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