Rebuilding Informal Economy Necessary


Economy is embedded in local, national, regional and global power relations. It is not a secluded system with its own internal dynamics. Informal economy is too diverse, socially entrenched and positive to the production of economic commons but difficult to compress into a single definition. It involves non-market networks of diversified production of public goods nourishing the livelihoods of a bulk of the poor and ensuring their social and financial security. Micro enterprises, employing less than ten persons, using local pools of knowledge, management, resources, workers, technology and market access  are deemed economically efficient. By economising the scarce capital, their operations are near perfect competition. It helps to keep prices down so that the poor can afford to buy goods and services in the market. The diminution of smoke-stack industries due to their inflexibility and growing informalisation of the formal economy of Nepal after the closure of many factories provided a spur for budding informal sector growth and a substitute for high-cost ways of creating jobs and import of ready-made goods to satisfy ever-increasing wants.


In this economy, the social aspect of transactions governed by family, localism and other affinity provides necessary backward (agriculture) and forward (trade) linkages, farms social capital and creates ecological safeguard for sustainable progress. Obviously, this sector continues to grow in direct proportion to the downhill spiral of the formal economy. Weakening of the industrial base, expansion of the informal sector and growth in causal workforce have intensified in Nepal in the wake of the country’s opening to globalisation.  The government’s pressure on industries to cut costs and stay globally competitive has forced the workers to overwork, suffer from low wages and enter into unfair practices. 

The nation’s informal sector workers are now struggling for attaining minimum wages to ensure that law protects their survival and vital needs. The trouble of women in this sector is searing: long hours work, lack of apt legislation and poor wages risking their safety, affecting the balance between family care and work and reducing productivity gains. Women’s zeal in the male-dominated jobs and decision-making has worn off. The retreat of Nepali state from the formal economy has retched up inequality between the organized and unorganized sector in terms of job security, income and social welfare.

Informal economy in Nepal involves those businesses that are not fully accounted, protected and regulated by the state. The benefits of this economy seem to have been undervalued despite its vital contribution to the livelihoods of Nepalis. New technology tends to marginalize the once formal economy by expanding the state-of-the-art facilities of the new economy. Informal sector does not mean that it is backward based on what Karl Marx called “petty commodity trade” or modernization theorists dubbed “anti-development” due to its customary method of production. In Nepal, its contribution to the national economy is more than fifty per cent. 

Development expert Goran Hyden deems this sector an “economy of affection” because of its proximity to family, community and neighbourhood, pro-poor, labour –intensive, decentralized and environment-friendly in nature.  Gautam Buddha long ago referred to an economy based on the needs of society which has become E. F. Schumacher’s thesis “small is beautiful.” In a rapidly changing consumer market, there are optimal incentives on the flexibility, adaptiveness and innovation in the informal, agriculture and small scale enterprises.                 

How viable?: The raw materials have served the basic energy of agriculture society and energy the heart of industrial progress. Information technology drives the motor of post-industrial jump. In the industrial society, the state mediated the conflict between the capital and the labour and managed international trade, commerce and communication. The most striking effect of the information revolution is the globalization of the political economy. For the poor nation unable to compete in the competitive market, this globalization process tore the social contract between the capital and the labour and opened Nepali economies and societies, the support base of the vulnerable people and the political tool of workers’ bargaining. The corporate world is now at a clash with the workers on social welfare, science over ecological issues and art over the commercialization of spiritual and human life. 

Newly digitised economy has created a new social stratification transcending white collar and blue collar workers without solving the old division and altering the nature of wealth production. There is a paradigm shift in the mode of production, circulation, distribution and investment. As a result, due to heavy job losses in Nepal, the majority of the workforce is forced to shift from the organized to informal sector and even migrate. Suddenly, hard-core poor and small-scale entrepreneurs are exposed to international competition with the effect of losing safety valve and source of income. The employer’s recourse to flexible employment contracts has further lowered job security and cut their clout in free wage bargaining attuned to the cost of living and economic justice. 

