August, 1995. Published in International Journal of Sociology and Social Planning, Vol. 17, #3/4, 1997. (pp. 37-63)
(Revised, October 1995)
The author is currently Assistant Professor of Sociology at the American University in Cairo. His research concentrates on the political organization of street vending in Mexico City and Cairo and has been supported by the Ford Foundation and fellowships from the Fulbright-Hayes program of the Institute of International Education and from the Organization of American States.
One of the most important debates within the literature on the Urban Informal Economy (UIE) focuses on whether self-employed individuals operating informally are "entrepreneurs" who should be aided by development planners or "disguised workers" who are super-exploited by firms within the formal economy. While some authors have argued that the (UIE) may include both, there is little agreement on how to distinguish "entrepreneurs" from "disguised workers" so that the policies designed to promote the former while discouraging the latter can be developed. This article proposes a set of "scales of independence" to measure the relative dependence of self-employed informal workers on specific suppliers and clients, and proposes several different categories of dependence/independence that should improve our understanding of the economic activity within the UIE.
One of the most important questions in the literature on the Urban Informal Economy (UIE), concerns the question of whether Informal Economic Actors (IEA) are "entrepreneurs" or "disguised workers" who are exploited by firms in the formal economy. When Hart (1970; 1973) originally used the term "informal economy" he did so with the specific intention of highlighting its "entrepreneurial function" in many third world nations, contesting the then-dominant argument that such activities were "marginal". This formulation was explicitly accepted by the International Labor Office, PREALC and numerous international, governmental and private development agencies who have used the term interchangeably with the "micro-business" sector in innumerable studies and development projects. (see, for e.g., De Soto 1989; Londono 1984; Sethuraman 1981; Tokman 1978). On the other hand, many authors have questioned the blind acceptance of the "entrepreneurial" nature of the UIE, arguing instead that the UIE is simply a form of super-exploitation by which individuals and whole families are forced to work in the capitalist marketplace without even the minimal level of protection offered by the legal system to formal workers. Those who are "self-employed" within this sector are really "disguised workers" who are stripped of the legal benefits of employment while maintained in "de facto" conditions of dependence. (Alonso 1980; Portes and Walton 1980)
This debate, which has never been satisfactorily resolved, is not merely of theoretical concern but rather has crucial implications for the role of development planners: those who see the UIE as "entrepreneurial" argue that development planners should look for ways to increase the viability of this activity in the hope that it would provide opportunities for independent income growth both for the poor as individuals as well as poor nations as regions. On the other hand, those who see IEA as "disguised workers" see it simply as a way in which the poor are mercilessly exploited and forced into even greater poverty, a process that would logically be exacerbated by the very policies suggested above.
Not only does this question imply opposite policy implications for development projects oriented towards improving living standards for the poor, it also reflects a macroeconomic concern. If the UIE is entrepreneurial, it should be expected that growth in the size of the UIE in a given region reflects demand-led evolutionary growth and a net positive gain for the economy as a whole. On the other hand, if the UIE reflects exploitative avoidance of work norms it would seem to reflect supply-led involutionary growth as individuals are forced into the UIE due to the lack of other alternatives in the economy, thus reflecting a net decline in incomes in the economy. While several authors have noted that both patterns may be present within the UIE depending upon regional factors as well as the specific relationship between specific local UIE activities and the formal economy (Bromley 1978; Castells & Portes 1989; McGee 1973), a model for defining "entrepreneurship" and "exploitation" within the sector is lacking.
This article will present a conceptual model that can be used to operationalize the question of whether specific "self-employed" individuals operating within the UIE may be considered to be "entrepreneurs" or "disguised workers". It is paradoxical that despite the importance of the "entrepreneur"/"exploitation" debate in the literature no formal mechanism has been proposed to date to reliably measure the degree to which entrepreneurial activity exists and thus to test the assumption within the literature that "entrepreneurs" within the UIE indeed have higher incomes or better growth opportunities than "disguised workers." This is all the more surprising since such a test would seem to be crucial to determine the conditions under which non-exploitative relations within the UIE could be promoted to maximize income and growth potential within the third world and even first world economies where informal economic activity is growing. The "policy implications of informality", as Portes, Castells & Benton (1989) put it, therefore depends on an issue that has yet to be operationally defined.
