You are on page 1of 32

See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/235316045

Regulating informal markets: informal commerce in Mexico City

Article  in  International Journal of Sociology and Social Policy · October 2000


DOI: 10.1108/01443330010789223

CITATIONS READS
15 305

1 author:

Sergio Peña
El Colegio de la Frontera Norte
45 PUBLICATIONS   255 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Crossborder mobility planning View project

RECFronteras View project

All content following this page was uploaded by Sergio Peña on 07 April 2016.

The user has requested enhancement of the downloaded file.


Volume 20 Number 9/10 2000 37

Regulating Informal Markets: Informal Commerce in Mexico


City1
by Sergio Peña, El Colegio de la Frontera Norte
Introduction
This article is an attempt to explain the limitations and constraints that
government policymakers in developing countries encounter in
attempting to regulate and formalize informal activities such as street
vending. This article argues that one of the main obstacles to
implementing those policies is the fact that street vendors have
developed their own systems of regulation that could complement,
compete with, or challenge the efforts of local governments.
Mexico City’s government has taken the position that street
vendor organizations are organized mafias that must be eradicated,
however, this article will argue that street vendor organizations
provide norms and regulations to reduce the risk and uncertainty that
street vendors would face under a normless market environment. The
article is mainly theoretical and tries to answer the following two
questions: How, or under what circumstances, do alternatives to state
regulation of economic activities emerge? What are the benefits and
limitations of those alternate regulatory models from the standpoint of
street vending?
Street vending in Mexico City offers a great social laboratory to
explore the above questions. This article uses the case study of street
vendors in Mexico City to show that a policy approach of one size fits
all to manage the vendors’ transition from the informal sector into the
formal sphere is not the best answer. The central theme of this study is
to show that, although street vending appears to be an anarchic form of
economic activity, there actually exists a system of vendor
organizations that undertake roles and functions normally performed
by government. Street vendor organizations, to some extent, undertake
these functions to replace or fill the vacuum created by the inefficiency
or apathy of government authorities. As a result, one central problem
of street vending is the fierce, sometimes violent competition between
International Journal of Sociology and Social Policy 38

government and organizations over who controls vendors and the


urban space.

In 1993, Mexico City’s Assembly of Representatives approved


an ordinance that gave power to local government authorities to
implement a plan to manage and control street vendors. This ordinance
gave birth to the program known today as El Programa de
Reordenamiento del Comercio en Via Pública del Distrito Federal
(The Street Vending Reorganization Program for the Federal District),
hereinafter, the reorganization program.

In general, the objectives of the city ordinance are three: 1) To


improve the urban environment and social harmony among city
residents by regulating the location of vendors (this involves barring
vendors from historical districts, hospitals, subway stations, schools,
etc.); 2) To create alternatives to move informal commerce gradually
into the formal economy by providing market studies about products,
building commercial plazas, and incorporating street vendors into the
fiscal system; 3) To implement democratic reforms and increase
transparency by combating corruption and arbitrary government
actions while democratizing street vendor organizations (DDF, 1998).

The reorganization program has led to conflict and has achieved


only marginal success. Commercial plazas created by the government
to help street vendors move into the formal economy are half empty
and many vendors have sold or left their stalls in these plazas and
moved back to the streets. In addition, a key problem is the lack of
understanding of street vendor organization by the authorities who
perceive them as organized mafias.

The remainder of this study is divided into three sections. The


following section discusses methodology and describes the various
street vendor groups and markets that comprise the case study. The
next section presents a discussion of different models of organization
and regulation on which form the article’s theoretical framework and
relates these models to street vending activities. The final section
presents results and conclusions.
Volume 20 Number 9/10 2000 39

Methodology
In order to show the diversity and degree of organization of street
vendors, three types of vendors were studied: 1) street vendors selling
in street markets on a daily or periodic basis; 2) itinerant vendors who
operate in the subway system; and 3) former street vendors who have
moved to a more formal way of doing business.
Street Vendor Diversity
Street vending in Mexico City is characterized by a heterogeneous
modus operandi. Street vendors can belong to a group of merchants
working in the tianguis markets or to a group of merchants known as
ambulantes.
The tianguis markets specialize in basic goods, such as fruits and
vegetables. Tianguis merchants work an assigned route, visiting a
different neighborhood each day of the week, meaning that they work
the same neighborhood 52 days out of the year (Secretaria de
Desarrollo Económico, 1997). Vendors assemble and disassemble
their mobile stalls every day. This group is regulated by the
government through the Supplies Commission, known by its Spanish
acronym COABASTO, and by other government authorities such as
public health officials.
Ambulantes are characterized by the following: 1) they work in
the same location year-round and their stalls are often permanently
anchored to the pavement in violation of city ordinances; 2) they often
specialize in electronic products or imported goods that are of a
secondary or luxury nature such as stereos, costume jewelry, cassettes,
etc. (CANACO, 1987); 3) they locate in places with a high flow of
pedestrian traffic such as outside subway stations, near main bus
stations, or on busy streets.
A pilot survey of street vendors was undertaken in the summer of
1997 to identify general themes. The study included informal markets
in the Mexico City neighborhoods of Downtown, Tepito, San Juanita,
Ciudad Nezahualcoyotl - hereinafter Ciudad Neza - and other areas of
the city. Then, in the summer of 1998, three markets - Tepito, San
International Journal of Sociology and Social Policy 40

