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.