“The country has become used to living with informality as something natural.” -Mauricio Cardenas, economist at the Brookings Institution
“Working informally means that you don’t have the help of a company behind you. I’d have liked a formal job, but this was the best I could do.” -Worker in the informal economy of Bogota.
CARTAGENA, Colombia- “These people breath commerce,” I said to nobody in particular as I looked out from a hotel balcony into the streets of Cartagena. It was the prime of morning, and men pushing carts full of vegetables were rushing to vie for a good position in front of the super market to sell their produce, women were walking briskly with baskets of fruit on their heads, a group of young guys strode by with boxes full of cellphone, radios, and other electronic spare parts in their arms, a couple of young boys began their day with a bristle brush and a rag in one hand and a tin of shoe polish in the other, while a fat man with a sparkling big gold chain and teeth to match shoved a wad of cash under the nose of some tourists.
“2000 for a dollar,” he says. Not a bad rate of exchange.
These are all workers in the independent economy of Colombia. Otherwise known as hawkers, street vendors, shoeshine boys, and money changers these unregulated laborers sell their wares and offer their services to all who pass through the urban streets of this country. The sheer presence of the informal economy of Colombia is staggering, at times it is difficult to walk down a city street because of all the people selling this, that — anything — have their goods splayed out all over the sidewalks.
It is clear from simple observation that an incredible amount of Colombians work in the informal economy, but I was still floored when read the actual statistics: 60% of the Colombian workforce is now unregulated, under the table, off the books, informal.
“Indeed, the informal economic sector of Colombia has seen increasing proportions of both men and women, rising from 60 percent of women and 54 percent of men in 1984 to 61.6 percent of women and 60.4 percent of men in 2000,” wrote Annette Tomal and Lacey Johnson in an article entitled Earning determinants for self-employed woman and men in the informal economy: the case of Bogota, Colombia. These figures were echoed by a recent story on BBC News:
“At least half of Latin American workers are considered informal, whether the term is taken to mean jobs in small, unregistered firms or wherever labour standards are not met. In Colombia, informal workers are estimated to make up 60% of the workforce, five times the unemployment rate of 11.5% (itself considerable).” –Waiting game for Colombia’s informal workers
What is the informal economy?
The informal sector or informal economy as defined by governments, scholars, banks, etc. is the part of an economy that is not taxed, monitored by any form of government, or included in any gross national product (GNP), unlike the formal economy . . . The English idioms under the table and off the books typically refer to this type of economy. –Informal sector
The term informal economy covers a set of heterogeneous activities, from unpaid labor to any number of unregulated salaried jobs. . . Some analysts consider the informal sector as the disadvantaged segment of a dualistic labor market and see today’s expansion of the informal economy as part of a more general deterioration of labor market conditions (Tokman, 1992; Klein and Tokman, 2000). Others view informal economy as unregulated income-earning activities closely related to the formal sector (Portes, 1997). Yet others see in the informal sector signs of incipient entrepreneurship and an escape from state regulation (Maloney, 2000). For others analysts, informalization is not a recent phenomenon but it is a long term, large scale, and systemic phenomenon of the capitalist world-economy (Tabak, 2000). -Carmen Elisa Flórez, The Function of the Urban Informal Sector in Employment: Evidence from Colombia 1984-2000
The informal economy — or informal sector as it was once called — is a blanket term used to describe all work or economic exchanges that occur without direct government monitering or taxation. Workers in the informal economy of a country can be anything from the operator of a small business, a day laborer,an under the table employee to a street vendor, a garbage recycler, a sweat shop laborer, an odds job specialist, or a worker in a myriad of other occupational sects. The definition of what constitutes the informal economy of a country is broad, but it is basically a term of negation: if an economic interchanged is not logged into the tax books or lies outside of the direct monitoring of government, it is more than likely considered informal.
Life in the informal economy
Workers in the informal economy sell their goods and offer their services in the raw, they are economic free radicals who are able to sway with the winds of commerce and, out of necessity, strive to fill any gap in the economic system that they can find and exploit.
Oftentimes, niches open up in the informal economy open up if a vendor can make commercial interactions cheaper and/ or more convenient for the consumer. Informal workers can often ply commercial operations by taking advantage of their lack of overhead and regulation and make use of their freedom of mobility that is not obtainable in the brick and mortar formal commercial sector.
