Informal or Illegal Voices from the Fringe
[Music]
hello everyone
it’s really brave of me to come after
that musician here
and hope to lecture you about economics
and hold your attention but here i am
i want to talk about something that each
one of us
sees every day it is sites
such as these
these pictures are from my travel
they are always from my study
or of a local place you must recognize
this
and it’s a place where you can buy
almost
anything food a product
a service even god
i’m talking about the informal economy
i’ve been researching the informal
economy for well over a decade now
and even today at dinner parties or
when i meet new people um and when they
learn what it is that i do
the question isn’t how interesting or
why that
it’s almost always this
i know it is such a huge problem right
so how do we formalize it if by the end
of today’s talk
i can convince some of you that our
obsession with formalization
is not healthy not wise i think my job
here is done
i have two points to make first
challenge the notion of informal economy
as being deviant
and therefore the bane of society and
talk about informality
as the new driver for change
so let’s start with definitions what is
informality
it’s a negative definition which means
it is characterized
by the absence of formal rather than the
presence
of its own defining features
so what does formality and informality
mean in terms of an economy
basically it refers to the allocation of
resources
in a formal economy the resources are
allocated
by the state think socialist government
think taxes
or if it’s a market-based economy it’s
heavily regulated
there are checks and balances with
regards to what can be traded
in what quantities what should be the
mandated quality
who should produce consume and
distribute it
and for most part these rules these
checks and balances
are based on the norms of the society
for example medicines should be state
approved
prescribed only by those who are
qualified to do so
alcohol should be sold only to adults
and cars should come with working brakes
and air bags
it’s just largely good sense
but what i’m concerned with is what does
not fit
into this idea of formality and that
gets left out so what gets left out
is things such as these kinship based
exchanges
so the gifts you exchange at a wedding
or
during diwali or christmas foraging and
redistribution in a tribal society
and markets outside government norms by
the way you should surely check out this
guide
and what this tells us
is that people fulfill their needs
through various means
and not every transaction can be
formally accounted for
whether it’s through torrent downloads
or
paying someone in cash for a service
they have rendered or buying
a branded item which
has been produced in a sweatshop in
nigeria or bangladesh
each one of us are associated with the
informal economy in one way or the other
but when we hear the word informal
economy
what comes to mind is words such as
these
shadow economy black market tax evasion
smuggling child labor drug cartels
crime syndicates now don’t get me wrong
i’m not for child labor or smuggling but
what i’m trying to tell you
is that this is not the whole picture
of an informal economy informal vendors
are more like this guy
who set up his shop right in front of
the no hawker zone
scholars who are researching the
informal economy
are of the opinion that informal is not
necessarily illegal
okay and that’s largely because
it’s out there in the open so you get my
idea
that that guy is not the sith lord
but you must surely be thinking that
this is a fringe
it’s not as important as the mainstream
economy so why should we care about it
and you’re right you’re right in the
sense
that most economies right now
are capitalist capitalism is the
dominant form of organizing economies
right now
and all of them are regulated to some
extent
would be hard-pressed to find an economy
or a society
that’s largely organized informally
but let’s look at some alternate
evidence
robert neworth one of the foremost
experts on
informal economy presents us with some
contrast
this is the luxury economy it’s worth
1.5 trillion usd annually
that’s a lot of money that’s like three
times the gdp of countries like sweden
or belgium
and that’s the economy that gets written
in the forbes magazine
that bruno mars sings about
right but if we were to put
the informal markets of the world
together as one nation
as one economy that would be worth
10 trillion usd annually
that’s even more right just to give you
another perspective
that would be equal to or more than
actually
the gdp of united kingdom france and
india put together
that’s how large the informal economy is
and these are actually
a conservative estimate of the fastest
growing economy
that we don’t exactly know how to
measure
and this data is from 2012.
