CHAPTER I1

BEYOND FORMAL-INFORMAL DUALISM

The Formal-informal sector dichotomy is the latest variant of the two-

way classification of the economic processes in general and labour market

situations in particular. Though this classification was originally used to divide

urban enterprises into formal and informal sectors, it was later used to analyse

the labour market also. In this chapter, we first analyse the emergence of the

dualistic interpretation of the urban economy, the origin and proliferation of the

informal sector concept and the views of different scholars on the concept.

Following this, an analysis is made on the changes that have occurred in the

conceptualisation of the informal sector over the years. Finally, this concept is

counterpoised to concepts like informalism, informality etc., which are gaining

academic credibility among the contemporary social scientific research

programmes. The proposition is that these latter concepts are more appropriate to

capture the complexity of the present day labour market situation.

2.1 Urban Dualism

There has been an unprecedented growth of population in the world,

especially in the Third World countries, since 1950.' The rural sector of these

countries was the worst hit. Employment generation did not follow the population

growth that had taken place at an epidemic proportion. On the contrary, even

the existing farm and non-farm employment opportunities were declining.

I Michael P. Todaro, Economic Development in the Third World, Hyderabad, Orient Longman Publishing, 1993, p. 19 1-92. Also see Francise Cheruniiarn, "The Urban Informal Sector", Indian Journal oflndustrial Relations, vol. 1 7, 1 98 1 , p.99.

The simultaneous occurrence of increasing labour force and decreasing job

opportunities worsened the problem of unemployment and underemployment in the

rural sector. The poor and impoverished surplus labourers in the countryside were

looking for an alternative to get some means of livelihood.

The alternative was expected to find in the urban areas of developing

countries where industries had begun to conglomerate. Since the industrial sector

was believed to be capable of generating more employment opportunities, large

numbers of people fiom the countryside migrated to urban centres. These

migrants were not of a homogeneous group. The educated and skilled migrants

could find employment without extended job search period. Some of the

uneducated and unskilled labourers could also find shelter in the industrial sector

either through the networks of kinsmen, affines and friends or by chance. The

remaining portion of the migrants along with the resident unemployed was

forced to live outside the protected urban sector,

Sir W. Arthur Lewis gave a theoretical explanation for the absorption of

the surplus labour in the modem s e c t ~ r . ~ The historical experience of the

economic growth of the Western Industrial economies led him to formulate a

two-sector model with unlimited supply of labour as the instrument of

development. Lewis was popular for his employment model dealing with. the

transfer of surplus labour from the subsistence sector to the capitalist sector. The

core of his model was that the migrant labourers whose marginal productivity

was higher than the capitalist wage would create capitalist surplus and this

* W, Arthur Lewis, "Economic Development with Unlimited Supplies of Labour", The Manchester School of Economics and Social Studies, vo1.22, 1954, pp.139-191. The Two-sector model developed by Fei and Ranis also hypothesised that the surplus labour from the rural agricultural sector would be gradually absorbed in urban industrial sector. See J.C.H. Fei and G. Ranis, Devehpmenl ofthe Labour Surplus Economy: Theory and Policy, Illinois: Irwin Inc. Homewood, 1964.

surplus would be reinvested. The reinvested surplus would employ more

labourers drawn from the subsistence sector. This process was expected to

continue until the surplus labour was totally absorbed. But, the validity of

the Lewis' ernployinent model was questioned later. Todaro's sceptical enquiry

into the relevance of Lewis' two-sector model is summed up in one of his self-

evident statements:

When one takes into account the labour saving bias of most modern technological transfer, the existence of substantial capital flight, the wide spread non-existence of rural surplus labour, the growing prevalence of urban surplus labour, and the tendency for modern sector wages to rise rapidly even where substantial open unemployment exists, the Lewis two-sector model--though extremely valuable as an early conceptual portrayal of the development process of sectoral interaction and structural change-- requires considerable modifications in assumption and analysis to fit the reality of contemporary Third World nations.'

It was evident by the end of the 1960s that though industrialisation in

developing countries had significant growth effects, it had insufficient

employment effects and unsatisfactory distribution effect^.^ The accelerated

growth strategies based on maximising Gross National Product (GNP) had failed

to solve the problems of poverty and unemployment in developing countries. As

has already been pointed out, the modern sector had failed to absorb the

additional labour force, both urban born and the migrants. Despite the high rate

of unemployment in the urban areas, rural to urban migration had not declined

considerably. The paradoxical situation of massive exodus of labour fiom rural

3 Michael P. Todaro, Economic . . . , Op. cit., p. 79. 4 Hans-R Hemmer and C.Manne1, "On the Economic Analysis of the Urban Informal

Sector", World Development, vol. 17, no. 10, 1989, p. 1 543.

to urban areas despite high rate of unemployment at the destinations was

explained in Todaro Growth Model. It was postulated in the model that

migration proceeds in response to urban rural differences in expected income

rather than actual earnings.5 Therefore, the urban centres became densely

populated. Huge slums and shanty towns came up; a number of social, political,

economic and environmental problems emerged. Poverty began to cohabit with

affluence in urban locations. The marginalised groups started engaging in low

income occupations in urban centres.

Urban economies have been repeatedly analysed in a dualistic framework.

