LITERATURE REVIEW
2.2 Historical Perspectives of the Informal Sector
In the 1950s and 1960s, a traditional economic belief assumed that, with the correct strategies of economic guidelines and means, the so-called subsistence sectors mighty easily be converted into the contemporary dynamic economies (Chen, 2012). The method would have assumed the subsistence economy of handcraft, petty-trade and all small-scale informal activities, and a range of short-term spontaneous jobs would be integrated into the so-called industrialist and/or formal sector thereby eradicating the spontaneous disappearance of the subsistence sector. This perception was widely shared by Lewis (1954, 1955, 1972, 1979, 1980, 1984) who postulated that economic advancement in many developing nations would, in the long-standing, create adequate jobs to engage the excess labour supply from the traditional economy. This phenomenon would result in a situation where wages would start to grow to a level above the subsistence standard; what is now referred to in the modern day as the ‘‘Lewis Turning Point’’.
The ‘‘Lewis Turning Point’’ as cited by Islam and Yokota (2008:360), asserts the prediction that the wage of unskilled labour in the 21st century remains to a large extent unchanged for a long
With the fading away of the optimism and prospects about economic growth in developing countries in the 1960s and widespread increases in unemployment, Singer (1970) argued that there is no signal of the ‘‘Lewis Turning Point’’ in many developing nations. Unemployment and under-employment of many different types in the developing countries have significantly risen even for those who had positive economic growth rate. Singer (1970), concluded that this was as a result of the imbalance emanating from the use of advanced technologies leading to a serious imbalance between limited employment creation attributed to the wide-ranging usage of capital- intensive knowledge and improved growth in the populace and working population because of massive technological improvements in health and disease control.
Singer (1970), projected a continuous and risky dualism in labour markets characterised by increased spontaneous and sporadic employment, and hidden unemployment. In its endeavour to address this concern, the International Labour Organization (ILO) took itself to mount a large series of multi-disciplinary employment missions to various developing countries in the world.
The ILO mission in Kenya found that the subsistence sector in this country known as the informal economy comprised profit-driven and efficient enterprises on the one hand and marginal activities on the other hand (ILO, 1972). The word ‘informal sector’ was devised by a respected British anthropologist, Keith Hart, in a research project of the low-income activities among the many unskilled migrants from Northern Ghana to the biggest city of Accra, who had difficulties in finding formal wage employment (Hart, 1973).
Hart (1973) and the Kenya Mission, concluded with a fundamentally positive mindset concerning the informal sector, with the former indicating that, although the informal sector faced external constraints and capitalist domination, the majority of the migrants in Accra were engaged in informal activities that had the potential and autonomous capacity to generate incomes while the latter overemphasised the potential of the informal sector in employment generation and poverty reduction (ILO, 1972).
The informal sector as an economic reality in developing countries, for example, Zimbabwe, and developed countries have acknowledged a mixed evaluation regarding the development circle.
Numerous ILO (1972) observers considered the informal sector to be marginalised and not connected to the so-called formal or capitalist economy with many believing that the informal economy in Ghana and Kenya and many other developing states would be eradicated once these nations have attained and managed to sustain adequate stages of economic growth and/or present
normally takes a changed path and design in developing countries with serious development of the informal activities than what the case of Europe, Japan, North America and many developed countries have followed (Storey,1994; Sethuraman, 2001; Schneider, 2007).
Tokman (1984) lamented that the economic crisis in Latin America in the 1980s showed one key feature of the informal sector: that employment in the informal sector instead of – or alongside – open unemployment tends to increase in various nations during periods of financial and economic disasters. Lee (1998), argued that during the Asian economic crisis during the 1990s, millions of people lost their formal jobs in the former East Asian Tiger countries with many opting to find employment or create jobs in the informal economy. On the contrary, in Africa, the Structural Adjustment Programmes (SAPs) and economic evolution in the former Soviet Union and Central and Eastern Europe were also characterised by an increased growth of jobs in the informal economy.
Chen (2012), concluded that occupation in the informal economy often increases during periods of economic adjustment and change in cases where the enterprises are restructured or shut down with many workers being laid off and failing to find other formal employment and resorting to working in the informal economy. Chen (2012), argued this is normally the case where those who would have been laid-off cannot afford to be unengaged and also in states where unemployment insurance or compensation does not exist. In cases where difficult economic times are characterised by an increase in inflation or cutbacks in public services, individual households often need to complement their income from the formal sector with supplement income from the informal sector.
In the 1990s, globalisation of economies was one of the main contributing factors to the informalisation of the labour force in many industries and countries (Standing, 1999). Rodrick
North America and Europe having production occurring into small, decentralised and flexible economic units (Piore and Sabel, 1984).
The proliferation of the informal SMEs is a welcome development since SMEs significantly contribute to economic welfare, employment creation and social stability globally (Ladzani and Van Vuuren, 2002).