Juanita, and Ciudad Neza - and their respective vendor organizations


were selected for further study. A standardized questionnaire was
applied and in-depth interviews were conducted with vendors and
leaders of their respective organizations. Tepito is part of the
ambulantes group while San Juanita and Neza belong to the tianguis
group. The three markets were chosen based on three parameters: a)
location; b) practical considerations, and c) form of operation.
These three cases offer distinct scenarios in terms of the political
subdivisions in which they are located. The Ciudad Neza market is in
the adjacent municipality in the State of Mexico while the other two
markets are in two different boroughs of the Federal District of Mexico
City (D.F. by its Spanish abbreviation). Each of the D.F’s boroughs
(known as delegaciones) has an office in charge of overseeing street
vending activities. The Tepito market is located in and overseen by the
Cuauhtémoc delegacion and San Juanita is located in and overseen by
the Venustiano Carranza delegacion. 38% of street vendors in Mexico
City are located in these two boroughs (Secretaría de Desarrollo
Económico: DDF; 1997) making them important for this study.
Concerning the practical considerations, the markets were chosen
because of the researcher’s existing connections to the vendors and
their organizations. The researcher, a former street vendor in San
Juanita was a member of one of the organizations surveyed and knows
its leaders and vendors. The researcher has family and friends in the
other two markets (Tepito and Ciudad Neza) who could facilitate the
application of the questionnaires. This approach, as Teilhet-Waldorf
and W. Waldorf (1983: 589) state, is a trade-off between “...lower
response error for a higher sampling error.” The convenience of the
sample helps to ensure access to reliable information. This researcher
found that vendors are uncooperative or may offer unreliable
information to outsiders out of a fear of harassment by government
authorities.
The selected markets function in two different ways. Tepito
operates year-round in one neighborhood. It is well known for
specializing in the sale of imported products - products often
Volume 20 Number 9/10 2000 41

introduced without paying import duties. Until the 1994 passage of the
North American Free Trade Agreement (NAFTA), which opened
Mexico to a larger quantity of imported goods, Tepito enjoyed a
quasi-monopoly on electronic products such as television sets and
video recorders. Tepito is located in the heart of Mexico City’s
downtown - a hub of wholesale and retail commercial activity.
Government oversight in this market was almost absent, which
strengthened the influence of vendor organizations over market
operations.

The other two vendor groups (San Juanita and Ciudad Neza) are
part of the city program to distribute basic products to residents.
Government authorites regulate these markets for such things as
hygiene, location of vendors stalls, and accuracy of scales used to
weigh products. Produce is the magnet commodity for these markets.
Although other products, such as clothing and shoes, can also be
found, they are only complementary to the magnet commodity
(Secretaría de Desarrollo Económico, 1997). In short, the function of
this type of market is to bring basic products at a low cost to different
residential neighborhoods.

The three selected markets have diverse characteristics in terms


of the political subdivisions in which they are located and their form of
operation. This diversity lends itself to an analysis of differences
among street vendors and a determination of whether the functions of
vendors remain constant regardless of the location and political
context of the market.

Itinerant Vendors

Itinerant vendors operating in the trains of the subway system are the
second group included in the research. Although itinerant vendors are
forbidden by law from selling inside subway stations and trains, in
recent years they have invaded both.

The subway system in Mexico City consists of nine subway lines


plus two light-rail lines. There are 148 subway stations across the city.
International Journal of Sociology and Social Policy 42

The subway runs from 5.00 am to 12.30 am Monday through Saturday


and from 7.00 am to 12.30 am Sundays.
Collecting data for subway vendors posed special challenges for
the researcher due to the dispersion and mobility of these vendors. To
get fast and reliable information, the researcher used systematic
observation, employing a checklist to record observable
characteristics during the few minutes it takes a vendor to work a
subway car.
The checklist consisted of 13 items, gathering information on
product, price, station, subway line, time of day, the vendor’s sex and
approximate age, whether the vendor has an observable disability, and
any final observations that captured the attention of the researcher. The
vendor’s age is the item with the biggest margin of error because it was
just an educated guess by the researcher.
According to the data gathered through systematic observation,
the hours with low ridership (from 11.00 am to 4.30 pm) are the times
preferred by itinerant vendors. This is understandable because it gives
them more mobility inside the train; otherwise it would be difficult to
move through crowded cars.
The data analysis shows that vendors prefer three lines 1, 2, and 3,
with almost 55% of the vendors operating on these three routes. These
lines are the longest and have more stations. They also run through the
commercial heart of the city and have high ridership.
Former Street Vendors
Former street vendors are the third group to whom standardized
questionnaires were applied. In recent years Mexico City government
has undertaken an aggressive policy to regulate street vendors and
move them into the formal market place. This has led to the relocation
of street vendors from congested areas, mainly in downtown, to
commercial plazas that the government built and helped finance
(Cross, 1998a).
The number of vendors exceeded the number of available
commercial spaces in the new plazas; consequently, some vendors
Volume 20 Number 9/10 2000 43

were left out and those who could afford it began transforming
downtown tenements into commercial plazas. The former street
vendors covered by this study inc lude both those in
government-sponsored plazas and private plazas. Former street
vendors were included in the study as a comparison group to help
explain the benefits and limitations of street vendor organizations as
regulators.

Vendors selling in three downtown commercial plazas were


surveyed. The plazas are located on the streets of Bolivia, Guatemala,
and Soledad. The research sites were selected in the same way as street
vendor markets - for practical reasons. The researcher has connections
in those places, making it easier to overcome people’s mistrust of
questionnaires.

Regulation and Organization Models

Cross (1998) correctly points out that among informal activities, street
vending is perhaps one of the most visible, especially in Mexico City
where street vending has increased over the past two decades. The
visibility of this sector to government, formal business, neighbors,
pedestrians, and others makes vendors a susceptible target of local
government policies.

An analysis of the use and distribution of public urban spaces


such as streets, parks, and subway and bus stations helps to understand
the role social institutions play in the functioning of informal
commerce. Street vendors prefer areas with considerable pedestrian
traffic because of the large pool of customers and larger profits; this
leads to overcrowding and conflict in these sites. Thus the question
arises as to how access to public urban spaces is managed and how
space is assigned to street vendors.

Market failures are often used by mainstream economists to


justify state regulation of market activities (Levy, 1995). Furthermore,
economists argue that Adam Smith’s laissez-faire approach in which
markets are self-regulated by individuals and firms pursuing their
International Journal of Sociology and Social Policy 44

selfish goals as if an “invisible hand” exists, is valid only as a


theoretical referent.

The above arguments recognize only two models of regulation:


one relying upon the intervention and regulation of the state and the
second based entirely on pure market forces. However, cases exist
where the state is weak as an institution or presents a low level of
integration between state agents, state enforcement agencies, and state
policy objectives2 creating conditions for the emergence of alternate
forms of regulation - forms that some authors refer to as extralegal (De
Soto, 1989). In the literature of economic sociology and institutional
economics, some authors point out that social ties through friends and
family play a very important role in market activities (Ben-Porath,
1980; Coleman, 1988). Others argue that markets are not something
separate from society but, instead, market activities are embedded in
society (Granovetter, 1985). Institutional economics contributes by
analyzing the role of institutions and organizations (criminal or social)
in market activities (Williamson, 1981).

