Organizing the Informal Sector:

Notes from the Field

By John C. Cross, Ph.D.

Vassar College

(This paper was written for a panel presentation as part of an ILO conference
on the potential for trade union organization of the informal sector.)

For a full version (with footnotes), email the author at johncross@prodigy.net

April 2000

These notes are not intended to be definitive but are designed to spark discussion on the issue of organization within the informal sector. While I have studied the organization of street vendors and other informal economic actors (IEA) in Mexico and Egypt directly, I have been asked to discuss the possible role of labor unions in this process. Since I am not an expert at labor union organization, what follows can only be speculative. What I have focused on are what I believe to be some of the key criteria that differentiate informal sector organization, where it exists, from labor union organization, and I end with some suggestions intended to bridge the gap. Labor unions obviously have to adapt to a new economic system that threatens their ability to assert territorial control over the labor market. One part of that process must involve a new flexibility in organizing "not-traditional" laborers both in the "white collar" sector (which has been proceeding apace) but also in the "informal" sector where labor relations are more complex and are rarely stated in clear employer-employee terminology.

Background

The informal sector represents a broad terrain of activity that is defined principally in negative terms. It is typically defined as otherwise legal economic activity that takes place outside the realm of state regulatory practices that are the result of decades of struggle and negotiation between the state, large businesses, and the labor movement. As a result, much of the initial research on the informal sector (earlier called the "over-extended terciary", the "marginal" sector or in other negative terms) was negative in tone. It was inefficient. It drained development resources. It created the wrong type of ethos for development. Conservatives, liberals and radicals alike saw it as a threat to the modern economy, either because it violated the rules of that economy or because it showed the failures of that economy. Businessmen bewailed the informal sector as an area of "unfair competition". Leftists saw it as an arena of super-exploitation, where "disguised workers" added to the coffers of international capital. As Sanyal points out, those in the informal sector were seen as dangerous sources of social chaos by some, and as dangerous sources of support for repressive regimes by others. The informal sector was everyone’s favorite bogeyman.

Others saw the informal sector as a potential area of economic growth. The ILO and PREALC sponsored a series of studies designed to look at the potential growth of the sector under the assumption that the main needs of the sector were greater skills and capital investment, which continues to be the primary perspective in the development sector. De Soto and Portes and Castells also argued that the informal sector could be an arena of growth if given appropriate government support. Almost nobody, however, focused on the issue of whether IEA could organize and define their own needs and agenda. They were there to be discussed, not to enter the discussion.

In fact, the informal sector can include many things. It includes exploitative clandestine sweatshops or "putting out" systems where immigrant, minority and/or female laborers may be paid under the table to produce cut-rate inputs for larger factories. It includes on the other hand independent retailers or workshops run by families that use their combined labor to provide necessary goods in underserved communities or niche markets where larger firms cannot compete. In the middle are dependent suppliers or retailers who function as distributors or suppliers for a larger firm, but have control over their own work and may have some choices about who to work with. In other words, it can be an arena of intense exploitation , substantive freedom, or a combination of both. For simplicity, we can call the first informal employees, the second informal entrepreneurs, and the third (intermediate) category informal contractors. Obviously, these categories should be taken as guides, not absolutes, but the important thing here is that different organizational attributes would be needed for each. In the following pages I will describe some issues that arise in the organization of these different forms of informality from fieldwork in Mexico and Egypt.

Informal employees

"Informal employees" are typically the most difficult to organize. The problem here is that their employers (who are often middlemen between the employees and the larger factories or outlets that they supply—thus either informal contractors or informal entrepreneurs—both discussed below) typically operate at very low marginal rates of profit. They operate informally in order to undercut competitors, so any attempt to organize their workers (like any attempt by authorities to enforce work rules) will often lead the operator to close the business and open up elsewhere under a new name. Employees are often illegal immigrants or in other ways disadvantaged in the labor market, have few other work opportunities, and thus are reticent to endanger their work arrangement.

Informal entrepreneurs

Most of my work has been with "informal entrepreneurs", which I will discuss in greater length. Sanyal argues that there are several "axes of organization" such as ethnicity, gender and territory in the informal sector, but also several "axes of discord" such as competition. I prefer to emphasis whether there are actual common interests that workers share that override barriers to organization. Ethnicity, gender and territoriality tend to be more important in terms of helping to reinforce group norms after an organization is formed (and thus minimizing free-rider effects). On the other hand, I found that the two most important factors leading to organization were the need to respond to state repression and the need to control competition.