The political agencies of Nepali workers appear weak in the policy mediation, human development and address workers’ layoff, deteriorating working condition, fading job market, growth of child labour, forced labour and denial of rights to workers stipulated in Nepali constitution. Especially, for uneducated women, Dalits and indigenous people, participation in the formal sector has become ever more difficult. Only the informal sector continues to contribute to their food security in rural areas, job security in the marginal cash economy of urban areas and safety valve for the disaffected youth that make up the demographic dividend. 

In Nepal the government’s orientation to revenue rather than production has faded the economic basis of the state to promote collective welfare. In a situation of free-market competition, it is difficult for the majority of Nepalis to compete with strong partners already enjoying economies of scale. Moreover, the leverage of global financial centres is bullying against the social projects and punishing the workers by enveloping them into poverty, insecurity and outbound migration.  Owing to frailty of their agencies, informal entrepreneurs’ agencies remain outside the orbit of their own esprit de corps and collective action.                                   

Shifting lens: About 90 per cent of Nepalis work in the informal economic sector.  Poor working conditions, gender discrimination, lack of social protection, low productivity, hazardous work, non-recognition of work, poor incomes, long working hours, unsafe working environment, meagre benefits, no leave, inadequate social security benefits and poor unionisation to protect their rights characterise the basic features of the informal sector. In this sector, a trade union federation can be organized with 500 or more workers engaged in the same nature of work. In the case of self-employed workers and agricultural workers they were granted the right to unionise under an Act issued inn1999. The association of 5,000 agricultural workers, covering at least 20 districts and with a minimum of 100 members in each of the districts is entitled to constitute a national federation.

Low level of literacy, lack of modern skills for the bulk of the workforce and poor health facilities contribute to their low productivity. Investment in social sectors is, therefore, absolutely essential to improve economic performance. Welfare outcome of the social expenditure of the government is highly skewed because of urban bias. Likewise, the growing population relative to meagre economic growth has increased demands for social services and basic infrastructure facilities while the quality and coverage of health services up to the village levels are grossly insufficient. 

Obviously, problems are not seen through the eyes of people. If the economy does not work for the people, it will lose its legitimacy. Social deprivation remains very high in the nation despite some improvement in health care, regular immunization campaigns against communicable diseases, literacy and education. The working environment, medical facilities and conditions of work are so skewed that they militate against the provisions of social protection and social security. Without social competence economic efficiency cannot be attained. Legal property rights do not exist for the poor in Nepal despite the constitutional recognition of the sovereignty of the people.

Sustainable solution

Sustainable solution of the ever-increasing informal sector lies in the legislation of proper laws, building of representative unions and participatory culture whereby societal interests prevail over private greed. Efficacy of the informal economy rests on fulfilling the lawful aspirations of workers constituted as citizens and cluster around networks with like-minded enterprises for production, supplies and market services so that it can achieve sociability, financial stability, economies of scale and social integration. Due to its closeness to society and local self-governance institutions, it can evenly distribute employment benefits to the people. 

But, the local self-government has the responsibility of training, financing and other services to this sector so that it can increase its productive functions.  Only productive jobs can ensure them the necessary conditions of freedom, equity and dignity. The returnee migrant workers’ enterprises have raised a ray of hope for the exit of youth before a life of joblessness, acquire skills and transform their own trajectories. This has transformed many Nepalis' condition as a fate spring for choice and opportunity.

Execution of the ILO Declaration on Fundamental Principles and Rights at Work can make valuable contributions to the new design of social and economic progress. This design rests on the expansion of social security, fair wages and incomes and development of mechanisms by which workers in the informal economy can be provided access to and control over productive assets and resources to scale up their social good.  The cohesiveness of unions counts a lot to exert pressure for policy reforms, leadership, organisation, solidarity, communication and collective action on behalf of its members and the society at large.  It is also essential to attract the attention of national policy makers on the plight of informal sector workers-- Kamaiyas, child labourers, Dalits, disabled and vulnerable groups and define an array of strategies of formulating an integrated approach embracing the roles of various social partners working to foster decent work in the informal sector of Nepal.

(Former Reader at the Department of Political Science, TU, Dahal writes on political and social issues.)

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