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4.1.5 Conclusions

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Alessio Lupi24 October 2018

 

In conclusion to the first section, we can summarize that the informal economy attracts increasing attention of national governments, donors, and international organizations.

So far the research findings have established a significant relationship between the degree of informality and a number of economic and social characteristics, such as poverty, GDP and its growth rate, phase of economic cycle, the degree of fiscal and business freedom, etc. However, there are no clear conclusions about the existence of causality in these relationships.

The absence of proven causality and/or its direction complicates the policy formulation. The latter is in practice guided mainly by value orientation of the implementing agencies. Rights-based approaches stress the importance of inclusion, protection and empowerment of the informal economy actors, while business-minded approaches stress the importance of deregulation, business freedom and enabling environment.

Informal economy can be addressed in explicit and implicit way. The latter is achieved mainly in the framework of poverty reduction that represents a major goal of the current global development frameworks. Other global goals that are closely related to the informal context include reduction of inequality, support of social inclusion, provision of education and skills, support to governance, institution building and partnerships. These implicit approaches are responsible for relevant cumulative effects although not specifically addressed to the informal economy.

There seems to be a broad consensus that formalisation of the informal economy is desirable and that it can be achieved through a gradual process. This should be accompanied by safeguarding against the potential adverse effects on the wellbeing of the informal economy subjects.

Removal of barriers and deregulation does not necessarily bring about the formalization of informal economy units. This can be due to the facts that some units remain informal by choice. To that extent the deregulation has to be accompanied by enforcement.

Outreach to the subjects in the informal economy is complicated by their irregular status. Therefore, creation of enabling environments is among the most frequent approaches to policy formulation. Depending on the value orientation of the implementing agencies, the enabling environment track can follow dichotomous direction – on one hand focused on de-regulation, simplification of tax and tariff schemes, removing bureaucratic barriers and increasing business freedom, or on the other hand focused on securing the rights, protection, representation and inclusion for the informal economy subjects.

Direct action at the community level usually includes components of training, access to services and finance, organisation of the informal economy units and workers, and facilitating representation and voice for informal economy subjects.

Among the international institutions that focus explicitly on the informal economy, the ILO plays the role of global trendsetter, mainly due to its long-term experience in the field, as well as its progress in adopting normative documents (ILC Conclusion on the Informal Economy and Decent Work, ILO Recommendation 204 on the transition from informal to formal economy, etc.). Other major donors adopt approaches based on treating the informal economy as a cross-cutting issue, mainstreaming of informal economy issues into all types of other interventions, or covering the informal economy under other topical strategies (e.g. Private Sector Development). This approach is also linked to the recent move from isolated projects to more complex sets of projects or programmes.

 

 

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