The binary opposition has been made either on the basis of economic structures

or nature of labour markets. Different oppositions, such as organised and

unorganised, modern and traditional, capitalist and subsistence sectors, have

been used for analysing urban economies; and classifications such as organised

and unorganised, protected and unprotected, regular and casual workers have

been used for analysing urban labour markets.

Papola looked at the different two-way classifications and explained their

lirnitationsn6 First of all, he took the classification between organised and

unorganised sectors and stated that the distinction was made on the basis of

certain empirical facts of size of the enterprise, nature of market and relation

with the state, It was viewed that as these were continuous variables a clear cut

division of the continuum smacked of arbitrariness. This classification also

failed to capture the degree of organisation of the sector under its purview.

5 Michael P. Todaro, Economic. . . , Op. cit., p. 265. b T.S. Papola, Urban Injormal Sector in a Developing Economy, New Delhi, Vikas

Publishing House, (Pvt.) Ltd.. 1981, pp.4-7.

3 0

Another widely circulated classification was the one between capitalist and

subsistence sectors, which was based on the idea of 'mode of production'. Two

objections were raised against this classification. It was argued that most of the

production organisations in developing economies were not amenable to the

classification based on Inode of production. Another objection was that, unlike

the Marxists, the non-Marxist scholars did not prefer the use of concepts like

classes, mode of production, surplus value etc. Finally, Papola examined the

modern-traditional dichotomy to represent the technology used in production, It

was viewed that the classification had come to be identihed with the agricultural

and industrial sectors of a developing economy and was therefore, unsuitable to

use in the context of the urban economy.

Among the three types of two-way classification for analysing the labour

market, the organised - unorganised dichotomy has gained greater circulation

among researchers and policy makers. The other two types of classifications

mentioned by Papola have been used in specific contexts only. The classification

of protected and unprotected labourers is used when the aspect of protection is

taken into account. In the case of the classification of the workers into regular

and casual, only the feature of the regularity of employment is considered.

In the foregoing analysis it is made clear that the earlier classifications

have certain limitations in the analysis of urban economiesllabour markets. The

formal and informal sector dichotomy is the latest one in the line of the two-way

classification of the urban economies. To many, the latest variant is superior to

the earlier ones.

2.2 The Informal Sector Concept

Keith Hart in his study of Urban Ghana introduced the concept of

'inforrnal sector' into the development l i terat~re.~ In the study he identified a

large self employment sector which provided means of livelihood to the labour

force belonging to the exterior of the organised labour market. This category of

self employed individuals was not covered by the statistical enumeration and was

thus called 'the unenumerated sector'. To Hart the inforrnal sector consisted

mainly of self employed individuals as against the workers in wage employment

in the formal sector. The informal sector had come into existence in the urban

centres on account of two factors. There was insufficient employment generation

in the formal sector and many new entrants were incompetent to cope with the

requirements of the formal sector. Hart's study invalidated the earlier view of

treating the informal sector as highly unproductive and, instead, sent this sector

to new heights by calling it 'informal income generating activities'. As pointed

out by Moser, the significant contribution of Hart's approach is the identification

of new income generating activities as the informal sector.*

In Hart's analysis the distinction between formal and informal sectors was

based essentially on the difference between wage earning and self employment.

He identified the informal sector mainly as a sector of self employed individuals.

But, the 1LO-UNDP Country Employment Mission to Kenya envisaged a set of

characteristics of the informal sector such as ease of entry, reliance on

Keith Hart, "Informal Income Opportunities and Urban Employment in Ghana", Journal of Modern African Studies, vol. 2, no. I , 1973, pp. 6 1-89. The terms 'formal' and 'informal' were first used in socio-anthropological studies of Third World cities in the 1950s. Hart adopted the term and used it interchangeably with 'informal income generating activities', 'unorganised sector', 'unenumerated sector', 'self-employed individuals' and 'urban proletariat' in his much quoted article "Informal Income Opportunities and Urban Employment in Ghana".

Caroline O.N. Moser, "Informal Sector or Petty Commodity Production: Dualism or Dependence in Urban Development", World Development, vol. 6, no.9/10, 1978, p. 1052.

32

indigenous resources, family ownership of enterprises, small scale operation,

labour intensive and adapted technology, skill acquired outside the formal

school system, and unregulated and competitive marketsn9 In this study, the

characteristics of the formal sector activities are stated as the obverse of the

characteristics of the informal sector.

Both Hart and the ILO-UNDP Kenya Report treated the characteristics of

the enterprise as the basis of the two-sector classification of the urban economy.

Since these studies, conceptualisations of the informal sector have gained wide

circulation in development literature. The dichotomy has been used to classify

enterprises and labour market into two.

We may now go on to examine the different ways in which this concept is

employed in academic works. According to John Weeks the main feature that

distinguishes the formal sector from the informal sector is the position of

enterprise vis-a-vis the State.I0 The formal sector gets official recognition,

protection and encouragement whereas the informal sector does not have any of

these benefits.

In Mazumdar's analysis the formal sector is protected by the action of

the state and trade unions." His analysis is on the labour market situation.

Sethuraman defined the informal sector in terms of the source of employment

9 International Labour Organisation, "Employment, Incomes and Equality: A Strategy for increasin Productive Employment in Kenya", Geneva, 1972. I' John Weeks, "Policies For Expanding Employment in the Informal Urban Sector for Developing Economies", Internuiional Lubour Review, vo1.3, no. 1, 1975, p.2.

