The demise of the informal sector in Southeast Asia
The demise of the informal sector in Southeast Asia
By Hans-Dieter Evers
The importance of the informal sector in Southeast Asian countries should not be overlooked.
Hawkers along the sidewalks of busy avenues, shoeshine boys, garbage collectors and door-to-door saleswomen of traditional medicine have, for a long time, been part and parcel of urban life in most of Asia. The term "informal sector", first used in the 1970s by anthropologists to denote that part of the economy which functioned without government control, largely without regular wages and with a minimal input of capital, was quickly adopted by the International Labor Office, but frowned upon by World Bank economists and government planners. The informal sector has, in the meantime, kept growing. In the early 1980s, more than half of the Southeast Asian labor force found their livelihood in the informal sector.
In India, the fast growing "unorganized sector", as it is called there, drew the attention of planners at an early date. In Singapore, a hawkers' survey was commissioned by the government in 1972, as a precursor to enticing workers away from the supposedly unproductive informal sector to employment in manufacturing industries. It took a long time, however, before the informal sector received the blessing of the World Bank. Since then, governments have also started to recognize the labor absorption capacity of the informal sector. Thus, the Indonesian State Guidelines (GBHN -- Garis Besar Haluan Negara) as well as the Sixth Development Plan (Repelita VI) refer to the informal sector and its role in providing employment at low cost.
Official recognition of the informal sector and the hope that it will alleviate unemployment come at a time when -- according to the analysis of some social scientists -- the importance of the informal sector and its labor absorption capacity, has started to decline. Partly because more workers have moved out of the informal and into formal sector employment, and partly because of the change of informal into formal business through increased government control, the informal sector has shrunk. World Bank-prescribed deregulation at the top, which started in Indonesia in 1982, is matched by increasing regulation at the bottom.
In big cities, such as Jakarta, the visitor is still impressed by the hustle and bustle of street markets or boys at intersections jumping on the hood of cars to clean windshields for a fee. But these indicators of a vibrant informal sector are misleading. In urban areas, in particular, employment opportunities in the informal sector are declining rapidly. In Jakarta, in 1990, it accounted for 26 percent of the labor force, the lowest figure for all Indonesian provinces.
The phenomenon of the informal sector is full of paradoxes. The informal sector represents the "real" free market economy in otherwise tightly controlled or planned economies. When controls are relaxed, as they were in China in the 1980s, an informal market develops very rapidly. But also in situations of rapid economic growth, like in New Order Indonesia after 1970, the informal sector grows much more rapidly than formal wage labor. Despite low wages, the wide use of unpaid family labor and low productivity (at least in terms of conventional economic wisdom), the growth of the informal sector has not been a sign of marginalization, poverty and economic decline but rather of economic opportunity, entrepreneurial spirit and at times even respectable income levels.
Looking back, it is surprising to note that a larger proportion of Indonesians worked in the formal, wage-earning sector in the crisis-prone economy of 1967 than during the decade of fast growth from 1980 to 1990. Without the growth of the informal sector, the economic miracle of the Asian tiger economies and the more recent quest for Newly Industrialized Countries status from nations like Thailand and Indonesia would never have happened.
The wages or the daily income of petty traders, hawkers and craftsmen are low and the risk of doing business is high. The daily earnings of a Javanese bakul (market woman) might not amount to more than S$1 a day despite her long working hours. But imagine a Java without local markets and itinerant traders, Kuala Lumpur without pasar malam (night markets) and hawker stands or Bangkok without itinerant fruit sellers, some still plying their trade on boats.
But how long will the low-cost service economy of the informal sector persist? Everywhere from Singapore to Hanoi the informal sector is being formalized. Government regulations have forced becak drivers off the streets of Jakarta, food hawkers have been removed from streets and have been relegated to strictly- controlled hawker centers, and many informal craftsmen have found regular employment in industry.
Wet markets are hard to find these days in Singapore or Petaling Jaya and the tok-tok-tok of satay vendors is less often heard even in the streets of Yogyakarta. The informal sector is receding at exactly the moment when some Southeast Asian countries, like Indonesia, are pinning their hopes on the labor absorption capacity of the informal sector, while others follow a vision, like Malaysia's Vision 2020, in which the informal sector has no place.
Professor Hans-Dieter Evers is a Visiting Professor of Sociology, Universiti Kebangsaan Malaysia.