A Dualistic Labour System?

A Critique of the 'Informal Sector' Concept: I: The Informal Sector

Author(s): Jan Breman
Source: Economic and Political Weekly, Vol. 11, No. 48 (Nov. 27, 1976), pp. 1870-1876
Published by: Economic and Political Weekly
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SPECIAL ARTICLE

Dualistic

Labour

System?

A Critique of the 'Informal Sector' Concept

I: The Informal Sector
Jan Breman
This paper examines the utility of the concept of the 'informal sector'.
The author argues, partly on the basis of research into labour relations in a small town in western
India, that the concept of the informal sector is analytically inadequate. The informal sector, he suggests,
cannot be demarcated as a separate economic compartment and/or labour situation.
In Part I of the article it is argued that any attempt to demarcate the informal sector will give rise
to numerous inconsistencies and difficulties. Moreover, by interpreting the relationship of the informal
sector to the formal sector in a dualistic framework and by focusing on the mutually excluisive characteristics, we lose sight of the unity and totality of the productive system.
In Part II of the article, the author suggests that rather than divide the urban system into two
segments, it is preferable to emphasise the fragmented nature of the entire labour market.
Finally, in Part IlI, the author considers the social classes which are usually associated with the
urban labour force.
[Part I of the article appears this week. Parts 11 and Ill will be puiblished in the following weeks.]
INTRODUCTION'

SOCIAL orders which are based on agriculture are generally known in the
social sciences as peasant systems. This
signifies not only a particular type of
society but also the nature of the
developmnent problem; much of the
literature on the subject is rightly
devoted to the rural setting and tci
agrarian production. Nevertheless, a
considerable percentage of the populations of what are optimistically knowr*
as developing countries live in towns
and cities. The share of the urban
population varies from country to
countrv, but for the third world as a
whole it amounts to roughly 25 per cent.
In the rural areas the greater majority
of the population works in agriculture;
similarly, urban living is usually considered to be associated with an industrial way of life. But the lattei
assumption is in no vay related to
reality. Only half and somnetimesless
of the urban population usually finds
employment in factories and other
establishments in the so-called modern
sector. No one who is at all familiar
wvith the socio-economic situation in
the cities of the third world will be
surprised by this fact. But for a long
time little if any attention was given
to the economic activities and the
incomes derived therefrom with which
the other part, often the majority, of
the urban population has to try to make
ends meet. This limbo continued until
the concept 'informal sector' appeared on
the scene a few years ago, since when
it has steadily gained in popularity.

The term was first launched by Hart covering a considerable range of econo[1971] wtho described the informal mic-activities which are frequently marsector as that part of the urban labou? shalled under the all inclusive term of
force which falls outside the organised 'self-employment'. This is employment of
labour market.' The informal sector has a sort that is very little organised if at
since been greeted as a promising con- all, 'vhich is difficult to enumerate and is
cept and has been further refined by therefore often ignored by official cena mission of the International Labour suses and, finally, employment in wvhich
Office (ILO) which studied the employ- wNorkingconditions are rarely covered
ment situation in Kenya within the by legal statutes. As this description
framewvorkof the World Employment of the informal sector is rather imadequate, the lack of a proper definition is
Programme.2
very
often, although not satisfactorily,
The aim of this paper is partly to
establish the utility of the concept. compensated by a somewhat arbitrary
Most discussions of the informal sector listing of those activities which meet
take as their point of departure the the eye of anyone who strolls through
dualistic character that is ascribed to the streets of a city in the third world:
the urban economy of the non-socialist street vendors, newspaper sellers,
countries of the third vorld. This shoeshine boys, stall keepers, prostitutes,
implies that the term informal sector porters, beggars, hawkers, rickshaw
refers to a dichotomy in which the drivers, etc. In other words, the extencharacteristics of the two parts form sive collection of small tradesmen, the
each other's contrasts. The formal loose and unskilled workers and other
sector is taken to mean wage labour in categories wvith low and irregular inpermaneent employment, such as that comes who lead a laborious, semiwhich is characteristic of industrial criminal existence on the margins of
enterprises, governrment offices and the urban economy.
other large-scale establishments. This
ORIGIN OF THE CONTCEPT
implies (a) a set number of inter-related
jobs which are part of a composite,
From the content which is given to
internally well-organised labour struc-, the informal sector concept it is clear
ture; (b) work situations which are that it should be regarded as a iiew
officially registered in economic statis- variant of the dualism theories which
tics; and (c) working conditions which earlier gained popularity. In Boeke's
are protected by law. Some authors classical explanation the phenomenon
therefore speak of the organised, of dualism refers on the one hand to
registered or protected sector. Econo- an urban market economy, usually of
mic activities which do not meet these a capitalistic nature, and on the other
criteria are then bundled under the hand to a rural subsistence economy
term informal sector, a catchword mainly characterised by a static agri-