I1 Dipak Mazumdar, "Analysis of the Dual Labour Markets in LDCs", in Subbiah Kannappan, ed. Studies of Urban Labour Market Behaviour in Developing Areas, Geneva, International Institute for Labour Studies, 1977, p. 15.

of the urban poor.12 Later he provided an 'enterprise' based definition, which is

given as follows: "Informal sector consists of small scale units engaged in

production and distribution of goods and services with the primary objective of

generating employment and incomes to their participants notwithstanding the

constraints on capital, both physical and human, and know-how"'! In his earlier

definition Sethuraman considered informal sector as a source of employment to

the urban poor only. But later he realised the potential of the informal sector

which included not only small scale manufacturing units but also small units in

trade, commerce and other services which provide employment and income to

their participants. Heather Joshi gave a residual definition to the term informal

sector.I4 TO her, informal sector "consists of those engaged in economic activity

who are not identifiably performing it for the formal sector".

The main concern of the above definitions was the identification of an

unprotected and unregulated sector in the urban economies of the developing

countries with the primary objective of generating employment and incomes

to its participants. This finding is significant because it was made on the

background that this particular group of economic activities/labourers was totally

ignored and was simply treated as a natural outcome of the inability of the

industrialisation to absorb the increased labour force in the urban economies of

developing countries.

12 S.V Sethuraman, "The Urban Informal Sector: Concept, Measurement and policy", International Labour Review, vol. 1 14, 1976, p. 75.

I 3 S.V. Sethuraman, The lnjormal Sector in Developing Counrries: Employment, Poverry, und Environment, Geneva, International Labour Organisation, 198 1 , p. 1 7.

14 Heather Joshi, "'The Informal Urban Economy and its Boundaries", Economic and PoIi!ical Weekly, vol. 1 5 , no. 1 3, March 1 980, pp. 639-40.

The approach based on formal-informal duality suffers from certain basic

conceptual problems. The concept of 'sector' presumes internal homogeneity.

But the informal sector is not homogeneous but essentially a heterogeneous

group. The structural overlap between the two sectors is also not captured in this

approach. Another shortcoming of this approach is that the characteristics of the

informal sector are not found universally in all empirical situations.15 Sinclair

analysed the criticisms of the informal sector under three heads: problems

emanating from aggregation, linkages, and dynamics.I6 He opined that the

concept is too highly aggregated so that it impedes analysis of each individual

part of the whole. Regarding 'linkages', it was stated that the relationship of the

informal sector with others in the urban economy cannot be clearly explored and

thus the concept cannot be used to explain whether these relationships are benign

or exploitative. Moreover, it overlooks the way in which elements in the informal

sector change in connection with other elements in the urban economy.

The criticisms of the informal sector concept might be sound enough to

make the concept unpopular. among researchers and policy makers. But the

informal sector studies have proliferated over the years. This does not mean that

the concept has been accepted by all. It should be mentioned in this context that

some thinkers have rejected the concept altogether and supplied alternative

approaches to explain the situation. The supporters of the concept have varied

views on it. Scholars like Papola, after casting doubts on the dualistic

interpretation of the urban economy, accept the usefulness of the informal sector

IS T.S. Papola, Urbun Informa(. . . , Up. cii., p. 20. 1 1 Stuart W. Sinclair, Urbanisation and Labour markets in Developing Countries, London,

Croom Helm, 1978, p. 83-89.

concept to identify the category of 'urban poor.' l 7 Others have made alterations

in the canceptualisation of the informal sector. The changes in the

conceptualisation of the informal sector can be analysed from different angles.

At least, three levels of discussions can be carried out in this context. They are

respectively 'focus', 'aggregation', and 'strategy'.

2.2.1 Focus

There are a few questions under the aspect of 'focus'. The first one is

whether the term 'informal' refers to the enterprise or the labour. Though Hart,

who proposed the concept and ILO, which popularised it, related the term with

the enterprise, later researchers have used the term in the analysis of both

enterprises and labour markets. In the labour market analysis distinction has been

made between 'informal sector labour market' and 'informal labour market'.

Informal sector labour market is confined to the workers in informal

establishments alone whereas the informal labour market includes, in addition to

workers in the informal sector, the casual, contract, and irregular workers in

the formal sector."

The second question of focus is whether it relates to urban centres or the

entire economy. Keith Hart, while introducing the concept to the development

literature, linked it with the urban economy. Informal sector studies had

concentrated on urban areas and thus the term 'Urban Informal Sector' became

popular. The analysis of the informal sector with reference to the cities alone

cannot be accepted as the right approach. As Heather Joshi puts it, "... the

consideration of the city in isolation from the wider economies of which it is a

17 T.S. Papola, Urban Informal. . . , Op, cil., p. 20. '"bid., pp.11-12,

part involves rather brutal surge@"'9. The same view is expressed by Breman,

"there is no logical reason why agriculture and rural economy should be

excluded when enumerating all the diverse occupations grouped under the

informal sector headingv2'. G. Parthasarathy made a clear distinction between

formal and informal sectors in agriculture." He states: "The large, medium, and

semi-medium farins on which modern methods of management have been

introduced [nay be considered under organised sector within agriculture".

