TERM PAPER FOR MONSOON SEMESTER-2023

Course Code:
CI 403 (informal Sector: An Introduction)

Name: Anshul Patel

Enrollment no: 233510176307
Course Instructor: Archana Prasad
Centre For Informal Sector and Labour Studies
School of Social Sciences-1
Jawaharlal Nehru University
Abstract:

Conceptually and empirically, explain the relationship between existence of labour

surplus and ‘informality’ in the context of the evolution of contemporary capitalism.
The paper should be a comparative analysis of any two regions of the world, from the
historical perspective.
The source of the empirical data could be the ILO data on labour trends from World
Economic and Social Outlook reports from the ILO website. Data should cover periods
that represent stages in capitalist crisis.
Introduction
It was about 50 years ago that the ILO first used the term “informal sector” to describe the activities of
working poor who were not recognized, recorded or regulated by public authorities. And it was in 1991
that the 78th session of the ILO discussed the “dilemma of informal sector”. The dilemma was that ILO
should promote informal sector as a provider of employment and income or seek to extend regulation
and social protection in order to reduce its capacity to provide jobs for expanding labor force. The 1991
report that “ILO will promote and develop as a convenient and low-cost way of creating employment
and determination to eliminate negative aspects of exploitation and inhuman working condition in this
sector.

The term ‘informal economy’ was used that is not formal. Referred to that urban workforce of Global
South who were outside the means of production after selling their labour power. Keith Hart listed a
number of workers in the Accra city of Ghana who worked as informal workers. They were unregulated
by labour legislation and free from the all terms and conditions of the employment. This sector gave
rise to the notion of duality in urban economy under which two different of economies that is formal
and informal were operating. This study began with those workers who migrated from rural to urban in
search of employment when agriculture was unproductive enough to meet their subsistence needs. On
early stages, informal economy consists a wide range of economic activity including petty businesses,
inferior technology, reliance on family labour and all those who were outside the sphere of formal
employment. The early studies shows when migrants came from rural economy, they found job in
informal economy and slowly they get qualified for better jobs and higher pay and started working on
daily or weekly wages, which shape in a regular employer-employee relationship. The local level
investigations shows that mobility from formal to informal is very less (Breman, 1996). It meant that
the expansion of formal sector took place haltingly whereas the informal sector had continued to expand
with ever more labour coming out of the village economy.

Jan Breman denied this idea of dualism between formal and informal. He argued that the practice of
outsourcing and subcontracting production or services also led to the recruitment of the workers
employed on informal conditions within the capitalist enclave, irrespective of where they happened to
be located. Hart’s duality reflects the distinction between waged labour and self-employment. But
Breman rejected this assumption and called it misleading because these self-employed workers are
dependent on providers who apply them merchandise, tools and raw materials to be operated. These
petty businesses are run by wholesale traders who take work from them through outsourcing and use
them as their subsidiaries on local basis. They can’t bargain with their suppliers for the terms of the
trade.
Labour Surplus and ‘Informality’

In the last quarter of 20th century the ideas of neo-liberalism began to dominate the public governance.
Under the Bretton Wood System the IMF and World Bank were established to spread the multinational
capitalism. Started in 1970s with the Thatcher’s idea that ”governments should not do business, it
should only facilitate the business.” This idea is also known as New Public Management in the realm
of Public Administration (Bidyut Chakravorty).

Jan Breman during his ground study in Gujarat found that government wanted to close down of large-
scale and composite textile mills in Ahmedabad. This took place in 1985 when government gave priority
to liberalization and flexibilization of industrial relations. The job lost workforce had no option but to
join the unorganized sector. This transition turned in sharp decline in living standards. Their income
dropped less than half what they earned before. This income loss compelled other family members to
join the army of casual wage earners. The Textile Labour Association reacted by taking back
membership from unemployed workers and folded up. ”if there is no factories there is no need for
trade unions”(Breman,2004:189). These trends marked in disappearance of full and sustained
employment throughout working life and labelled as precarious labour arrangements. This is known as
the informalization and show the growth of capitalism.