The term "informal economy" or "informal sector" has come under criticism because of the "fuzzy" definition of the term. Peattie (1987) has argued that the term has resulted in an ill defined literature largely because it serves the interest of various different groups within the academic and development communities, and suggests that the term itself be discarded. Bromley (1990) provides a similar although not quite as pessimistic argument. This author cannot share the pessimism expressed by Peattie about a term that, despite its flaws, has at least focused the attention of researchers on the problems and economic strategies of a large proportion of the world's population who were previously consigned by anthropologists to the ignomy of being labeled "irrational traditionalists" and to the fate of being ignored or at worst displaced by development planners. Rather, it is argued that the problem with the term "informal economy" has been the lack of theoretical consensus around the meaning of the term "informal economic activity" and the lack of reliable conceptual models by which to answer the crucial but hitherto fruitless debate about the degree to which IEA are "entrepreneurs" or "disguised workers" which in itself would open up many fruitful areas of research and policy analysis.
While this article attempts to answer the second problem, it is also appropriate to at least state the theoretical definition of "UIE" that is used by the author, even though there are no plans to force a consensus on that issue. Indeed, it may be useful to continue with a "fuzzy" concept for several more years rather than risk the danger of a premature closure of enquiry about the range of issues and concerns to include within it. For the purposes of this article, then, the definition of informal economic activity is that expressed by Castells & Portes (1989). That is, it is taken to be those economic activities that take place outside the normative legal framework within which modern states attempt to regulate economic activity and worker-employer conflict in modern society. Thus, the question of the entrepreneurial or exploitative nature of informal economic activity is paramount in determining the usefulness of the concept itself and the approach that development planners and academics should take towards it, since this should guide us in arguing whether the state should encourage or discourage such activity.1
To date, the literature on the UIE has tended to use income or productivity as signs that IEA are exploited or entrepreneurial. Thus, arguments that IEA are exploited tend to rely upon the perception that they have low incomes, while evidence of high incomes within certain sectors of the UIE is often used to indicate that they are entrepreneurs. In fact, such an argument conflates cause and effect, since there is no independent measure of the entrepreneurial quality of the IEA involved. In fact, as we well know from the formal economy, while entrepreneurs may earn more than wage earners on average, many upper middle class managerial and professional wage workers earn more than many entrepreneurs. At the same time, the issue of productivity has turned out to be a conceptual black hole. While selling vegetables in a street market may be arguably less "productive" than building pick-up trucks, what is to be said for many far more lucrative and growth oriented professions as university professors, movie stars and politicians? Perhaps garbage scavengers are in some sense more "productive" than any of the above, since they provide not only essential raw materials but also the essential service of reducing land-fill needs? "Productivity" is a value-laden term that only makes sense in comparing the quantitative production of qualitatively similar values. One orange vendor may be more "productive" than another if he or she sells more oranges, and one movie star may be more "productive" than another if he or she stars in more movies of a given quality, but comparing productivity across occupations is a futile exercise unless the equally value-laden measure of relative incomes is used. Not only would this approach simply serve to unquestioningly reproduce the values that society as a whole relegates to different activities through the market place, it would also return us to the previous problem.
Thus, it is necessary to provide a separate method for operationally defining entrepreneurship in research on the informal economy. Turning to the definition of the term itself, two criteria can be used: 1) the risk-taking provision of "new" goods or services (innovation) and, 2) individual initiative. The first criteria is difficult to measure qualitatively or quantitatively. Obviously a space rocket is "new", but what about a fast-food restaurant? While such places did not "invent" the hamburger, they gave it a new "presentation" and above all carry them to a multitude of new locations (each implying a certain amount of calculated "risk"). In the same regard, can we consider a candy vendor who is the first to place his stall outside a school as an "entrepreneur" because he or she provides a "new" location? And what do we say about a hamburger vendor who follows? If a new candy vendor follows the first, providing competition and lowering prices, does this also constitute entrepreneurship? Which of the above are "entrepreneurs" and which are not would seem to depend upon the observer's definition of whether the "entrepreneurs" are actually providing a "new" service, and could vary from none of the above (since all ideas flow from previous ones) to all (since all make minor variations on a theme). This criteria, then, cannot help us in distinguishing between "entrepreneurs" and "non-entrepreneurs" in terms of reliable inter-subjective criteria.
