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A Study On The Informal Economy Social Policy Essay

The informal economy defined to ‘include all economic units that are not regulated by the state and all economically active persons who do not receive social protection through their work’ (ILO 2002), is as perennial and ubiquitous as human society. Discourse on it however, came to light in the early seventies with various studies in third world countries. Notwithstanding its inescapable nature, conceptualization and definition has been a problem for policy makers as well as those within academia.

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Myriad debates have come up on the issue with diverse views and remedies: ‘some view informal workers as a nuisance to be eliminated or regulated; others see them as a vulnerable group to be assisted through social policies; still others view them as entrepreneurs to be freed from government regulations’ (Chen 2006:26). But neither the theoretic thoughts nor tangible ideas have provided a comprehensive framework on how to approach global informality and the new challenges it pose to policy makers.

This essay critically examines the position of ILO influenced by the legalist perspective on formalizing the informal economy. Are there vested interests in promoting the decent work agenda? Is the decent work agenda merely a guise behind which informality continues to operate? Does the decent work approach take into account structures and institutions? The essay will delve into the argument of who benefits in formalizing the informal economy recognizing the fact that the informal head porter pay daily levies to the local government systems in Ghana but do not receive any benefit. A synopsis on informal economy and decent work agenda will first be outlined and how this applies to the head porter in Ghana. Finally, a conclusion will be drawn with some policy recommendations.

Perspectives on Informality

The informal economy was first discovered in Africa in the early 1970s due to the dominance of large scale self employed who do not fall within the formal economy. Economic anthropologist Keith Hart coined the term in his series of studies in Africa on the urban labour markets where he distinguished between wage earning and self employment. He emphasized on entrepreneurial dynamism and diversity of people in the informal sector (Hart 1990). This led to the development of three schools of thought – dualist, legalist and structuralist perspectives which all try to conceptualize, explain and address the challenges of this complex phenomenon.

The dualist posit the view that informal economy is peripheral or marginal and result out of the inadequate jobs in the formal economy and will recede with the development of the modern sector (Hart 1973; ILO 1972; Sethuraman 1976; Tokman 1978). The perspective therefore call for policy focus on support for the informal economy enterprises and workers in the form of credits and business development services with the assumption that the informal economy will fade away with more formal jobs.

The structuralists, however, abruptly refute the dualist approach and contend that formal and informal economies are inextricably connected and interdependent – the informal economy continues to exist because it is subordinated to the formal economy and enables the formal economy to reduce costs and increase profits (Moser 1978; Castells and Portes 1989, Bromley 1994). Hence policy focus should be on altering the unequal relationship that exists.

The legalist approach spearheaded by De Soto (1989) subscribes to the notion that informality is as a result of the excessive over regulation by the state (‘rigid mercantilist’) and hence the solution to the problem of informality is a liberalizing framework – deregulate, de-bureaucratize and privatize. The approach therefore advocates for formalizing and the decent work agenda follows directly from this perspective despite influence from other frameworks.

Notwithstanding the diversity of these concepts, informality continues to grow in new guises and different forms even in the industrialized nations. It is worth mentioning that none of the perspectives adequately explains or prescribes solutions to the problems of informality given its heterogeneous and multi segmented nature. Consequently, policy makers are faced with the dilemmas of whether to eradicate or formalize the informal economy. This has led to the suggestion of different ways of providing support for those in the informal economy which include licensing, provision of micro credit, training as well as enabling environment for collective action (Chen 2006) with more emphasis on formalizing.

In spite of these suggestions, understanding of the formalization process varies and different actors tend to define formalization to suit them. Intrinsically, policy makers view formalizing as a way of licensing informal work and putting in place taxation structures. Conversely, the different informal workers and enterprises see formalizing as a means to attain support and receive the incentives and benefits of formality. Hence in formalizing, there are striking differences in terms of interests and needs which should reflect in the policies of countries. The institutional capacities, mechanisms and resources especially in developing countries are however, inadequate to cater for the wide variations.

