It’s the informal economy, stupid

One way to define the informal economy, according to the World Bank, is by the location of its actors:

1. Home-based workers
a) Dependent home-based workers who:
– Work at home outside the establishment that buys their product;
– Agree by prior arrangements to supply goods or services to a particular enterprise;
– Get remunerated through what is paid for their products;
– Do not employ workers on a regular basis.
b) Independent home-based workers are those who work in their home and deliver their products or services to prospective buyers. Their characteristics are those of the self-employed and are classified as part of the “account workers”.
2. Street traders and street vendors.
3. Itinerant, seasonal or temporary job workers on building sites or road works.
4. Those in between the streets and home, e.g. waste collectors.

The other day, I overheard a man telling someone that he was attending a meeting at Solibao Restaurant and the agenda was “kung ano ang pwedeng pagkakakitaan (where and how to earn).” I assumed he wasn’t employed but rather an informal worker. Perhaps self-employed, or who falls under 1b in the definition above. There are lots of them, in this City and elsewhere in the country. The women, especially home-makers who wants to earn part-time, it’s being agents of beauty and home product brands such as Avon and Tupperware (is this still alive?). And of course we’ve heard the impossible-but-true stories of poor illiterate mothers who were able to send their children to medical school just by washing clothes. In the streets, there are the vendors of finger foods (e.g. mangoes, bananacue, fishballs, peanuts, corn, etc.), vegetables, newspapers, toys, clothes, and even custom-made fake certificates and yes DVDs. You name it, they’ve got it all.

What income class do these workers belong to? The surviving poor to the lower middle class. There is a significant poor population in this country to which these workers fall into, meaning how come this portion of the population are not dead from starvation by now? How was it that despite the financial crises this unit of production has not buckled down whereas many of the world’s Top 100 corporations and businesses did?

My theory (based on some years of observation now) is it’s the informal economy. For one, the flexibility inherent in the informal economy, that is, ease of doing business (which the formal economy is clamoring for), largely facilitated by the lack of policies and formal regulations for the sector (street vendors are informally “regulated” by their being made to pay a premium in order to do business on the street), cushions and insulates the sector from shocks. When things go bad, informal production units can temporarily shut down, with ease, and as easily workers search around for better prospects (one person’s tragedy is another’s opportunity) and when things get better they go back to their original business or trade as easily. Their business or trade usually caters to basic needs and services, giving them surety that there will always be some people who are going to buy. And because their sense of future is earnings to get them by until tomorrow (when they can again think up of ways to earn), a few buyers in a given day are all they ask for. Further, since production in the informal economy is loosely integrated or linked (or perhaps not at all in many instances) with the formal economy, big businesses can go bankrupt without hurting informal workers; or middle class workers can starve without hurting the lower tiers too much (e.g. displaced laborers employed by middle class business owners reeling from crisis often have options albeit lesser paying such as temporarily returning to the countryside and farm, or by losing their local job they earn an opportunity to work abroad). They’re not encumbered by processes, systems, rules, financial bottomlines, etc. that are the hallmark of the formal sector. Flexibility and agility, the key strengths of the informal economy, are what keep workers (and their families) in the sector alive and surviving.

The effect on the whole of a thriving informal economy in light of a significant poor population is that it keeps the country afloat. Because the poor (informal workers) are surviving on their own, financial crisis or not, they are one less demographic that the State is spared from worrying about. In fact, in times of financial crises it’s the big businesses who are vulnerable and in need of State money to bail them out (apart from big businesses hurting the most from financial crises, middle class workers and families too are. Because obviously incomes of middle class workers are sourced from or generated through formal sector activity.).

In view of this, the exclusion of informal work from national accounts does not do the sector and its workers justice.

What about the remittances of Filipino workers abroad you might ask don’t these keep the Philippine economy afloat too? It’s a hands-down yes but that’s another article.

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