In point, an informal beverage seller can walk through the streets of a city selling products from a cooler directly to the consumer. This vendor has the ability to go TO his customer rather than needing to attract the customer to him. In this way the independent vendor can often strip away the bonds of location, bring products directly to the consumer, and exploit an economic niche left open by stores and shops that are anything but mobile.
There are two kinds of predators in the animal world: the stalkers and the baiters. The stalkers go after their prey, identifying them and approaching them directly; while the baiters attract their prey to come to them. The traditional economy is made up of stores and shops that must bait customers with advertisements, good locations, and flashy storefronts; while the informal economy can stalk their customers directly, bringing their product directly to the consumer.
In many cities in Latin America you can buy refreshments, reading material, movies, and food without ever needing to leave your car: you roll down your window and the informal economy comes to you.
The paradox is thus arranged: the formal economy, in theory, has items for sale of such a value or demand that they can bait customers in to purchase them, while the informal economy typically vends commonly available, cheap items, and must therefore go directly to the buyers — nobody is going to take a bus downtown to buy some chewing gum from Juan selling on the street corner. Like this, the lines around the informal and formal commerce begin to take shape.
Vendors in the independent economy of many countries often sell their products in areas that are officially designated as public space. One of the prime dichotomies between the formal and informal economies is that the former operates in the private sphere while the later functions in public. The ingenuity of the informal economy is that it transforms the public sphere of urban areas into business sectors: the streets become shops, parks become shopping malls, and the areas surrounding store fronts become markets for informal operators selling similar items. In places where the informal economy flourishes, entire cities are rendered fertile ground for commerce. The informal economy bridges the gap between public and private sectors and creates a no holds barred sphere of commerce.
The informal and formal economies often work in tandem to constitute the complete economic system of any country. Capital flows from the formal economy into the informal and back again over and over.
The informal sector of Colombia
Colombia’s informal economic sector is heterogeneous; it encompasses direct subsistence workers (self-employed, unpaid family workers, and domestic servants who are usually the lowest paid workers), (7) informal salaried workers, and informal entrepreneurs. The direct subsistence group has a higher proportion of women and lower educational and earnings levels; the self-employed in this group are often street and market-stall vendors. (8) About fifty-five percent of workers in Colombia’s informal economy are self-employed. In fact, almost all self-employed workers in the entire economy (ninety-two percent) belong to the informal sector. – Annette Tomal, Lacey Johnson
According to World Bank data, there are roughly 19 million people in the workforce of Colombia, and, if statistics relating to the informal economy are accurate, this means that there are currently over 11 million people working in Colombia’s informal sector. With an unemployment rate of 11%, or 2 million people, the workers in the formal sector of this country are in the stark minority.
Typically, there is a pattern that people involved in the informal economy of Colombia will follow throughout their lives. It is sometimes called the life-cycle theory, which attempts to show how workers flit between the informal and formal economies throughout their working lives. The theory states that young workers will often start out in the informal economy but as they gain more experience, age, and contacts they tend to move into the formal sector, just to return, in their older years, back to informal work.
This pattern can be readily observed in Colombia, as most of the street vendors and other workers in the informal economy are either kids or young adults or older people of around 40+ years. Between the ages of 20 and 35, the worker class of Colombia often engage themselves in formal employment.
Many in the independent economy of Colombia say that they are involved in el rebusque, meaning literally, “the big search.” Often, informal work is seen as a temporary deployment to stave off unemployment while a worker looks — or waits — for a job in the formal sector.
Coffee and beverage street vendors
I was walking down a side street at the edge of the Getsemani district of Cartagena when I saw a crowd of men with beverage carts standing around the open doorway of a shop. Their carts were mostly simple affairs — generally just a cooler attached to a metal frame with wheels. I walked up to a couple of the men and introduced myself. One of them, who I will call Antonio, shook my hand and had the man sitting next to him pour me a shot of coffee from a thermos that he pulled out of his cart. I took the little plastic shot cup and began asking the vendors about their work.
Antonio told me that he was the owner and manager of the beverage cart that my coffee came from, and the guy who poured it was his employee. I initially thought that he was telling me that he ran an entire network of carts that jettisoned around the city selling beverages, but when I asked him how many carts he had he just pointed to the one in front of us. He was the owner of a single cart, and he had just one employee who would go around the city selling coffee, beer, and soda for him.
