SUSTAINABLE DEVELOPMENT AND THE INFORMAL SECTOR: AN UNEASY RELATIONSHIP Written by Helen Briassoulis Presented by Marit Lothe - Norway Leanna Robertson - USA

The informal sector n Created by problems in formal sector n Players that are invisible most of the time and not regulated by formal institutions n Persistent and universal n Flexible n Mostly desirable and productive economic activities n Difficult to assess size and control it

Sustainable development n Assessed and evaluated using as criteria the following three objectives: 1) Economic efficiency 2) Environmental protection 3) Social equity n Only direct effects of the formal sector examined so far

Economic efficiency and welfare (1) n Requires full information, planning and co- ordination of markets n The informal sector creates a decentralised model of economic organisation –Distortion of labour market –Distortion of product markets –Distortion of capital markets and monetary policies –Reduced incentives for technological progress, innovation and investment

Economic efficiency and welfare (2) n Vicious circle: Distorted product and factor markets lead to a distortion of competition, which may distort these markets further. n Several common, formal indicators cannot be assessed accurately and cannot be reliable measures of economic performance Formulation and implementation of efficient and effective economic policies is difficult Formulation and implementation of efficient and effective economic policies is difficult

Economic efficiency and welfare (3) n Benefits: –The flexibility and adaptability of informal activities can support vulnerable people and local economies in changing situations –Some activities contribute to resource conservation, which reduces the burden for the formal sector and the environment n These positive effects don’t outweigh the negative impacts

Environmental protection (1) n Informal activities develop when the formal economic and environmental protection systems do not function properly n The physical and environmental effects of informal activities are well documented n The location of informal activities is usually in conflict with other formal and informal activities and sensitive environmental issues

Environmental protection (2) n Informal activities cannot be brought under the authority of the formal environmental protection regime –environmental protection cannot be achieved in general –environmental protection in only the formal sector is ineffective –rational environmental management is restrained

Environmental protection (3) n Benefits: –Informal environmental organisations help protect the environment –Informal activities contribute positively to urban environmental management whenever the state fails to do so n Existing evidence leans towards a negative impact

Social equity and justice (1) n Unfair social conditions spur informal behaviour and activities that affect variously the distribution of costs and benefits n May contribute to employment and income generation for poor families and individuals, but: –physically and psychologically unfavourable working conditions and labour relations –reproduces and sustains the inferior position of workers

Social equity and justice (2) n Powerful groups in control of informal activities form informal power structures, which maintain and reproduce the informal relationships of the past, and nurture more inequalities n Informal activities foster social injustice within and between generations

Vicious circle Informal activities Unsustainability A lot of work is yet to be done...

Sustainable Development Policy Making and Planning… in the Presence of Informality

Objectives for Policies and Planning n Environmental Protection n Economic Efficiency n Social Equity

Developed vs Developing n Informal sector is much stronger in developing countries n Magnitude of the sector has not been appreciated until recent years n Example of policy measure –Ecuadorian Institute of Agrarian Reform and Colonization since 1964

Two Roads for Improvement n Corrective Direction n Prospective Direction

Corrective Direction n Addresses Current Systems (socioeconomic and institutional) that are –UNSUSTAINABLE and FORMAL n Actions –Remove inefficiencies (e.g. unnecessarily strict regulations, obsolete institutional arrangements, centralized decision making, etc.) –Make rules & regulations more flexible n Intended Result… people will not be “forced” to act outside of the laws

Corrective Direction n Additional facets… –Socioeconomic Development –Spatial Development

Prospective Direction n Anticipates Future Change –by preparing for informal & unsustainable development patterns n An example: If the tourism industry is being increased… then planners need to predict actions by the informal sector

Suggestive Principles in Policy and Plan Design n Flexibility n Anticipatory n Adaptive n Reform –Relax the strict –Unsustainable towards sustainable n Local decision making n Integrated systems –Includes both formal & informal aspects n Support programs –Training, education, credit, legal aid, etc. n Involvement initiatives –Disincentives for informal activities