Towards a new model of the Philippine political economy III

Posted: January 11, 2011 in Philippine politics, Political economy

The informal economic sector

The informal sector includes economic activities that are quite similar to those undertaken within the formal economic sphere.[1] One can also acquire legal goods and services such as food products, clothing, and footwear within the informal sector.  The legal nature of the goods and services and the voluntary nature of the exchanges and transfers are shared features of formal and informal economic activity.  However, informal economic activity is technically illegal since informal entrepreneurs usually do not register with state authorities or pay income taxes and relevant registration fees and licenses.  Yet such illegality, according to De Soto (1989), is not antisocial in intent, like drug trafficking, theft, kidnapping, and murder.  If informals were to live, trade, manufacture, transport, or consume, they may have to do so illegally.  State regulations are often complex and cumbersome and are too difficult or expensive to comply with.  Thus, informals do not register with the authorities or pay taxes.  Nor are receipts issued in this sector. Informals are therefore fair game for both predatory agents of the law and criminals.  In truth, they usually pay an implicit ‘tax’ (in the form of bribes or ‘protection’ fees) to these entrepreneurs so they could ply their livelihood.

However, not all of the goods and services offered within the formal sector are available in the informal sector.  Apart from legal considerations, there are structural barriers to entry into the formal sector.  These may include minimum capital and skills requirements.  For example, it would be inconceivable (though probably not entirely impossible) for an informal enterprise to be able to offer checking accounts or credit card services.  In general, the consumers of informally-provided goods and services are from the lower-income groups in the cities and the rural areas.  The informal enterprise is generally small (in terms of capitalization, number of employees, etc.) and its small size enables it to successfully evade the attention of state officials and predatory entrepreneurs at times.  Its small size accords mobility to the enterprise such that when agents of the law or predators come near, an early-warning system alerts the informal entrepreneur to move his business.

How about the subsistence work of economic agents such as slash-and-burn farmers (kaingineros), forest product gatherers, and small fisherfolk?  Should their work be considered as informal economic activity?  If they are unable to produce a surplus and use all their produce to feed their families, then these activities are similar to household activities and are excluded from the category.  When these agents pursue other activities in order to obtain cash incomes or balances, then they interact with actors of the aforementioned economic sectors.  For instance, they may obtain credit from informal moneylenders.  Then they may use the funds to purchase goods and services either from formals, informals, criminals or warriors.  They may also obtain temporary employment in either informal or criminal enterprises, or in the internal war economy.  For instance, they may produce handicrafts during the off-season and travel to sell them elsewhere or sell them to itinerant buyers (who then resell the same products elsewhere).  In other cases, they may be drawn toward criminal activity.  For example they cultivate marijuana for criminal syndicates or accept bets for the illegal numbers game (jueteng).  Or they may be conscripted as couriers or spies for the New People’s Army.  In recognition of their services, the NPA may provide such services as punishment of cattle rustlers and other petty criminals.

Informality is not confined to informal economic actors identified in the discussion above.  The weakness and/or rigidity of state institutions often lead even formal actors to use informal means to achieve economic goals.  In many commercial malls in urban areas, formal enterprises may deploy informal vendors, especially during the Christmas holidays, to increase sales and evade taxes.  However, the recourse to informality often leads to criminality.  A bribe usually clinches a deal reached informally.

[1] Some analysts, especially feminist political economists, include household and subsistence activities, such as home cooking, child-rearing, horticulture, etc., in the informal sector.  I exclude them since they are not for-gain activities even if they are unarguably productive and necessary.  These activities constitute a separate economic sector—the household and subsistence sector.  All activities in the household sector are transfers while subsistence activity is own-account or own-use work.  Value is created but is not exchanged for gain.  For instance, a subsistence economic actor may raise crops but consumes them.  He does not bring his produce to the market for two reasons.  He may not have been able to produce a saleable surplus or he cannot afford the transactions cost of selling the produce.  Subsistence activity may be carried out in the context of a household.  However, not all household are subsistence households.  Others may be households of formal, informal, criminal and war-related actors.  While subsistence activity is essentially independent and disjointed, households necessarily transact with the other sectors, especially the formal and informal ones.  Households, save for subsistence households, are not self-sufficient and must source necessities from the other sectors.  Households must also exchange values with the other sectors so monetary incomes needed to purchase necessities could be earned.

  1. bongmendoza says:

    Reblogged this on bong mendoza's blog.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s