Assistant Professor of Sociology
The American University of Cairo
November 14, 1995
When Mercedes-Benz was searching for a site for a new auto factory in the United States, local and state governments fell over each other competing for the jobs that the factory promised to provide for their areas. After a bidding war in which site-specific infrastructural improvements, tax incentives, credits and subsidized loans were used as currency, Alabama, one of the poorest states in the union, paid almost $200,000 for each job that the plant would produce--a total of $254 million in subsidies for an investment of only $300 million made by the company (Powers 1993; The Economist 1994): a hefty price tag that ultimately represents a massive government subsidy of a large multi-national corporation that in one form or another would have to be borne by other taxpayers. What did the regional government get in exchange for its largesse? Some construction jobs, a limited amount of local out-sourcing, and 1,500 jobs that politicians could boast about "creating".
The point of this example, and many others abound of governmental subsidies to attract big business in both the first and third world, is two-fold. First, it shows the importance of political and economic leverage that is often ignored by econometric models: market systems in the real world are rarely as simple as they seem in such models. Large companies particularly have often skewed reality by using their economic and political power to secure market advantages, subsidies and even high-cost regulatory screens that block small, low-capital firms from many markets. This leverage does not have to be used directly--such as in the direct monopolization of essential raw materials or markets or in the corruption of officials. Rather, the simple high- visibility of large firms as success symbols make them the object of affection of politicians who want to show that they are "promoting jobs" by bringing them to their area, even though this may in fact result in net job loss as smaller competitors are shoved out of the market of simply due to the opportunity cost of subsidizing capital-intensive ventures as opposed to small business.
On the other hand, when government regulators speak of "formalizing" the informal economy, a different mentality sets in. Staying with the first world for now I will use the case of street vending in Los Angeles. In that city until 1991 street vending was outlawed, but approximately 5,000 people were involved in this activity--most of them Central American immigrants. When some of the vendors organized to push for legalization they were overjoyed to find several allies on the city council. But the end result was a licensing program that expected vendors to pay not only their taxes but also the full cost of licensing and enforcement--over $1,800 per year per vendor--while giving established businesses veto power over the creation of vendor districts. Food vendors, who would have to obey health regulations that required them to purchase special vending stalls costing over $1,500 and rent special kitchens for food preparation were particularly hard hit. While these costs were still below the costs of establishing a regular business, they provided far fewer rights and were, frankly, far beyond the means of most of the vendors then active. As a result, most were compelled to remain in the informal sector in the face of a stepped-up enforcement program.
By remaining in the informal sector in essence what the vendors obtained was a form of subsidy of their activity--an informal one that they appropriated illegally by the simple fact that they did not pay the costs of formalization. Indeed, one way in which we can view the informal economy as a whole is as a set of economic actors that are able to compete with larger businesses precisely because of this system of "informal subsidies" that parallels in a certain sense the formal subsidies available for much larger companies.
This helps us to understand the apparent duality of the formal/informal economic systems, and why there is often such a large gap between them. Fully "formal" companies have to be large and capital-intensive not just to obtain sufficient economies of scale to justify the "costs of formality", but also to attain the level of leverage necessary to attract and benefit from formal subsidies, which are generally subsidies on capital-investment. On the other hand, informal companies, as De Soto points out, have to remain small in order to escape regulatory controls and thus benefit from "informal subsidies". Indeed, De Soto refers to this need to avoid regulation as the principal cause of the "costs of informality". As long as they are informal, such businesses are inhibited from growth first because growth would attract regulatory attention and secondly because they forfeit the legal protection of formality and thus have higher risk factors. Both factors, it should be noted, raise the risks and lower the benefits of capital investment.
The following table explains this duality:
Formal Benefits
Investment incentives (Generally focused on capital levels)
Legal protection (Protects capital investment)
Savings on labor costs (insurance, pension, minimum-wage, etc.)
Informal Benefits
Savings on zoning costs (rent or purchase of commercial or
industrial space)
Savings on tax costs
Savings on other costs (health, safety, environmental, etc.)