unfortunately that’s the latest
large-scale data that we have available
on informal economy
and that’s not all u.n statistics tell
us
that two-thirds of the global workforce
is employed in the informal economy
that’s 66 of the global workforce
and that number gets even bigger when we
get to the developing countries
it’s somewhere between 85 to 90 percent
and
in countries such as ours in india it’s
93
of the workforce that’s employed in the
informal sector
globally ilo tells us that four out of
five enterprises
operate out of the informal economy
so why is it that so many people
choose to stay out of the informa formal
economy
is it for tax reasons yes some
but most of these people don’t even make
as much
money to fit into any of the tax
brackets
so is it a case where government does
not
have a handle on how to
regulate these sectors let’s have a look
at the policy options
so there have been largely four policy
choices
when it comes to dealing with the
informal economy first
drive them out literally it is
the raising of the slums and programs
like slum clearance
which drives out hundreds of thousands
of
uh informal inhabitants out of their
homes
overnight burned down it’s a
it’s kind of a phrase where not in my
backyard not in my
problem phase the second one
is make them pay up that’s introducing
steep
finds to deter informality
and it would work well for people who
are rich and informal
but what about those who cannot pay and
are therefore informal
the third option is improve them these
are programs
like slum upgrading which introduces
basic amenities in the slums or
microfinance programs which introduces
or injects
finance and credit into these informal
economies
and the fourth niche scholarship
is about expanding the informal economy
why because right now it’s the only
viable
option we have of getting people out of
absolute poverty
so research on informal economy has come
a long way
from something like this where both
sectors were treated as
independent watertight compartment to
something
such as this more intertwined
where both the sectors are considered as
two ends of a continuum
and each one of us and our enterprise
somewhere
along the line dotted now this of course
is a random allocation
but what i propose is a much more
nuanced model
something such as this so i might be a
registered firm
formal but my tax compliance might be so
so
my way of hiring employees might be
people in my family
my payments i accept both cash and
digital payments
my organizational structure i have none
the way i gather information about
market and products
could be also informal
so let me give you another example a
builder or a developer in india right
now
will not dare start construction on a
housing project
before he has all the building
permission
but once he gets the building permission
he might make minor modifications
it all depends on what he thinks he can
get away with
things like reducing the length of the
swimming pool or increasing the parking
area
it also depends on which one is cheaper
stalling the construction to get new
building permission
or bribes sometimes stalling the
construction can take up to six months
this is what economists call transaction
cost
let me give you another example in the
informal sector
it’s people such as these the informal
vendors
who may choose one form of payment
such as paytm or phone pay
but on other parts they are completely
informal they might not have a vending
permission
or they might not even be a registered
enterprise
so why is a nuanced model so important
why am i stressing on it so much
i think it’s because it closes the
divide
between us versus them us
who are in the formal sector and they
who are part of the informal sector
it unites us in the idea that we choose
conformity to institutions
based on our convenience need and
affordability
in other words we choose formality
when it’s value for money while you need
not be
monetary all the time but for those
who live in poverty they may not have a
real choice
if it makes earning a living harder they
have no option
but to discover formality
having said that i don’t think
equating informality with poverty
is correct that’s because
there is a lot of divergence and
heterogeneity in what is labeled
as the informal economy and that brings
me
to my second point that informality will
be the driver of change
in the coming times
i think the reason we should care about
informality
is not because it employs a majority of
the population
not even because it contributes so much
to our economy
i think the reason we should care about
it is for what it represents
a divergence a deviance from the
mainstream ideas
we are standing at the cusp of change
our world is increasingly being termed
vuca
volatile uncertain complex and ambiguous
and i believe at such critical junctures
ideas for change will necessarily come
from the unorganized informal sectors
because the old ones the old formal
order is no longer working for a
majority of the population
to give an example i have taken up these
concepts your shared economy
uber ola airbnb co-working spaces
gig economy which is characterized by
casual contracts rather than permanent
jobs
minimalism focusing on reuse and recycle
veganism which rejects the commodity
status of
animals bitcoin cryptocurrencies
these ideas cannot come from
complete compliance to a formal system
if you were to follow any of it
you would know that these are ideas in
rebellion
now these ideas may have problems and
for each one of these good ideas
there’ll be many
that never took off and that’s precisely
the point
formal systems are hard to change
overnight
we can see for ourselves how long it’s
taking our governments to act on climate
change or
get rid of plastic or patrol cars
informal spaces on the other hand
have more room for trial and error
i want to end with this note
that the formal and informal sectors are
the yen
and yang of a balanced economy we cannot
avoid formalization we need
norms for predictability and stability
and inevitably some of those norms are
going to be
institutionalized or formalized
there is marriage for companionship
there are universities and schools for
education banks for credit and hospitals
for health care
but shunning informality and wanting to
convert it into the formal sector
at all costs asap is not wise
wisdom lies in accepting informality
as an equally inevitable part of our
lives
and our economy especially in times of
change
thank you