The above problems question the feasibility of formalizing the informal economy and De Soto’s legalist approach to informal economy. Are the states in many countries well equipped to enable workers and enterprises in the informal economy move upward into formality? Formalization may not be that simple as envisaged – it can be problematic and a nightmare to policy makers. Despite the complication, the informal economy can be reframed to fruitfully interact with the context and actors as well as reduce the associated vulnerability and risks. Consequently, new frameworks have emerged to take care of ‘the policy challenge of decreasing the cost of working informally’ (Chen 2006:90-1) or reducing the decent work deficits of working informally (ILO 2002). The ILO decent work agenda champions the emerging consensus concerning the need to develop a framework that is appropriate and able to respond effectively to the problems faced by those in the informal economy. However is this agenda feasible in the mist of all these dilemmas?

What can the ILO Decent Work do for Informality?

The ILO (2002) defines ‘decent work as productive work which generates an adequate income, in which workers’ rights are protected and where there is adequate social protection – providing opportunities for men and women to obtain productive work in conditions of freedom, equality, security and human dignity’. Decent work has been categorized into two different approaches. Some analysts have classified it into eleven measurement categories based on ’employment opportunities, acceptable work, adequate earnings and productive work, decent hours, stability and security of work, balancing work and family life, fair treatment in employment, safe work environment, social protection, social dialogue and workplace relations, and the economic and social context of decent work’ (Ghai 2006:27). The other approach views decent work from the perspective of security in which there are seven security indicators – labour security, employment security, job security, work security, skill reproduction security, income security and representation security (ILO 2002). Therefore lack of access to these indicators at ‘the macro (national), meso (enterprise) and micro (Individual) (Ghai 2006:27) levels leads to decent work deficits. These securities and indicators are inaccessible to workers in the informal economy albeit pockets of workers in the formal economy also have deficits for example the ‘working poor’.

Hence in looking at the situation of those in the informal economy, decent work deficits are the main characteristics and apparent are ‘poor quality unprotected and remunerated jobs, the absence of rights to work, inadequate social protection and lack of representation especially among women and young workers’ (ILO 2002:8). The decent work approach therefore recognizes that ‘all those who work have rights at work, irrespective of where they work’ (ILO 2002: 8) and should have decent work.

Notwithstanding this, a one-size-fit all policy cannot be developed for all segments. Decent work programmes need to take into consideration the diversity in labour markets, multi-segmented nature of informality, the role of government, institutions as well as cultural and historical backgrounds of nations. Decent work should therefore be seen as a goal to be achieved progressively from immediate to long term (ILO 2002). The immediate term focus is to recognize and give protection to those working in the informal economy, the short/medium and long term strategies are to enhance upward movement into formal decent jobs and the creation of formal decent employment opportunities for all respectively. Work should therefore meet decent work conditions which are seen as ‘a source of dignity, satisfaction and fulfillment to workers’ (Ghai 2006:11).

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Limitations of Decent Work Paradigm

The decent work agenda is a benign attempt to informality but ILO unlike the World Bank and IMF do not have the capacity to enforce and ensure that governments adhere to the decent work programme. Also, while the ILO outlined the securities that will make informal work decent, it does not provide insights into how these securities can be met and whose responsibility (individual, state, market, and other actors) it is to address and find solutions to the deficits. Moreover, ILO does not point out how to prioritize the securities in situations where it is impossible to have all seven fulfilled. The question is shall we prioritize or shall we try to achieve at the same time all the seven securities?

Furthermore, whiles Chen (2006:27) assert that ‘capacity of institutions, funding for incentives and social protection, inadequate formal jobs and employers not willing to convert’ as the problems that impede formalizing, she seems to forget about the vested interest and structural determinants that could hinder decent work. For example institutional obstacles such as the local government units in Ghana may stifle the decent work agenda as incorporating decent work framework will hinder the benefits they enjoy from the informality.

Who benefits from formalizing: local government or head porter (Kayayei)?