Four types of regulatory models can be drawn from the above


discussion and literature review: From mainstream economics come 1)
the laissez-faire model, and 2) the government regulatory model.
Institutional economics and economic sociology provide the basis for
3) the mafia regulatory model, and 4) the socio-institutional model.
Table 1 presents the four models and the kind of outcome that each
model most likely would generate.
Table 1: Regulatory Models

How public space is allocated? Outcome

Laissez-faire Vendors compete for urban space Social Chaos


Government Pubic sector regulates location Reduce externalities
Mafia Mafia assigns property rights Rent-seeking
Socio-institutional Organizations as managers of Markets regulated by social norms
“social usufructuary rights”
Volume 20 Number 9/10 2000 45

The Laissez-faire Model

In this particular model, market forces regulate access to and


distribution of urban public spaces: street vendors compete for the
opportunity to locate in places where they can get the highest rents.3
Under a laissez-faire system, vendors are rational agents trying to
maximize their rents. In the absence of any regulation other than the
market, vendors try to move to the best location to maximize their
profits.

Jagganathan’s (1987) peanut seller model and Alonso’s beach


competition model (1975) are examples of the laissez-faire system.
Jagganathan (1987) developed a formal mathematical model to
address the question of how territorial control among vendors is
determined in the absence of both a regulatory agent and a legal system
of well-defined property rights. Using a five-equation model,
Jagganathan (1987: 71-74) concludes that territorial control and the
appropriation of locational rents would be determined by the ability to
defend the territory, which is a function of profits. The equilibrium
territory would be where marginal revenue of the location is equal to
the marginal costs of defending the location.

The peanut seller model draws on the land rent theory. The land
rent theory states that in a world of free market competition, land (and
location) is allocated to the highest bidder and assigned to the highest
and best use. Under this theoretical framework vendors with the
highest ability to make profit and protect their territory will be the ones
who control the best locations. Protecting territory can entail bribing
government officials or police, hiring a bodyguard, or purchasing
some other form of protection such as a gun. The result is social chaos
as shown in table 1.

According to Jagganathan (1987), the social chaos that results


from the laissez-faire approach can be avoided by developing a new
“technology” or agent to control the use and allocation of urban space.
The regulatory agents could be government, mafias, and/or social
institutions that the group itself develops to self-regulate.
International Journal of Sociology and Social Policy 46

The Government Regulatory Model

In the government regulatory model the government is the agent that


regulates the use and allocation of urban space. As shown in table 1
government becomes the “remedy” for market failures resulting from
market transactions (Levy, 1995: 82-91). The government becomes
the agent or “technology” that controls market entry and the location
of street vendors through licenses and permits; it also regulates
product, establishes health standards, etc., etc.

Government controls vendors’ entry into the market and their


location to deal with externalities such as pollution, crowding, and
public health problems that street vendor activities may generate.

The Coase theorem - which states that in the absence of


transaction costs, land would be allocated to the highest and best use -
explains why government regulation is needed. Because market
activities are not free of transaction costs (e.g. large number of people
involved, poorly-defined property rights, etc.) government regulation
is desirable (Holcombe, 1996).

The government will implement policies to protect safety, public


health, and welfare by regulating product type, sanitation, trademarks,
and so on. The outcome would be such that even though the activity
takes place on the street, it is regulated. The street vending activities in
developed countries best exemplify this kind of model. For instance,
street vendors in Washington (Spalter-Roth, 1988) and El Paso, Texas
(Staudt, 1996) or vendors that sell at fairs and festivals get their
permits directly from local government. That is, government, by
establishing stricter standards and rules, increases the entry costs and
therefore limits the number of vendors who could afford a legal permit.

In relation to Cross’s (1998) concept of state-level integration,


the government control model would be an example of strong state
integration with clear objectives where the interests of the state agents
are well coordinated and integrated into the policy objectives and
interests of the state. In this case, the objectives of the state would be to
Volume 20 Number 9/10 2000 47

address market failures and exercise police power to protect public


health and welfare.
Continuing with the idea advanced by Cross (1998), the mafia
regulatory control model and the social institutional regulatory model
evolves as a result of weak state integration. This weak integration
results from inconsistent policy objectives among the different
government agencies and an inability to monitor agents, leading to
corruption.
The Mafia Regulatory Model
The mafia regulatory model represents a form of organization that
arises from a “power vacuum that the state is unable to fill” (Skaperdas
& Syropoulos, 1995: 63). Anderson (1995: 35) identifies three
conditions under which mafias develop: 1) the abdication of power by
the state, 2) excessive bureaucratic power, and 3) the potential of
illegal markets as a result of an inefficient judicial system where
crimes and criminals are rarely prosecuted.
Under Grossman’s (1995: 144) theoretical framework, the state
faces competition in the provision of some essential public goods or
services such as administration of justice and enforcement of property
rights. Grossman points out that criminal organizations become
“alternative providers of public services” particularly as “alternative
enforcers of property rights.”
Under this model the state and criminal organizations might
compete to provide essential public goods that street vendors demand;
however, the ultimate goal of the mafia is rent-seeking whereas the
state attempts to maximize its political benefits. The absence of
government control is common in market activities such as street
vending in developing countries. According to Smith (1988), there are
four reasons why the state is absent from these informal market
activities: 1) they may be seen as part of a lifestyle; 2) they may seem
too trivial to be tracked or regulated; 3) they may be important but
ignored because of the monitoring costs; and 4) they provide the state
some political capital. According to Cross (1998), the degree of
organization of the social groups (street vendors) will determine the
International Journal of Sociology and Social Policy 48