In my research I found that the most organized segments of the informal sector were those that for one reason or another were in close contact with the state. Street vendors, for example, had frequent conflicts with officials over the public space that they occupied that represented an important harassment cost in their business that could only be effectively reduced by remaining hidden (and thus suffering evasion costs since they also limit their access to consumers), or by organizing and defending common areas as a group. In Mexico City I found that a history of enforcement, conflict and negotiation between the city government and street vendors had led to the formation of hundreds of such organizations, typically organized territorially, with some having thousands of members. In effect, they operated as closed union shops since they considered areas that they controlled as their own, and thus everyone who sold in those areas had to pay fees to the organizations. Similar organizational processes seem to be identified by Staudt in Ciudad Juarez. Informal transportation services (collective taxis, for example) frequently operate on the same basis for similar reasons, as does the practice of land invasions used in informal housing.

But state repression, if it were absolute, would simply squelch attempts at organization. In order for informal entrepreneurs to organize effectively there must be at least some possibility of success, and some procedures that they can appeal to. In Mexico, the dominant political party (PRI) encouraged groups like street vendors to organize as affiliates of the party, thus bolstering their image as a popular party. While this process was not determinative of their success, it provided informals with institutionalized models of organization and the potential to develop patrons within the state structure that are typically not available in more democratic regimes. This form of co-optation of informals actually helped them form powerful organizations that could also be used for resistance. In Egypt a similar form of co-optation formed the basis of organization of vendors and workshops during the 1970s and 1980s, but through cooperatives organized directly by the state as a mechanism of distributing subsidized raw materials.

At the same time, organizations provide an important role in controlling competition. The important issue here is not competition over clients but competition over space. The concentration of vendors on a street and the concentration of taxis in a defined route each have an effect of creating a client base. Two vending stalls do not necessarily compete at all—they may add to each other’s market draw. However, there may be competition over prized locations in the market, or a need to regulate the growth of a market over time. In these cases, organizations are vital in order to both provide security for members and a valve for controlling access. In a street market, for example, it is very important to make sure that vendors respect each other’s area. In a collective taxi route it is important to make sure that drivers respect the order in which vans are sent out along the route. A violation of these needs would create a chaotic market situation that would rapidly lead to deterioration in the client base as clients turn to alternative means of supply and transportation.

What these two (three if you include informal housing) forms of informal trade share is their territoriality. A collective taxi route, a street market and an informal housing tract operate in a defined space that can be regulated by an organization.

Each of these four organizational factors—state repression, co-optation, competition, and territoriality—are also factors behind the growth of the traditional labor union movement. That is, labor organization often occurred when attempts by workers to negotiate with businesses were rebuffed. The need to limit access to the workplace (for example preventing employers from hiring at will) also was one feature behind labor organization. Finally, labor organization was more effective when the population to be organized was territorially defined. This does not mean that organization did not occur under other conditions, but rather simply that these conditions tended to favor labor union organization.

On the other hand, small workshops in Mexico have not typically been well organized because there is little systematic state attention paid to them. Tortilla shops were well organized, but primarily because they received subsidies from the state (which required that they form part of state sponsored organizations) and they were subject to strict price controls, which provoked constant mobilization to complain about low price ceilings. In this sense, they are in a similar position to the workshops organized in cooperatives by the Egyptian state in the 1970s.

Informal Contractors

Informal contractors are positioned in between informal employees and entrepreneurs. In essense, they have two organizational fronts: the businesses that they work with, and the access to customers or resources that is the basis of their work. For example newspaper and ice cream vendors often operate as informal contractors in third world cities in the sense they work with a single "supplier" (the newspaper or ice cream company) which often rents them the stall and permit that they use. Sometimes they are organized by the businesses themselves, but it is possible for them to be organized separately from the businesses in order to push for better conditions or higher earnings. However, such vendors also have to get permits to sell the products in the street. Again, the permits may be controlled by the businesses, in which case the vendors are simply informal employees working on commission. Where vendors get their own permits, or work without permits, they may have to organize separately to either get the permits from officials or in response to attempts by officials to limit their economic activity.