Formal Costs
Higher labor costs
Cost of zoning
Taxes
Health, safety, environ-mental regulations
Informal Costs
Lack of incentives
Danger of "discovery" (Lower efficiency of capital b/c
small)
Lack of legal protection (Higher investment risk)
As can be clearly seen, the incentive structure for "informality" is the inverse of the incentive structure for "formality". Thus, for an informal enterprise to turn "formal" requires not only substantial increases in capital levels in order to make the transition from capital disincentives to capital incentives but also an entirely different perspective towards the state and a different form of political behavior: from one of avoidance of regulatory officials to one of manipulation of the regulatory system. In other words, the different between formality and informality is not only economic, but also political and social.
The table also points to another important feature which was entirely ignored by De Soto: some of the "savings" effected by informal businesses may be ways of externalizing costs in undesirable ways. Lack of health controls may allow food vendors to spread disease, while lack of environmental controls may lead to very high levels of pollution as, for example, informal mechanics pour used oil into drains and garbage collectors burn unrecyclable trash. Unfortunately, these are often the most difficult regulations to enforce, and the "cheapest" to ignored in the short run, raising particular problems.
Avoidance and manipulation do not have to be completely separate activities, however. It is possible to carry out a combination of both, thus leading to the potential for a "middle- ground" where transition from one stratum to another may be feasible. This is partly due to the fact that regulation operates on a number of different levels and often through a variety of different agencies. Fernandez-Kelly and Garcia (1989), for example, point out that regulation can be affected at three different levels:
1) The legislative arena, where regulatory norms are codified, generally subject to the pressures of powerful constituent groups;
2) The level of funding provided at the agency level for enforcing these norms; and
3) The specific decision processes at agencies that may have overlapping and even contradictory mandates (possibly leading to inter-agency rivalry).
They neglect, however, to mention a fourth level, which is:
4) The "street-level", where enforcement actually takes place.
By looking at enforcement in terms of these different levels and channels we can understand what De Soto describes as "semi- formality"--a situation in which government officials may permit a certain level of informality in exchange for a limited level of control over informal economic activity. This, indeed, happens frequently in the small-business sector in many third-world nations, where small work-shops or stores may be required to have licenses but where labor and tax laws are only partially enforced, if at all. In most cases, this is because of the second, third and fourth levels of regulation noted above: regulatory agencies simply do not have sufficient resources to enforce complex areas of regulation such as tax liability and labor-relations in the myriad of small enterprises where the economic gains (in terms of recouped taxes) or social gains (in terms of the number of benefitted employees) in each individual case would be outweighed by the cost. Even in the First World, the above authors note it is relatively easy for large sweatshops to exist outside the regulatory system because of a lack of enforcement resources, which then become limited to "high-visibility" cases that provide maximum political benefits. In addition, agencies with an overlapping jurisdiction may not share information and usually will not expend their own resources to help enforce the policies of other agencies. Finally, street-level enforcement agents can often be bribed by those caught violating the rules to "overlook" non-compliance. These are strategies that exist on an individual level, however.
But, more to the point of what De Soto was getting at, semi- formality can also mean that the government actively negotiates the regulatory process itself without, however, changing the actual regulations. In Peru, De Soto pointed to land invasions, street vending and "mini-van" services as examples of this type of negotiation. In each case an administrative system was established that partially regulated the activity even though the activities themselves were never fully legalized. What is clear in each of these cases--and not necessarily so in the types of cases mentioned earlier--is that they involve organized groups, something that De Soto implicitly recognizes, but never explicitly explains or analyses.
Organization is necessary at three different levels in these activities, although the specific degree of organization will vary in each empirical case due to the local conditions. First, organization is necessary for internal regulation in the absence of legal norms: Land invaders must divide land into lots, street vendors must at least tacitly recognize the "right" of others to specific locations, and mini-van drivers have an urgent need to make sure that their "route" is serviced regularly and without undue competition between drivers. Secondly, organization often arises as a collective response to attacks on their interests by officials or other groups, given their high visibility in each case. Thirdly, organization is required to carry out the process of negotiation. Indeed, organization usually evolves through these three levels, unless it is blocked by political factors such as complete repression or unwillingness to negotiate on the part of the state. By the same token, organization is also possible in other activities, such as garbage collection or even micro- industries, although it may follow other determinants.
What organization allows at the second level is the potential to collectively resist and avoid regulatory control, but it is at the third stage that organization permits the ability to negotiate the process of regulation. It is here that organization promises to provide a system of informal leverage that could allow people working in the informal sector to advance their own interests in such a way that allows them to reduce, although without eliminating, the "costs of informality".