As a result of these problems, Light (1994) argues persuasively that innovation cannot be used as a reliable measure of entrepreneurship, and advocates the use of "self-employment" as a sufficient measure of the concept. But the problem arises in the context of the above debate that such a term ignores by fiat the possible existence of a class of "disguised workers" who are legally self-employed in the sense that they have no "employer" who has legal and social obligations towards them, but are at the same time so dependent upon a single contractor that they effectively operate as an employee. Thus, homeworkers who work on piece-rates in their own homes on material brought to them by a contractor would consider themselves "self-employed" because they lack the guarantees of a de jure employee relationship, but are not "entrepreneurs" but de-facto employees of the contractor.2
The second criteria may also seem difficult to measure reliably at first sight. After all, how do you measure "initiative"? However, by transposing the concept of "independence" with "initiative" under the assumption that taking independent action requires and thus implies individual initiative, a highly similar concept can be measured that could be argued to be almost identical for our purposes. To take an example, a formal wage worker, as recognized by all major strands of social theory, is dependent upon his employer for both material and capital goods to work with and also upon the employer to guarantee the value of his labor power and thus absorb the immediate risk involved in economic activity. Likewise, an informal "disguised worker" would be defined by these criteria as one who is dependent upon a single company or broker for the source of material and as a client for his or her products.3 On the other hand, an entrepreneur would be one who is independent from any single supplier or client and thus takes the initiative in developing, producing, or merchandizing products that he or she feels are profitable for a given market niche. Thus, the degree of "independence" of informal economic actors can be used as a reasonable facsimile of the degree of "entrepreneurship" that the actor embodies.
As can be easily noted, this definition really provides a number of dimensions of "independence". I will concern myself with two here: independence from suppliers and independence from clients. While neither form of independence is absolute and are best thought of as a continuum, as I will discuss further below, these two dimensions combine to produce four "poles" of dependence/independence ranging from complete dependence on both dimensions to relative but never absolute independence on both dimensions on the other4. The combination can be shown in a simple 2 X 2 matrix, after which a brief description of types of informal economic activity that fit within each pole will be provided for purely illustrative purposes.
| One Supplier | Multiple Suppliers | |
| One client | Pole A: ONE CLIENT & ONE SUPPLIER (disguised workers) |
Pole B: MULTIPLE CLIENTS BUT ONE SUPPLIER (sales commission) |
| Multiple Clients | Pole C: ONE CLIENT BUT MULTIPLE SUPPLIERS (sub-contractor) |
Pole D: MULTIPLE CLIENTS AND MULTIPLE SUPPLIERS (entrepreneur) |
"Pole A": These are the most likely to be "disguised workers". The best example are the "putting out" systems that have been extensively researched in the literature (Lomnitz 1977) within the garment industry as well as other industries where the IEA is provided material and sometimes equipment within their own home and are then paid a piece rate by the same people, who therefore operate both as their supplier and only "client". It is not difficult to see that these individuals are entirely dependent upon the broker or factory that provides their work, and the only difference between them and in-factory workers is that they are excluded from the legal protection and norms that are supposed to be enforced in factory labor and thus typically receive low salaries and no benefits of formal employment, as well as being unable to organize with their fellow workers because they are excluded from a central work place. As a result, such workers have little opportunity to manipulate the conditions of their work and pay through individual initiative except by working harder and including the labor of other dependents of the household. Furthermore, since the single "supplier/client" can manipulate all the economic conditions within which they work, the piece rate itself can be used to force such extra labor, thus increasing the level of primitive exploitation of the workers.