1 O"7Yn

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ECONOMIC AND POLITICAL WEEKLY

cultural system of production. Boeke's
reasoning that this type of segmented
society, which originated in a colonial
situation, can be explained by funda-.
mental and permanent differences in
economic behaviour, has long been dismissed as untenable by many critics.3
Less controversial is the assumption
of a certain socio-economic duality
which originates in a different phasing
of development, a process that evokes,
or at any rate strengthens, the contrast
between imodern and
traditional,
capitalistic versus non-capitalistic, industrial-urban as against agrarian-rural
modes of production. Arthur Lewis
and later Fei-Ranis have used the concept of dualism in this sense to investigate how surplus labour can be
transferred from the rural subsistence
sector in order to help increase nonagricultural production. These economists see the cities with their modern
industries as dynamic centres from
which the static character of the rural
order, characterised by stagnating agriculture with very low labour productivity, can gradually be overcome. But
the assum-ptionthat the surplus labour
that thus becomes available will be
absorbed in the modern sector is not
proven. During the last few decades
we have seen that expansion of industrial employment opportunities lags far
behind the growth of the urban labour
force. The urban dualism that is
nowadays apparent in many deveIoping
countries is not due to any gradually
disappearing contrast between
a
modern-dynamic growth pole anxl a
traditional-static sector which has tenaciously survived in an urban environ.
ment, but rather to structural disturbances within the entire econ'omy and
society. The lowvrate of industrialisation and the presence of surplus labour
are listed as principal reasons why a
dualistic system has sprung up in the
cities of the third world.4 The informal
sector contains the mass of the working
poor whose productivity is much lower
than in the modem urban sector from
which most of them are excluded.
DIFFERENCES

IN INTFRPRETATION

The over-stereotyped image of the

onerous existence led by sizeable groups
in the lower echelons of the urban
economy is undoubtedly due partly to
processes of stagnation or involution
which are the root cause of the rapid
growth of the informal sector. However, the idea that this is a source of
unproductive labour and loafers, of
social isolation if not dislocation and
other evils which stress its residual
character, doehsnot sufficiently depict

reality.
In contrast to this negative evaluas
tion, recent literature shows that activities in the informal sector can be
economically quite efficient and profitable. The emphasis is then less on
actual labour performance and more
on the context within which people
workc. This is an amplification of an
urban dualism in which stress is placed
not on the nature of the employment
but on the mode of production.5
According to this more positive approach, the distinction formal-informal
refers to two economic sectors, each
with its own structural consistency and
dynamics. Activity in the informtial
sector is characterised, for instance,
by low capital intensity, a low level
of productivity, a small and usually
poor clientele, a low level of formal
schooling,
intermediate technology,
preponderance of family labour and
ownership, ease of entrance and, last
but not least, lack of support and
recognition on the part of the government. In brief, according to a recent
survey by the World Employment Programme, the informal sector consists
of many small-scale enterprises whose
labour input is predominantly provided
bv relatives of the owner.6
It cannot be denied that the itntrocluction of the concept informal sector
has drawn attention to the nebulous
complexity of activities, unorganised
fragmented and divergeht in character,
with which a large proportion of the
population, both urban and rural, has
to earn its daily bread. Until recently,
research into non-agragrian employment was almost entirely confined to
labour in industries and other eniterprises with, as ever-recurring themes,
the social background of the labour
force, their adaptation to the urban and
more particularly to the industrial way
of life and, of course, work conditions
and circumstances in these large-scale
economic establishments. The recent
shift in focus from the formal to the
informal sector, strongly encouraged by
the ILO, has brought an end to the.
obstinately-held belief that those who
do not acquire their incomes in a
regular and standardised manner, as is
customary in the modern economic
sector, have to be regarded as under
or unemployed.
On the other hand, discussion of the
informal sector seems to give rise to
more questions than it has solved.
This is due primarily to the lack of
precise definition.
The concept - is
taken to cover everything that does
not belong to the formal sector, and