But this comes with a certain cost: negotiation is a two-way business, and the state's open "tolerance" of regulatory evasion is predicated on control in certain areas. Again, to return to De Soto, he notes that state regulators focused on fare controls on mini-van services while allowing the mini-van operators to benefit from other informal subsidies, such as tax and safety evasion. But another area that De Soto skips over is political control: often the price of informal subsidies in these circumstances is political loyalty to the current ruling party. This is clear in many cases in Latin America, where organizations of informal economic actors (IEA) are often allied specifically with one political party or another. In the case of Mexico, land invaders, street vendors and mini-van drivers have historically been used to support the ruling party at rallies and during elections to ensure the appearance of public support for the regime. Nevertheless, these groups have been highly successful at advancing their interests if you consider that Mexico City, with a population of 9 million inhabitants, has over 200,000 street vendors, that mini-van operators account for 6-7 million passenger rides per day and that a large percentage of the population is the beneficiary of past and present land- invasions.
In addition, while organization may allow informal economic actors to negotiate regulatory enforcement--and thus to "leverage" access to what I have termed "informal subsidies", this benefit is limited in two directions. First, externally, the ability to change the regulatory norms themselves is limited by the fact that these norms are set in an environment where much more powerful political actors are at work. Land invasion cannot, obviously, be legalized in a society based on private property, but even the legalization of street vending, mini-buses or relaxation of labor laws often runs into stiff opposition not only from unions, but also established business groups. The inability to change these regulatory norms carries a high cost in itself--what De Soto refers to as the "costs of informality"--in that it not only limits operators from rational investment and expansion but it also limits their legal rights and economic security, since any negotiated settlement is provisional and, indeed, technically illegal and can and will be occasionally contested by these higher interest groups. Secondly, internally, and particularly where leadership cliques become solidified by access to government officials, there is the danger that these cliques will become non- representative elites that simply exploit their members while ignoring their interests.
The questions to be answered, therefore, are the following: how can the benefits of organization be capitalized on so that the informal subsidies that informal economic actors receive can be "formalized" on their own terms, taking into account the real social needs for certain forms of control, while avoiding non- representative elites from emerging. Secondly, what role can the NGO sector play in this process? This paper, after a discussion of the nature of the informal sector, will give a preliminary answer to these questions only for the purpose of discussion and debate. An authoritative answer will require much more research into the question itself, with the hope that it can provide a new focus for development activities in the future.
When Keith Hart (1970; 1973) originally coined the term "informal economy", he did so in order to conceptualize the often ad-hoc economic investments made by migrants in Ghana. Moving away from the position that these were merely "refuge" occupations for "marginal" populations, he pointed to two essential features of this sector. First, he noted that they were rational actors who used their investments primarily as a form of savings. That is, faced with labor-market insecurity, they invested excess funds in micro-businesses or business transactions that promised the hope of providing returns on their petty capital, often with the goal of using it for personal needs later. Thus, he saw the informal economy as a set of personal or family survival and advancement strategies rather than a set of fixed "enterprises". Secondly, he argued that as a sector they provided an "entrepreneurial function" in the provision of services that had been ignored by the formal economy, including truck routes that tied the country together, informal housing construction, and other vital needs for the general economy.
Focusing on the second element, but ignoring the first, the International Labor Office (ILO) began to focus on this sector in a series of country studies (see Sethuraman, 1981). But as it did so, it took a "micro-business" approach both methodologically and theoretically. That is, it defined the informal economy methodologically as a set of micro-enterprises in terms of capital investment, number of employees or some other criteria. More importantly, it assumed that individual operators within the sector operated as businesses, and thus assumed that their primary motivation was towards growth. Thus, it looked for ways in which individual "firms" within the sector could grow in order to increase employment within third world nations rather than looking for ways in which the number of self-employed individuals involved in the sector could be increased. One of the most widespread results of this approach are the myriad "micro-loan" programs carried out by NGO's and other development agencies in the third world that are ostensibly designed to foment the formation and growth of these types of enterprises.
