Addressing informality through local business advocacy

While many business organisations represent formal businesses, it is important for local business advocacy to consider the issues faced in the informal economy.

Earlier this year, I was commissioned by the International Labour Office (ILO) in the Asia Pacific Region to write a research report on the impact of government decentralization on the transition to formality. These findings are summarised in an ILO blog.

My research was focused on the role of employer and business membership organizations (EBMOs) in representing private businesses of all kinds. It was particularly interested in how these organisations advocate for reforms that make the business environment more conducive for businesses to start, grow and compete in local, national and global markets.

This was undertaken in the context of government decentralization––a topic I have previously researched among European local government authorities.

The ILO research recognised that business environment reform focused on the informal economy is challenging work, made more demanding in the face of government decentralization. This is especially so, given the concerns of informal firms, which are typically less organized than formal firms and largely under-represented.

The 2007 International Labour Conference (ILC) Conclusions Concerning the Promotion of Sustainable Enterprises define 17 components of an enabling environment and show how the creation, growth and transformation of enterprises on a sustainable basis combine the legitimate quest for profit–one of the key drivers of economic growth–with the need for development that respects human dignity, environmental sustainability and decent work.

Informal enterprises are a major component of the informal economy, which dominates many Asia-Pacific economies.

The ILC 2015 Recommendation Concerning the Transition from the Informal to the Formal Economy promotes the role of EBMOs to improve the representation of those in the informal economy while assisting workers and economic units in the informal economy and facilitating the transition to the formal economy.

Improving the local business environment

The business environment contains the policy, legal, institutional, and regulatory conditions that govern business activities. This includes interactions between public, private, and civil actors through social dialogue and public-private dialogue. It highlights the way government policy and regulatory decisions, at national and sub-national levels, directly affect the decisions made by business owners and managers. These decisions include investment and employment decisions, as well as the decisions taken by informal firms to formalize.

Governments seek to improve the business environment to develop the private sector to grow the economy and create more and better jobs. In this way, business environment reform helps to reduce the costs and risk of doing business, while increasing competitive pressures, firms become more competitive by making market entry easier and by stimulating the efficiency and innovating incentives of the market.

Decentralized government systems increase the power and resources available to local government authorities, as well as decentralized national-government authorities. This opens new opportunities for place-based and local economic development. It also highlights the role of the local business environment, creating new entry points for local EBMOs to engage with the government in their efforts to improve the local conditions for business. Indeed, more attention needs to be given to subnational social dialogue and to the role EBMOs can play.

Points for local business engagement and advocacy

Addressing informality through local business advocacy requires attention on key policy domains. The results of this research have identified several entry points for EBMOs to engage with local government and decentralized national government authorities to consider business environment reforms that foster the transition to the formalization of informal firms.

• Local enterprise policies and strategies. Work with local government and decentralized national government authorities to consider the need for a local, gender-inclusive enterprise development policy or strategy that encompasses the informal sector and presents a basis for formalization.
• Local business registration and licensing. Review the requirements for business registration, licenses and permits, including national and local requirements, and the ways national laws and regulations associated with registration, licenses, and permits are administered locally.
• Local land reform, area planning, and infrastructure. Initiate dialogue with local government and decentralized national government authorities regarding the issues affecting access to land and land titling, local area planning, and the provision of appropriate infrastructure and facilities. Special consideration should be given to the provision of informal market facilities, local zoning (e.g., home-based businesses), and issues related to crime and security.
• Local procurement. Investigate the extent to which these local authorities can create new market opportunities through their procurement of services and products and how this can be presented in a way that encourages capable informal firms to formalize.
• Digital reforms. Investigate the opportunities for the application of new digital technologies for local business environment reform. This may include virtual one-stop shops, local payment systems and digital identification.
• Local business representation and public-private dialogue. Consider the extent to which local informal businessmen and women are organized and represented. Support dialogue with local authorities which is specifically designed around the issues faced by informal firms and consider the range of options available to support the transition to formality.

Recommendations for business representatives

The research paper presents a series of practical recommendations to EBMOs. All forms of EBMO have an increasing need and interest in building local capacities for policy engagement, services and representation.

Particular attention is given to the evolving roles of EBMO roles in a decentralized political and administrative system. This includes the need to roll out services, advocacy, and other support for the informal economy through further research and strategic planning to guide engagement while advocating for government to explicitly integrate data and evidence about informality into policymaking.

Business representative organizations should improve representativeness by being the main private sector partner in private-public dialogue. With better representation, local EBMOs can exert more influence on local government and decentralized national government authorities.

Business representative organizations should work directly with associations whose members are predominately or entirely in the informal economy to deliver advisory and other services. Moreover, business representatives should support the creation and development of member-based, accessible, transparent, accountable, and democratically managed representative organizations catering for informal economy operators.

As a voice for the business community, EBMOs are in the best position to inform and work with policymakers whose decisions impact on businesses, particularly at the subnational level.

Business representative organizations should work closely with governments in creating a regulatory and institutional environment that minimises the negative effects and harnesses the opportunities of decentralization.