November 27, 1976

it has rightly been pointed out that
this gives the distinction a tautological character.7 The notion of dualism
refers sometimes to distinctive empolyment situations, sometimes to separate economic circuits, and frequently
a combination of the two. To
to
illustrate the latter alternative Jet me
cite Oteiza, who finds it conceivable
that
the end of the century will see, to
an even more pronounced degree,
the existence of two labour markets
with two very different occupational
structures and levels of inome, corresponding to two clearly distinctive
sectors of the economy - the modern and the traditional sector.8
But Oteiza's hypothesis, which is implicitly also to be found in many other
essays, that the dichotomy in the two
meanings runs parallel, has yet to be
proven and can therefore not be taken
as a point of departure for empirical
analysis.
The vagueness and iniconsistency of
the definition is said to be due to the
fact that the informal sector has only
recently become a subject of study.
On the other hand, it could be posited
that the lack of a hard empirical basis
was perhaps the reason for the celerity with which the concept has foundi
acceptance. It is noticeable that reports
which are based on factual research
are often particularly critical of the
conceptualisation. At any rate, I have
come to the conclusion, partly on the
basis of research into labour relations
in a small town in western India, that
the concept is analytically inadequate.
In my opinion, the informal sectou
cannot be demarcated as a separate
economic dompartmnentand/or labour
situation. Any attempt to do so will
give rise to numerous inconsistencies
and
such
as
will
difficulties,
be shown by even a sketchy discussion
of social background, size and composition. Moreover, by interpreting the
relationship to the formal sector in a
dualistic framework and in focusing
on the mutually exclusive characteristics, we lose sight of the unity and
totality of. the productive system.
Rather than dividing the urban systeni
into two segments, I prefer to emphasise the fragmented nature of the
entire labour market (Part II). Finally,
I shall consider the social classes which
are usually associated with the *urban
labour force (Part III).
SOCIAL BACKGROUND AND SIZE
INFORMAL SECTOR

OF

Social Background
Surprisingly little is knownl about
the relationship betw-een the informal
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ECONOMIC AND POLITICAL WEEKLY

November 27, 1976

sector and social stratification. It seems
reasonable to assume that workers in
the formal sector are mostly recruited
from the higher social strata whose
edtucational level is also much higher;
conversely, low social positions and
informal sector activities are also likely to go hand in hand. This is not
much more than an assumption, however. The question of how this social
distribution originates is usually left
unanswered. On the other hand, the
infonnal sector is inevitably seen as
connected to urban poverty and to its
social determinants, e g, low incomes,
irregular work, inadequate educatioin,
a low! degree of organisation, and
other elements from which a lack of
security and protection can be inferred.
Various authors have drawn attention
to the fact that non-economic aspects
have been insufficiently considered in
the conceptualisation of the informaI
sector. It is remarkable, for instance,
that many discussions make little or no
mention of the extensive social research
that during the last few years has
been carried out in neighbourhoods
where the urban poor congregate. Thig
shows once again that a thorough inventorisation of existing knowledge
based on interdisciplinary research is
of more benefit than a proliferation of
studies that do not cross narrowlydefined professional borders. Receni
sociological and geographical investigations of urban slums in third world
countries have shown that their populations are extremely heterogeneouE.
Apart from the fact that here is no
evidence of an amorphous and disintegrated multitude, it appears repeatedly that the inhabitants of low-income
pockets and of shanty towns in the urban periphery do not form a separate
and distinctive social order. Studies of
slums show a varied composition and
strong and close ties with institutions
of the general urban system rather than
any deviating pattern of norms and
values.9 The objections made in many
recent publications against the definition of slums as locations with specific
characteristics and problems are irr
effect also addressed to attempts to
represent the informal sector as a
clearly distinguishable circuit of the
urban economy.
The tendency to consider the informal sector as a residue primarily of
rural migrants helps to strengthen tho
image of marginal labour. This emphasis on the rural background is
hardly surprising when we consider
that the origins of the informnalsector
are attributed to a continuing process

of urbanisation, i e, the massive outflow of surplus labour from the countryside. And although these rural inigrants indeed forn a substantial part
of the urban poor, studies based on
empirical research have shown in the
first place, that in the formal sector
this percentage is not necessarily much
lower,'0 and in the second place that
a great many of those who earn their
living in the informal sector were either
born in urban areas or have long resided there.11 There are indications
that the rate of urbanisation might be
gradually declining, particularly in
heavily populated countries where the
large cities have for many decades
been subjected to conditions of extreme
scarcity. In a study of Calcutta, Lubell
concludes that population growth in
the surrounding districts is much higher
than in the urban agglomeration.
In his opinion, migration from the
rural areas to the cities has decreased
during the last quarter of a century,
not only in West Bengal but in India
as a whole. This decline is certainly
not due to a massive and pronounced
improvement in employment opportunities and incomes at the bottom of
the
agricultural production system.
However meagre the income eamed
by labour in the urban informal sector, the chances of employment in the
city are always greater than in the
rural areas and the minimum standard
of urban living is also considerably
higher. Even the poorest people in a
city
such as Jakarta are probably
much better off than the low-income
strata in the villages of Java.12 The
reason for a declining rate of urbanisation should therefore be sought
rather in the tendency to seal-off the,
urban sector. Saturation is also given
as a reason for official attempts too
check a continuing inflow and to
make domicile in the major cities dependent on sparingly distributed permits.
But there seems to be a tendency to define the cities as closed
areas even without government intervention.
The absorptive capacity of
the lower levels of the urban economy
is anything but unlimited and cliches
regarding shared poverty and employment opportunities notwithstanding,
the inhabitants show growing disinclination to take relatives with a rural
background into their homes and to
help them find their place in the urban
economy. The discharge from agriculture continues, but is no longer
automatically converted into definitive
departure to the cities. Large groups
of seasonal migrants wvanderwretched-

