International Journal of Sociology and Social Policy 30

STREET VENDORS, MODERNITY AND POSTMODER-

NITY: CONFLICT AND COMPROMISE IN THE GLOBAL
ECONOMY
by John C. Cross, Ph.D., Vasser College, National Development and
Research Institutes, Inc., Medical Health Research Association, of New
York, Inc.1
Abstract
In this essay based on a decade of research among sreet vendors and the
informal economy, I explore street vending and the informal sector
within the context of the shift from modernism to postmodernism.
Specifically, Modernism often implied crackdowns on street vendors
because of the ideals of public order and state control. Postmodernism
is more open to the informal sector as the economy disaggregates, but
this also creates new dilemmas for the informal sector, as it is expected
to solve the problems of the formal sector by becoming formal. I end
with a suggestion that policy makers allow deregulated sectors of
informality in the economy to function as incubators for new
businesses.
We typically think of street vending as a part of the premodern,
traditional economic order that survives only on the fringes of modern
society. How could something that we think of as premodern be
associated with the (current) postmodern age? Our reasons for
presenting the reader with this conundrum is rooted in our research on
street vending in various countries—research that we began with the
common assumption in mind that street vending should, by all logical
criteria, eventually disappear. What we found, however, is that street
vending, despite some problems and frequent attacks, is a thriving and
growing phenomenon for reasons tied, we believe, to the current
changes in the global economy that have been associated by many
authors with postmodernity.2
If someone were asked 30 to 40 years ago what the future of
commercial activity would be, they would probably enthusiastically
talk about shopping centers, supermarkets and department stores:
places where consumers could enjoy a variety of choices within a
Volume 20 Number 1/2 2000 31

convenient, comfortable environment. Obviously, internet shopping

would not have occurred to anyone besides a few sci-fi fans. For
different reasons, it is doubtful that anyone would have associated street
markets and street vending with commerce in their future. Street
commerce was something that belonged to the past, and only existed as
a survivor soon to be made extinct. But, if anything, open air markets
have become more popular over the years, rather than less. While the
formal economy, to be sure, became dominated by megastores and
multi-national corporations, large sectors of the economy resisted such
concentration.
The reasons for this have to do with many factors. Some factors are
local and idiosyncratic, such as, in the first world, the popularity of flea
markets in the hippie culture of the 70s, and the popularity of farmer’s
markets in the yuppie culture of the 90s. Others are economic, such as
the inability of large, capital intensive (and tax paying) retailers to make
a profit in low-income neighborhoods (Tokman, 1978). Others are
political, such as the ability of street vendors to defend themselves
against attempts by formal stores and government officials to legislate
them out of existence (Cross 1998). This chapter will explore a far
broader theme, however, that has been generally overlooked in the
literature on street vending and the informal sector to date: the global
transformation from a “modern” economic/political system, which saw
street vendors and the informal sector as parasitic or at best inefficient,
to a “postmodern” economic/political system in which street commerce
is often seen as a source of growth and flexibility.
Defining the undefinable: informal commerce and street vending

The definition of the informal economy has always been somewhat

problematic. Initially, the idea was to contrast large-scale “modern” de-
velopment, whether sponsored by the state or large corporations, that
were failing in their efforts to “develop” the third world with small-
scale economic practices carried out on an individual or family basis
primarily for immediate survival (Hart 1970). Hart’s main purpose was
to show that these activities, previously denigrated as “marginal” or
“black market”, could be seen as entrepreneurial in their own right, and
International Journal of Sociology and Social Policy 32

thus as a potential source of development. The early ILO-led studies

(and most government censuses) operationally defined the informal
sector primarily in terms of size and capitalization criteria (Sethuraman,
1980), but the problem was that these criteria had no theoretical ground-
ing. Furthermore, neither Hart nor the ILO’s optimistic conception of
the informal sector could adequately distinguish between entrepreneu-
rial activity that was worthy of support and activity that could be seen as
predatory. A small unlicensed “shop” selling candy out of a apartment
window to neighboring children could possibly be seen as a form of
positive entrepreneurship worthy of support. But what about the illegal
production and sale of illegal drugs or controlled substances such as
beer (one of Hart’s examples)? Jobs are being produced, but perhaps at
the expense of the moral climate of the community.