The emigration to foreign countries in search of job especially in developed countries has become very
cumbersome from developing perspective. These are the job seekers who have no assets, skills or
capital, seen as economic refugees in present context. The work in infrastructural connectivity and
improved transportation has played a major role in the formation of mobile labour who are available at
low cost. The waves of migrant workers coming to cities are far in excess of the demand for their labour.
The lack of work and low wages leaves this army deprived of the basic means of the human subsistence.

While doing field work in Gujarat, Breman saw the phenomena of ongoing labour circulation in which
people came out from their rural habitat for a part of the year and returned back again when their
temporary and casual work comes to an end. This pattern of Footloose movement has become an
important feature of informal economy (Breman and Wiradi). With the influx of migrant workers, the
local labour becomes exceed the demand and has to go other places in search of employment. They also
fail to get access of steady work and compelled to join the Reserve Army of Labour.

As Harris-Todaro Model of development show that unemployment is the characteristic feature of

urban economy. If job in urban sector increased by policy implementation more people will tend to
migrate from rural sector for better wages but only few of them will manage to get job. While rest still
stay in urban area in expectation of getting employed and they have to indulge in informal sector and
work as subsistence for capitalist enterprises. The wage gap between rural and urban sector is an
important factor of unemployment in urban economy. The surplus labour involves in informal economy
if somehow manage to earn the amount of wage that is in urban sector. They have to depend on capitalist
and this degree of autonomy is decided by capitalists on their terms and conditions.

The distinction between employment and unemployment has no validity outside the gamut of formal
economy, within the settings of informality, reality is different from simple duality. The assumption that
informalization would generate more employment is in conflict with the large low class wage earners,
that their income is not enough to make a decent living. Jobless growth is the result of capitalist
displacement of labour through technological changes in order to raise higher profits. States are crucial
in determination of labour rights and social security. Neo-liberalist propositions like Friedrick Hayek
(1944) in “The Road to Serfdom” denies the economic, political and social space which is required to
solve the social questions. It advocates the removal of all kind

of trade barriers including the legal immunity to labour rights given by legislation. These are considered
as hindrances of globalization and privatization. The state has continued to play an important role in
economic policy but serving the interest of capital. On the one hand state machinery defends the
property rights and pushes free competition. But on the other hand, it diluted the labour rights gained
by workforce in collective struggle against capitalist agency.

Informality is mainly discussed in course labour, work and employment, this overlooks how informality
pervades the working of capital. The notion that capital only belong to formal is questionable, many
capitalists often resort to informalization of their businesses to evade appropriation through state-levied
taxation of the surplus value created by labour’s additional unpaid works. In this case the intermediaries
like moneylenders, sub-contractors are of importance to understand how labour is linked with capital.
“The Unemployed of Marienthal” first published in 1933, describe the impact of long unemployment
due to worldwide Great Depression. In Vienna a textile mill had been closed down, it pushed three-
fourth of the households in deep poverty. Instead of mutual help, symptoms of envy and suspicion
destroyed the social fabric. People partially retreat into self- employment. (Breman, 2003:13) A point
of no return is reached when a reserve army is waiting to be incorporated into labour process becomes
stigmatized as a permanently redundant burden that cannot be included now and in future economy and
society.

The peasantry of the third world was the source of labour for the mines, plantation and factories of the
domestic and foreign capitalists. The growth of chattel slavery under merchantile capitalism in Latin
America because were often failed to recruit native labour for enterprises such as road building and
working in mines. A system of indentured labour was organized to bring labour from India and China.
The multination capitalists have supported a system which give high rate of profit on invested capital
by combining the technology and the repressive state apparatus of merchantile era (Louis Althusser). It
was easy for colonial powers toto recruit labour for modern enterprises in newly overthrown kingdoms
(Morris, 1965 and Mukherjee, 1951). They know that subsistence family members of wage earner left
at home then compelling them to be the part of workforce could be the maximum degree exploitation.
This could be only possible if the breadwinner fails to earn the wage which was really below the
subsistence of a family. For this they adopted the method of massive de-industrialization in many parts
of the third word, expulsion of peasants from their lands and reducing the employment opportunities
was trends of the society. After this, the potential labour force for capitalist enterprises has grown
enormously. In spite of law probability of getting job in towns and poor living conditions there is always
a labour surplus in these places. (Amiya Kumar Bagchi)

Where planters were sure of obtaining cheap replacements of labour, their exploitation of workers
becomes highest. They also used punitive laws and regulations to uphold their dominance.

