Prior to the 1970s, it was argued that the informal sector was actually the reflection of underdevelopment and with the acceleration of the process of capitalist accumulation in the underdeveloped countries, the informal sector (i.e. the traditional sector comprised of petty traders, small producers and a range of casual jobs) will disappear. This is what happened in the developed countries of Europe and America.
But the informal sector is conspicuous by its presence. And it has re-emerged with new dynamics.
Most developing countries, right from the beginning of their economic development after independence, faced a vicious circle—on one hand, agriculture was overburdened with surplus population and was unable to provide an effective market for industrial goods, thereby hindering industrial growth. On the other hand, the modern industrial development in the formal sector was so weak that it was unable to absorb the surplus population from agriculture, which in turn hindered its growth.
In this milieu, the need for land reforms and subsidization of input costs in traditional occupations, promotion of small and medium sized industriesand development of indigenous technology were emphasized as some crucial measures needed to break out of this vicious circle.
But in India, land reforms were not properly implemented and it has remained a problem perpetuating the dynamics of the ‘vicious circle’. With the global economic crisis of the 1970s, the Indian economy also entered a long term crisis, with overall stagnation in economic growth. Furthermore, the current phase of globalization from the late 1980s to early 1990s systematically established a free play of capital’s logic. This means that it has forced all the democratic political movements to go on the defensive, thereby finally leading to their disintegration. In the very initial phase of this globalization, a consensus on the policies of liberalization was formed among all the major parliamentary parties from the right to the left. We see an almost complete disappearance of the movements for land reforms and various other peasant movements, and movements for agricultural labour act, single education system, elimination of the domination of English language, and the like. The upsurge in the recent peasant movements is also of a defensive kind, against the attack on their land rights by means of forcible land acquisitions for relentless urbanization and industrialization.
The free play of capital’s logic has also amounted to the destruction of some informal sectors. With the requirement of new profit maximizing strategies in new international division of labour and post-Fordist models of production, it has also led to creation and expansion of new informal sectors. There has been expansion of some existing ones by their linkage to the global value chains. And there has been creation and expansion of informal employment by way of informalization of jobs in the formal sector and transferring of jobs from the formal to the informal sector. The new informalization in general has three aspects: (a) the relative autonomy of work and life that the traditional sectors have hitherto enjoyed, has come under heavy fire. Generally, those autonomous traditional sectors producing directly for market are being destroyed and those traditional/informal sectors with a scope for assimilating into the global value chains of transnational corporations have been expanded or recreated; (b) with increasing unemployment problem, very low paying informal sectors keep on expanding; and (c) there has been rapid creation of informal employment by means of the informalization of formal sector jobs and by the relocation of jobs from the formal to the informal sectors.
We can safely list nine aspects of the creatively destructive persistence of the informalization dynamics in India and other developing countries, as below:
1. Destruction of handlooms, traditional pottery, traditional utensils, traditional carpentry, traditional iron implements, traditional shoe makers, traditional oil business, traditional toy making, etc.
2. As a result of reduction/removal of import duties on various goods after signing the WTO agreements, cheap imports into our country have wiped out a large number of informal enterprises.
3. Informalization is a legal problem. There is still possibility of non-registration of enterprises employing workers below certain limits under various labour and business laws; this also creates a huge opportunity for cost saving by violation of laws in terms of showing lesser number of workers on company rolls and engaging large number of workers without any formal contracts. The latest relaxation of labour laws in some parts of the country adds fuel to the fire of informalisation without being a legal problem.
4. Privatization of public sectors, downsizing of industries in general, and overall jobless growth of the formal sector has resulted in rising unemployment problems leading to the expansion of informal sectors mainly in “survivalist” economic activities. In the periods of economic crisis, there is expansion of precarious and low paying informal sectors mainly in “survivalist” economic activities, while in the periods of economic boom there is an expansion of informal sectors with relatively better incomes and better life.
5. High inequality in land holdings in rural areas and reduction/abolition of subsidies on agricultural inputs and drastically rising input costs in agriculture have been the major factors behind the chronic poverty in the vast rural informal sector and also in the expansion of urban informal sector by acceleration of rural to urban migration of the poor.
6. The recent expansion of the informal economy has been linked not only to the capacity of the formal firms to absorb labour but also to their willingness to do so. Instead of production using a regular workforce based in a single large registered factory or workplace, more and more firms are decentralizing production and organizing work along the lines of post-Fordist “flexible specialization”, i.e. forming smaller, more flexible specialized production units, some of which remaining unregistered or informal. As part of cost cutting measures, firms are increasingly operating with a small core of wage employees with regular terms and conditions (formal employment) based in a fixed formal workplace and a growing periphery of “non-standard” or “atypical” and often informal workers in different types of workplaces scattered over different locations. These measures often include outsourcing or subcontracting and a shift away from regular employment relationships to more flexible and informal employment relationships. There are also triangular relationships involving workers, user enterprises and temporary work agencies. Rapid growth in cross-border commodity/ value chains leads to situations in which the final producer in many cases is in the informal economy in developing countries and, increasingly, in the transition countries (former socialist countries). Most workers in key export industries work under informal arrangements, including those producing garments, textiles, sports shoes and electronics. In export garment manufacturing, for example, the degree of informality ranges from women workers in the factories of Bangladesh labouring under conditions of almost total non-compliance with the Factories Act, to sweatshops exploiting local and sometimes migrant labour in Los Angeles, Bulgaria or Indonesia, to homeworkers in the Philippines who embroider baby clothes for top-end markets in New York as “disguised wage workers” in multi-layered systems of subcontracting.
7. Globalization leads to a shift from secure self-employment to more precarious self-employment, as producers and traders lose their market niche. It has also made major inroads into rural areas, sometimes even in the remotest areas. Extensive value chains often link forest workers who collect non-timber forest products in many developing countries to international markets. These products include essential oils, medicinal plants, gum arabic, rattan, natural honey, edible nuts, mushrooms, neem, shea, and other types of wild nuts and seeds which produce oils that can be used for cooking, skin care and other purposes. It is estimated that there are now 150 such non-timber forest products of major significance in international trade, involving millions of workers and producers. One study of shea nut collection in West Africa found that its final product, shea butter, was sold to European consumers at 84 times the price paid to the local forest collectors.
8. In the agricultural sectors, the last decade has brought tremendous growth in the production of non-traditional agricultural exports, primarily fruits, vegetables and cut flowers for the European and North American markets. The global value chains for these products are buyer-driven and basically are controlled by a handful of major supermarket chains in Europe and North America.
9. New informalization in general and most of the new or transformed old segments of the informal economy, in particular, have direct or indirect production, trade or service links with the formal economy.
We, thus, have a small and shrinking formal economy and an overwhelmingly large and expanding informal economy in India. Every government and its economists in the so-called independent India have failed to bring about the opposite reality that really characterizes progressivism. In the informal world, adult people of working age without jobs/livelihoods (‘reserve army of labour’) are likely to be more than those with jobs/livelihoods, especially in the current context of deep supply and demand shocks to the economy due to Covid-19 in conjunction with the acute fiscal conservatism of the ruling government in relation to the labouring people.
By Annavajhula J.C. Bose
Department of Economics, SRCC
and
Surendra Pratap
Director, Centre for Workers Education, New Delhi