However, not only does this approach ignore Hart's first point, it also fails to take into account that the limits on the growth of individual firms are a function of the "costs of informality". Thus, small-scale capital loans generally cannot create the type of growth envisioned for these two reasons. First, because most informal economic actors operate under a survival/advancement strategy rather than a business strategy, profits after repayment of the loan will often be invested for personal needs, such as housing, household goods, "luxury" goods or social expenses such as elaborate "passing" ceremonies. Since the informal enterprise is only one part of these broader household survival strategies, its growth is of secondary importance to the individuals involved. Secondly, enterprise growth raises the risk of regulatory intervention. Since the cost of full formalization is usually many times higher than the micro-loans provided, the loaned capital can only be used within the limits of informality.
Finally, "firm" growth in the informal economy, while providing more jobs than firm growth in the formal economy, due to lower capital-intensivity, does not necessarily lead to well-paid jobs that provide opportunities for growth and security for employees. While self-employment may also share many of the same problems, it is well documented that it leads to higher self- esteem, greater skill-development, and a broader "entrepreneurial" outlook in terms of the survival strategies that individuals are making: instead of waiting to be employed, they are applying the knowledge and savings they have to create their own sources of income and at the same time goods and services for their community.
Clearly, a way must be found to bridge the gap between informality and formality so that growth can occur--not only vertically in the growth of existing informal firms but, more importantly perhaps, horizontally by the entrance of more self- employed individuals in the sector. The availability of credit may play a role in this, but I am convinced that a much greater role is played by the policy and policy-enforcement environment in existence around the individual. After all, the informal economy has been in existence long before small-scale credit has been available, and the millions of informal businesses that exist in Mexico City, Cairo and many other third world cities have been formed with no formal credit facilities at all.
Furthermore, as noted above it is necessary to subject at least some controls on informal economic activity to prevent long- term risks to health and environmental damage. The problem, however, is how to apply these controls without completely strangling the beneficial economic and social effects of the informal sector and the potential the some actors in this sector have of becoming fully formalized once they have built up sufficient capital.
What is necessary, then, is for informal economic actors to become organized so as to be able to negotiate with the state in such a way that informal subsidies can be maintained or replaced with formal subsidies while they can suggest and help carry out solutions to the types of risks and damage that they may create.
In the following section I will briefly describe three examples of IEA organization--two sponsored by NGOs--and discuss the benefits and limitations of each. Finally, I will suggest a set of rules by which NGOs may "improve" on these examples.
Street vendors in Mexico City are almost all members of "unions" that purport to represent their interests in negotiations with city officials. One measure of their success may be derived from the sheer number of street vendors in that city (over 200,000) as well as the vibrant growth of the activity in the face of constant attempts by frustrated officials to limit or even, in some cases, ban the activity which has been considered technically illegal since 1984. This seems paradoxical, since the basis of organization is the political regime itself: Mexico's ruling party, the Partido Revolucionario Institucional (PRI), has actively encouraged vendors to organize within its "popular sector" while administrative procedures require individual vendors to form or join a "union" before they can be allowed to sell without harassment. For example, an individual who applies for a "permit" to sell on the streets will be told that such permits do not exist. But if they join an already existing organization, they will be allowed to sell under that organization's "understanding" with officials. Vendors who form a new organization face greater problems, but they can also be resolved by finding an ally within the system who will help broker a new "understanding" with them. Since street vending is technically illegal, no vendor has a legal permit. Instead, permission takes the form of "tolerances" given to members of recognized organizations to sell in specific areas, but which can be theoretically withdrawn at any time. Thus, not only do vendors need to be members of some organization, the organizations themselves must constantly reinforce their "rights" by political activity: both by gaining allies within the system and by direct pressure on officials.
The rational for this system is partly administrative--the organizations function as "intermediaries" who help enforce normative controls over vending and also relieve administrators of the headaches of regulating the vast number of vendors individually. But it is also political: by compelling vendors to form such organizations, individual politicians are able to establish alliances with street vendor organizations that help to legitimize the political system as well as advance their individual careers. Thus, the organizations are clearly "coopted" into the political system. At the same time, these factors also tend to cement the leaders of the organizations into their roles by increasing their power over members. Individual vendors are in one sense at the mercy of their leaders, since if they are suspended or expelled from the organization they must find a new union before being allowed to sell again, and in any case lose their previous location. Thus, while the unions are technically "democratic", in practice the leaders tend to remain in control for life and some even successfully "bequeath" leadership to their children.