outcome which could be either collusion, extortion, evasion, conflict,


or repression. In this model, street vendor organizations protect
vendors from state action in exchange for a piece of the rent that
vendors obtain from the territory under the organization’s control.
The Socio Institutional Organizational Model
Although informal street markets may appear to operate without any
oversight, the fact of the matter is that these markets cannot function
without regulation. The socio institutional organizational model
describes the situation of informal commerce in many developing
countries. This model avoids pitfalls such as social chaos in the
laissez-faire model and extortion in the mafia model by regulating
street vendors through existing or emergent social institutions.
According to Assaad (1993), there are four main paradigms in the
study of informal or social institutions: transaction costs, agency
theory, property rights, and collective action.
Williamson (1981) is among the most influential in the study of
transaction costs and organizations. According to Williamson (1981),
“transaction cost economizing” is crucial for studying and
understanding organizations. The form of organizational structure that
economic agents develop is the least-cost solution to problems of
uncertainty in the business environment.
Ben-Ner, Montias, and Neuberger (Ben-Ner et al., 1993) point
out that organizations deal with problems of opportunism derived from
lack of information. Ben-Ner et al. (1993) draw their ideas from
agency theory and point out that organizations are set up to minimize
technical-administrative and agency problems. Technical-
administrative problems are due to: 1) incomplete information, 2)
imperfect decision-making, 3) imperfect matching of independent
activities, and 4) unintended consequences or errors. On the other
hand, agency problems arise because: 1) hidden action, 2) adverse or
self-selection, and 3) strategic behavior resulting from self-interest.
The property rights approach focuses on “the role of institutions
in guiding decision making within the economy of specifying and
Volume 20 Number 9/10 2000 49

assigning property rights.” (Assaad, 1993: 928) Furthermore,


Jagganathan (1987) points out the importance of usufructuary rights
(see table 1) and states that the role of informal institutions is to
administer the “social usufructuary rights” - rights that are not tradable
and do not receive legal recognition.
The collective action approach focuses on the role of institutions
in overcoming the problem of “free riding.” Collective action ensures
that people can be excluded from the benefits of the group if they do
not pay their share or comply with the group’s norms. This approach
focuses on the fact that people are better off if they cooperate
transforming a zero-sum game into a positive-sum game.
Economic sociology literature offers a great deal of insight
regarding how social relations influence market activities
(Ben-Porath, 1980; Granovetter, 1985; Coleman, 1988; De Soto,
1989; Portes, 1993, 1994). These authors agree that social factors play
an important role in the way economic activities and markets organize;
market transactions are “embedded” (Granovetter, 1985) in social
relations. In sum, social institutions or organizations become
mechanisms to minimize transaction costs, resolve problems between
agent and principal, and solve free rider problems by forcing people to
work together to defend their interests.
Examples of these informal street vendor institutions are found in
Peru (De Soto, 1989), Colombia (Bromley, 1978; Nelson, 1992),
Ecuador (Teltscher, 1992 & 1994), Mexico (Cross, 1998a; Peña,
1999a), and Nigeria (Smith II & Lutrell, 1994). The authors show that
in the absence of effective and efficient government regulation
vendors developed their own institutions to regulate themselves to
avoid social chaos.
The analysis by Castells and Portes (1989) of the dimensions of
the informal sector is useful for understanding this issue more in-depth
and identifying some key differences between the socio institutional
organizational model and the mafia model. The authors identify three
dimensions in the economy - formal, informal, and criminal.
Furthermore, they focus on the final product, licit or illicit, that results
International Journal of Sociology and Social Policy 50

from the interaction of these three dimensions. Product type is a key


difference between the socio institutional organizational model and
the mafia model. On the one hand, the criminal organization will
“regulate” illegal activities such as drug dealing or money laundering.
On the other hand, street vendor organizations regulate markets where
legal products are sold.

The above regulatory models can apply to street vending in


Mexico City and to many other developing countries. Street vending is
a very diverse activity that ranges from an unorganized low-profile
activity such as a person selling candy in front of his home to a highly
organized activity capable of challenging state authority and deterring
law enforcement.

Organization and Regulation of Informal Markets

Table 2 presents a matrix that allows us to analyze how the three


groups of vendors respond or adapt to the business environment they
face. It divides the business environment into eight factors and three
types of vendors discussed above.
Table 2: Business Characteristics of Street Vending Enterprises

Street Itinerant Former Street


Vendors Vendors Vendors

(1) Regulatory Model Socioinstitutional Mafia regulatory Government


regulatory
(2) Degree of Organization* High Low Mix
(3) Degree of Visibility* Highly Visible Visible Invisible
(4) Type of Property Rights Usufructuary and/or None De Jure
extralegal rights
(5) Who Manages Organization leader Godfather/Gangs Government
“Property Rights”

(6) Access to the Courts Sometimes No Yes


(7) Level of Legal Risk and Moderate High Low
Uncertainty

(8) Entry Barriers Medium Low High


Dimensions incorporated from Cross (1998: 241)
Volume 20 Number 9/10 2000 51

These dimensions address how street vendors, through their


social organizations, overcome the obstacles of operating an informal
business including problems related to appropriation and distribution
of public space. Briefly stated, the first refers to the regulatory models
identified earlier. The second deals with the level of organization of
vendors (based on whether or not they have developed an organization
that is recognized formally). The third refers to visibility (Cross, 1998
define this as degree to which the group can be identified as a problem
and therefore harassed by the State). Four and five are closely related
and deal with issues of property rights and who manages these rights.
Six (access to the legal system) and seven (risk and uncertainty) are
also closely related factors: the more access vendors have to the legal
process the lower the uncertainty of the business environment. Eight
refers to entry barriers whether social or monetary (Fields, 1989). The
dimensions in table 2 are used to analyze each of the vendors groups
and to understand the role social organizations play as alternative
regulatory mechanisms. These dimensions will be discussed in more
detail for each group of vendors.
Street vendors
Street vendors have developed their own organizations as a
mechanism to overcome or lower risk and uncertainty; these
organizations have the legal status of “civil associations” which are
non-profit corporations. Street vendor organizations have legal
resources since they have legal standing as corporations and often
challenge government decisions in court.4 In addition, these vendor
organizations are political actors that have been an official part of the
Institutionalized Revolutionary Party (PRI) which controlled the
country’s executive branch from 1929 to 2000.
Within this group of vendors differences exist that can be
reflected in the type of regulatory model that is present. For instance,
the state has stronger oversight (in areas such as health, location, etc.)
of the activities of tianguis markets which could fall under the
umbrella of the socio institutional regulatory model. By contrast, the
state’s oversight is weak with respect to ambulantes, as is the case of
International Journal of Sociology and Social Policy 52