ly to and fro between town and country, recruited or rejected as need

arises.13 In addition to this rural-urban
circulation, the seasonal movement of
labour within rural areas has lately
gained in significance. So far, the literature has shown little interest in these
issues, which are also ignored in discussions of the informal sector.
Size of Informal Sector
Estimates of the size of the informal
sector are varied. Moreover, the data
supplied for various countries or cities
show considerable disparity which
cannot be ascribed to actual differences
in economic structure. Most authors
seem to hold the opinion that half or
even more of the populations of the
large cities of the third world should
be included in the informal sector, but
the varying criteria on which their
studies are based preclude any accurate comparison of their percentages.
A major conceptual problem is
caused by the fact that the labour
forces of the formal and informal
sectors of the economy have different
compositions. The use of the term
labour force for the informal sector
may even be misplaced. Not only
women, but the old, the young and
the maimed are found in this sector,
although their working capacity cannot
always or sufficiently be put to use.
It certainly would be misleading to look
upon them as non-working dependents.
An analysis at the family level is essential for a proper understanding of the
living conditi;ons of the urbai poor.
Only by assuming that most if not all
household members are partially if not
entirely absorbed in the labour force
can we realise the comparative elastiwith which unemployment, the
city
considerable fluctuations in income and
other vicissitudes of daily existence
can be absorbed.'4 The specific character of the informal sector, typified
by fluctuating and discontinuous employment and a gradual transition from
employment to unemployment, makes
any categorisation of labour relationi
according to current terminology a
dubious endeavour. By definition, it
seems only possible to measure and
enumerate employment in the formal
sector. The complaints made by
many researchers that the infonmal
sector is disorderly and elusive have
to be seen in this light.
Attempts to reduce to the usual
variables and components any employment which is non-standardised and
non-organised from the point of view
of the formal sector are mere statistical exercises which cannot do justice

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ECONOMIC AND POLITICAL WEEKLY

to the actual situation. All this may
explain w-hy sociological and economic
analyses of the labour market are
principally if not solely concerned with
the formal sector of economic activity,
but this preference can in no way be
justified. NVhether our margins are
broad or narrow, we must accept that
a very large part of the urban multitudes are dependent for their very
existence on employment in the informal sector. If roughly half the populations of the large metropolitan centres
where the modern enclaves can be
found are employed in this sector, it
may safely be assumed that the percentage will be even higher in the
smaller towns. If, in addition, part
of the rural population can be included in the informal sector, it might well
be
asked what significanoe can be
attached to a concept that covers such
a large and so little homogeneous section of the labour force.
COMPOSInON

Informal Sector as an U'rban Segment

By definition,, most economic activities in the rural areas fall under the
informal sector. This applies not only
to tradle and handicrafts but also and
above all to agriculture. Nevertheless,
very few publications, for example the
ILO report on Kenya, give this broader
tenor to the distinction formal-informal.'5 The concepts are usually applied solely to the urban systemn,ignoring rural labour and production'
relations. However, there is much to
be said for including certain agricultural activities under the formal sector
and not only the large estates in;
tropical countries which have long
grown commercial crops for the world
market. It can be posited that the
new agricultural strategy which formed the basis of the so-called green revolution has strengthened the dualistic
tendencies within peasant economy in
various Asian countries. On the larger
farms capital intensity has been increased, more complicated technology
has been applied, and modern methods
of management have been introduced.
DiscuLssions of the informal sector
are too often based on the idea that
urban production is a more tor less
independent segment of the national
economy, probably due to the fact
that most reports are concerned with
large cities and national capitals. But
although it is easier to show that at
the lower levels the urban and rural
lal)our markets gradually merge into
each
other, thus making a regional;
analysis essential, it is doubtful whe-

