Historical view on informal sector

Historical view on informal sector

The Jakarta Post, Jakarta

Lea Jellinek, in her book titled, The Wheel of Fortune, the
history of a poor community in Jakarta (1991), describes the
changing relationship between the formal and informal sectors as
falling into three phases:

First, from the late-1950s to the mid-1960s, the "modern"
sector declined while the small-scale sector continued to grow,
largely because of a vacuum in production, retail and transport.

During this period, both public utilities and large-scale
private enterprises could not function properly. Government
agencies were hampered by too many employees, poorly qualified
staff, irrelevant rules and regulations, extremely low salaries
and corruption.

As the formal sector did not satisfy most people's basic needs
for food, transport, amenities and housing, an estimated 80
percent continued to patronize the goods and services of vendors,
pedicab drivers, messengers and small producers.

Second, during the initial five to ten years of the New Order
government (965/68 to 1975/78), both the formal and informal
sectors of the economy thrived.

The rehabilitation of government-owned utilities by the late
1970s and the promotion of large-scale private companies resulted
in more centralized and efficient food distribution, transport,
electricity, gas, water and telephone facilities. These
developments supplanted the need for many informal sector
activities.

Third, after the mid-1970s, the very growth of the large-scale
economic sector resulted in structural and locational changes
especially at the city center, which undermined the informal
sector.

The rise in incomes during the 1970s caused the expanding
middle class to change its patterns of consumption. The middle
class could now afford to buy expensive items, such as cars,
refrigerators and large houses. As a result, becak drivers and
push-cart vegetable vendors lost a remarkable number of
customers.

Changes in customer tastes and technology caused certain
products to become obsolete, such as banana leaves being replaced
by plastic bags, pottery and coconut husks by imported porcelain,
fresh avocado and mango juice by mass-produced and bottled tea
and beverages.

But after the economic crisis in 1997, a decline in the
formal sector caused a boom in the informal sector. As many
companies went bankrupt and millions of people became jobless,
many went into the informal sector, which functioned as a safety
valve for the general public.