the Tepito market, so that it is sometimes hard to differentiate between


what is legal and illegal; consequently, this group presents some
similarities to the mafia regulatory model.
Street vendors present a high degree of organization and they
have been able to negotiate or collude with local authorities to gain
tolerance for their activities. Almost every person who wants to work
in the streets has to join a vendor organization in order to get a space in
the market. This group is also very visible to other groups such as
subway riders, neighbors, pedestrians, etc. and, according to Cross
(1998), this visibility is what often leads to government harassment.
The issue of property rights is important to understand because,
legally speaking, nobody owns the streets and, theoretically, nobody
should but anybody can set up a stall in them. In the case of street
vendors, as stated before, social usufructuary rights as opposed to de
jure rights are the ones that matter (Jagganathan, 1987).
Table 3 (overleaf) presents street vendor evaluations of the
function of the organizations they belong to.5 A lower score means the
organization is more effective and a higher score less effective. Table 3
shows that protection of assigned spaces, the system of assigned stalls,
and the organization’s ability to negotiate with governmental
authorities are among the functions street vendor organizations
perform most effectively, corroborating the idea that organizations are
a means to overcome the problem of property rights that working in the
street may pose for the group of vendors.
Organization leaders see themselves functioning at two levels: 1)
within the organization, and 2) outside the organization (with
government, neighbors, other vendor organizations) (interview with
Nieto, August, 10, 1998). The leader of the San Juanita organization,
Mr Velásquez explains as follows:
“...The leader has the obligation of [1] verifying that all the merchants in
the area work within the norms established, and [2] overseeing the way
the merchants undertake their work. For instance, they should comply
with the basic norms of operation, making sure that merchants that sell
meat comply with health standards, people who use scales should have
Volume 20 Number 9/10 2000 53

Table 3: Organization Functions and Effectiveness

FUNCTION MEAN EFFECTIVENESS

Enforce respect for assigned spaces 1.77 very effective


Negotiating with authorities 1.77
Help with permits 2.00
System of stall distribution 2.00
Conflict mediation among vendors 2.07
Enforce work schedule 2.20
Punishment system 2.23
Protection from authorities’ extortion 2.27
Cleaning services 2.47
Safety of vendor and client 2.63
Legal services 2.70
Help when merchandise is stolen 3.10 INEFFECTIVE
Grand Mean 2.27

S.D. .3972

Upper (95% CI) 2.51

Lower (95% CI) 2.01

Source: Street Vendors Survey, Summer 1998: N-30


Thequestionwasordinal1=veryeffective;2=effective;3=ineffective,and4=veryineffective

their scales calibrated... In addition to the above, the work of the leader is
to find a balance with the community or neighborhood where we work
each day of the week. Also [the leader] goes to the work meetings with
other leaders to find mechanisms of defense since the authorities want to
restrain our activities...” (Velásquez, July 29, 1998).

Through the leader, the organization enforces a system of space


distribution in the market and manages conflicts among members. In
essence, the leader’s function is to impart justice in the organization.
The leader has coercive power over the vendors to make them accept
what he deems to be just based on the norms established in the
organization.6
International Journal of Sociology and Social Policy 54

The findings also show that vendors join organizations not


because they agree with their philosophy or social goals but because of
the benefits associated with the territory that the organizations control.
In other words, the benefits outweigh the direct and indirect costs of
membership. This suggests that organizations are effective
mechanisms for lowering vendors’ transaction costs. In summary, the
role of organizations and their leaders are multiple. First and foremost,
the organizations must ensure economic rewards to the group by
ensuring and protecting their usufructuary rights. In exchange for these
economic rewards, the vendors accept the role of the leader as a judge
and mediator, political leader, and administrator of group assets.

The head of the reorganization program in the previous


administration points out that the government has not advanced a great
deal in terms of looking at the rights and duties of these organizations
and exploring government’s legal authority to require more
accountability (Barraza, Summer, 1998). Leaders, on the other hand,
demand respect for the autonomy of their organizations, but it is
unclear exactly what they mean by autonomy or if they mean no
governmental interference in their organizations at all.7

In analyzing barriers to entry faced by street vendors, social


barriers play a particularly important role. A social barrier can take the
form of the presence and/or absence of social capital. Social capital “...
is defined by its function. It is not a single entity but a variety of
entities, with two elements in common; they all consist of some aspect
of social structure and they facilitate certain actions of actors - whether
persons or corporate actors - within the structure...” (Coleman, 1988,
p.S98). Social capital can be found in the form of family networks and
friendships which constitute an important part of the entry process into
street vending. Furthermore, street vending can also be considered a
family tradition passed down from parents to children.

Peña (1999a) showed that street vendors obtained a fixed location


in the street market through three main channels as seen in table 4: 1)
the leader assigns the stall to the vendor, 2) the vendor acquires it
Volume 20 Number 9/10 2000 55

through inheritance or transfer from some family member, and 3) the


vendor buys the stall.