But this also explains the paradox of why these organizations are so effective at increasing the number of street vendors: First, since they are authoritarian, they are able to compel their members to provide economic and political support that can be mobilized to make the organization more valuable for their political allies and to put pressure on recalcitrant officials. Secondly, since leaders are permanent while officials are usually temporary, they can afford to take a long term strategy, while officials are more concerned with upward mobility within the political system, meaning that they are more concerned with creating allies rather than enemies among the street vendor leaders. Thirdly, since the economic and political power base of the leaders is tied to the quantity and quality of territory they control, their interest is to conserve and expand their areas rather than acquiescing to administrative proposals to limit or relocate them. Fourthly, competition between leaders limits them from cooperating with officials against the interests of their members, since a leader who agrees to relocate their vendors or to restrict the growth of their organization faces the danger that other leaders will expand into these areas. Thus, the authoritarian nature of leadership does not mean that it is not necessarily representative, since the interests of the leader is tied to the interests of members.
The above example involves organization that has occurred largely as a result of the political system, but here we turn to an organization that has been actively promoted by groups in the NGO sector. In forming such organizations, what NGO's are typically looking for is a way to implement "community participation" to make sure that projects correspond to the interests of members of the target community as well as to, hopefully, make projects "self- sustainable" by forming organizations that can continue them after the outside development agency has left the field. The benefits of "institution building", as this is sometimes called, has at times been questioned by those who argue that such organizations may be controlled by local elites who will then focus project benefits on their own interests, perhaps to the detriment of other community members.
In Cairo, one example is given by the Zaballeen garbage collector project carried out with assistance from Environment Quality International (EQI). Hoping to improve the living conditions of the zaballeen and to upgrade the collection and recycling of garbage they provide through credit programs as well as other projects funded by US-AID, EQI began by building up an institution that could "represent" the community's interests and thus carry out the project. Rather than staring from scratch, they decided to use a preexisting religious organization that had been started by the Father of the local church for charity work.
The institution, to be called the "gamaeyya" (council), was first made more democratic by instituting a system of elections and expanding the membership. The leaders who emerged were generally the wealthier members of the community--those with large families involved in collection and recycling and who therefore also muster the larger number of votes. The program then proceeded to provide credit to members of the community for two purposes: the purchase of trucks that became required by the city in order to mechanize collection, and the purchase of machinery that could help sort and prepare higher-order recyclables such as metals and plastics for direct sale to purchasers. Thus, the objective was to cut out the middlemen on the client side (industries that used recycled goods) while increasing the efficiency of supply--the collection of garbage.
However, two areas of need within the zaballeen community were relatively ignored. No provision was made for one of the most important cash sources for the community--the sale of pigs fed by organic garbage--and little was done to help the zaballeen negotiate with the wayha who controlled access to garbage in most neighborhoods in their traditional roles as the "bowabs" or doormen of upscale residential apartments. Pigs continued to be sold to the same group of middlemen, while the traditional relationship that the zaballeen had with the wayha--in which the wayha collected fees from residents and carried the garbage to the street and the zaballeen carted it away for free--became threatened by the mechanization project. While the EQI wanted to preserve the traditional zaballeen-wayha partnership rather than seeing it replaced by the emergence of private garbage collection services, the financial cost of mechanization had to somehow be borne by both the wayha and the zaballeen. Clearly, the zaballeen could not afford to purchase trucks unless they could collect part of the fee paid to the wayha by residents. But lacking the ability to raise the fees they collected, the wayha could not share their meager fees without cutting into their own income. While the zaballeen and the wayha had traditionally negotiated their trade on an individual basis with conflicts appealed to a joint zaballeen-wayha council made up of elders from each community, this traditional system was undermined by the EQI project which essentially promoted a new "elite" which now shared little interest with poorer members of the community in retaining these traditional ties.
What happened appears fairly simple in retrospect. The wealthier members of the zaballeen community were the best placed to benefit from the credit program by purchasing trucks or recycling machines. But this changed their relationship drastically with the bulk of the community. Rather than being wealthier simply because of their larger families, they began to focus on a different market segment: in effect, some became middlemen recyclers, buying unprocessed garbage from other zaballeen for sorting and preparation, while those able to purchase trucks began to dominate the collection service. The relations of equality between the community became replaced by relations of subordination in which the poorer families became dependent upon the wealthier families. Since these latter dominated the "gamaeyya", this institution began to represent the interests of an elite that no longer shared the basic interests of other community members except in the broadest sense: when the government threatened to relocate the community after the collapse of cliffs in the area onto some housing units, the elite united with other local residents to vociferously and successfully protest any removal. Not only would such a relocation take away the infrastructural improvements to the neighborhood that resulted from the program, it would upset the established relationship between elite and non-elite members of the community.