Perhaps the best theoretical definition is provided by Portes, et al

(1989a): the informal sector is comprised of economic activity that uses
illegal means to produce legal products. Thus, illegal products such as
crack would clearly be seen as outside the informal sector. However,
there are still many grey areas between the formal, informal and illegal
sectors. “Pirated” products that evade the payment of royalties are
clearly illegal from the standpoint of intellectual property-rights laws,
but are rarely considered as serious crimes by members of the general
community. Tax and regulatory evasion are also typically seen as a part
of the “process” by Portes, et. al. and others, so they would see street
vendors who avoid zoning codes and tax laws as informal rather than il-
legal. Again, a very different perspective may be taken by officials
even if the average citizen fails to be incensed. And what is to be said
about dangerous work conditions in informal factories (often called
sweatshops) that may lead to the death or maiming of workers?

From a strictly legal point of view, the distinction used by Portes, et

al, and even by this author, can hardly be defended. Typically, products
of an illegal production or distribution process are considered to be
illegally obtained, and thus as illegal in themselves. Pirated CDs are
destroyed just like illegal crops of marijuana or heroin. In fact, any
Volume 20 Number 1/2 2000 33

product can be considered legal under certain circumstances, and illegal

under others. Marijuana grown by the United Stated Department of
Agriculture is legal—that grown by Uncle Bob in the hills is not. Coca
leaves grown in Peru for chewing is legal (with the appropriate
permit)—that grown for processing into cocaine and thus without a
permit is not. Opium is a vital ingrediant for a number of legal (albeit
controlled) medications, and thus is legal under the right circumstances.
Moonshine whiskey is illegal while tax-paying whiskey is not. To use a
different type of example, a chair may be a legal product of a workshop
in one case but, after being stolen, is now contraband.
The point here is to show that the distinction between the formal,
informal and illegal sectors may never be perfectly clear. Does this
make our project (or any project involving the informal sector)
indefensible, as some have suggested (e.g. Peattie 1989)? We don’t
think this is true. In fact, we believe that the very fluidity of the notion
of the informal sector is what makes it such a fascinating—and in a
certain sense “post-modern”— field of study: it defies the simplistic
categorization process and throws all definitions into doubt. In other
words, it points out that the distinction between “appropriate” and
“inappropriate” economic behavior is not a matter of laws or rules, but
of definition, motives and power. The distinction is above all not one of
legality (which is a purely formal category), but the ability of
competing interest groups to impose and enforce their own perceptions
of legality. In this case, informality often appears in the grey area
between the imposition of laws (typically favoring large businesses and
well-organized unions) and the lack of enforcement of those laws due to
a combination of the inability of the state to do so and the ability of the
poor and relatively unorganized to thwart enforcement. (See Cross and
Johnson, this volume, for a broader discussion of the relationship
between informal and illegal activity.)
Modernity and Post-modernity: A Rough Sketch
While there is some debate about whether or not it is appropriate to use
the term postmodernity to describe today’s world, “At the least it is
obvious that the world which for a long time has been thought of as
International Journal of Sociology and Social Policy 34

‘modern’ is experiencing a crisis of grave and global proportions.”

(Lemert 1997:32) Lemert associates this crisis with three factors: the
collapse of the Euro-American colonial system; the disappearance of a
coherent imperial world center, and; the rise of a global opposition to a
single, unified world culture associated with Euro-American value
systems. These broader changes are also associated with changes in the
global economic system that have seriously undermined the central
logic of modernism itself—the Fordist/Keynesian economic order.
This system emphasized, on the one hand, the centralization of
production and distribution in the hands of mega-corporations built
around the theory of economies of scale. On the other hand, it
emphasized the regulatory role of the state in managing relations
between workers, managers, owners, and consumers. This regulatory
role is the basis of the massive increase in the size of the state
bureaucracy at every level even as it has intervened into every aspect of
social life, a process shown clearly in the historical archaeology of
Michel Foucault.