"Pole B": Essentially, IEA who have a single supplier but multiple clients are in the position of salespeople working on commission. Bromley (1978) notes that ice-cream vendors in Cali Columbia fit into this category because they are compelled to rent carts from specific ice cream companies which obliges them to only sell the products of that company. Since the price of the ice cream is standardized, the end result is that a fixed percentage of the total sales go to the company, leaving the vendor with a fixed "commission". Another example is provided by electronics vendors in the Tepito district of Mexico City, where sophisticated electronic equipment such as stereos and TV sets can be purchased. These are provided to the vendors by wholesalers on credit. Once a sale is made, the vendor pays the wholesaler the set price previously agreed upon and pockets the rest of the final retail price arranged with the client. In these situations it is easier for the vendor to use initiative in sales technique and territory to increase their gross sales and thus their level of income. Where the price of the product is not standardized, additional income may be made by improving the "presentation" of the product and thus increasing the retail price and the effective "commission". In either case, an opportunity for returns to initiative exists that, albeit limited on the supply side, may allow "successful entrepreneurial" vendors to expand or move up the retail chain.5
"Pole C": IEA who have multiple suppliers and a single client are in a similar position to those in "pole B", with the difference that the constraint is monopsonic rather than monopolistic. The best example are informal subcontractors who have multiple supply sources. Particularly when small amounts of social (skills) or economic capital are needed by the subcontractor, these can be easily replaced by the contractor, allowing the latter to keep prices down. Perhaps a curious example, given the fact that they are often seen as the poorest of the poor, are garbage scavengers who collect recyclables door-to-door or pick them our of garbage dumps. Yet even scholars who describe them as "self-employed proletarians" (Birbeck 1978) note that they have certain options available to them that piece-rate workers do not have. For example, Birbeck notes that while brokers monopolized the trade of specific recyclable commodities in the Cali garbage dump, scavengers could shift their emphasis to whatever recyclable goods offered the highest prices relative to their availability on any given day. Furthermore, by blocking access to the dump, scavengers can increase the returns for themselves by increasing scarcity. Finally, there is the potential for scavengers to hoard low-priced recyclables against an increase in their value. Thus, while still not appearing to be a high-earning occupation, certain opportunities for initiative do exist even among garbage scavengers that can allow some movement up the supply chain to become brokers.
"Pole D": The highest level within the UIE in terms of independence is that of the "entrepreneur" who has multiple clients and multiple supply sources. The best examples are independent retailers, workshops and garages that service communities or small businesses and at the same time have access to multiple competing suppliers. While not large enough to make bulk purchases, they can still shop for the best combination of cost and quality for their market niches and their multiple clients prevent them from becoming too dependent on a single client who could force down their prices artificially. This is where growth potential should be highest. A good example are fresh food vendors in Mexico City who, with a large turnover and access to large wholesale markets are easily capable of a cash-and-carry relationship with suppliers.6
When they are independent on both dimensions, vendors can increase their margins subject only to the supply and demand curves in their respective markets. While this entails risk, the initiative of the vendor is frequently rewarding and allows for expansion. Such expansion is not necessarily upwards into the formal economy or as a wholesaler, however, since it is often more profitable to expand laterally by setting up new stalls in different areas of the city manned by family members or employees. Vendors in Mexico City seemed to prefer not to move into fixed stores or market buildings, for example, largely because it would imply greater control over their activity and also mean a different type of relation with clients.
It is not the intention of the above illustrations to argue that every vendor in a given type of activity will be a "disguised employee" or an "entrepreneur". Rather, the examples given are general, and need to be tested with empirical data using this new conceptual model. The number of suppliers and clients that an individual informal economic actor has would be the primary determinant of the degree to which they are "disguised workers" or "entrepreneurs". For example, a woman sewing in her home for several different "putting out" brokers would be more "entrepreneurial" than a homeworker who is dependent upon just one. Likewise, a fresh food vendor who was dependent upon a single supplier would be in the position of a "sales commissioner" of "Pole B".
The measurement of the number of suppliers and clients that an informal economic actor has, however, is a much better measure of "independence" or "entrepreneurship" than two other measures that have been frequently used: credit dependence and number of employees. Questionnaires that ask IEA about the amount of credit they rely on ignore the fact that a single individual could get credit from many different suppliers, and thus maintain their independence from any single one, while an individual who is forced to buy from a single supplier is dependent upon that supplier even if credit is not provided. Thus, credit may be a strategy by suppliers to attract IEA and even to create dependence in some cases, but it does not by itself constitute that dependence.7 At the same time, the question of the number of employees an individual has overlooks the relationship of the individual with clients and suppliers. While having a large number of employees may seem to be, and often is, a sign of success, that success may still be limited by dependent relations on either of the two dimensions used here. Thus, a woman sewing for a "putting out" broker in her home may employ other family members in the work, but this does not make her an entrepreneur. Subcontractors also frequently hire employees (as may vendors working on a commission) but this still does not deny their semi-dependence upon their client or supplier.