ther the situation is any different in

the metropoles. The almost exclusive
linkage of the informal sector to an
urban environment entails that the
considerable seasonal migration from
rural areas to the major cities is underestimated. In discussions of the informnal sector, the significance of this
phenomnenon of circulating labour is
neglected and it will. only come to its
right if emphasis is transferred to the
interchangeability of, rather than the
division between, town and country
and the concomitant modes of production.
Services
One opinion that is given fairly general credence holds that the informal
sector is a collection of petty trades
and services which, although thev
provide a meagre existence for povertystricken people, are of doubtful economic benefit in tenns of actual produetion. This is typically an {nterpretation that is based on the formal
sector, and the activities which are
almost automatically listed - street
hawkers, becak-riders, food sellers,
shoeshines, household servants, beggars,
porters, etc - are also recognisable
as those which, seen from the vantage
point of the formal sector, are to be
found in city streets. The attention
wvhichILO in particular has given to
the informal sector has caused this
somewhat negative image to be revis4
ed, andl various publications have flatly
sector's asserted
contradicted the
parasitical character. A shift in research
from services and distribution to proj
ductive activities has encouraged a
more differentiated view and has
moreover stressed that the dichotomy
formal-informal cuts right across all
sectors of the economy. If the formalb
informal division is accepted as validithen
it has to be applied not only to personal services, but also to building,
trade, manufacture and transport. LI
other words, if the distinction is at
all tenable it cannot logically be confined to certain sectors of the economy
or to certain activities. It is concerned much more with the context in
which these economic activities orginate, with the manner in which they
are carried out.

November 27, 197E1

try to keep their heads above water.
Wage-earning emiployment, on the
other hand, is considered characteristic of the formal sector.16 It is prohablv not coincidental that this con.
trast is particularly emphasised in
studies of African countries. But even
if
allowances are made for the
differences which exist per country
in the nature of economic productiory
and the composition of the labout
force, the operationalisation of the
concepts formal-informal in this way
remains open to dispute.
On the basis of my Gwn research in
western India I have ascertained that
numerotus small shops and one-man
firms - the latter particularly in the
self-employment sphere, such as those
of the free professions - typically bear
the stamp of formal sector activities.
On the other handl it is quite common
for small-scale enterprises in the informal sphere to employ non-household
members. Besides, the content given
to the concept of self-employment is
somewhat pretentious. It seems rather
exaggerated to include, in addition to
the owners of small workshops, the
shoeshiner, the street barber, the garbage collector or casual labourers as
one-man firms in the sense of small
entrepreneurs.
The peasant society has long been
identified with self-employment of the
m.ultitude of small producers, the peasant cultivators thereby overlooldng the
various classes in which the agrariain
population is divided. Similarly, the
fiction has now been introduced of ai-,
urban informal sector consisting of
self-employed who at the most utilise
their household members as labour
force.
Ileterogenteitty

The informal sector is seen alternately as a form of economic activity

or as a reservoir of labour. In both
cases, the discrimination from the
formal sector is emphasised: in the
first case the mode of production is
stressed, and in the second the characteristics of labour per se. But preoccupation with the refinement of this
dichotomy has distracted attention
from the great variety of activities
which make up the infornal sector.
Self-Employment Versus Wage
Fuirther considerationi shows that sysEmployment
tematic classifieation of these activiSince the original conceptualisation ties into one sector is not feasible. The
by Hart, the informal sector has been problem is solved to some extent by
seen as almost synonymous for cate- further subdivision of the urban labour'
gories of small self-employed who, market, while differentiation into threi
independently or by enlisting the serE sections is notinfreq&uent.'7 However,
vices of householdl or family members, this can only be effective if the dua1873

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ECONOMIC AND POLITICAL WVEEKLY

November 27. 1976

lism concept is abandoned. There is
no question of a rift in production oir
lal)our relations on the basis of which
the urban svstem can be broken down
into two sectors. It is rather a continuum in which border-lines between
the composite parts are drawn almost
arbitrarily and are also difficult to
locate in the actvtal situLation.
RELATIONSHIP TO FORML SECTOR

There are two entirely different views

with regard to the relationship between
the informal and the formal sector.
The existenoe and continuing expansion of the informal sector is accepted in some circles as an inevitable
phase in the development process. Emphasis is then placed on the function
of the informal sector as a buffer zone.
Marginal productivity perpetuates the
poverty of the urban masses in third
world countries, but economic activities in the informal sector provide at
least some income and employment.
however meagre and irregular, to people for whom even a subsistence level
would otherwise be hardly conceivable. But it is not feasible to expect
that policies should be oriented towards maintaining inefficient and
small-scale economic activities which
make use of retrogressive technology.
Raising the standard of living of the
population demands the fastest possible expansion of the formal sector.1s
This can be contrasted by the approach, stongly encouraged by the
ILO and at present also by the World
Bank, which sees the relationship between the formal and informal sectors
as one of structural inequality. According to this view, the much praised
flexibility, viability and adapted technology of productive activities in the
informal sector are hamstrung by the
much more favourable market conditions which are available to the modern economic sector, advantages
which are reinforced by political patronage and government protection.
The defenders of this view advocate
better attunement and increased complementarity of the two sections of the
urban economy. This would necessitate
putting an end to the discrimination
against the activities of the informal
sector which this approach sees as the
mnostpromising source of development.
At present it sometimes seems that it
is an offence to earn a living in this
sector.'9

