2.2. MODERNISATION THEORY
2.2.3. The formal regulatory environment
The ILO talks about formal regulations’ disadvantages and implications it has towards the informal market. Regulations are formulated to create barriers and instability (over-regulation and deregulation) regardless of labour market capacity, financial factors or productivity (Meagher, 2013; Williams 2014). The approach limits expansion rather than promoting growth even with policy formulation aimed at informal sector growth. Researchers such as Chen (2012) and Núñez (2017) have identified that informal market labours are contained between interchangeable and inconsistent patterns. First is the advantageous flexibility of relationships in informal employment, which includes the workforce and the contracts made by employers who intend to expand. The second market pattern is the slow realisation of labour mobility created by policy intended to grow the sector via the process and approach of formalisation.
The limited access to space and the difficulties with spatial regulations common in the informal economy cause quarrelsome. In some cities where street trading has been adopted it is clear that the state does not entirely believe in the informal economy, although the state has directed the local government to implement policies to allow and regulate trading. The evidence thereof lies in the fact that the state invests more in the formal market than in the informal market. In South Africa, this creates problems for the municipality when there are cases of vendor harassment, spatial disputes, eviction incidents, and corruption (in the form of policemen taking bribes and other authoritarians with their own personal agendas). The initiators of developmental policies should be concerned with accepting and establishing clear and appropriate commercial regulations that are intended to inform self-employment and wage employment in the informal sector (Chen, 2012; House, 2017).
There are various policy characteristics that can be adopted as comprehensive frameworks.
It is evident that policies that are directly influential on the informal economy (Policies that react to both economic and social issues). However, in many developing countries there is no whole policy instrument/framework that is directly concerned with informal sector issues
23 in all categories. The ILO (2015) discusses policy goals that can be considered as comprehensive in frameworks.
a) Approaches to formalisation of informal enterprises
Registration of a business is a very vital factor in the case of growth, expansion and opportunities (see figure 2.1 below). Registration should not be designed in such a way that it poses as a barrier to growth initiatives, but rather it should be a tool that encourages innovative business ideas to be implemented by individuals. Registration should be a comprehensive tool that gives accessibility to marketing strategies/access points/platforms, financial support, skills development, education and security facilities. Registration ought to be a supportive system for informal workers due to their already disadvantaged context. The Durban Informal Economy Policy (2001, p. 9), states that:
“Registration (as well as sustained payment of rentals) is the action which gives permission to operate, and which provides access to services and support”,
Nevertheless, implementing such actions is another issue. Registration in the ground differs in practice from that spoken of theoretically in research as it intends to situate the informal economy into a formalised environment for the purpose of control, curbing, maintenance and accountability. The goal is that the nature of registration be re-evaluated as it is a formalisation process that is vital for markets (see figure 2.1 below which shows the results of registration and formalisation). It includes taxation requirements where informal enterprises are taxed, however, this taxation should be implemented by simplifying all procedures of a bureaucratic nature and this should also encourage informal activities/workers by offering them incentives and benefits in exchange of tax payments.
Taxation should not be a burden which creates more reasons for workers to avoid it, as this avoidance leads to their evictions and pressures hindering the continuity and further operation of the sector. The issue within the sector is that there is too much flexibility in terms of procedures for employment. There is no regulatory system when it comes to equity, and hiring of workers by employers is not based on an equivalent evaluation but rather on who knows who, or who came first. Regulations should encourage a more formal process to prevent the informalization of jobs which currently exists. This initiative will create opportunities for employers to be capable of and encouraged to contribute to supporting their workers with pensions or health coverage and other recognised benefits within the labour force.
24 Figure 2.1: Formalisation summary
Source: QLFS, Q4 (2017)
b) Jobs Creation through labour-intensive growth
The idea of conceptual policy framework formulation is amplified by the goal to create more job opportunities for the unemployed. However, for this initiative to transpire there needs to be an extensive rate of sectorial growth and expansion, not just individual business growth, but growth and expansion that’s identical to that of the formal economy. The nature of work undertaken should not in any nature diminish the principles of humanity in any individual.
Respectable and sensible jobs should be provided equally to everyone, and this concept will prevent the informal economy’s tendencies of exploitation and abusive employment recruitments.