Before looking at the head porter and the local government systems in Ghana, it is important to have background information on the head porter business. The head porters popularly referred to as ‘kayayei’ in Ghana are female young girls who migrate from northern parts of Ghana to the south predominantly Accra and Kumasi. Like other informal businesses, the ‘kayayei’ are self employed and engage in carrying goods on their head from one place to the other, unpacking stores especially in market places as well as assist buyers in carrying purchased goods to various locations for a negotiated fee (Argawal et al 1997, Opare 2003, Awumbila 2007). Agarwal et al (1997) further indicates that these girls are part of the informal transport structure of Ghana that transport load from one place to the other and this commercial head load carrying is to be understood within the structure of economic activities of women in the informal economy, and the importance of petty trading as the predominant occupation of women. Similarly, ILO (2004) and Awumbila (2007) notes that jobs engaged by these Kayayei pay low wages, have low productivity which leads to unstable incomes. The purpose of their involvement however, is ‘to attain sufficient savings to convert to a more lucrative and less arduous occupation’ (Awumbila 2007:3).

These head porters lack official registration, work in highly competitive market places, have deficits in all seven securities, and are exposed to diverse risks and shocks. Their daily vulnerability goes from running after busses for business to harassment from metropolitan agents for payment of daily levies. These head porters however, have various survival strategies which include collective credit and insurance (susu and adashi) schemes and organization of semi-permanent conjugal unions to reduce their vulnerability within the labour market (Awumbila & Ardayfio-Schandorf 2008, Argawal et al 1997, Opare 2003).

Much of the literature on the ‘kayayei’ phenomenon talks about migration and livelihoods but hardly talked about is the levy they pay to the local government systems in Ghana but do not gain any form of social protection. Their activities like other informal businesses are not recognized but they are regulated by the metropolitan assemblies in the forms of daily levies. They pay fifty Ghana pesewas daily levy to agents of the assemblies and are hijacked in the course of their operations to pay before they can continue with their activities. It is however, unclear what the taxes collected from these girls are used for. They do not get any form of benefits, incentives or social protection from the local government.

Evans (1989:582) describes the case of Zaire ‘predatory state’ in which state officials squeeze resources from civil society ‘without any more regard for the welfare of the citizenry than a predator has for the welfare of its prey’. This ‘predatory state’ scenario best describes the relationship between the local government and the head porter in Ghana. The metropolitan authorities benefits from the informality of the head porters and do not have any regard for their welfare. In such a case, implementing the decent work approach will serve as a dis-benefit to the government who only plays an opportunistic appropriation role. Hence, such structures may serve as obstacles to the decent work programme. Chen ( 2006:15) indicates that ‘… many activities in the informal economy do not generate enough output, employment or income to fall into existing tax brackets’ but these girls though do not generate enough income are still taxed and this further exacerbate their situation.

Conclusion and policy recommendations

Once the local government recognize the legality of the head porters through taxation, they are obliged to provide them with protection. For example their activities could be regulated by putting in fixed prices for carrying goods to certain distances to reduce their vulnerability in terms of negotiation. State should provide ‘kayayei’ with vocational and negotiation skills training, recognize them in the labour laws and give basic security like health care, shelter, protection from eviction and harassment can cushion them against risks and shocks in their daily activities. For instance paying the premium for these head porters in the Ghana national health insurance scheme will take care of their health needs and further enhance their work. Similar welfare funds like the Bidi Workers Welfare and Head Loaders Funds in India could be established to provide social security benefits for these head porters.

In addition, their micro insurance schemes and strategies could be enhanced especially the ‘susu’ and ‘adashi’ systems. These forms of collective contributions could be transformed into mutual systems of social security. The role of the state is vital in promoting such systems by providing an enabling environment and suitable policy framework to include these schemes.

Moreover, the local government systems should recognize and protect the rights of the head porters since they play a facilitative role being part of the transport sector in Ghana. As Opare (2003) noted ‘the kayeyei make useful contribution to the Ghanaian economy’ and should be recognized as such and provided with the necessary protection to enable reduce decent work deficits. Should these be considered for the social protection policies, it will help reduce the insecurity, vulnerability and material deprivation faced by these head porters.


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