The rural connection of labour is also very useful for the capitalists, the increasing absenteeism among
workers allow owners to hire new workers on relatively low wages that ultimately increase the surplus
value. The workers the inadequate housing facilities, when they have a home at village to return. It
becomes more difficult to organize workers for agitation, they may simply disappear into the villages.
It has been suggested by Arrighi (1970) that labour intensive techniques are associated with the pattern
of employment in which unskilled and skilled labour dominate but capitalist s intensive are associated
in which semi-skilled labour and high level of man power predominantly employed. The process of
dissociation of modern industrial techniques from traditional local conditions in Third World has been
accelerated by the growth of multinational corporations, which choose their techniques on market
demand. The pre-learned skills and educational qualifications for industrial employment have generally
been raised with the excess supply of labour.

There is a large overlap between small enterprises and the informal sector. Many are essentially one-
man or family affairs, with few hired workers. In case of poor peasant farms there is high degree of self-
exploitation. They pay lower wages than that of in large-scale enterprises. Some are deliberately
organized by large-scale enterprises and some have to become sub-servient to large capital in order to
get access to markets, credits. For example, goods processing units in rural areas work as subsidiaries
of big giants like Dabur, Patanjali and many more. Self-employed artisans, craftsman or small
enterprises are managed in many branches of capitalism.

According to Marx, the reduction in employment elasticity is embedded in the rise of raw capitalism
where the transition of economy from subsistence agricultural to modern industrial still underway and
where a large number of agricultural workers were being absorb in low quality Jobs, what we known
as ‘unorganized sector’ or the ‘informal economy’. Together with the unemployed, these people
constituted what Marx called the ‘relative surplus population’-relative to the demand of labour in
modern industrial sector. The capitalist process of accumulation led to expulsion. The concentration of
land is the first form of concentration of capital, which produce working class who are mobile and free
to get employed in any sector on subsistence wages. The expulsion of labour from land is the primary
step of generalization of market economy Marx called it ‘Primitive Accumulation’. The expelled labour
foce constitute the ‘relative surplus population’ which work as a reserve army of labour for industrial
sector. This helps the capitalists to manage at subsistence level. In this process, the capitalists,
competition with one another, the larger capitalists with better technology tend to beat the smaller ones
by lowering the cost of their commodity. This reflects the predatory nature of capitalism. The process
of capital accumulation produces an ‘accumulation of wealth at one side’ and ‘an accumulation of
misery’ on the other side which increase inequality in society. This is contrast to the dual labour market
theorists.

W. Arthur Lewis Gave Theory of ‘Dual Labour Market’. He distinct between and traditional economy.
In his theory of Dual Economy, he shows how productivity and surplus labour, at subsistence wages in
agriculture, could provide a window of opportunity for capital accumulation. Lewis’s notion of dual
economy with an overcrowded informal sector, a theory about, how sustainable development could take
place with assumptions that workers in pre capitalist sector would eventually get absorbed in the
modern, capitalist sector. Rural Agriculture also transformed or modernized through mechanization and
improved techniques until capitalist sector absorb most of the surplus labour and informal sector will
shrink.

Barry Bluestone (1970) argued that the problem of working poor has nothing to do with inadequate
demand of labour in industrial sector. His analysis consists of a ‘tripartite economy’ in which there is
core economy, a peripheral sector and an irregular economy. Core economy is formal sector enterprises.
Peripheral and irregular economies match with informal sector. Core economy mainly constituted in
organized manufacturing industries that includes automobile, steel and petroleum industries. It is
characterized as high productivity, high profit, intensive use of Capital and a high degree of
unionization. The peripheral economy mainly consists of agriculture, non-durable manufacturing, retail
trade and sub-professional services. Irregular economies are loosely tied to the core, or formal economy.
It includes daily contract and self-employed workers that Bluestone (1970) describes as ‘pseudo-
entrepreneurial activity’.