There is a tendency to identify the informal sector as black economy. It

cannot be denied that certain illegal activities are there in the informal sector. But

it is misleading if one states that all informal activities are illegal. Besides, as

illegal activities exist in the formal sector also, the identification of the informal

sector as black economy is not credible.12

Two more questions related to 'focus' are to be discussed. Since the

publication of ILO Kenya Report, informal sector studies have proliferated in

developing countries. These studies firmly conveyed the feeling that informal

sector was a symptom of underdevelopment. Again, the socialist thinkers tried to

propagate that informalism was a capitalist phenomenon and that it would be

eradicated not through 'reformist policies' but through radical change. Contrary

to these conceptions, it has been realised that informalism is not a phenomenon

exclusively seen in developing economies. Nor does it exist in capitalist

economies only. It is a universal phenomenon that can be seen in all economic

l9 Heather Joshi, "The Informal . . . , " Op. cit., pp. 639-40. 20 J. Breman, "The Informal Sector Reconsidered", The Indian Journal of Labour

Economics, vo1.38, no.3, 1995, p. 41 1 . 2 1 G. Parthasarathy, "Unorganised Sector and Structural Adjustment", Economic and

Political Weekly, vo1.3 1, no.28, July 1996, pp, 1859- 1860. 22 Karnal Nayan Kabra, "The Informal Sector: A Synoptic Reappraisal", in Economic

Development and the Quesf jor Alternatives: Essays in Honow of Prof MA Oommen, in K.K. George, el, a/., eds. New Delhi, Concept Publishing Company, 1997, p.64.

systems and at every stage of development. Research studies conducted in the

erstwhile socialist countries testify this fact, Shen ping-Yu's study on the

Chinese economy revealed the new experiments that had been taking place in

the urban and rural economic systems in China since 1979.13 He defined the

inforinal sector as "those areas of production that do not come under state

planning, or have prices of goods and services which are not set by the State". In

the Chinese context the privately owned enterprises and joint ventures were

treated as inforinal sector as against the state owned economy in the formal

sector. Shen Ping-Yu stated that with the state owned economy in command,

joint ventures of various kinds and privately owned enterprises existed side by

side. While commenting on informal sector in the socialist economies

Veechibala Das studied the erstwhile Soviet Union and China and reached

conclusions similar to those of the earlier study just cited.24 The folly of the

statement that informal sector is an exclusive symptom of under development

was exposed by Richardson. This is evident from the following quote: "The

street vendors of Manhattan, the impoverished boardwalk market stalls of Venice

Beach, California and the fruit sellers outside the Federal Buildings in

Washington, D.C., ('just as they are in Brasilia and Bangkok) are evidence

enough that there are market niches for informal sector enterprises even in the

most affluent c o ~ n t r i e s " ~ ~ . Informalisation of enterprises/labour market has

become part and parcel of the ongoing process of the globalisation. The formal

sector firms in both developed and developing countries have been going ahead

with the informalisation process with the intention of making their firms more

competitive and flexible.

23 Shen Ping-Yu, "The Impact of the lnformal Sector on Urban and Rural Socio-economic Development in China", Regional Development Dialogue, vol. 5 , no. 2, 1984, pp. 105- 1 13.

24 Veechibala Das, "Informal Sector in Socialist Economies: A Re-examination of the Relationship of the Informal ~ector'to Development", Regional . . . , Op, cit., p. I 25.

*' Harry W. Richardson, "The Role of the Urban Informal Sector: An Overview", Regional. . . , Op. cii., p. 4.

2,2.2 Aggregation

In respect of 'aggregation' two questions are to be addressed. The first is

whether the informal sector is a homogeneous entity or a heterogeneous one.

Recent studies on the informal sector almost unanimously arrive at the

conclusion that this sector is not homogeneous. Instead, the term is used to

describe a heterogeneous group of individuals and occupations.26 Therefore,

many scholars wanted to make disaggregation of the informal sector for the

analysis of the structures of urban economies/labour market. Their studies were

in the formal-informal sector framework, but they realised the need for

disaggregating the informal sector for fruitful analysis of complexities and to

arrive at proper policy decisions.

Bienefeld and Godfrey criticised the concept of the informal sector on the

ground that it was a highly aggregated concept and should, therefore, be

disaggregated to permit useful analysis and inteq~retation.~' They proposed a

tripartite division of the ipformal sector into "those activities which produce

tradable commodities, activities which involve the production of services

connected with the distribution of finance, and activities which involve personal

services". This division takes up activities rather than relations and agents.

Prem S. Vashishtha made a trichotomous grouping of the urban informal

sector into informal entrepreneurs, informal employers and the unskilled or semi-

skilled casual workers." The author called the last two categories 'marginalised

irregulars'.

26 Om Prakash Mathur and Caroline 0. N Moser, "The Urban Informal Sector: An agenda for Future Research", Regional. . . , Op. cit., p-XI.

27 M.A Benefeld and M. Godfrey, "Measuring Unemployment and the Informal Sector", Insliiule o Development Studies Bullerin, vo1.7, no.3, 1975. p.8. B Prem S. Vashishtha, "Urban Informal Sector: A Profile of Marginalised Irregulars", Social Action, vol. 40, no.2, April-June 1990, pp. 126-1 27.