Apart from the repeal of discriminatory regulations and various other

restrictive and oibstrulctivemeasures, it
is suggested that the government will

have to adopt a policy of active stimulation by providing facilities such

as credits, managerial know-how, upgrading of skills, marketing promotion,
supplies of raw material, etc, in order
to improve the competitiveness of
labour-intensive. small-scale activities.
Support for entrepreneurial capabilities
can be justified by the fact that the
informal sector's contribution to the
national product is much greater than
had originally been envisaged and
moreover indicates possibilities for
accumulation of capital that will allow
small enterprises to expand.20 Such recommendations form part of a policy
that attempts to replace the present
hypothetical distiniction between formal
and informal sectors by a strong linkage intended to bring about harmonious co-operation on the basis of mutual advantage. According to this reasoning., structural inequality can be
strongly mitigated if not entirely abolished, with the aid of especially designed compensatory programmes. Employment for the poor is the motto of
this new strategy, which -uas a central theme of the recent World Employment Conferencec of the ILO. The
resolute tone is reminiscent of the
many programmes which were drawn up,
not very eagerly executed, on behalf of
small cultivatots in third world
the
countries when, it became evident that
the agrarian strategy which was introduced at the beginning of the
1970s had almost exclusively benefited the larger, financially better-off farmers. The ILO report on Kenya, in
particular, is written in this spirit and
has been strongjy and extensively criticised by Leys.2'
In Ley's opinion, the points of departure and policy lines of the ILO
report are intended to encourage an
autonomous local capitalisin, divested
most extreme contrasts but
of the
on cheap and exploited
still based
labour. Research has shown that official programmes and plans which aim
at stimulating industry in the informal sector are of little practical use.22
Neither can increased aid by the state
be expected as long as the political
system is dominated by interests which
are linked to the formal sector. The
paradox of the situation is that the
recormImended piolicy change will inevitably be detrimental to an elite
which is responsible for its execution.
By ignoring this fact, says Leys, the
ILO mission in Kenya was guilty of
naivety. As is evident from a later article the compilers of the ILO report
seem to have been aware of this
problem,23 but they sufficed by saying

that the government of Kenya had

publicly committed itself to a strategy
under which the results of economic
growth were to be equally distributed.
The reference to this statement, which
can hiardly be taken seriously, illustrates the mixture of optimism. naivety and reservation that is inherent
to most reports produced by international bureaucracieS2'or their consultants.
Is the point of departure tenable
that there are separate sectors, each
of which has its institutional facilities
and rationale?
This is the most fundamental difference of opinion in the discussion over
the interpretation of structural inequality. Leys is not alone in giving a negative answer. Various other authors
have come to the same conclusion on
the basis of empirical research. I belong to those who are sceptical of an
urban dualism in which emphasis is
placed on the nature of activities in
each individual sector rather than on
the relations between the components
of the system2.9 According to these
critics, the backwardness and impotence of the informal sector is preconditional for the development and
progress of the formal sector, while
the relationship between the two sectors is expressed in the dependence
and subordination of the former on
the latter. Research among petty producers in Diakar has caused Gerry to
conclude that these are exploited under the present economic system. Bose
cormes to the same conclusion after
studying small-scale industries in Calcutta, stating that smallness of scale
or inefficient management is not the
principal cause of the poverty of those
who are employed in the workshops
but rather the application of surplus
from above.26 The inequality between
the twvo sectors of the urban economny,
according to Bose, is not very different from the unequal exchange of
goods during the colonial period,
when not only the economic surplus
but also part of what otherwise would
have beenl used for subsistence in the
colony was withdrawn for the development of the mother country."'
If the distinctionl formal-informal
cannot be seen as a duality, and there
is no question of individual markets
in terms of production, distribution
and consumption, how is the character of the urban system to be defined?
In particular, are some modes of production, if not autonomous, at least to
some degree exclusive of each other?
This issue has been discussed in another framework. Wallerstein is *of

