67. Kilby (1988).

68. Mftrquez and Portela (1991), p. 9.

69. Biggs, Gfindle and Snodgrass (1988).

70. Portes (1991).

71. Jenkins (1988), p. 227, 231.

72. Mfirquez (forthcoming); Cartaya (forthcoming); Portes (forthcoming).

73. Rossini and Thomas (1990); ILD (1990b).

74. Mesa-Lago (1990).

75. Bromley (1992).

76. de Oliveira and Roberts (forthcoming).

77. Bromley(1990),p. 342.

78. de Soto (1989), p. 244; (1988), p. 16.

79. Cartaya(1987),p. 76.

80. See Sanchis and Mifiana (1988); Mingione (1991).

81. Sullivan (1987); Levitsky (1988); Liedholm and Mead (1987); SEEP Network (1991); Kilby (1988); GEMINI (1990-); ACCION International and the Calmeadow Foundation (1988).

82. In fact, Priigl (1989) argues that "microentrepreneurs" are not a self-identifying class (as de Soto would have them), but a "construction of international development practition- ers; part of the vocabulary used in an ongoing discourse in development practice which is dominated by a liberal theol- ogy."

83. This is the language of efficiency and of the individual pursuit of self-interest, more than a language of fights of the weak or justice (Priigl, 1989).

84. de Soto (1989), p. 243; Bromley (1990), p. 330; Mfirquez and Portela (1991), p. 2.

INFORMAL SECTOR DEBATE 513

85. Korten (1987).

86. Korten (1987); GEMINI (1990-). Insight into microenterprise promotion also was provided by conversa- tions with William Burrus, Executive Director of ACCION International and staff members of CESAP-Centro de Servicio al Acci6n Popular in Venezuela. During long phone conversations, Marfa Otero provided valuable information on the history and evolution of NGOs and private voluntary organizations (PVOs).

87. Korten (1987); Maria Otero, personal communication.

88. Maria Otero, personal communication.

89. Maria Otero, personal communication.

90. Korten (1987); Klein, Keeley, and Carlisle (1991); Maria Otero, personal communication.

91. The two best known networks are SEEP (through PACT at the United Nations) and the Committee of Donor Agencies for Small Enterprise Development housed at the World Bank.

102. A study carded out by Hugo Pirela in 1982 for CORDIPLAN, the Venezuelan National Planning Agency, and research carried out by Liedholm and Mead (1987) in Africa both found that there appears to be a size ceiling on microenterprises growth, efficiency, and profitability, although this varies from place to place depending on the local regulatory context (may be 10, 15, or even 30 workers). Microenterprises must make the leap between that ceiling and significantly larger size in order to compensate for the "kicking" in of labor legislation, social security, registration costs, payment of taxes, etc. The costs of bridging that gap make it unlikely that microfh'ms will grow beyond the ceil- ing. Ray Bromley reports (personal communication) having seen a draft of a microenterprise stock-taking report prepared for USAID in 1989 in which appeared the comment that in a survey of about 100 microenterprises, not one had graduated to legal, small or medium-sized finn status. This comment did not, however, appear in the final published version of that report. Occasionally, comments on the "high mortality rates" of microenterprises are made in the Inter-American Foundation's

Grassroots Development

and at meetings on microenterprise promotion.

103. Bromley (1990), p. 345.

92. See McKean (forthcoming); Drabek (1987); Bromley (1992).

93. Korten (1987); Paul (1988); Otero (1990, forthcom- ing).

94. Bejar(1987); Korten(1987).

95. Otero (1990, forthcoming); Padr6n, Castro, Neumann, and Rodriguez (1991). Private foundations also have entered the informal sector debate. Some, such as the Carvajal Foundation in Colombia and Mendoza Foundation in Venezuela provide training, credit, and technical assistance to microentrepreneurs. Others, such as the Friedrich Ebert Foundation's research organization ILDIS (with offices in several countries) fund, carry out, and disseminate research findings through conferences and publications.

96. Bromley (forthcoming); Peattie (1987). For a discus- sion of the role of the state in providing the appropriate insti- tutional environment, see Otero (1990, forthcoming).

97. Bromley (1985),p. 330.

98. Bromley (1985), p. 333; Liedholm and Mead (1987).

99. Cameron (1989).

100. Sullivan (1987); Jenkins (1988), p. 224.

104. There is exciting empirical research underway which is shedding new light on informal activities in specific eco- nomic and political contexts. Conclusions were not available prior to publication of this paper, but personal communica- tions and several papers presented at the Latin American Studies Association meetings in Los Angeles (September 1992) provide clues to the type of research underway. For instance, several studies in Nicaragua and elsewhere con- sider the impact on informal activities of cutbacks in state supported microenterprise programs and in the declining capacity of the state to purchase goods and services as a client of informal enterprises. A study in Costa Rica consid- ers the impact on informal activities of the aging of the pop- ulation (as a result of increasing life expectancies) and the contraction of state employment. That is, as older workers are pushed out of public sector employment and as families require income to meet the health care needs of the elderly, informal activities expand. Studies in Tegucigalpa, Honduras, and elsewhere document the characteristics and work history of traders and street vendors to assess whether or not these fit the characteristics described by de Soto for Lima. Other research is planned to assess the impact of the North American Free Trade Agreement (NAFTA) on infor- mal activities.

105. Biggs, Grindle and Snodgrass (1988), pp. 141-142.

106. Biggs, Grindle and Snodgrass (1988), pp. 163-165.

101. Sullivan (1987); Levitsky (1988); Tokman (1989).

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ACCION International, "The informal economy in Latin America: Problem or opportunity?" Pamphlet (Cambridge: ACCION, c. 1986). ACCION International and the Calmeadow Foundation,

An

Operational Guide for Micro-Enterprise Projects

(Toronto: Calmeadow Foundation, 1988). Annis, Sheldon, and Jeffrey Franks, "The idea, ideology, and economics of the informal sector: The case of Peru,"

514 WORLD DEVELOPMENT

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Theatres of Accumulation: Studies in Asian and Latin American Urbanization

(London: Methuen, 1985). Bejar, Hector, "Reflexiones sobre el sector informal,"

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