Kundamala Sreeramamurthy in his study on the urban poor in

Vishakapatanam City isolated the informal sector from the formal sector

adopting an employment size criterion.29 All establishments that employed less

than ten workers were treated as the informal sector. He divided the informal

sector into four sub-sectors, such as self employed, casual workers, domestic

workers and wage employers in the informal establishments.

Ray Bromely and Chris Birkbeck in their "Researching Street

Occupations in Cali" made a more detailed disaggregation of the informal

sectorn3' First of all, they took service occupations from the informal sector

of Cali, secondly from all service occupations to lower income service

occupations and thirdly, down to street occupations. They finally made nine sub-

divisions of street occupations. They were retail distribution, small-scale

transport, personal services, security services, gambling services, recuperation,

prostitution, begging and property crime. In this study the heterogeneous

character of the informal sector is given clear visibility.

Disaggregation process of the informal sector has come to the level of

enterprise-wise or particular labour market-wise analysis. The informal sector

consists of a wide variety of participants such as street traders, shoe shine boys,

garbage pickers, coolies, porters, typists, watchmen, repairers, small scale

manufacturers etc. Taking cognisance of this diversity, Moser states: "The

informal sector is still too broad to be meaningful; at one end is a pool of surplus

labour, at the other, a skilled high income earning entrepreneur; at one end a

29 Kundamala Sreeramamurthy, Urban Labour in Informal Sector: A Case Study oj ViJ.akap~lmam City, Delhi, 5 .R Publishing Corporation, 1986, p. 7.

30 Ray Bromley and Chris Birkbeck, "Researching Street Occupations of Cali: The Rationale md Methods of What Many Would Call an Informaj Sector Study", Regional . . . , Op. cit,, pp. 1 84-1 90.

proliferation of residual enterprises involutionary in nature, at the other end of

the spectrum dynamic evolutionary enterprises"3'. Therefore, policy formulations

cannot be made for the informal sector as a whole but only for specifically

identified groups and activities with in it.

Abdul Aziz's study on waste recycle industry in Bangalore City is an

example of deep focusing on micro level informal sector.'' In the study he

divides the industry into four sections, such as waste collecting, bulk buying of

wastes, manufacturing of articles and retailing of these articles.

The second question regarding aggregation is whether inforrnal sector is

autonomous or integrated with the rest of the economy. The earlier view on

informal sector was that it was an autonomous sector. But, later strong linkages

between the two sectors were found out. Tokman gave a more realistic answer

to this question when he said, ". . . the informal sector should be seen neither as a

completely integrated nor as an autonomous sector, but rather as one with

significant links with the rest of the economy. While simultaneously, it also

represents a considerable degree of self c~ntainrnent"~~. Another question in

connection with this is whether the linkages are benign or exploitative. The

dualists, in general, theorised the benign relationship between the two sectors

and visualised the growth of the informal sector as evolutionary. Neo- Marxists,

on the other hand, assumed that subordination is the main characteristic of the

informal sector. The process of growth of the informal sector will be involutionary.

31 Caroline O.N. Moser, "The Informal Sector Reworked: Viability and Vulnerability in Urban Development", Regional. . . , Op. cit., p. 160.

.'I Abdul Aziz, Urbml Poor and Urban Informal Sector, New Delhi, Ashish Publishing House, 1984, pp. 64-65.

33 Victor E. Tokman, "An Exploration into the Nature of Informal-Formal Sector Relationships", Worid Devdopmenr, vo1.6, no.9/10, 1978, p. 107 1.

Toklnan offered an intermediate conceptual framework of heterogeneous

subordination, which implies a subordinate relationship for the sector as a whole,

but resulting from different processes occurring within it.34

2.2.3 Strategy

Finally, the question is on whether informal sector occupation should be

seen as a strategy of the 'survival of the poor' or as a 'potential source of

growth'. In the traditional view, occupation in the informal sector was treated as

a survival strategy of the urban poor. The migrants from the rural areas took up

urban non-wage employment as a 'holding ground' or as a 'stepping stone' until

a formal sector job turned up. The underlying facts in this belief were that the

informal sector job was inferior to a formal sector job and that no particular skill,

special training, or capitalist investment was needed to enter into the informal

sector. So, entry into the informal sector was unrestricted. It was believed,

following the postulate of Sir Arthur Lewis, that the surplus labour from the rural

sector would be absorbed into the modern sector. Therefore, politicians and

policy makers did not give any serious attention to the category of self employed

hawkers, peddlers, coolies, porters, shoeshine boys, garbage pickers and the like

who lived on the margins of the urban economy. But when these street occupants

were felt as a threat to the peaceful life of the urbanites and to the aesthetic

beauty of the urban centres, harsh measures were taken against them. "Squatter

housing was bulldozed, petty traders were either driven away or jailed; and, in

some cases, the 'marginals' were transported, enmasse, back to the rural areas

and asked to cultivate land which no longer belonged to themv3'.

" "id., p. 1071. 35 Biswapriya Sanyal, "The Urban Informal Sector Revisited: Some Notes on the Relevance

of the Concept in the 1 980sW, Third World Planning Review, vol. 10, no. 1, 1988, p. 68.

