TRANSFORMING THE INFORMAL ECONOMY: THE ROLE OF THE SOCIAL ECONOMY

ByFredrick O. Wanyama,School of Development & Strategic Studies,Maseno University, KENYA.

INTRODUCTION•Informal economy in the 1970s:

▫a temporary “survivalist” phenomenon that would be absorbed by the modern formal economy

•Has persisted in developing countries to:▫Generate jobs and income▫Meet the needs of poor consumers▫Provide accessible and affordable goods

and services▫Distribute goods and services for the

formal economy, etc.

• However, the informal economy has some deficits:▫ Produce lower quality of goods and services▫ Lack of employment security▫ Low and irregular payment or non-payment of wages▫ Poor working conditions▫ Limited bargaining power among workers▫ Low productivity, competitiveness and profitability;

etc.• These decent work deficits have triggered interest

in formalizing the “informal” economy so as to:▫ Create more secure jobs; ▫ Guarantee rights at work; ▫ Extend social protection; and ▫ Increase representation and voice of workers, etc.

•The challenge is how to transform the informal into the formal economy▫No clear roadmap for the transition from

the informal to the formal economy•What role can the social and solidarity

economy play in this transition?•Where is the evidence on the contribution

of the SSE to the formalization of informal work and enterprises?

A DEFINITION•Informal economy used here to refer to

the unincorporated and unregulated work and enterprises that produces goods and services for remuneration and/or sale

•The workers and enterprises are - in law and practice - not sufficiently covered by state and market regulations in situations where similar activities are being regulated

•Informal economy tends to be identified by salient characteristics

CHARACTERISTICS OF THE INFORMAL ECONOMY•Non-regulation of work and business activities•Lack of recognition in law and regulatory

frameworks•Small-scale operations with limited entry

criteria•Low entry capital and skills •Skills acquired through apprenticeship•Labour-intensive methods of production and

provision of goods and services• Irregular payment or non-payment of wages

• Prevalence of cash transactions with little record-keeping

• Dependence on local markets• Prevalence of self-employment, casual and seasonal

labour• Poor working conditions:

▫ Low earnings▫ No proper working spaces▫ Lack of employment security▫ No occupational safety, e.g. unsafe or outdated

equipment▫ undetermined working hours▫ Workers less unionized, hence not represented and

protected from exploitation▫ Exclusion of workers from the social security system

MANIFESTATION OF THE INFORMAL ECONOMY• Informal economy is extremely

heterogeneous:▫Street hawkers and open-air market traders▫Construction workers▫Carpenters▫Motor vehicle mechanics and cleaners▫Metal workers▫Farm labourers▫Workers in micro-enterprises▫Waste pickers▫Taxi drivers▫House helps, among others

• The informal economy is inclusive:▫ Both women and men; women the majority▫ Youth and adults▫ The least educated and fairly well-educated▫ Persons with disabilities▫ The poor and marginalized as well as the relatively

rich members of society• But it is less empowering:

▫ Low and irregular income▫ Numerous work-related risks like insecure

employment, poor working conditions, etc.▫ Lack of social protection▫ Limited representation and bargaining power, etc.

SSE vs. INFORMAL ECONOMY• SSE share some characteristics with the

informal economy:▫Some social enterprises are self-owned and not

regulated▫Cooperatives in some countries are not

regulated by the state• However, not all informal economy activities

can pass as SSE, e.g.▫Informal economy may have no concern for

social goals▫Informal economy may not be democratically

controlled▫Some SSEOs are incorporated and regulated

FROM INFORMAL TO FORMAL ECONOMY• What roles can SSE play in the transition from

informal to formal economy?▫Generate economies of scale among informal

economy workers and enterprises to enhance productivity and profitability

▫Generate and disseminate information and knowledge on entrepreneurship to improve enterprises or start new ones

▫Provide opportunities for skills development and training to enhance productivity and profitability

▫Mobilize capital for investment in large and formal ventures

▫Organize informal economy workers and enterprises to increase their bargaining power

▫Create opportunity for enhanced voice and representation among informal economy workers and enterprises

▫Provide social protection through mutual assistance, solidarity and reciprocity among informal economy workers

• SSE can, therefore, create a “virtual triangle” of opportunity, empowerment, and protection for informal economy workers and enterprises

• To what extent has the SSE performed these roles?

LOOKING FOR THE EVIDENCE

•Examples of SSE organizations already fulfilling these goals include, among others:▫micro-finance and micro insurance societies▫mutual health benefit schemes provide social

protection▫social enterprises formed to reintegrate

disadvantaged population groups or perform community work

▫different types of cooperatives in various sectors

Dairy Cooperatives in Kenya• Context:

▫Collapse of KCC and its impact on marketing milk

▫Liberalization of the economy allows competition▫Rise of the informal economy in the dairy sector

• Cooperative response?▫Conceptualizes the idea of establishing milk

processing plants▫Mobilizes capital through members’

contributions, borrowing and grants▫Sets up efficient milk processors, with

innovations on cheaper packaging to enhance competitiveness and profitability

▫Creates a network of product distributors

• Results?▫Formal milk market offering farmers better prices▫ Increased membership and loyalty to the coop.▫ Increased milk productivity to supply the factory▫Decline of informal milk marketing in the locality▫ Increased cooperative profitability; high turnover▫Profits invested in provision of productive services▫Farmers paid for milk deliveries monthly (regular)▫Workers’ association enter bargaining agreement

with the management▫Created more decent jobs

Discussion guide

•What support does the social economy require to fully reach its potential in building a bridge between the informal and formal economies?