Integrating the Informal Sector in the Modernization Process

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Abstract
SAIS Review 21.1 (2001) 45-60 There is a general agreement on the need to pay attention to the informal sector, on account of its importance with respect to employment and poverty issues alike. There are also an increasing number of programs aimed at supporting similar informal activities in highly diverse national contexts. This consensus is backed through the adoption, at the highest level, of policy measures that are meeting with growing acceptance and, sometimes, the active support of social actors, in particular among entrepreneurial and trade union organizations. Such a stand is also based on evidence that policies to promote the informal sector are viable and profitable even during economic downswings, and have international financial support. Yet, to the extent that it fails to embrace a shared strategic vision, this is a limited consensus that hinders the effectiveness of policies implemented in this area. While often adequate on an individual basis, they are insufficient and produce limited effects by failing to respond to a more comprehensive approach. This paper will feature some contributions made through recent research conducted by the International Labor Organization (ILO) in the framework of a project financed by the United Nations Development Program (UNDP). The lack of a shared approach is related to the absence of a common definition of the informal sector, which has grown increasingly complex since it was first described in a pioneering ILO report on Kenya in 1972. Along with the heterogeneous nature of informal economic activities, different readings lead to different [End Page 45] strategies. These are reviewed in the first section. Too great an emphasis on the regulatory perspective has identified informality with illegality and labor precariousness. Yet, in spite of their ties to informality, these two categories are conceptually different. The second section is devoted to this subject. Lastly, the third section explores strategic options to regulate the informal sector, tracing the features of a different approach to formalizing informal activities in order to facilitate their full integration into the modernization process. For the purposes of this paper, the latter concept is defined as the most dynamic part of the economy operating under a common regulatory framework. The notion of the informal sector was brought forward in a 1972 ILO report on Kenya, 1 inspired by a previous contribution. 2 They highlighted that the problem of employment in less-developed countries is not one of unemployment but rather of employed workers who do not earn enough money to make a living. They are "working poor." Their conceptual interpretation was defined in opposition to formality and on the basis of their lack of access to the market and productive resources. This was followed by several contributions. 3 One perspective is guided by the logic of survival. Informal sector activities are the result of pressure exerted by a labor surplus for jobs when good jobs, usually in the modern sectors, are scarce. The result is that the people seek low-productivity income solutions by producing or selling anything that may provide for their survival. Another rationale associated with globalization and changes to the international division of labor points to productive decentralization. 4 To deal with an increasingly unstable demand, modern enterprises adapt to the new environment by introducing more flexible productive systems and decentralizing productive and labor processes, which allow them to cut production costs and externalize demand fluctuation. Recent research efforts allocate a growing importance to the informal sector's operation beyond the prevailing legal and institutional frameworks. 5 However, the issue of whether this feature is the cause or the consequence of informal activities has not yet been [End Page 46] settled. Efforts to explain the informal sector have shifted focus over the years. The logic of survival has been and continues to be a major factor in the development of informal activities. There is a growing presence of activities generated by the logic of decentralization, particularly in the context of rapid economic...

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