The study of Keith Hart revealed the existence of a variety of new income

generating activities in trade and service categories in an urban economy. Hart's

study questioned the traditional attitude of treating informal sector as highly

unproductive and consisting of surplus labour. Following Hart, ILO played the

most prominent role in the reversion of our outlook. ILO initiated a number of

country and city studies to reveal the potential of the informal sector in the

generation of income and employment. Contrary to the conventional wisdom that

the informal sector requires no specific skills and is characterised by ease of

entry, the agreed wisdom is that informal institutions play an active role in skill

formation and in creating entry barriers in many sub-sectors of the informal

sector. Therefore, the informal sector cannot be treated as transient or temporary,

but a permanent feature in the process of economic development.

In Hart's conceptualisation wage employment was not considered in the

category of the informal sector. But later studies show that formal-informal

sector categorisation cannot be made on the basis of whether it is wage

employ~nent or self employment. There are numerous small shops and one-man

firms that come under the category of the formal sector while many small-scale

enterprises that come under the informal sector employ wage labourer^.)^ As

against the notion that informal sector constitutes low income, low status

occupations, it is widely held that in the formal sector too there are low income,

low status occupations. Likewise in the informal sector there are a number of

high-income and high status occupations.

No doubt, recent studies point out that the informal sector is not a mere

income provider to the poor but it is romanticised by dynamic entrepreneurship.

36 J. Breman, The Informal Sector in Research Theory and Practice, C u p 111, Casp Publications, Erasmus, University Rotterdam, 1980, p 11.

At present, many participants enter this sector with a view to deriving permanent

income; it is largely recognised as a potential source of entrepreneurship and

thereby high economic development."

In short, realisation of the potential role of the informal sector, rejection

of considering it as a symptom of underdevelopment, acceptance of its

heterogeneous nature, inchsion of rural informal sector into the scope of

the concept, identification of a continuum of production activities and of

complex linkages between production and distribution systems, are significant

developments in the conceptualisation of the informal sector. It is also found

that in the informal sector, wage employment exists, some high income earning

opportunities are prevalent and specific skills are needed in certain areas

of employment.

2.3 Alternative Concepts

We have already mentioned that there were two important reactions to the

'sector based approach'. One reaction made alterations and modifications in the

conceptualisation of the informal sector concept in tune with the specific

research purposes. The other one was the total rejection of the concept and the

adoption of aIternative approaches. The former reaction retained the concept.

The 'segment' approach was introduced as an alternative to the sector

approach in the urban labour market analysis. The segmented labour market theory

was developed in the U.S.A. in the 1960s and was used to explain urban poverty and

the labour market disadvantage of the minority groups. In the segment approach, the

37 Martin Patrick, Self Emptoymenl and Success-I Entrepreneurship: Achievement in the llnorgmised Sector, New Delhi, Kanishka Publishers, 1999, pp.57-59.

labour market is composed of different compartments. Each compartment is a group

of workers. The approach has been used to categorise the jobs of the developing

countries into formal and informal types of jobs.

The segment approach also suffers from the basic limitations of the sector

approach.'* Therefore, Van der Loop preferred the term 'fragmentation' to

segmentation "because segmentation is closely associated with such dualist

theories and because it suggests well defined segments which can hardly be

found in realitf"''

As against the aggregated view in both the sector and the segment

approaches, fragmented approach makes disaggregation at a different plane. In

the fragmentation approach workers are divided into various fragments. The

fragmentation is taken on the basis of certain pre-entry factors such as sex and

age, religion, ethnicity and kinship, education and skill, networks of relatives and

friends, neighbourhood, trade union activities and modes of re~ruitrnent.~' Based

on his fieldwork in South Gujarat, Breman remarked that it was fairly easy to

find two extreme categories in the labour market with distinct profiles.4'

According to him, "these profiles are seen most clearly at the extremes of the two

poles of the labour force. As the distance between the two extremes lessens,

similarities in recruitment, working conditions and bargaining procedures

38 "A segment in mathematical terms is part of a line or curve between points, part of a plain figure cut off by a straight line, or part of a solid cut off by a plane. While ostensibly giving much more elbow room for analysis, the concept of 'segment' also suffers from the basic limitations of the sector approach: it tends to view the ensemble in parts rather than as a whole" (P.M Mathew, "The lndustrial Informal Sector in a Developing Economy: An Inter-Regional Study", Report of a Project S onsored by Indian Council of Social Science Research, New Delhi, 1987, p.3). '' Theo Van der Loop, Industrial Dynamics and Fragmented Lobour Markers: C'onstrucrion Firms and Labourers in India, New Del hi, Sage publications, 1996, p.27 1 .

40 Ibid., pp.271-74. 4 1 J. Breman, Thc informal Sector, . , , Up, cit., p 15.

gradually outdo the differences between various categories of labour in this

respect". The fragmented approach is used mainly in the labour market analysis.

The belief that a sharp divide between formal and informal sectors was

impossible led some to think in terms of 'informality' and they replaced the term

informal sector by informal economy or informality in the economic process. As

informality refers to "a condition under which economic transactions are carried

out rather than to specific firms and economic agents9", it can exist in both large

and small firms.

Castells and Portes defined the informal economy as the one in which the

activities are ''unregulated by the institutions of society in a legal and social

environment in which similar activities are regulated'". Assad slightly modified this

definition and stated that "informal activities are those activities that are unregulated

by the legal and bureaucratic institutions of society"44. He laid emphasis on legal and

bureaucratic institutions since he thought that other types of institutions are likely to

be important in regulating informal economic activities.