Table 4: How Vendor Obtained a Fixed Location

Frequency Percent

The organization leader assigned it 17 41.4


A family member gave it to the vendor 9 22.0
The vendor paid a one-time fee for the location 9 22.0
The vendor pays monthly rent for the space 3 7.3
The vendor saw an empty space and acquired the de facto 2 4.8
right with time
The vendor uses empty spaces when the “owner” does not 1 2.4
show up to work
Source: Pilot study (1997) N = 41

It is important to point out that most of the vendors who reported


paying a one-time fee for the location are located in the Tepito market.
The spaces in this market are distributed in a quasi-market fashion;
people pay rent for the use of the space or buy it directly from the
“owner,” with an average payment equivalent to a year’s worth of the
1997 daily minimum wage. In the survey, vendors were asked for how
much they would be willing to sell their stall. The answers varied from
a low of 22 times the daily minimum wage in poor locations to a
maximum of 3,780, with a mean of 533.8

The leader of the San Juanita organization, Mr Velasquez pointed


out that the barriers of entry, particularly those related to regulations9
of the market’s operation, are lower for ambulantes and itinerant
vendors than for vendors in the tianguis; as a result membership in
tianguis organizations is shrinking while organizations of ambulantes
or itinerant vendors keep expanding. Thus, barriers to entry tend to be
different depending on whether control and regulation of the informal
markets is undertaken by the State, a vendor organization, or a mafia.
International Journal of Sociology and Social Policy 56

Itinerant Vendors

Since the Metro system is considered private property (i.e. belonging


to a specific government agency that strictly prohibits vending)
vendors in the subway have no legal course of action and are the least
organized of street vendors, since their very action is breaking the law.
When caught, they are often sent to detention facilities and their
merchandise confiscated. In short, itinerant vendors in this situation
operate in a very uncertain and risky business environment and
therefore are more susceptible to extortion not only by law
enforcement officials but also by bosses and godfathers who emerge as
protectors and gatekeepers. As a result of the environment in which
itinerant vendors operate, a mafia regulatory system emerges. In the
mafia model it was argued that the mafia as organization competes
with the state in providing essential public goods such as
administration of justice, property rights, and other forms of regulation
(Grossman, 1995). For example, “Mario,” a metro vendor, explained
that if somebody wants to start selling in the subway, they would have
to pay 300 pesos (about 30 dollars) as an entry fee and ten pesos every
other week. The newcomer pays a vendor who acts as an intermediary
and gives the money to a man known as “Don Pancho.” Don Pancho
controls about 120 vendors and he assigns the working areas or
subway stations where each vendor can sell.

A fundamental difference between street vendors and itinerant


metro vendors is the fact that leaders of vendor organizations force
their members to cooperate in order to achieve a common goal that
advances the group interests. Furthermore, the leader normally is
somebody with a trajectory within the organization and who
commands a great deal of respect among their fellow vendor members.
On the other hand, the leader or boss that controls itinerant vendors
may be an outsider or even an official who simply siezed the
opportunity of controlling a territory by bribing police, through
connections with the authorities, or simply by force. This is exactly
what differentiates the socio institutional regulatory model from the
mafia model.
Volume 20 Number 9/10 2000 57

Former street vendors

Upon deciding to establish and register a formal business, vendors


acquire not only the de jure rights, but also obligations such as taxes,
fees, and regulatory compliance obligations defined by the
government and enforced by the legal system. In the government
regulatory model, government becomes the “remedy” or the agent to
overcome market failures in the form of externalities. Government and
the legal system become the means to address property rights or other
disputes that may arise among vendors. In practice, however,
formalization of Mexico City’s downtown street vendors was only
partial because there are cases where not all the rules are enforced.

These former vendors are required to join the National Chamber


of Commerce, known in Mexico as CANACO. In the survey of former
street vendors, one out of four pointed out that one advantage of their
new status was their independence from intrusive street vendor
organizations. However, some street vendor organizations continue
having some influence among their former members who moved into
the government-sponsored commercial plazas so the level of
organization within this group varies. Even though by law they are
affiliated with CANACO, in practice vendors very seldom take
advantage of CANACO’s member services.

Among former street vendors, social institutions are replaced by


government and the rule of law. Often organizations are more
concerned with the social welfare of the group than with individual
success. This social phenomenon is referred to as “community
solidarity” and the negative side effects of “community solidarity” are
“leveling pressure” and restrictions on “individual freedom.” In other
words, an individual is not allowed to be better than the group (Portes,
1993: 1338-1346). For example, a former street vendor noted:

“[street vendor]...organization’s restrain people’s success because when


people want another stall, the organization believes you already have
achieved success and you are not entitled to become better than the rest;
therefore, they don’t give you another stall. Organizations are only a
International Journal of Sociology and Social Policy 58

channel to get a fixed and secure location in the street. Success depends
on the merchant and the product.” (interview in summer of 1998)10
In the early 1990s, Mexico City’s government policies of
removing street vendors from downtown forced a considerable
number of vendors in this group to choose between relocating to areas
with low economic value for commerce or finding ways to stay closer
to their original location. Individual vendors contracted with owners of
vecindades (downtown tenements) to use tenement courtyards for
commercial purposes, and vendors transformed these courtyards into
commercial plazas.11
The leasing procedure worked in different ways: some vendors
signed leases with the building owner while others signed subleases.
Typically, in Mexico, there are two components in a commercial
agreement - an initial entry fee and rent. The entry fee is known as
traspaso or transfer of rights from one person to another; in addition to
the traspaso, the merchant agrees to pay rent.
The initial entry fee could range from as low as 1,500 to 120,000
new pesos depending on the location and size of the establishment; the
mean of the initial entry fee is 24,041 with a median of 12,000 new
pesos. At the time of the survey in 1998, vendors were willing to
transfer their business for a minimum of 10,000 to a maximum of
120,000 new pesos and the mean was 70,000 new pesos. This indicates
that vendors were willing to transfer their business at a rate 27.2%
higher than the original entry fee. Additionally, vendors who acquired
their businesses when the commercial plaza was first established have
a higher pay-off than those who arrived after the commercial plazas
had already acquired some degree of commercial success. The
research showed that monetary barriers in this group are higher than
for the other vendor groups but the risk and uncertainty of property
rights are low.
Conclusions
This study has challenged the simplistic notions that the option for the
regulation of street vending is simply between the social chaos that a
laissez-faire approach generates and the benign action of the State to
Volume 20 Number 9/10 2000 59

