issue 173 - July 1987
THE SHADY WORLD OF
It's everywhere. Growing fast. Hiding well. But whose interests
does it really serve? Vanessa Baird investigates.
'CAN I have it in cash?' The plumber smiles broadly as he gathers up his tools and delicately tiptoes between the pools of water. 'To save me going to the bank, you understand.'
Of course. A nod and a wink. Making out, off-the-books is the order of the day. It fits the mood of the times. And complicity is appealing.
Maybe a few years ago people would have disapproved. This is cheating the system after all; a system that has provided you with education, health care, roads, even the clean water which now lies in puddles on the kitchen floor. But few complain nowadays. You have to admire the ones with the guts to go it alone and make something of their lives when times are hard, even if the ways they do so are not strictly legal. The right-wing romanticism of the 'self-made man' is back in fashion.
'Self-made women' you seem to hear less of. Perhaps there is a clue here. Women actually make up the bulk of underground workers in many countries. But they are largely invisible. That is until you knock on their doors. Then there is a sudden rustling of materials, a hectic ordering of children and an opening of the door only a fraction. Just enough to see a nose and one eye.
'Oh, it's only you.' She relaxes and opens the door wide. 'I always imagine it's going to be a tax-inspector!' A two-year-old is reaching excitedly out towards the hot soldering iron propped up against a saucer on the table. Meanwhile piles of brightly coloured resistors are proving irrestible to the four-year-old. There is a loud clatter as a stack of circuit boards comes tumbling down. This is piecework and it pays next to nothing. Of the 300,000 women estimated to be doing home-work in Britain today 72 per cent receive less than the legal minimum hourly wage, three quarters of those get £1 ($1.60) or less and some make as little as 20p (30 cents) an hour.1
More perplexing is the fact that although she gets all her work from one firm and has no control over the quantity, this woman describes herself as 'self-employed'. It suits the firm which has cut costs by firing regular employees and putting out work to people like her. This way the company doesn't have to pay national insurance contributions, worry about health and safety regulations, bother with sickness or holiday pay or any other statutory benefits. And it also enjoys the magical flexibility of a workforce which is there when it is needed and simply vanishes when it isn't.
Something is horribly twisted here. You have to ask yourself just whose interests this new 'tolerance' towards the underground economy is serving. Who stands to benefit from a growing reservoir of divided unprotected workers? And where is tax-dodging and myopic self-interest leading us? Some say straight to where most countries in the Third World stand today, with their dog-eat-dog labour relations and ever-widening divide between rich and poor.
But attitudes towards underground or informal work have been changing in developing countries too. On the face of it, this could only be a good thing. After all, just ten years ago in Lima, Peru, police were engaged in violent battles with poor hawkers trying to scrape a living on the streets. Similar things were happening in other countries.
To Third World governments, the presence of large numbers of people begging on the steps of bank buildings or roasting nuts outside five star hotels was an insult to the progressiveness of their new skyscraper cities. And the poverty of these people was an all too visible accusing finger.
Nevertheless their energy and inventiveness were getting some development experts excited. The kettle-out-of-tin-can-makers of Accra, the barefoot engineers of Bombay, and the hawkers of everything-under-the-sun of Jakarta were showing flexibility and perhaps even salvation for the Third World poor.2 But at that time, the early 1970s, most governments were having none of it, migrants, hawkers and barefoot business meant mess and that was that.
Repressive measures were, of course, ineffective. The desperation that drives the rural poor to cities in the first place is not going to be quenched by water-cannon, police batons, or bulldozers crashing through shanty-towns. The best the authorities could do was turn a blind eye.
But in Peru things took a turn in the early 1980s. This was largely due to a new set of studies in Lima that revealed that the informal sector accounted for 60 per cent of all economic activity and was - apart from the cocaine trade and the gold rush in the jungle - the only growth sector in a sharply declining Peruvian economy.3
Politicians sat up and listened.
Conservative Luis Percovich, then Interior Minister, went so far as to hail the barefoot business people as the harbingers of a 'new Peru'.4 Even World Bankers were saying they should be encouraged.