Scholars of Marxist tradition developed an alternative approach to analyse

the structure of economy on the basis of the mode of production. They include

the marginality theorists and the petty commodity production theorists. The

marginality theorists considered that the poor mass of population in the cities

of underdeveloped countries were not only economically marginal, but also

socially and politically marginal. Marginality implies a state of sociai exclusion.

42 Ragui Assaad, "Formal and Informal Institutions in the Labour Market with Applications to the Construction Sector in Egypt", World Development, vol. 2 1, no.6, 1993, p, 926,

43 M. Castells and A. Portes, "World Underneath: The Origins, dynamics and effects of the Informal Economy", in M Castells, et. a/., eds. The lnjormal Economy: Stardies in Advanced and Less Developed Countries Baltimore: The Johns Hopkins University Press, 1989, p. 12.

44 Ragui Assaad, "Formal . . . ," Op. cic., 1993, p.927.

The Marginals are those who are excluded from the opportunities and facilities

that the privileged class possesses.

The petty commodity production theorists proposed a continuum of

economic activities rather than a two-sector or dualist model. They also viewed

that there existed linkages between formal and informal sectors, and these

linkages were basically exploitative in nature as against the benign relation of the

two sectors assumed in the dualist approach. Moser wrote: "The vast majority of

small scale enterprises of the type described as being in the informal sector, fit into

the category of 'petty commodity production'. . . . Petty commodity production is

identified as a transitional mode between feudal and other non-capitalist modes

and the capitalist mode of production . . , 3145

The petty commodity production theorists argued that the petty commodity

production mode had not constituted the dominant mode; but had always been

articulated within another wide social formation whether this be dominated by

feudalism or capitalism.46 They pointed out that the capitalist sector benefited

from the petty commodity production by extracting their surplus. Besides, "the

capitalist mode of production benefits from the existence and relative viability of

petty production for the maintenance of a low level of subsistence and a low cost

of labour reproduction"47.

The proponents of the petty com~nodity production approach stated that

the significance of the approach was not that it condemned the informal sector

concept and the measures to promote informal sector development but that

its realisation of the fact that they cannot provide solutions to the problems of

45 Caroline O.N. Moser, "Informal Sector or Petty Commodity Production: Dualism or Dependence in Urban Development", World Development, vol. 6 , no.9110, 1978, p. 1057.

46 Ibid., p 1057. 47 Chris Gerry, "Petty Production and Capitalist Production in Dakar: The Crisis of the self

Employed", World developmenf, vol. 6, no 9/10, 1978, p. 1 158.

unemployment and poverty.48 Therefore, what they required was the fundamental

changes in the overall political and economic structure.

2.4 The Informal Sector - Is it an Invokable Concept?

The wide acclaim that the concept of informal sector has received so far

cannot be considered as a chance event. It is fortunate for the concept that certain

favourable factors have kept it alive over the years. The concept got an

'intellectual opportunity' while Keith Hart presented the paper on 'Informal

Sector' in a conference on Urban Unemployment in Africa held at the Institute of

Development Studies at the University of Sussex in 197 1 .49

Regarding the circulation of the concept, Jeemol Unni remarks that the

ILO in the seventies, the literature on 'flexible specialisation' in the eighties and

the employment effects of the structural adjustment programme and the

publication of the 1993 system of National Accounts in the nineties, contributed

significantly to its popularity.50 We have already observed how ILO popularised

the concept in the seventies. The literature on flexible specialisation described

the growth of small-scale production units in developed countries with the

combination of flexible technology and specialised production. This literature

48 Caroline O.N. Moser, "Jnformal Sector . . . , " Op. cit., p. 1062. 49 Ray Bromely remarked that just as a potential Napoleon or Churchill needs his 'historic

opportunity', so an idea needs its 'intellectual opportunity' and sometimes also its' potential application. Hart presented his paper in a conference on 'Urban Unemployment in Africa' which had 49 distinguished participants from different parts of the world. The time of presentation was also significant. Various ILO studies and other research studies came up during this period. Bromley's comment was very apt in this context. "If the informal sector concept had been presented at a different place and at a different time, it might well have sunk with out trace". (Ray Bromely, "Introduction - The Urban Informal Sector: Why Is It Worth Discussing? World Development, 1978, vo1.6, no.9/10, 1978, pp.1035-36.)

50 Jeemol Unni, "Distinguishing Employment and Enterprise in the Informal Sector: A Note", paper presented in the National Seminar on ~nfo;mal ~ector: Emergrng Perspectives in Development organised by Institute of Applied Man Power Research and Institute for Human Development, New Delhi, 1997, pp. 1-4.

had significant impact on the studies on sub-contracting, ancillarisation, and

industrial clustering. In the nineties, the emphasis on informal economic

activities, both in the developing and developed countries, brought back the

focus on informat sector. Besides, the publication of the 1993 system of National

Accounts emphasised the need to incorporate the informal production units into

the national account^.^'

The popularity of the concept over the years is also attributed to the

strategy of the middle of the road governments "to offer the possibility of

'helping the poor with out any major threat to the rich', a potential compromise

between the pressures for the redistribution of income and wealth and the desire

for stability on the part of economic and political elitesws2.

