TRANSFORMING THE INFORMAL ECONOMY: THE ROLE OF THE SOCIAL ECONOMY

1. TRANSFORMING THE INFORMAL ECONOMY: THE ROLE OF THE SOCIAL ECONOMY By Fredrick O. Wanyama, School of Development & Strategic Studies, Maseno University, KENYA.

2. INTRODUCTION • Informal economy in the 1970s: • a temporary “survivalist” phenomenon that would be absorbed by the modern formal economy • Has persisted in developing countries to: • Generate jobs and income • Meet the needs of poor consumers • Provide accessible and affordable goods and services • Distribute goods and services for the formal economy, etc.

3. However, the informal economy has some deficits: • Produce lower quality of goods and services • Lack of employment security • Low and irregular payment or non-payment of wages • Poor working conditions • Limited bargaining power among workers • Low productivity, competitiveness and profitability; etc. • These decent work deficits have triggered interest in formalizing the “informal” economy so as to: • Create more secure jobs; • Guarantee rights at work; • Extend social protection; and • Increase representation and voice of workers, etc.

4. The challenge is how to transform the informal into the formal economy • No clear roadmap for the transition from the informal to the formal economy • What role can the social and solidarity economy play in this transition? • Where is the evidence on the contribution of the SSE to the formalization of informal work and enterprises?

5. WHAT IS THE INFORMAL ECONOMY?

6. A DEFINITION • Informal economy used here to refer to the unincorporated and unregulated work and enterprises that produces goods and services for remuneration and/or sale • The workers and enterprises are - in law and practice - not sufficiently covered by state and market regulations in situations where similar activities are being regulated • Informal economy tends to be identified by salient characteristics

7. CHARACTERISTICS OF THE INFORMAL ECONOMY • Non-regulation of work and business activities • Lack of recognition in law and regulatory frameworks • Small-scale operations with limited entry criteria • Low entry capital and skills • Skills acquired through apprenticeship • Labour-intensive methods of production and provision of goods and services • Irregular payment or non-payment of wages

8. Prevalence of cash transactions with little record-keeping • Dependence on local markets • Prevalence of self-employment, casual and seasonal labour • Poor working conditions: • Low earnings • No proper working spaces • Lack of employment security • No occupational safety, e.g. unsafe or outdated equipment • undetermined working hours • Workers less unionized, hence not represented and protected from exploitation • Exclusion of workers from the social security system

9. MANIFESTATION OF THE INFORMAL ECONOMY • Informal economy is extremely heterogeneous: • Street hawkers and open-air market traders • Construction workers • Carpenters • Motor vehicle mechanics and cleaners • Metal workers • Farm labourers • Workers in micro-enterprises • Waste pickers • Taxi drivers • House helps, among others

10. The informal economy is inclusive: • Both women and men; women the majority • Youth and adults • The least educated and fairly well-educated • Persons with disabilities • The poor and marginalized as well as the relatively rich members of society • But it is less empowering: • Low and irregular income • Numerous work-related risks like insecure employment, poor working conditions, etc. • Lack of social protection • Limited representation and bargaining power, etc.

11. SSE vs. INFORMAL ECONOMY • SSE share some characteristics with the informal economy: • Some social enterprises are self-owned and not regulated • Cooperatives in some countries are not regulated by the state • However, not all informal economy activities can pass as SSE, e.g. • Informal economy may have no concern for social goals • Informal economy may not be democratically controlled • Some SSEOs are incorporated and regulated

12. FROM INFORMAL TO FORMAL ECONOMY • What roles can SSE play in the transition from informal to formal economy? • Generate economies of scale among informal economy workers and enterprises to enhance productivity and profitability • Generate and disseminate information and knowledge on entrepreneurship to improve enterprises or start new ones • Provide opportunities for skills development and training to enhance productivity and profitability • Mobilize capital for investment in large and formal ventures

13. Organize informal economy workers and enterprises to increase their bargaining power • Create opportunity for enhanced voice and representation among informal economy workers and enterprises • Provide social protection through mutual assistance, solidarity and reciprocity among informal economy workers • SSE can, therefore, create a “virtual triangle” of opportunity, empowerment, and protection for informal economy workers and enterprises • To what extent has the SSE performed these roles?

14. LOOKING FOR THE EVIDENCE • Examples of SSE organizations already fulfilling these goals include, among others: • micro-finance and micro insurance societies • mutual health benefit schemes provide social protection • social enterprises formed to reintegrate disadvantaged population groups or perform community work • different types of cooperatives in various sectors

15. Dairy Cooperatives in Kenya • Context: • Collapse of KCC and its impact on marketing milk • Liberalization of the economy allows competition • Rise of the informal economy in the dairy sector • Cooperative response? • Conceptualizes the idea of establishing milk processing plants • Mobilizes capital through members’ contributions, borrowing and grants • Sets up efficient milk processors, with innovations on cheaper packaging to enhance competitiveness and profitability • Creates a network of product distributors

16. Results? • Formal milk market offering farmers better prices • Increased membership and loyalty to the coop. • Increased milk productivity to supply the factory • Decline of informal milk marketing in the locality • Increased cooperative profitability; high turnover • Profits invested in provision of productive services • Farmers paid for milk deliveries monthly (regular) • Workers’ association enter bargaining agreement with the management • Created more decent jobs

17. Discussion guide • What support does the social economy require to fully reach its potential in building a bridge between the informal and formal economies?