In the 1970s the ILO (1972) and Hart (1973) made the observation that employment in developing countries was not necessarily lucrative and that people often struggled to make ends meet. They mentioned that unemployment was not the major issue; rather it was that workers earned very little, and they labelled these workers as ‘the working poor’. The observation was driven by their opposing interests to the formalisation of the informal economy, the lack of access to opportunities within the market and the lack of resources that were productive. The issue of the working poor in urban employment was made worse by the inability of the informal market to grow and expand as a result of its lack of inclusion in
25 policy frameworks. This, In turn, hampered the creation of new, adequate jobs. The modernisation theory identified the importance of job creation, hence in Kenya there was informal policy framework formulation inventiveness, and the sector provided half of the total employment in the urban environment.
Tokman (2007) and Fourie (2018) discussed the significance of the informal sector in creating new jobs for the poor in Kenya. The authors observed that for every 100 jobs created since the early 1980s, about 60 of those jobs created were located in the informal sector. The share of the labour market was thus a vital element in the informal market in Kenya and this sector grew gradually but continually. The growth of the informal market saw transformation of this sector at the micro enterprise level, and this growth in the number of informal enterprises created valid job creation options (relating to income/wages).
Despite the growth of micro enterprises in the informal marketplaces of developing countries, employers in these micro enterprises still lack the capability to provide acceptable employment conditions for workers. Such as employment incentives and benefits that focus on labour, wages and social security/stability. In order to achieve the goal of new opportunities for job creation, the informal sector and government has to take advantage of the potential for job opportunities and growth in the sector. There are views that support the formulation of a conceptual policy framework, as advocated for by the modernisation theory.
This goal of the creation of acceptable, respectable job opportunities must therefore be integrated into development strategies and the ‘working poor’ must be equipped to be able to take advantage of any opportunities that avail themselves in the market space.
c) Social and legal protection for the informal workforce
Security and protection in the working environment is an element that is essential for public works. This element speaks to legal and social protection and it also includes certain rights and privileges which are given to workers that are designed to give them access to and defence of advantages and opportunities. The element of protection goes further into affecting the health care of workers. Informal workers also have the right to a healthy and clean environment with a pollution management system in place (WPEMP, 1997). Access to health care requires subsidies due to the fact that the informal market is already populated by poor people who cannot pay for health care on their own. This is the reason why so many health care issues are found amongst the informal market workers; they do not get sufficient support for environmental cleanliness and health care system benefits. Health care support also speaks to future health care challenges, thus the importance of financial support for pension coverage. The modernisation theory therefore emphasises a policy framework that
26 focuses on issues of environmental management, and the informal sector in included within the goals to create a sustainable and clean environment in cities (Gibbs, 1998; Smit and Musango, 2015). A policy framework is essential to establish a clear and an appropriate role for government so that it can effectively support, regulate and implement the required procedures to achieve the goals set out in partnership with the private sector. To do this effectively government has to come to a conceptual agreement with the private sector.
Legal protection is another necessity within the informal market. This is focused on protecting workers from external and internal factors that exploit or oppress their market operations, create fragmentation of their daily business, create undue pressure and cause them to lose their jobs (Aletter, 2016). The modernisation theory encourages the establishment of legal rights via the United Nations Commission on Legal Empowerment (UNCLE), to promote the socio-economic prosperity of the poor (Ubink and McInerney, 2011; Ndiritu, 2015). These rights include rights for business operation, property, a clean environment and labour. However, the majority of the developing countries have to reform their legal systems as the existing labour, environment and business laws do not cover informal workers. In most cases, informal activities are administered by industry specific regulations and certain local regulations undermine the activities and even go as far as discouraging or discontinuing informal activities.
d) Increase productivity and incomes of informal enterprises and workers
Functionality and operation of the market is determined by its capacity for productivity. There are various ways that market productivity can be improved, such as the introduction of supportive measures designed to create a platform to improve the market’s accessibility and grow traders’ knowledge of assets and trading (Thorpe, 2016). The establishment of various rights and a legal identity will raise productivity, improving the terms of trade and employment amongst the different working partners. The reduction of negative impairments is a good solution towards the development of the informal market. The means to reduce market related risks is also essential, as this will reduce and possibly prevent altogether market losses and setbacks.
Risk assessment must be carried out in conjunction with addressing power imbalances within the market as these imbalances create inequalities, leading to oppressive and exploitative relationships between workers, between traders and between traders and authoritarian institutions. This includes institutional policies and discriminatory models applied to the informal enterprises – their elimination will promote sufficient accessibility to supportive legal structures. These actions will also achieve equity for the smaller informal
27 enterprises and help prevent corruption that hampers these enterprises’ growth. The major role of government is to monitor various policies within the different informal market categories to address and prevent negative impacts while emphasising growth and expansion in the informal market (Lema. 2013).