The formal-informal dichotomy is also considered a convenient way of

analysing the economic structuresllabour market. The concept of dualism helps

us to comprehend the confusing world through two neatly contrasting and hence

easily identifiable categories.53

We have seen earlier the different criticisms levelled against the sector

approach. The proponents of the informal sector concept, in course of time, have

accon~modated many a criticism against the concept and have made

modifications, even fundamental, in the conceptualisation of the term. There is a

criticism that the scope of the concept is not clearly defined. The concept lacks a

51 A.C. Kulshreshtha " Informal Sector: Conceptual and Estimational Issues in the Context of the Indian National Accounts", Paper presented in the National Seminar on informal Sector: Emerging Perspectives in Development organised by Institute of Applied Manpower Research and Institute for Human development, New Delhi, 1997, pp. 1-13.

5 2 Ray Bromley, "Lntroduction . . . , " Op. cit., p. 1036. 53 Biswapriya Sanyal, "The Urban Informal . . ." Op. cit., p.65.

clear theoretical perspective and empirical basis. Some defined it in terms of

enterprises; some focused on workers; others attempted to include the

characteristics of both enterprises and labour market. All these led Richardson to

say that there was no accepted definition to this concept.*' The informal sector

concept survived this point of criticism by accepting both the enterprise based

and labour market based analyses.

Another question arises at this juncture. What type of enterprises or labour

classes would come under the scope of the concept? As different researchers

have put forward different criteria to suit their research purposes, a universally

accepted criterion is perpetually deferred. The informal sector was thus

considered as an amorphous concept. Its amorphous nature due to polyphonic

usage was considered a blessing of the concept. As Papola puts it, "the term

infonnal sector has an advantage over the term derived from earlier dichotomous

classification of activities such as 'unorganised', 'traditional' etc., to the extent,

due to its greater vagueness, it becomes more inclusive and flexible, to suit

different empirical situations"".

The most important criticism against the informal sector concept was, to

reiterate that it was not a homogeneous group, but a heterogeneous one consisting

of different sub-sectors. It was argued that since the informal sector covered such a

large but so little homogeneous section of the labour force, little significance could

be attached to it.56 The heterogeneous characteristic of the concept was

accepted by many writers and they answered to this point of criticism by

suggesting meaningful disaggregation of this concept. While commenting on this

54 Harry W. Richardson, "The Role. . . , " Op. cit., p. 6. 55 T. S. Papola, Urban Informal Sector . . . , Op. cit., p. 1 3. '' J. Breman, The Informal Sector . . . , Op. cil., p. 9.

An interesting observation regarding the informal sector concept is that

it has been used in a large number of studies despite severe criticisms on

its validity. The sustainability of the concept may be attributed mainly to the

flexibility of the concept to suit different empirical situations. There is no doubt

that the criticisms of the sector approach are sound enough to question the validity

of the concept. But the proponents could successfully withstand the sharpness of

the criticisms by widening the horizon of the concept and disaggregating it to the

level of an internally segregated enterprise/labour market.

The ongoing liberalisation process in the economies the world over poses

new challenges, in addition to the ones discussed, to the validity of the concept.

The liberalisation aims at reducing the role of legal and bureaucratic institution in

order to increase the competitiveness of the economy. As we have seen the

informal activities are those activities, which are unregulated by legal and

bureaucratic institutions. The conclusion is that liberalisation leads to increased

informalisation in the economy.

In recent years, informatisation of labour has been a world-wide

phenomenon influencing both economic structures and labour market. In the

labour market, temporary, casual and contract labour categories have been

increasingly employed. The co-existence of the formal and informal workers in the

same occupation is a phenomenon that has been spreading fast in the present

labour market. A crucial question in this context is in which sector such

occupations shall be included, if the sector approach is valid, because some

workers have formalised and others have informal relationships. Therefore, the

sector approach may not be invokable to represent this situation.

There are a number of labour institutions in the formalisation process of the

labour market. They include the laws and rules relating to labour contracts, wage

determination, working conditions, welfare measures etc. In a particular labour

market, the registration of the workers and the issue of identity cards may be done;

this amounts to a lower degree of formalisation. The formalisation process in

certain labour markets reaches higher degrees when security of employment,

provision of social security measures etc,, is ensured. There is no uniform pattern

for the formalisation process of the labour market as well. In other words, different

degrees of formalisation in the so-called 'informal sector' is also a normalised

practice. Therefore, the expression 'a formal sector labour market' is misleading

unless further qualifications and attributes are attached to the category 'formal'.

The expressions 'formal sector' and 'informal sector' remain amorphous and fluid

unless and until they are qualified by the specificities of the object of

representation and study.

In short, we can say that in order to capture the complexity of the labour

market, the monolithic treatment of these categories as followed by the

conventional conceptualisation and categorisation may not be desirable. What is

most important is to recognise the reciprocal relationship between the concept and

the object. Therefore, in this context a methodological aIternative is proposed in

which employment of a 'flexible conceptual complex' is preferred. It is formed by

a plethora of intersecting concepts such as formalisation, informalisation,

formality, informality etc. This 'complex' moves away from the models employing

'binary oppositions,' which repeats the reductionism and essentialism of the

Cartesian science. The proposed alternative complex is visualised in such a way

that it captures the objects not as non-transitory and formed but in their process of

becoming and without missing their interconnectedness. Motionless time, bounded

spaces and concretised activities do not circumscribe the complex. We employ the

terms of the complex to capture the specificities of processes, structures and

mutual relations between structures and agents of the labour market.