Policies for the Formalisation of the Informal Economy

Over the last two days I have been at the International Training Centre in Italy presenting a draft document on policies and practices for the formalisation of the informal economy. I will provide links to the paper once it is finalised, but my presentation can be downloaded HERE.

In June this year, the Intuitional Labour Conference adopted Recommendation 204, known as the “Recommendation Concerning the Transition from the Informal to the Formal Economy”, to guide Members in their efforts to facilitate the transition of workers and economic units from the informal to the formal economy, promote the creation, preservation and sustainability of enterprises and decent jobs in the formal economy, and prevent the ‘informalisation’ of formal economy jobs.

My presentation, and the report I am completing, outlined a range of policy reforms and practices that can be used to promote the formalisation of the informal economy. It highlighted the importance of understanding the multiple causes of informality and warned against taking a single, one-size-fits-all approach to formalisation. The size and character of the informal economy is the result of a confluence of economic, social and political forces that is unique to each country. While there may be common trends and challenges that countries share, the response requires a careful diagnosis of all these forces. Similarly, there are a number of policy domains that can affect the decision of MSE owners and managers to remain informal or to make the transition toward a more formal status.

Perhaps the most controversial aspect of my presentation, at least for the International Labour Organisation, was the recommendation that reform needs to involve a wide range of actors and specifically reach out beyond the formal representative structures, such as Employers’ Organisations and Workers’ Organisations. While these representatives are critical, there needs to be a concerted attempt to involve other groups, such as traders associations, hawker associations, and other informal economy formations, as well as community groups. Many formal business and worker organisations claim they represent all business and all workers, but typically informal actors are under represented in these structures and are not involved in organised public-private dialogue.

One of the defining features of informal MSEs is their lack of formal representation. Most informal enterprises are not involved in representative organisations, such as the chamber of commerce or national Employer’s Organisation. Thus, to address this, policy reformers need to extend their reach beyond the traditional business and employer structures and to connect with informal business membership organisations, Workers’ Organisations and other informal enterprise and worker coalitions. In some cases, reformers should use the media and community organisations to reach out to the informal business community, recognising that low levels of literacy poor Internet access can hamper such efforts.

I wonder why this recommendation can be considered such a threat to formal representative structures.