correct market failures. The study has shown that social institutions
can also provide regulatory services that the state would normally
monopolize. Informal markets show how market activities can also be
regulated through social norms and practices, creating competing
models of regulation. On the one hand, authorities attempt to
implement something close to the government regulatory model which
would require a high degree of state integration where state agencies
and agents share the same objectives and interests. In reality that is
rarely the case in Mexico City and perhaps the attempt to enforce such
a model only increases the amount of corruption as social institutions
and mafias are forced to work against the government. On the other
hand, street vendor organizations operate under different models with
characteristics similar to both the socio institutional regulatory model,
as in the case of the tianguis, and the mafia regulatory model in which
itinerant subway vendors operate.
The implementation of a model such as the government
regulatory model would require stronger state integration if the
administration is going to achieve its goal of deterring the growth of
the informal sector. However, it was shown that organizations already
perform some government functions in a cost-effective manner. The
research showed that vendor organizations lower street vendor’s
transaction costs, whereas the reorganization program that the
government implemented has increased the operation cost of street
vendors. Thus, the question that emerges is why vendors should accept
government regulation proposals when for years their respective
organizations have provided some form of protection and regulation in
a more efficient manner. In short, the marginal costs that government
regulation or programs impose on the vendors are greater than the
marginal benefits that vendors obtain from them.
The government in Mexico City finds itself in a dilemma. The
government wants to replace street vendor organizations and take over
the control and regulation of street vending. However, it is clear that
social institutions have achieved some degree of success as alternative
regulatory mechanisms. The biggest challenge for the government in
Mexico City is how to become relevant by offering policy options that
International Journal of Sociology and Social Policy 60

could be as cost-effective as social institutions, or that work with social


institutions, rather than offering solutions that are too costly to enforce
and condemned to failure. For example, the costs of enforcing tax
collection and monitoring street vendors to comply with the rules may
exceed the benefits in the form of government revenue. Finally, this
article has shown that most street vendor organizations are important
social and political actors and not mafias (as they are perceived by the
Mexico City authorities) who perhaps need to be seen as part of the
solution and not as part of the problem.
Volume 20 Number 9/10 2000 61

Endnotes
1. I would like to extend my most sincere thanks to John Cross for his
comments and time which helped me to refine the ideas and get this
article ready. Also, I would like to acknowledge my wife Sally Spener
for her help in editing the final draft.
2. Cross defines state integration as “the degree to which the interests
of state agents (policy implementers) are integrated into the policy
objectives of the state.” (1998: 44)
3. The term “rent” is used to refer to the economic benefits that a
person draws from a certain location in the street.
4. The leader of San Juanita pointed out that they once won a
relocation legal battle with the respective authority. They won a court
injunction to bar enforcement of an order from the delegation or local
government to force the vendors to move to another location
(Velasquez: July 29, 1998).
5. The functions of street vendors were identified in the pilot study by
the author; then, the follow-up study asked the vendors to evaluate
those functions and others that the author considered appropriate. For
more on this issue, see Peña (1999).
6. After an interview in the summer of 1998 with the leader of the
mobile markets in Ciudad Neza, the leader invited the researcher to
stay at the meeting that he holds every Monday at 6.00 pm. People at
the meeting went to explain their problems. One person asked for a
space in the market as a condition of joining the organization; the
leader responded that people needed to become members as a
condition for obtaining a fixed space in the work area. Other people
requested permission to be absent without sacrificing the rights to their
spaces. The leader acts as a judge and makes final decisions. He listens
to the person’s problem and, at the same time, listens to the delegados
or subordinates who help him in his function and then makes a final
decision.
7. Legal scholars (Schuck, 1992; Jacobson, 1994; Kaufman-Winn,
1994; Priest, 1994; Austin, 1994) point out that within the informal
International Journal of Sociology and Social Policy 62

sector there is not necessarily a correlation between duties and rights in


the law. Street vendor organizations demand that their “rights” be
respected but their duties are still unclear. In recent years, vendor
organizations have attempted to form coalitions of organizations to
discuss their situation and present unified proposals of action to
government.
8. Daily minimum wage was used simply to give an idea to the reader
the level of opportunity costs of locating in a profitable commercial
area.
9. Tianguis markets require their vendors to have a stall of a designated
color that can be disassembled daily, a tarp, and a frock and sanitary
license if food is handled.
10. Government rules, when they do permit vending, also frequently
specify that vendors are entitled to only one stall since it is assumed
that they should only be used by the poor who have no other option.
Vendors get around this in practice by putting friends or relatives
down as the official owners.
11. A majority of vendors in this group was denied access to stalls in
the new plazas that the government were building. Street vendor
organizations were given the power to decide who was qualified for
the stalls.
Volume 20 Number 9/10 2000 63

References
Alonso, W. (1975) “Location Theory.” Alonso, W. & Friedman, J.
(Eds.) Regional Policy: Readings in Theory and Policy, pp.35-63.
Cambridge, MA: MIT Press.
Anderson, A. (1995) Organized Crime, Mafia and Governments. In
Fiorentini, G. and Peltzman, S. (Eds.) The Economics of Organized
Crime, pp.33-60. Cambridge, MA: University Press.
Assaad, R. (1993) Formal and Informal Institutions in the Labor
Market, with Applications to the Construction Sector in Egypt. World
Development, 21, pp.925-939.
Austin, R. (1994) “An Honest Living: Street Vendors, Municipal
Regulation, and the Black Public Sphere,” The Yale Law Journal, 103,
pp.2119-2131.
Ben-Ner, A., Montias, J.M. and Neuberger, E. (1993) Basic Issues in
Organization: A Comprehensive Perspective. Journal of Comparative
Economics, 17, pp.207-242.
Ben-Porath, Y. (1980) The F-Connection: Families, Friends, and
Firms and the Organization of Exchange. Population and
Development Review, 6, pp.1-30.
Bromley, R. (1978) Organization, Regulation and Exploitation in the
So-called ‘Urban Informal Sector’: The Street Traders of Cali,
Colombia. World Development, 6, pp.1161-1171.
Camara Nacional de Comercio de la Ciudad de México (1987) El
Comercio Ambulante en la Ciudad de México. Camara Nacional de
Comercio de la Ciudad de México.
Castells, M. and Portes, A. (1989) World Underneath: The Origins,
Dynamic, and Effects of the Informal Economy. In Portes, A.,
Castells, M. and Benton, I. (Eds.) The Informal Economy: Studies in
Advanced and Less Developed Countries, first ed. pp.11-37.
Baltimore, MD: The Johns Hopkins University Press.
Coleman, J.S. (1988) Social Capital in the Creation of Human Capital.
American Journal of Sociology, 94, pp.S95-S120.
International Journal of Sociology and Social Policy 64