Both the above examples point to the need for elites to depend on the interests of their subordinates in order for them to be effective representatives. Elite groups naturally have to look after their own interests in order to remain elites and improve their own life chances. The question however is, where do their interests lie? If they lie with their subordinates, as is the case with street vendors in Mexico, elite groups will be required to defend the interests of their members. However, if elite group interests become separated from the interests of their subordinates--such as in cases where they receive financial support directly from the government or other outside bodies--then they can no longer be trusted to defend their interests. This points to the chief danger identified with community development projects: if "institution building" is carried out in such a way that local elites become dependent on outside funding agencies or on new sources of income, they may actually begin to act in ways that are detrimental to the majority of the original "target" community.
An interesting third case is provided by another example of an NGO-created organization among informal economic actors: Street food vendors in Minya. Here the organizational effort was spearheaded by an NGO--the Social Planning, Analysis and Administration Consultants (SPAAC) headed by Sarah Loza after carrying out a needs assessment among street food vendors in Minya. (Loza 1991) Finding that the main problem facing vendors was the lack of permits for their activity, resulting in constant harassment by municipal authorities, SPAAC actively recruited street food vendors into a union whose primary objective was to carry out their recommendations that licensing requirements be made more lenient for this category of vendors. At the same time, however, members of the local political establishment as well as members of SPAAC were invited to be members of the governing committee of the union, meaning that the union leadership was only partly made up of direct representatives of the vendors. Nevertheless, the inclusion of local political figures--much like the alliance between street vendors and the PRI in Mexico City-- created a community of interest between vendors and officials and the project has, until recently, been remarkably successful. Not only were licensing requirements simplified and harassment reduced, but the officials on the union board of directors went out of their way to make sure that necessary raw ingredients such as sugar were available to members of the union at subsidized prices even during shortages. The long-term sustainability of the project remains in doubt, however, since its success seems to depend upon the cooperation of specific individuals who benefit indirectly perhaps by their association with the street food vendor unions (the officials and SPAAC), but who are not structurally dependent upon the street food vendors themselves as yet. At the same time, the voluntary nature of the union means that union leaders may have a hard time attempting to mobilize the kind of political resources to establish more long-term relationships with the political structure.
These briefly stated examples of organization among informal economic actors have been raised to support two linked arguments that have emerged from my work with street vending as a politicized informal economic activity. First, each case certainly shows that "success" is not simply an individual product, but rather has much to do with the general political-economic environment that IEA can only hope to affect as a collectivity. This is all the more so than for formal enterprises who operate within a band of fixed laws and rules that they work around. In such an environment, the most successful firm would be the firm that is best able to adapt individually to both the regulatory system and the market. But the example of big business raised at the beginning show that rules are usually not fixed but are constantly being manipulated by power actors. At the informal level, an individual strategy would be to attempt to simply avoid detection. Thus, the most successful informal firm would be the one that is best able to avoid regulatory enforcement while meeting the market. As noted above, this confines IEA to a limited economic sphere where growth and efficiency have to be constantly sacrificed to immediate survival goals. The informal equivalent of big business cannot, thus, be met on an individual level, because no single informal enterprise could possibly hope to manipulate the legal regulatory structure. However by organizing together IEA can--and often do--discover a communal interest in manipulating the process of regulatory enforcement or even of attempting to adjust the normative legal structure to their needs.
The role of NGO's is the second important point here. It is a well established point in theory that development from below must be "self-sustainable"--that is, it must be able to continue after support from outside agencies have been removed. This implies that it must somehow occur in a manner that is autonomous from higher- level interest groups. But autonomy is not the same thing as autoctony--the complete separation of such groups from other power interest groups. It rather signifies a form of "empowerment" in which the powerless can gain sufficient leverage with which to negotiate with the powers of domination. This means that if NGO's are to truly make a long-term difference in the growth patterns of micro-businesses, they must go beyond individual firm strategies and attempt to create organizations that are both able to negotiate with authority structures and also remain "accountable" to their constituencies in the broader sense that their interests are tied to those of their members. Local elites must be constructed which are able to mobilize the resources of their constituents while remaining compelled to respond to the interests of those below.