Other factors obviously also affect the earnings and growth potential of individual IEA and regional UIEs. It is not the point of this article to argue that only independence is important to success. After all, not all entrepreneurs or (wage workers) in the formal economy are equally successful. These factors can be both individual or macroeconomic in nature. The most important individual factor is the amount of capital--both economic and social--that is directly owned by the informal economic actor. For example, a woman sewing in her home on her own sewing machine can sell her services to several different brokers and thus increase her independence, whereas one who relies upon a broker for the machine will not be able to diversify in the same way. For subcontractors also, the amount of capital that the subcontractor owns for him or herself can increase his or her bargaining position with the contractor if this capital is necessary for the production process, since it makes it harder for the contractor to find alternative subcontractors and stimulate competition to lower prices. Transportation is another important feature that increases independence: vendors who have a private car or truck can more easily go to wholesale markets where goods are cheaper, and even garbage collectors who are mobile can collect and carry their recyclables more effectively to final consumers, or even take on a role as middlemen. Since obtaining such capital obviously implies risk and individual initiative, it should continue to be considered a measure of entrepreneurship, but it should be considered as secondary or complementary to the question of "independence".
Macro economic factors also are important on a regional basis. To the extent that large numbers of individuals enter the UIE the supply of IEA will increase relative to demand, and thus may cause a drop in prices for their labor. At the same time, a raise in demand for products produced by the UIE will increase the same prices. But the potential for IEA to actually stimulate demand should not be overlooked. To the extent that IEA are independent and thus are able to take their own initiative to extend their potential markets, this independence should actually lead to market evolution and a self-stimulating growth pattern.
A more middle-range factor would be the level of competition between suppliers and final consumers for the UIE, and this may provide one immediate area for intervention for development planners. Large wholesale markets provide vendors or petty-producers with greater choices about the quality and cost of goods that they can purchase for resale or as productive inputs, increasing their independence and allowing them to service their market niches more effectively. On the other hand, an increase in the number of firms purchasing recyclables could increase the level of independence of garbage collectors.
At the same time, political factors should not be overlooked. When garbage scavengers organize to block access to "their" garbage dumps (Magee 1983) they are in effect behaving like trade unions operating a "closed shop" and increasing the scarcity of labor politically. Street vendors and informal transport operatives also organize in many cities along the same lines, carving out special market zones and routes for their members, which incidentally leads to evolutionary growth as clients are attracted to the services they offer.
Finally, state regulation is an important factor recognized by many authors (Bromley 1978; De Soto 1989; Castells & Portes 1989; Fernandez-Kelly & Garcia 1989). De Soto's illustration of the "costs" and "benefits" of formality and informality are important in the sense that these costs and benefits affect different types of industries and different sizes of enterprises in different ways, and are in themselves dependent upon the nature of formal regulations and the degree of their enforcement. Thus, changes in these factors will have multi-faceted effects upon different types of formal and informal actors in potentially unforseen ways that may affect some types of enterprises positively while affecting others negatively.
Each of these issues requires further detailed study in their own right. By clarifying the definition of entrepreneurship in terms of the two dimensions of dependence/independence discussed here this study should be more fruitful, however.
The benefit of this model of dependence/independence is that it takes two variables that are each fairly simple to measure in a survey instrument and thus allow "dependence" and "independence to be measured along a continuum that can be used in comparative and covariate analysis. In practice, this can be expressed as the "degree of independence from clients" and the "degree of independence from suppliers". If respondents are asked the number of suppliers and clients they have, either as a nominal variable or, more practically in most cases, as a set of ordinal level categories (1, 2-5, 6-10, 10+, for example) the lowest level on both dimensions would be a one and the highest would hypothetically reach into infinity. For comparative purposes, however, a standard scale from 0 to 1 might be more useful. In this case, respondents could be asked to state the approximate amount of their supplies or demand that come from their largest supplier or customer as a percentage of the total value of the relevant dimension. After subtracting one and using the absolute value of the result, this could then be used as an index going from 0 (indicating 100% dependence on a single supplier or customer) to approximating 1 (indicating that the largest supplier or customer accounted for a percentage approximating zero of their total supplies or demand, and therefore relative independence from any one supplier or customer). Thus, using this scale, 0 would indicate complete dependence while the higher the number would indicate greater independence.
The other advantage of using such a scale would be the ability to create a crude "Index of Entrepreneurship" by adding the result of the two scales and dividing by two. Thus, the scales and the index could be constructed by following the equations:
IS = |ps - 1|
IC = |pc - 1|
IE = (IS + IC)/2
where IS represents the scale "Independence from Supplier"; IC represents the scale "Independence from Client"; ps represents the percentage of goods purchased from the most important supplier in terms of actual cash paid; pc represents the percentage of goods sold to the most important client, and; IE represents the Index of Entrepreneurship.