Informal employment is viewed as large and heterogeneous residual category. Self-employment in large
enterprises, especially trade, repair and services, is treated as the typical form of informal, as a means
of livelihood for a part of the ‘reserve army of underemployed and unemployed’. From worker’s point
of view, informal jobs act as a buffer against unemployment.

An unlimited supply of labour can exist where population is large relatively to its capital and natural
resources, that there is large subsistence economy where marginal productivity is negligible, zero or
negative like disguised unemployment. Another large sector to which it applies is the whole range of
casual jobs-the workers on stations and delivery workers each of them earning very small sum of
occasional employment, frequently their number decrease or cut without reducing output in this
sector. Another case can be seen in domestic services where marginal productivity is negligible, so
new industries can be created or expanded. (Arthur Lewis)

The transfer of women’s work from the household to commercial employment is one of the most notable
features of economic development. Another source of labour for expanding industries from the excess
of birth over deaths. This source is important in any dynamic analysis of how capital accumulation can
occur, and employment can increase, without any increase in real wage. It was therefore a cornerstone
of Ricardo’s system. Population increase is not relevant in classical analysis as also show in Malthusian
Law of Population. Modern population Theory has advanced a little by defining separately the effects
of economic development upon the birth rate, and its effects on the death rate. For example, In Western
Europe it is fallen during last eighty years even huge development happened. Of the death rate we are
more certain. It come down with development from around 40 to 12 per 1000. (Arthur Lewis)

In an open economy, when capitalist accumulation gone up with the labour supply, wages begin to rise
the subsistence level, and the capitalist surplus get reduced. In this case capitalists begin to encourage
immigration from labour surplus countries otherwise export their capital to those countries where
abundant labour is available at subsistence wage. Capital export tend to reduce wages in capital
exporting countries.

Since Marx, the formation of labour reserves is the basic social contradiction of capitalist development.
The concrete form of labour reserve formation in peripheries today is a generalized condition of ‘Semi-
proletarianization’, which is the historical result of capitalist development in its mature monopoly stage.
The distinction between the active and reserve army of labour is being progressively blurred today
owing to the ‘proliferation of informal employment’, casual employment, work out sourcing and such
other measures.

Africa was transformed into the ‘periphery of the periphery’ (Samir Amin,1972), to serve Europe’s
expansion across the globe. The extensive alienation of land by settlers, resulted in creation of ‘tribal
reserves’, and the rapid degradation of the social and ecological conditions directly undermined the rule
of foreigners. In the words of Frantz Fanon (1963) in his seminal book ‘Wretched of The Earth’ that all
struggles are very simple in terms of taking back the land from the foreigners.

Semi-proletarianized condition can be defined in which a workforce over a significant period of time
does noy rely on wages or salaried employment for its social reproduction despite lasting all his means
of production, but maintains a combination of wages, petty incomes and simple use products (Paris
Yeros). The systematic logic of imperialism which results in semi-proletarianized labour reserves is
clear, to keep wages low in tropical and sub-tropical regions to main the high value of capital money in
imperialist centers and perpetuate the super exploitation of both labour and nature by means of
‘dualism’ between wages or petty production and unpaid family labour. (Prabhat Patnaik and Utsa
Patnaik,2017).
Bibliography

 Jan Breman (2023), ‘A Short History of Informality’ Global Labou Journal, January
2023.
 Paris Yeros (2023),’Generalized Semi Proletarianization in Africa’ Indian Economic
Journal, 2023
 Praveen Jha And Paris Yeros (2021), ‘Labour Questions in Global South’, Palgrave-
Macmillan.
 Amiya Kumar Bagchi (1982), ‘Political Economy of Underdevelopment’, Cambridge
University Press.
 Arthur Lewis (1954), ‘Economic Development with Unlimited Supplies of Labour’. The
Manchester School.
 Keith Hart (1973), ‘Informal Income Opportunities and Urban Employment in Ghana’
Journal of Modern African Studies, March (1973).
.