Bridging the gap: Labor Unions and the Informal Sector

There are areas of congruence between labor union organizational strategies and those exercised in the informal sector. However, as we have noted, in the informal sector the types of sub-sectors most likely to organize are those that are most visible, and therefore most likely to be in conflict and need defensive mechanisms. Independent workshops are often the least likely to be organized because they are infrequently the subject of state action and lack a territorial base. However, these have in some cases been organized through cooperatives, typically as a state-sponsored development initiative: for example, by distributing subsidized inputs through cooperatives that are tied to the state (as is the case for tortilla mills in Mexico and many types of workshops in Egypt, where cooperatives were aggressively organized in the 1970s).

Some of the more obvious differences between normal labor unions and informal organizations have already been mentioned. Most informal sector workers do not have a well-defined "employer" who can be negotiated with. Instead, in the case of street vendors, collective taxis and informal housing, most negotiation and conflict is with the state as the regulatory authority, and with opposing interest groups (businesses, etc.). In some cases, such as with informal contractors and informal employees, work may be tied to a supply or client business that can be labeled as the de facto employer, and pressure can be put on that business, either through union tactics, or by organizing a more effective marketplace.

Likewise, since IEA tend to be independent in their operations, there is no employer who can collect the union dues from the paycheck. Informal sector organizations are therefore compelled to use more labor intensive tactics of direct fee collection. This is also facilitated by the territorial nature of these organizations, since the fee can be seen as a form of rent for the organization’s role in guaranteeing the ability to work. Another strategy is to use a key service that money is collected for. In a sense, the current trend towards micro-finance on the part of international development NGOs is a form of organization of the informal sector, since it brings micro-businesses into institutional relations with the creditor agency. Unfortunately, these programs rarely, if ever, use this approach as a method of organizing informal workers to improve their regulatory status, although that was often the original intent, as with the Grameen Bank model in Bangladesh. Instead, the need to collect loan payments (and thus stay solvent) detracts from the ability to service other needs, and in fact in some cases may simply create new forms of dependency. At the same time, the power differential between program staff and clients means that the projects are rarely controlled by the IEA themselves.

The key for effective organizational tactics is to focus on common needs of the IEA sub-sectors that can be better met by working together. In some cases, such commonalities simply may not exist. But in many they do. One commonality, obviously, may involve problems with over-restrictive regulations that fail to recognize the important role of micro-businesses in the local economy. Another may be competing for subsidies that are frequently provided to larger businesses. Keeping in mind the evolutionary connection between trade guilds and trade unions, another role might be self-regulation of markets in order to increase access to supply and demand markets. None of these possible approaches are non-problematic. If nothing else, the organization of the informal sector will be idiosyncratic, implying a different form of organization depending on local conditions, state structures, markets and labor pools.

One final problem to be noted is the potential conflict between informal entreprenuers and informal employees. As micro-businesses grow, they add employees, and often on the basis of informal contacts that violate labor laws. A labor union that represent informal entrepreneurs must therefore come to grips with how to deal with relations with informal employees. Should they be incorporated into the same union? Should they be excluded? Should they form their own unions?

Conclusion

What I have tried to do in this short paper is to raise some of the issues involved in the organization of the informal sector. In this case, there are not only no easy solutions, there are frequently questions about the very approach we should take. Should informal employees be organized at the risk of putting informal entrepreneurs out of business? Should informal entrepreneurs be organized at the risk of greater exploitation of informal employees? If a decision to organize is made, how can this be achieved given local conditions? Traditional labor unions attempt to pass the cost of unionization onto employers (that is, higher wages and better conditions ideally make up for union dues). Can informal economic actors in a given situation pass their organizational costs onto others (their suppliers, clients or the general market)? If they can’t, organizations are bound to fail, since people will only join if the organization leads to a material improvement in their situation. The key is to focus on the goal of traditional labor unions: control of work situations. To the extent that an organization can help IEA control their markets in the way that labor unions help workers in an industry control their labor market, the organization should lead to increased earnings and better ability to improve work conditions. This is one reason why street vendor organizations are so successful in Mexico: they control the space needed for vending. It is also why many micro-loan projects fail to provide a basis for organization (or improve micro-businesses): they fail to help IEA control their markets.