1874

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November 27, 1976

ECONOMIC AND POLITICAL WEEKLY

the opinion that there is no question
of different production systems. Like
Frank, although in a more detailed
reasoning on the basis of historical
data, he considers that there is only
one capitalist system which originated
in Europe and centuries ago permeated and transformed the world periphery.28 But to submit that a system
of international division of labour
exists does not necessarily imply
agreement that this is based on a
single mode of production. To regard
this almost solely as a phase in world
history - at present with almost universal validity - gives rise to the
danger that widely divergent social
configurations, particularly labour relations, which are found in the third
world are brought under one common
denominator. I favour an approach
such as that outlined, e g, Bienefeld
who distinguishes between a capitalist
sector which is narrowly linked with
the international economy, and a sector consisting of pre- or non-capitalist
modes of production. The component
parts influence each other and gradually lose their individual identity and
independence, so that we are faced
with one coherent whole, a systerm
with its own character and dynamics.a9
For the sake of clarity, let me reiterate
briefly that in my viewv the thesis of
an urban dualism is untenable; instead
of applying the concepts formal-informal, we should distinguish in terms of
different articulated production relations which can be found within the
economic system of third world countries in varying degrees and gradations.30
To return to the literature over the
informal sector, it is noticeable that
predictions with regard to the future
are rarely optimistic. The dismal prospect is caused by a variety of factors
of which the most important are: as
yet the population increase shows no
sign of decreasing its present high
level; employment in the formal sector
shows little if any expansion, governments show little inclination to give
effective aid to small-scale labour-intensive industries, and finally, the
competitiveness of the latter shows
continuous deterioration resulting in
their being ousted from activities
whenever these appear profitable for
the larger enterprises.
Seen from the viewpoint that the informal sector only exists by the grace of
the
formal sector,
the
underdevelopment and backwardness of the
former can only be brought to an end
by drastic change of the entire economy, including agricultural production.
The likelihood of such fundamental

change, which would in fact incur the

transformation of the whole, is difficult to ascertain and would not be the
same for each country, but for the
short term at any rate it does not
seem very feasible. On the other hand,
the involutionary trend of continued
expansion within an inelastic framework is not coming to an end. How
long and how far can those activities
which are listed under the informal
sector continue? The rift between the
extremes is becoming greater,31 and
various authors mention the growing
inequality in income and opportunity
within the lower regions of the urban
economy.32

In most third world countries, particularly those of Asia, it is probably too

late for marginal corrections and the
populist climate no longer exists within which such a policy would fit. Where
the capitalist development strategy is
still maintained there is little latitude
for effective support of small-scale and
labour-intensive activities.
Moreover,
measures which have so far been taken
do not appear to be oriented primarily
towards structural improvement, but
rather to have originated in the fear
that the growing tension among the
urban poor might get out of hand. In
addition to attempts to control the inflow of new migrants by sealing-off the
major cities, forced outflow is becoming more frequent.
Groups which are poorly housed and
without steady employment - usually
called beggars so as to imply that they
are 'unproductive' - are rounded-up
and deported. The 'hard state' which
has come into being, as shown in many
countries of the third world during
the last decade, indicates a policy under
which at least 30 per cent of the population will be declared socially and
economically superfluous; redundant
also in the sense that no measures are
taken which would allow them to lead
a life of human dignity. The leaders
of these countries, according to a recent article, have to face the following choice: to take the part of
those who own the instruments of economic power and to maintain political
stability by repressing the poor and
their spokesmen, or to take the side
of these rural and urban population
groups and to bring about an economic system that couples growth with
increasing equality.33 Verbal promises
are generous, but when it comes to
actual policy implementation it does
not seem that this second option is
much favoured.

(To be continued)

Notes
1 For a brief description, see Hart

(1973).
See, in particular, the Introduction,
Chapter 13 and Technical Paper
No 22 of this report: "Employment, Incomes and Equality".
3 The volume "Indonesian Economics" provides a systematic elaboration of Boeke's theory together with the most important critical comments. For a critical appraisal, see also Higgins (1955).
4 Prior to this, dual labour market
theories were formulated with regard to major cities of the USA.
See Piore (1973) and particularly

Gordon

(1972);

Mok

(1975)

has

examined the applicability of this

concept to the
situation in the

Netherlands.

5 Geertz was probably the first to

make a distinction within the urban system subdivided between the
firm-oriented sector and the pasar economy. See also Santos
(1971),
McGee
(1973)
and
Coutsinas (1975).
6 ILO: "World Employment Programme; Research in Retrospect
and Prospect" (Geneva, 1976).
7 Gerry (1974), 1.
8 Oteiza (1971), 196. NVithoutusing
the terms modem and traditional,
Sethuraman gives a similar distinction (1976), 10-12.
9 Cf Leeds (1969); Mangin (1967);
Portes
(1972);
MacEwen (1964).