It is worth mentioning that while the case of SEWA (the Self Employed Women's Association) in India that has been used to justify the strategy of small-credit loans, had as a central plank of its strategy the organization of women into a political leverage group that could push for necessary political changes at the local level, the importance of political mobilization has been generally overlook by subsequent credit programs. While beneficiaries may be male, this is no way negates the fact that they are also relatively powerless and in need of empowerment in order to improve their work opportunities.
In the case of Mexico, empowerment is created accidentally as part of the political strategy of the state, but this example is clearly limited both in its application to other cases as well as in the types of interests shared by local elites (leaders) and members. In the case of Cairo's garbage collectors, the intervention of the EQI apparently seemed to undercut the accountability of the elite, although project produced advances in other areas. In the case of street food vendors in Minya and Cairo, SPAAC seemed to create a useful model of partnership between street food vendors and officials that bares some similarity to the Mexican case, although it is not clear whether the food vendors themselves developed the capability to manipulate this partnership or whether it was simply the product of the intervention of the NGO itself.
What is necessary in order to create "autonomous" organizations within the informal economy? I would suggest the following "needs" as a tentative guideline:
1) Organizations must have some capacity to apply sanctions over members in order to compel them to participate in common political tasks. That is, they should NOT be purely "voluntaristic" which will limit their mobilization power.
2) Organizational elite interests must be structurally subordinate to the interests of members--that is:
a) the interests of leaders must depend on the attainment of member's interests and the expansion of the number of members (i.e. rent collection, etc.)
b) There must be some competition between organizations so that members can switch out of their own organization if they believe that the balance of organizational costs and benefits is disadvantageous. That is, NGO's should NOT foster single organizations but multiple competing organizations. (Thus, leaders should have incentives to remain independent).
3) They must be able to form partnerships with high- level interest groups that can sponsor them in their struggle on a permanent basis. That is, again, it must be in the interest of those higher-level interest groups to support them.
4) They should be trade and region specific in order to remain firmly tied to their constituent base and not become general service providers for broad categories of clients.
Certainly, the political implications of this type of project may appear worrisome for NGOs in a society in which social movements are heavily controlled and in which "foreign intervention" of any form is highly suspect. However, it should be underscored that these organizations need not be confrontational and, indeed, they may even be supportive to the regime or to "centrist" political parties, as street vendors are in Mexico, without losing any effectiveness. The true danger may in fact emerge when this organizational role is taken on by radical organizations that have an ulterior motive in constructing platforms for recruitment of members and from which to attack the state, as appears to be already happening in Egypt with the Egyptian Brotherhood.
What NGO's can perhaps do is to help foment these types of organizations through the credit-lending process and through other mechanisms that will create organizations that may themselves be able to provide credits and other services to members, but which will above all "take on" the process of serving as an arbitrator between the political structure and IEA. IEA can be made dependent upon the organizations by ensuring that only organization members receive the bulk of the benefits of this arbitration (thus reducing the "free-rider" problem), while organizations can be made dependent upon members by the constant creation of alternative, competing organizations, either by the same NGO or by others, which can also provide the same benefits. The NGOs should not provide direct benefits to the leadership structure, but should be able to provide some of the initial benefits for members (credit, training, etc.) through the organization (or only to members of such organizations) and can also play a role in the financial accountability and training of leaders and their initial connections with the political system. They should avoid playing a mediating role over the long term, unless they are prepared to do so indefinitely. Larger NGO's should also avoid focusing their attention on a single organization, but should rather emphasize the creation of multiple organizations that would therefore offer choices to potential members.
The political goals of these organizations, on the other hand, should be structured to first negotiate questions of enforcement, and then to negotiate the conditions of formality--facilitating licensing and other requirements for organization members in exchange for commitments on the part of the organization to help bring IEA into compliance with the negotiated norms and to carry out enforcement at their own level.
What this policy would imply, of course, is a radical restructuring of the primary role of NGOs from economic input providers to political advisors and advocates. It would not necessarily mean the eclipsing of the small-credit program, but the utilization of such a program for a broader organizational goal: the construction of local power structures within the informal economy. Not until this happens will informal economic actors be able to break through the barriers that simultaneously limit their growth while preventing new IEA from emerging.
Back to Theoretical Papers