I asked him how he got started in this business, and he said simply that he just bought a cart and then hired the other guy to run it. Nothing to it.
We continued talking about working in the informal economy of Cartagena, when suddenly he stopped talking and looked at me:
“Do you want to do this job?” he asked.
“Yes, how could I get a job doing this?” I replied.
“It’s easy, just buy a cart.”
He then explained how I could join the informal economy of Cartagena just by obtaining the standard tool of the trade: a street cart.
“Could I work for you, I could sell drinks to the foreigners?” I asked.
“You should just buy your own cart, they are not very expensive,” he said with a laugh. “If you go around the corner you will find a shop that makes them. Just have them make you one. But you should get a big cart, one that you could sell shoes from.”
The other man nodded his head in agreement. Apparently, selling shoes from a street cart is seen as being a step up from vending beverages.
“Where do you get the things you sell in the carts?” I asked, figuring that I should get as complete an instruction in street vending as possible.
Antonio just pointed to a row of indiscreet looking shops that essentially served as resupply stations for the mobile beverage vendors. I later found out that many of these vendors own their carts but not the products they sell from them. They pick up cans of beer, bottles of water, and soda from such distribution centers and take a cut of what they sell.
I then asked Antonio if it would be a problem if I worked in Colombia because I am a foreigner and don’t have working papers. Antonio thought about this for a moment and then replied, “No, it is not a problem, nobody cares here, we are free.”
“What about taxes?”
Antonio just shrugged and shook his head no.
“What about the police, could they arrest me for working illegally?”
“The police don’t care,” he replied with a laugh.
I was finding that the informal economy of Colombia is nothing if not informal.
Street cart produce vendors
A person cannot walk down the streets of Cartagena without noticing the masses of mobile produce vendors who sell everything from watermelon to garlic off of large, wood plank carts. If someone did not notice these carts, they would stand a good chance of being run down by one, as they move through the streets like traffic. In any given place, there may be a half dozen to fifteen of these carts lined up one after another down a street or a virtual army of them huddled up around the entrances of supermarkets.
I began inquiring about how these vendors ran their businesses, and was told succinctly how it worked. In the morning the vendors take their carts to a supply point, buy their produce, and then spend the rest of the day trying to sell it in the streets. It did not seem to be a bad business to be in, as the informal produce vendors never seemed to lack customers. It probably helped that they were selling their produce for a fraction of what was being charged in the supermarkets. From my observations, many carts that were full at morning were pretty much stripped bare by nightfall.
Mobile phone minute sellers
Urban legend has it that a customer once asked a street vendor if he could use the vendor’s mobile phone because he needed to make an urgent phone call. The customer offered to pay the street vendor, who agreed to lend the customer his phone and sell him the mobile phone minutes. After that, the vendor decided to keep reselling his mobile phone minutes. He was so successful that other street sellers got into the act. –Street hawkers sell mobile minutes
Everywhere you go in Colombia you will see people sitting out on the sidewalks, in parks, and on the stoops of businesses holding one or more mobile phones in their hands. Sometimes they have a collection of cellphones dangling from strings around their necks. Often, they will have a hand made sign saying minutos either near them or otherwise affixed to their clothing. The most professional among them sit in a folding chair presiding over a little podium that is set up before them that contains their phones. These vendors are selling mobile phone minutes to customers who want to make quick phone calls but do not wish to use the minutes on their own phones
These mobile minute vendors essentially act as human phone booths: they sit in the street waiting for people to walk by who want to make a cheaper phone calls.
In Colombia, as in most of the world, you can pre-pay or post-pay for cellular phone usage. The former option is vastly more popular in Colombia, but what is interesting is that a large percentage of people leave their phones without usable minutes. Why? Because it is often cheaper to use the services of the mobile minute re-sellers than it is to buy minutes for their own phone themselves.
Like most places, incoming calls to a mobile phone are free of charge, you only need to pay when you dial out. With the price of cell phone usage ranging from 150 to 500 Colombian pesos per minute ($0.09 to $0.30) many people here us their phones practically, and many find it more economically viable to sublet minutes from the street vendors who buy them in bulk quantities and can sell them cheap.