Cross, J.C. (1998a) Co-optation, Competition, and Resistance: State


and Street Vendors in Mexico City. Latin American Perspectives, 99,
pp.41-61.
Cross, J.C. (1998) Informal Politics: Street Vendors and the State in
Mexico City. Stanford University Press, Stanford, CA.
De Soto, H. (1989) The Other Path. New York: Harper & Row
Publisher.
Fields, G.S. (1989) Urban Labor Market Modeling and the Informal
Sector. PHREE/89/08, pp.1-57. Washington, DC: The World Bank.
Granovetter, M. (1985) Economic Action and Social Structure: The
Problem of Embeddedness. American Journal of Sociology, 91,
pp.481-510.
Grossman, H. (1995) Organized Crime and State Intervention in the
Economy. In Fiorentini, G. and Peltzman, S. (Eds.) The Economics of
Organized Crime, pp.143-160. Cambridge, MA: University Press.
Holcombe, R. (1996) Public Finance: Government Revenues and
Expenditures in The United States Economy. St. Paul, Minneapolis:
West Publishing Company.
Jacobson, A.J. (1994) The Other Path of the Law. The Yale Law
Journal, 103, pp.2213-2237.
Jagannathan, V.N. (1987) Informal Markets in Developing Countries.
New York: Oxford University Press, Inc.
Kaufman-W i nn, J. (1994) Re la tiona l Pra c tic e s a nd the
Marginalization of Law: Informal Financial Practices of Small
Businesses in Taiwan. Law & Society Review, 28, pp.193-241.
Levy, J.M. (1995) Essential Microeconomics for Public Policy
Analysis. Praeger: Westport, CT.
Nelson, N.L. (1992) Public Order and Private Entrepreneurs: The
Pocket Economy of Street Vendors in Bogota, Colombia.
[Anthropology]. University of New Mexico, pp.1-358. Ph.D.
Volume 20 Number 9/10 2000 65

Peña, S. (1999a) Informal Markets: Street Vendors in Mexico City.


Habitat International, 23(3), pp.363-372.
Peña, S. (1999) Informal Markets Organization: Street Vendors in
Mexico City. [Urban & Regional Planning]. Florida State University,
pp.1-237. Ph.D.
Portes, A. and Sensenbrenner, J. (1993) Embeddedness and
Immigration: Notes on the Social Determinants of Economic Action.
American Journal of Sociology, 98, pp.1320-1350.
Portes, A. (1994) The Informal Economy and Its Paradox. In Smelser,
N.J. & S.R. (Ed.) The Handbook of Economic Sociology, pp.426-447.
Princeton, NJ: Princeton University Press.
Priest, G.L. (1994) The Ambiguous Moral Foundations of the
Underground Economy. The Yale Law Journal, 103, pp.2259-2288.
Ruiz de Ch. S. & Ruiz de Ch S. (1996) Las Sociedades Civiles en el
Derecho Mexicano. Editorial Porrua: Mexico.
Schuck, P. (1992) Legal Complexity: Some Causes, Consequences
and Cures. Duke Law Journal, 42, pp.1-52.
Skaperdas, S. & Syropoulous, C. (1995) Gangs as Primitive States. In
Fiorentini, G. and Peltzman, S. (Eds.) The Economics of Organized
Crime, pp.61-86. Cambridge, MA: University Press.
Smith, E.M. (1988) Overview: The Informal Economy and the State.
In Clark, G. (Ed.) Traders Versus the State: Anthropological
Approaches to Unofficial Economies, pp.189-199. Boulder: Westview
Press.
Smith, H.M.I. and Luttrell, M.E. (1994) Cartels in an “Nth-Best”
World: The Wholesale Foodstuff Trade in Ibadan, Nigeria. World
Development, 22, pp.323-335.
Spalther-Roth, R.M. (1988) The Sexual Political Economy of Street
Vending in Washington DC. In Clark, G. (Ed.) Traders Versus the
State: Anthropological Approaches to Unofficial Economies,
pp.165-187. Boulder: Westview Press.
International Journal of Sociology and Social Policy 66

Staudt, K. (1996) Struggle in Urban Space: Street Vendors in El Paso


and Ciudad Juarez. Urban Affairs Review, 31, pp.435-454.
Teilhet-Waldorf, S. & W.W.H. (1983) Earnings of Self-Employed in
an Informal Sector: A Case Study of Bangkok. Economic
Development and Cultural Change, 31, pp.587-607.
Teltscher, S. (1992) Informal Trading in Quito, Ecuador: Economic
Integration, Internal Diversity and Life Chances. [Geography].
University of Washington, pp.1-246. Ph.D.
Teltscher, S. (1994) Small Trade and the World Economy: Informal
Vendors in Quito, Ecuador. Economic Geography, 70, pp.167-187.
Williamson, O.E. (1981) The Economics of Organization: The
Transaction Cost Approach. American Journal of Sociology, 87,
pp.548-577.
Volume 20 Number 9/10 2000 67

Official Documents
Departamento del Distrito Federal (Enero, 1997) Programa de
Reordenaimento del Comercio en Vía Pública.
Gaceta Oficial del Distrito Federal (16 de Febrero, 1998) Acuerdo #
11/98, 3-18.
Gobierno del Estado de México, Secretaria de Desarrollo Económico:
Dirección General de Abasto y Comercio (1990). Infraestructura
Comercial en el Estado de México.
Secretaria de Desarrollo Econó)mico: Direccion General de Abasto,
Comercio y Distribucion (1998). Comercio en Vía Publica y Tianguis.
Secretaria de Gobierno: Subsecretaria de Trabajo y Previsión Social
(no date). Programa de Reordenación del Comercio en Vía Pública
del Gobierno del Distrito Federal.
Interviews
Aranda, L. (July 23, 1998) Head of Street Vending Reorganization
Unit in Venustiano Carranza.
Barraza, L. (July 27, 1998) Head of the Reorganization Program in
Cuauhtemoc.
Nieto, G. (August 10, 1998) Leader Organization Neza.
Velasquez, R. (June 11, 1997 and July 29, 1998) Leader Organization
San Juanita.

View publication stats

You might also like