The Right had recognized the informal sector. But why? The studies had shown these suddenly visible 'informals' were at heart tiny capitalist individualists. Their ideology was perfectly correct. They were highly competitive, didn't belong to trade unions and lacked any notion of worker solidarity.
The benefits became clearer as companies, like the multinational Philips, fired their workers and contracted work out, often to the hundreds of small outfits that had sprung up in the surrounding Lima shanty towns of Villa El Salvador, Comas, or Independencia. This enabled companies not only to cut costs but also by-pass awkward labour-protection laws introduced during the time of the left-wing military dictatorship.
Informal labour relations tend to be more exploitative than those within the legitimate economy. Fly-by-night workshops only get contracts if they are prepared to do the work very cheaply. If sweatshop bosses are to be competitive they must pay their workers low wages for long hours, cut corners on health and safety and forget about such niceties as job protection. If there is a drop in demand the informal outfit has to carry the risks and absorb the shock of fluctuations in the market. The only people who really benefit from this are the larger companies that enjoy the benefits of both an informal workforce and government grants, loans and subsidies.
The same thing is happening in industrialized nations. Japan has taught much to the Western business world. It has been in the sub-contracting game for so long that about a third of Toyota or Nissan cars are to varying degrees made by other smaller firms.5 Italy is not far behind with companies that range from Fiat to the rapidly-growing fashion giant Benetton making use of women working in sweatshops or their own homes.6 California's Silicon Valley, home of computer high-tech, has more PhDs per square mile than anywhere else in the world. But it is heading for another record if the local newspapers are to be believed: that for sweatshops employing cheap, illegal, mainly female and immigrant workers who assemble the micro-electronics parts.7
In fact, sweated labour is making a comeback in the industrialized world. According to the New York Times it is very much a feature of the 1980s.8 The rate of recent discoveries of sweatshops in France, Britain, Italy and other countries suggest it is not just a North American phenomenon.9
Unpleasant though sweatshops may be, some argue, any work is better than no work. Otherwise people would not do it. If underground outfits had to go legal many of them would go bust, their profitability often lying in their clandestine nature. So why not turn a blind eye to it in a world dogged by unemployment?
Paul Almasy / Camera Press
But you have to look at just what is being established here. Sweated labour forces down the wages of all workers, whether underground or legal. It directly threatens the poor in proper jobs and in the long term does not help the poor in underground jobs either.
Others argue that because informals often work for themselves they are freer from exploitation than wage labour workers. This is something of a myth. Seemingly independent casual workers are often far from being so. Rubbish pickers on Mexican tips are controlled by garbage mafias. Shoeshine boys in South Korea hand over 85 per cent of their earnings to the crime syndicates that house and feed them.10 And even street vendors are often in the hold of middle-persons who are also their creditors.
For informal workers who genuinely do work for themselves the freedom of being your own boss does not often amount to much amid growing competition and soaring inflation. There are distinct shades of Groucho Marx's: 'I have worked my way up from nothing to a state of extreme poverty' about the lot of most poor informals in Third World cities.
Underground work is a tricky issue for all governments. Its very existence arises from failures in established economic systems: in the West the failure to provide enough jobs for people to do and in the Soviet bloc the failure to provide enough goods for people to buy. But it is ideologically and practically much more troublesome in centrally controlled economies.
The very scale of the shadow economy in the USSR - an estimated 20 million are involved - has forced Gorbachev to make some concessions. Hairdressers, for instance, are permitted to work from home - providing they declare their income. Thus petit-bourgeois underground work is being allowed to emerge in apparently harmless ways. 'Creeping capitalism' is getting an officially approved toe in the door.
But it will be harder to crack down on the really powerful and harmful culprits in the shadow economy - the state bureaucrats who use their privileged access to goods heavily subsidized by the state to make fat profits for themselves.