In Colombia, the price of cellphone minutes are also set to the class of the neighborhood in which they are sold. In richer areas, it costs more to recharge a phone; in poorer areas, the expense is far less. So the mobile minute vendors purchase minutes where they are cheap and then take their phones to where minutes retail at a higher rate where they can undercut the commercial market.
These mobile minute street vendors essentially found a loophole in the system which they could exploit to make a livelihood.
How much money do people make working in the informal economy of Colombia?
This informal sector is very large in number and heterogeneous in nature. While some workers can occasionally earn several hundred dollars per month, others earn barely enough to survive. The members of this group include people engaged in over one hundred different kinds of poorly paid, unstable activities, such as street vendors, seamstresses, cobblers, maids, and gardeners. Their economic importance is highlighted by some sources which estimate that illegal sweatshops and cottage industries employ more labor than all the legal factories in the country.
-Jorge P. Osterling, Democracy in Colombia: Clientelistic Politics and Guerrilla Warfare
Due to its unregulated nature and very broad definition, calculating the earnings of various workers in the informal economy is next to impossible. But, as can be readily observed, most workers in the informal economy are from the lower classes of a country, and often consist of people who were cast off by the formal sector, or those aspiring to get into it. Due to the cheap and abundant nature of what is commonly sold and offered by the informal economy, most workers live a subsistence level of existence.
It is my observation that the earnings of many workers in the informal economy serve to supplement that of family members who work formally, and many relying on the incomes of these family members to make ends meet. But, that being said, there are many in the informal economy who etch out relatively decent livings. It is not an uncommon sight in Colombia to see a produce vendor pull out a massive wad of cash or large sums of money floating back and forth between off the books business associates. Perhaps do to the shear number of workers in this sect — over half the workforce of the entire country — the informal economy of Colombia has millions of dollars flowing in and out of it.
Criticism of the informal economy
Criticism of the informal economy often revolves around the fact that it is often a reaction to a country plagued by a lack of jobs, low wages, and urban migration, which results in people doing informal work which offers no job or social security, low income, and little opportunity for social mobility.
Where formal employment is lacking in the developing world the informal economy is often packed with self-employed workers — many of whom are owner/ operators of nickle and dime micro-businesses. Not having a social safety net to mope around in, the jobless of a developing country must come up with innovative economic schemes to make a living on their own volition. But these schemes all too often are not able to elevate their living conditions beyond basic subsistence, and only perpetuates poor living and work environments.
In all, a large informal economy is a symptom of a country with major economic ills and often severe disparities in wealth distribution.
Though it is my impression that, while certainly influenced by liberal economic policies and all the urban drift an other social issues that they create, the informal economy has always existed in one form of another in pretty much every clime of the world. The informal economy is a remnant of the most archaic forms of capitalism, and doing business outside of the oversight of government, informal vendors partake in a distinctly local market where money is cycled through a community.
As the formal economies of the world become more advanced, interconnected, global, and regulated, the informal economies remain unregulated and local.
These two major economic systems are moving in opposite directions, but one is always dependent upon the other. If it were not for the formal economy there would be a terminal lack of capital flowing into the informal sector, and if it was not for the informal sector providing jobs and livelihoods for the excess work force of developing countries then the neo-liberal policies of the formal economy would not be able to sustain their ever bludgeoning populations. The life of one economy is directly reliant upon the other. In fact, in the past ten years, the informal economy accounts for more than half of the newly created jobs in Latin America.
The unregulated economies of much of the developing world are mostly made up of the young, the old (40+), and women — people who are, for whatever reason, not prime hiring material in the formal markets of their respective countries. Like so, the informal sector provides people who would otherwise be unemployed with work and a livelihood. While it is true that the prevalence of people working in the informal economy of a given country is an indication of poverty, it is also a sign that the people there are trying to stem this tide and subsist on the merits of their own labor.
Webpages/ online academic papers:
- Informal sector
- Migration and the urban informal sector in Colombia
- The Response of the Informal Sector to Trade Liberalism
- Carr, Marilyn and Martha A. Chen. 2001. “Globalization and the Informal Economy: How Global Trade and Investment Impact on the Working Poor.”
- Carmen Elisa Flórez, “The Function of the Urban Informal Sector in Employment: Evidence from Colombia.”
- Jorge P. Osterling, Democracy in Colombia: Clientelistic Politics and Guerrilla Warfare