To give some idea of how the scales and index would work in practice, a number of purely hypothetical examples would help.
1) A street vendor who purchased all his goods with one supplier (100%) but had numerous customers, the most important of whom accounted for approximately 3% of his sales, would have the following values:
IS1 = |1 - 1| = 0
IC1 = |0.03 - 1| = 0.97
IE1 = (0 + 0.97)/2 = 0.485
2) A subcontractor who had a single client (100%) but who has a number of different supply sources, the most important accounting for 20% of his supply purchases, would have the following values:
IS2 = |0.2 - 0| = 0.8
IC2 = |1 - 1| = 0
IE2 = (0.8 + 0)/2 = 0.4
3) A street vendor who had several suppliers, the most important accounting for 30% of the value of his supplies and numerous clients, the most important accounting for 5% of his sales, would have the following values:
IS3 = |0.3 - 1| = 0.7
IC3 = |0.05 - 1| = 0.95
IE3 = (0.7 + 0.95)/2 = 0.825
4) A homeworker who worked for a broker who supplied all his or her material and purchased all the products would have the following values:
IS4 = |1 - 1| = 0
IC4 = |1 - 1| = 0
IE4 = (0 + 0)/2 = 0
5) But a homeowner who worked with two (or more) brokers, the most important accounting for 60% of her material and purchases would have much higher values, to wit:
IS5 = |0.6 - 1| = 0.4
IC5 = |0.6 - 1| = 0.4
IE5 = (0.4 + 0.4)/2 = 0.4
The following "distribution" would then occur:
IE4 (dependent homeworker)= 0
IE5 (independent homeworker)= 0.4
IE2 (subcontractor)= 0.4
IE1 (sales commission vendor)= 0.485
IE3 (independent vendor)= 0.825
While it may seem paradoxical that the "independent homeworker" attains an equal score as the subcontractor (and almost as high as the sales commission vendor), and in fact may even score higher if he or she has many different brokers with whom to work, lowering their dependence on any single one, this reflects the fact that the subcontractor is absolutely limited on the client side (while the sales commission vendor is absolutely limited on the supply side). Thus, the homeworker in this condition would actually have more of an ability to move between different brokers and prioritize the work he or she does in terms of relative profitability.
Of course, the "Index of Entrepreneurship" may not always be the best way to summarize the issue of independence. In many cases, it may be more useful analytically to plot the distribution of a given population of IEA within a two-dimensional plane according to the IS and IC scales. Thus, it can be found that different "categories" of IEA tend to "bunch up" along one or the other dimension. Assuming that the above "illustrations" were correct, for example, we should expect that most "garment home workers" would bunch up around the coordinates (0,0) on the (IS,IC) plane, most "subcontractors" would bunch up around the (1,0) coordinates, most sales commission vendors would bunch up around the (0,1) coordinates, while most "fresh food vendors" would bunch up around the (1,1) coordinates. By using other categories of vendors (such as income, sex, age, experience, etc.) the relationship between these variables and degree of independence could be tested, providing a test of the utility of these measures of entrepreneurship. Can we say interesting things about "entrepreneurs" using this model that were obscured by the broader definition of "self-employment"? Do IEA who enjoy more independence earn more money. Do they have achieve greater growth over time? Are there differences in the general level of independence between different occupations that might explain different income levels? Are women more likely to be stuck in "dependent", and consequently lower earning, occupations within the informal economy?
Finally, it may in some cases be more useful to analyse the question of independence with a qualitative methodology that can take into account the broader dimensions of dependence/independence in a given region and/or sector of the informal economy. Such an approach could compare the number of potential suppliers or clients for a given sector of the informal economy between different regions or compare different sectors within the same region to see whether greater choice is correlated to broader growth, either in terms of growth in the sheer number of IEA or their economic size. For example, controling for other factors, we should find that increases in the number of suppliers or clients in a sector of the informal economy leads to an increase in profitablity or gross number of IEA in that sector.