Underground activity generally causes fewer headaches in countries like the US, UK, Canada and Australia where it is still under 15 per cent of all economic activity.'' Its advantages may even outweigh its disadvantages. After all, a government pursuing anti-inflationary policies that cause wide-scale unemployment can point to a thriving underground economy and claim that its policies are working and that jobless figures don't count. This removes any duty to create employment and endorses a laissez-faire attitude. 'You see, things will take care of themselves'.
The biggest advantage though for the conservative administrations in Washington, Ottawa, Bonn and London is the fragmentation of labour and the divorcing of workers from traditionally powerful unions. Far better that workers adopt an 'I'm all right Jack' mentality coupled with the chance to make a bit on the side than that they go on strike and make demands for higher wages in their main jobs.
Badly battered by anti-union legislation and low morale, trade unions have responded to the new threats coming from underground with the agility of a Leviathan. The problem is that they still mainly represent those within formal work. To be fair, some, like the Transport and General Workers Union in Britain, have launched campaigns to enlist part-timers and informal workers. But it's not easy. Many informal workers are either women or black or both. These groups have no reason to feel that the white male-dominated unions have ever done much to serve their interests.
One thing is certain. Underground work is going to be with us for some time. So what can be done to protect those who are being exploited?
In the developed world we need to crack down hard on workplaces that break health and safety regulations. And there is much that local authorities can do to advise informal workers of their rights, tax and social security matters and to explain how to become legal.
Third World governments need to help the submerged economy emerge and gradually become a part of the official one. This can be done in a number of ways (see article). Making laws is not one of them. Removing laws is. Red tape and bureaucracy are the most frequently given reasons for people working underground.
But the most effective channel for change is underground workers themselves, organizing into groups or networks. Improbable as it may seem this has actually happened with some success. In Britain informal workers in London and the Midlands have got together to form 'Outwork' campaigns. So have Mexican immigrants in North America. In India the Self Employed Women's Association is a co-operative of informals with its own sickness benefit and welfare scheme. While in Peru informal mini-bus and taxi drivers banded together to lobby the transport ministry. The threat of a mass blockade by thousands of ramshackle vehicles proved to be an awesome bargaining weapon.
Finally it is essential to recognize that, for all its apparent freedom, informality is undemocratic. It can indeed present a grave threat to democracy. Colombia is the most dramatic example of what happens to a country where informal economic activity - in this case drugs - gets control. The assassination of one justice minister who published a 'black list' of big names in the drugs business and the attempted assassination of his successor clearly illustrate the power of this underground lobby.
But there are other less openly undemocratic forces at work of which development agencies and other organizations wishing to promote the informal sector should be extremely wary. Small enterprise schemes, such as helping to set up engineering workshops in the Third World, can look very attractive on the face of it. But it is vital that supporting such ventures does not mean playing into the hands of the wrong people and so enabling exploitative interests to pluck the fruit of poor people's toil and initiative.
1 London Low Pay Unit, 1984.
2 Keith Hart, Journal at Modern African 5tudies, March 1973 and ILO, 1972.
3. Hernando de Soto, Instituto de Libertad y Democracia Lima,1984.
4 Lima Times, August 1984.
5 Economist, London, July 1980.
6 Swasti Mitter, Common Fate Common Bond, 1986.
7 San Jose Sunday Mercury News, August 1980.
8 New York Times, October 1983.
9 Philip Mattera, Off the Books, 1985.
10 Kang and Kang, 1978.
11 Vito Tanzi, The Underground Economy, 1982.
A SMILING urchin selling jasmine is the picture postcard view of child workers. But behind closed sweatshop doors, down the mines, on city streets, children are being robbed of their childhood and thrust into an adult world that wrecks their health and stunts their development. Although declared illegal in most countries, there are, according to the International Labour Organization, 52 million working children in the world. To employers, they are gold dust - dirt cheap. With their small fingers, child weavers can tie tighter knots to make higher quality carpets. No value is put on their lungs as they inhale wool dust, or their faces when chemicals explode in an illegal workshop. Equally sad though is losing the fun of play, the joy of learning and the choices in life that education can bring.