Brett

(1974);

10 Bienefeld (1974), 18-19.

11 Gerry, 90-91.
12 Papanek (1975), 8-9; see also
Friedmann and Sullivan (1974),
398, note 28; Papola (1974),
and Temple (1975), 80.

8;

13 Van den Muijzenberg (1973),

Chapter 8 and Appendix A; Breman (1974), 103-106.
14 Cf also Bienefeld (1975), 20. A
complicating factor is that all
members of a household are not
necessarily employed in the same
sector. In effect, this necessitates a
choice in terms of income levels
or of economic
activities when
elaborating the distinction formalinformal. A combination of income
level and activity can cause contradictions in the
operationalisation of the concept informal sector.
15 "Employment, Incomes and Equality", 504.
16 Hart, 66; McGee, 33; Bienefeld
(1974), Introduction, iii.
17 See the papers by
Pang Eng
Fong, Papola and Standing presenting to the conference on the
urban labour market held in Geneva in 1974. The more detailed outline given by Friedmann
and Sullivan (p 388) seems to me
to be the most successful.
18 McGee (p 37) refers to a sector
working paper of the World Bank:
"Urbanisation" (1972). Until recently this used to be the appraisal
of the Bank. XVith McNamara's
speech for the Board of Gover1875

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November 27, 1976

ECONOMIC AND POLITICAL WEEKLY

nors (1975) this negative approach

seems to have been left. The new
Bank has
the
which
position
taken during the last few years
problems of
with regard to the
poverty is evirural and urban
of
dence of a significant change
the Bank's policy and indicates an
informal sector
approach to the
which at present differs little if
at all to that of the 1LO. See in
particular Emmerij (1974) for an
elaboration of this inherent disadvantage approach as against the
structural disadvantage concept.
19 See in particular Inukai (no date);
also, e g, McGee (29-30) and Papanek, 10.
20 In addition to suggestions in this
respect made in the ILO study on
Kenya, see the similar report ma(le
"Sharing in
on the Philippines,
Weeks
180; also
Development",
(1975), '8.
lack
the
Entrepreneurial talent,
been
has for so long
of which
seen as one of the most importanit
obstacles in a large
institutional
part of economic literature on desuddenlx
problems,
velopment
seems to be plentiful.
21 For a more detailed analysis, see
"Underdevelophis recent book
ment in Kenya: The Political Economy of Neo-Colonialismn" (Lon(Ion, 1975).
22 Gerry, Chapter VII, 74 ff; Bose
(1974), 3.33-3.35.

23 Singer and Jolly (1973), 115.

24 Weeks (1975, 100) finishes a critical reaction to this as follows:
"Such a fundamental shift is un- 27
likely, and it is open to serious 28
question whether an international
mlission,made up primarily of nonKenyans, is at liberty to sugges'
it, even by implication."
25

26

Gerry

(p 5)

"..

opportunity of offering themselves

to be 'exploited' by the larger
units."
Ibidem, 5.2.

For those who,

with me, have
not yet had the
opportunity to
read Wallerstein's recent study:
"The Modern World-System; Capitalist Agriculture and the Ori
gins of the European World-Economy in the Sixteenth Century",
I recommend his article in Com-

it is the rela-

tions between these different systems or sub-systems of production

parative
Studies
which determine those phenomena
in Society and
History (1974).
which will characterise each of
the elements of the ensemble, an(d 29 Bienefeld (1975), 54. Alavi, who
holds a similar position, has devewill lay the foundations for the
loped this in the concept colonial
functioning of the whole."
mode of production.
Bose, 4.23-4.24: "..... the dominatin(g large-scale oligopolistic sector 30 In an article regarding the rural
differensystem of Peru, Long
compels the small units in the
tiates between a number of modes
informal sector to
operate in a
of production, usinig as criteria the
different market where the input
difference in access to land for
price is higher and the
output
varying categories in the agrarian
price is lower, and the main beneparticular pp
structure (see in
fit of the price differential is re265-272). In similar fashion, but
aped by the
large-scale sector.
It also confirms that those whonm
without here going into further
we often call large industrial
detail, I would draw a distinction
houses are, in effect, commercial
for the urban system on grounds
in nature and earn a major part of
of difference in access to capital
and to the institutions which are
their profit by trading goods produced by smaller units. But desinstrumental in the use of capital.
pite this relationship of what 31 Miller (1971), 221; Mazumdar
(1974), 10;
"Sharing in Devemay be called
exploitation between the large
and the small
lopment", 177.
units, the latter can exist, given 32 Friedmann and Sullivan, 401;
the present socio-economic strucPapanek, 14; Standing, 4.
ture, only when they can get the 33 Friedmann and Sullivan, 405.

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1876
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