3.2. THE EMERGENCE OF THE INFORMAL ECONOMY DEBATE
3.2.4. The informal market as a means of employment creation
The first epistemology of the informal sector occurred in the works of Hart in Ghana, Accra (Hart, 1973). The information in Harts’ work debates the vitality/strength of the informality within urban areas in the context of small scale service provision. The activities signify gainful employment as a means of wealth creation. The question related to the ability of the formal sector to create employment is recognised, leading to the question of “why the informal sector struggles to do the same?” (Hart, 1973). Evidence has shown in various debates that the majority of the informal market traders are unskilled and illiterate, many are international migrants, while others have moved in from the rural or urban-peripheral areas.
Because of this the activities are not covered by a labour force framework. The informal market is more of a dynamic survivalist element of the urban poor, according to Hart (1973), and the informal activities also include criminal activities; pop-up activities, transportation operations, etc., all formally categorised under the informal sector (Mwasinga, 2013).
Some authors like Foster (1982) and Nisbet (1967) discuss various topics related to the informal market from different perspectives, including informal apprenticeships to help upskill the market participants and credit markets to assist them financially with their businesses. In Abede (2016) article, this researcher provides evidence of the informal market being neglected by being excluded from urban planning initiatives. In fact, not only is this sector neglected, barriers are put in place to restrict and reduce its uncontrollable growth. The ILO discusses the variety of license types provided to vendors active in the market place in general, but many of the informal vendors’ activities are not recognised by the authorities so these vendors do not have the privilege of applying for a license to participate recognisably within the urban environment. Their vending without recognised licence then increases the number of activities considered ‘illegal’ in the cities. This exclusion of the market also limits the understanding of the informal traders’ actions and businesses and this contributes to the difficulties with management and control, preventing the formulation of a relevant policy that could positively benefit informal operations and increase employment opportunities (Abebe, 2016).
Policy recommendations made by the ILO (2007) concerning trade licensing gave rise to debates about the informal sector; debates focussed on elucidating the role and capacity of the informal trading sector in socio-economic development. The debates discuss the term
‘informal trader’ as people who trade on a particular scale (small), and who are based in unregulated spatial patterns and in groups, offering a diversity of services and products to willing clients. The trading by these informal traders acts as a platform for earning income for the urban poor (De Soto, 1989). This perspective of informality as a platform is categorised
64 into various schools of thought and is discussed by Chen (2012) in the article ‘The Informal Economy: Definitions, Theories and Policies’. Chen (2012) explores the findings and views (old and new) presented by researchers, concerned with identifying the characteristics and key points of the informal sector within an urban spatial planning framework. There is variation/competition between the schools of thought/paradigms in their portrayal of informal trading. Chen (2012) discusses: i) the dualist school of thought (discussed in chapter three, the Conceptual and Theoretical Framework); ii) the structuralist school; iii) the legalist school and iv) the voluntarist school.
a) The diversity of informal activities in the market
Summarising the nature of the informal market requires looking at the paradigms that discuss the economy and its marginalised activities, and their diversity and different characters. There is a belief that the formal sector is the sector that provides income for the poor yet the first paradigm, the dualist school of thought, talks about the exclusion of the informal market from modern economic opportunities (Mabilo, 2018). This means there are suppressive limitations opposing the growth of the informal sector, enforcing the idea that the formal market always has the upper hand in the marketplace. The debate continues to list the cause of the issue as the imbalances related to growth rate, social oppression, differences in population, and differences in economic opportunities. It is put forward that all of these differences/factors result in the emergence of informal sector activities (Sibhat, 2014. The imbalance between the two sectors then increases the number of people participating in informal trading activities while occupying former unoccupied spaces within urban areas. The informal sector is considered to function in a different market space, although linked to the formal market’s large scale establishment. Regardless, the relationship between the informal and formal should not deny either sector from accessing government assets and regulatory systems.
The dualist paradigm mentions the economy as being one inseparable whole rather than being segregated into first and second economies (Clement, 2015). The connection between the two sectors occurs through policies and frameworks, which are vital factors in understanding the operations and effects of the existing linkages between these sectors, and there is clear evidence with regards to inequality in the decision making processes for each sector. Nevertheless, communication between the informal and formal sector is based more on the creation of more employment, credit provision, and small initiatives towards development services for informal operators and basic infrastructure (Fourie, 2018).
65 The second paradigm (structuralist school) discusses the matter of informal and micro enterprise workers using the city’s capacity to reduce their input and labour costs. This is considered as an advantage to large firms as it results in competitiveness. This highlights the effectiveness of informality on capitalist growth. Its effectiveness outlines the level of organised labour power and efficiency, regulation of the economy by the state, competitiveness, and the production and trading processes needed in the urban environment for both sectors (Moser, 1978). The paradigms recognise the interconnectedness of the informal and formal economies and the inequalities thereof. This is evidence of the ideology used by both informal and formal enterprises, which is to provide affordable goods and services (capitalist business model) (Ram, 2016).
b) Role of government in planning for informal market
The role of government is outlined as a process of limiting and reducing inequality and increasing accessibility between big and small producers, managing and regulating the relationship within a compacted spatial form (Skinner, 2002). The third paradigm (legalists’
school of thought) reflects on the micro-entrepreneurs’ preference for the informal market arena as it is best in cost reductions and as a means to avoid registration procedures (Chen, 2012). It considers legislation as a factor that affects the operation of self-employed individuals, and authors argue that it leads to self-employed individuals choosing informality within their legal norms (Skinner, 2002). The legalists’ paradigm debates the regulatory systems imposed on the informal environment and enterprises in an urban area. It also recognises the communication between government and the formal economy in the attempt to initiate entry barriers to the informal economy. This relationship places pressure on the management and regulative protocols of the informal sector. Due to the prevention of registration and assets acquisition via access to legal property rights, assets used to acquire capital and produce are very costly so the informal market struggles to operate in urban areas.
The fourth paradigm (voluntarist school) bases its views on informal activities by entrepreneurs that intentionally avoid cost implications (taxation) and registration fees. It is argued that operators in the informal sector choose the benefits of this environment based on their income and the reduced costs of operating in these spaces, thus they occupy vacant spaces within urban areas and automatically compromise the spatial layout and design as there are no appropriate physical/infrastructural configurations. The invasion of the urban areas without any legal recognition from the state and spatial form itself causes more issues.
Movement within the economic market in urban areas is a result of inconsistency in spatial planning policies and frameworks. There is inequality in terms of economic operations and
66 neglect of the poor and their economic advancement. The informal sector creates an advantage for those otherwise unemployed, therefore, this sector should not be considered as an unregulated burden but rather as an economic catchment area advantageous to its users. Researchers who subscribe to this school of thought also outline the notion that formal enterprises create unfair competition for informal enterprises. The argument lies around the initiative to establish a system where formal and informal enterprises are not incorporated within the same regulatory environment. The intention behind this is to increase the spatial efficiency to improve the viability of the operations, keep costs reasonable, maintain a tax base and limit unfair competition (Wangwe and Mmari, 2013). The different descriptions of the informal sector by the different researchers subscribing to the different paradigms gives rise to the heterogeneity of the economy. Despite this, there are still gaps in clarity and understanding of the economy as a whole due to its complexity and the limitations of each paradigm.