Three validity problems also emerge which could be dealt with by creating an index of several different questions based upon the same issue. For example, the above measures would be very sensitive to the period of measurement. A workshop may have only one client on a given day (indicating dependence), but several different clients over a period of a week or a month (indicating independence). Thus, it would be important to ask IEA for the number of clients and suppliers that they have over a fairly broad period of time. The problem emerges when considering the unsteady nature of IEA work. Simply put, IEA may not know over a period of a month the number of clients or suppliers they had, let alone the exact percentage of goods they bought from or sold to each. Thus, a short period of time would be more exact, but would over- emphasize dependence, while a broad period of time would more accurately measure independence, but would be less reliable. It is suggested, then, that investigators ask about the number of suppliers and clients over several periods of time (yesterday, last week, last month, etc.) to create a composite index.
Similarly, a difference emerges between actual clients and suppliers and potential clients and suppliers. For example, a vendor may purchase goods from one source because they are the cheapest relative to other potential sources. Thus, while appearing dependent according to the above measures, they would in fact be independent, since other options do exist for them. While potential suppliers and clients are difficult to deal with exactly, it would be relevant to also ask IEA about the number and relative accessibility of alternative suppliers and clients. Those who have such alternatives readily available will be much more independent than those who do not, but the issues of "availability" are not easily quantifiable. The primary benefit of raising this question, therefore, would be to provide a control upon the main analysis based upon the above scales and index.
Thirdly, it is important to include within any analysis of independence some measure of the "career path" of IEA. For example, a vendor may begin by contracting to sell the goods of a single supplier, and later expand into selling those of other suppliers, thus showing a progression over time from dependent status to greater independence. To the extent that the objective of this model is to identify those IEA who have the greatest capacity for expansion, it is important for it to recognize precisely the conditions and characteristics associated with this progression. It is important, therefore, to test the progression of "independence" over time with other measures of success and expansion. Questions about "career" paths are therefore necessary, and for a definitive study a panel analysis would be ideal.
These validity issues would of course be less compelling in a qualitative analysis that was able to follow a number of IEA over time and provide a broader understanding of the market sector with which they interact.
Other types of Entrepreneurs in the Informal Economy At the same time, it is important to recognize the existence of other types of entrepreneurs within the informal economy that would not be measured by the model discussed in this article. For example, the "labor brokers" discussed by Lomnitz (1977) who provide casual laborers for formal companies among their local kinship and neighborhood networks could be considered a special type of service entrepreneur that would be invisible because they are not recognized as "enterprises" at all. The same is true for brokers who manage "putting out" systems by functioning as intermediaries between garment factories and women working at home.
Likewise, certain sectors of the informal economy have spawned a class of "political brokers", leaders of organizations of IEA who act as intermediaries between IEA and local authorities. This type of political entrepreneurship is particularly common among street vendors, informal transport operators and land invaders who need at least tacit permission and cooperation from authorities to be able to establish stable market zones, transport routes and residential zones that are crucial in order to build up a client base or to be able to begin permanent construction. The role of political brokers has emerged precisely because of the informal nature of these activities, although there is some similarity with the role of lobbyists and union bosses in the formal economy. Like lobbyists, they negotiate with officials, although the area of negotiation is typically not the writing of laws themselves but rather the nature of their enforcement. Like union bosses, they control access to the work areas, thus increasing the value of commercial or residential space, and also guarantee the value of work space by blocking official intervention.8
While charges of corruption are rampant in many cities because of the large earnings of many of these brokers, it must be kept in mind that they do provide a real service for the IEA who are members of their associations. While they typically run their organizations like personal businesses, they must also respond to the needs of their members in most cases. As one street vendor leader in Mexico City noted, when asked whether she supported the relocation of her members to new areas, she had to negotiate carefully because if the area wasn't commercially viable "the leader will be ... broke, without people." The fact that multiple competing leaders existed in close proximity meant that vendors could simply move to another leader if one did not provide adequate "services", much as a formal businessman might move to a new shopping mall if the one they were in didn't attract enough customers.
The benefits of the methodological model of dependence / independence described in this article is that it will provide an intersubjectively reliable measure of "dependence" and "independence" and thereby an indirect measure of "disguised worker" or "entrepreneur" status that can be used to find out the conditions and sectors in which entrepreneurship exists in the informal economy and therefore test the assumption that it really can lead to higher incomes and growth opportunities. Thus, it can serve as a methodological guide for research both geared to an academic understanding of the IEA and its effects as well as a guide for future development programs that hope to promote beneficial forms of informal economic activity while transforming those forms that result in dependence and exploitation.
Back to Theoretical Papers