Obviously, this modern project began long before the advent of Ford
and Keynes. Many tie its origins to the enlightenment (Harvey 1990),
but the Fordist/Keynesian approach to economic management, the
former at the corporate level and the latter at the state level, exemplified
the process and theory behind economic centralization and regulation
that became a hallmark of the “modern” world, whether it was capitalist
or socialist. While the grand rationale behind modernism was the
creation of more and more “efficient” and “productive” individuals by
controlling and ordering the relations between them, in fact modern
efficiency and productivity could only fully thrive under optimal
conditions that had to be molded gradually over time. These conditions
not only required massive changes in state structure, roles and revenues,
business organization, factory structure and market systems, but also in
the very culture and social life of individuals, families and
communities. As a total system, it required that every aspect of society
should be molded according to its requirements. Fordism represents
above all the formal recognition that mass production requires a mass
Volume 20 Number 1/2 2000 35

market, and that mass markets don’t just exist—they must be

manufactured!
This need to manufacture a “modern” society is best expressed in its
ideal version by the height of modernist architecture and urban
planning, which are at the same time of key relevance to the issue of
urban street markets. Long seen as the best representative of modernist
design was Le Corbusier, a French architect who influenced the field
greatly in the mid-war period with his emphasis on grand scale design
and planning. In his 1923 keynote text, Towards a New Architecture, Le
Corbusier (1996) expressed the modern focus on the re-creation of
society through a planned structure that would assign each individual to
his or her place in life, regulating and caring for each need and demand:
“…without plan there can be neither grandeur of aim and expression, nor
rhythm, nor mass, nor coherence. Without plan we have the sensation, so
insupportable to man, of shapelessness, of poverty, of disorder, of wil-
fulness.” (1996:207)

Thus does Corbusier exhibit the modernist dream of a model society

run from above, similar in scope and design to the model of the
“pan-opticon” prison discussed by Foucault (1995) and in another
sense to the non-political administration of socialism envisioned by
Marxists such as Lenin. One can imagine that street vending would
have little refuge in such a world. In this ideal, everything is ordered,
efficient and structured. Nothing is left to chance. It is little wonder,
indeed, that Corbusier, like many others in Europe during this period of
chaos, was attracted to more and more authoritarian regimes that could
put such an order into effect. The result could perhaps be more
appropriately termed the modernist nightmare, as Fascism and Stalinist
socialism arose to crash against each other and against the more liberal
(but no less modern) democracies in the second world war (Harvey
1990:128-9). The same modernist nightmare influenced such novels as
Huxley’s Brave New World and Orwell’s 1984, differing versions of
the same theme of modernist utopias gone wild.
Modernism did not go wild, however. While its heyday was reached
in the 1950s and 1960s, with rapid economic growth in the United
International Journal of Sociology and Social Policy 36

States and, later, Europe and Japan, the 1970s began to show cracks in
the basic economic structure of modernism itself. Not only did growth
slow down in the U.S. as it was faced with increased competition from
Europe and Japan, but unemployment and inflation began to grow in all
these areas. Third World growth strategies, built around protectionist
import substitution policies, also began to enter into crisis at this point
(Harvey 1990:141).
Even at the height of modernist growth, not everyone was equally
privileged. The dynamics of race and gender in the U.S. meant that
white males obtained the best jobs in the factories and corporate offices
that opened by the millions during this period. In Third World nations,
growth benefited an even smaller class of elite workers and managers,
leaving most people outside the modernist dream. Urban
redevelopment schemes that attempted to put the modernist vision at
the service of the masses instead created new forms of ghettos devoid of
even the ability to control local space earlier enjoyed by the neglected
poor. “Modernism failed as mass-housing and city building partly
because it failed to communicate with its inhabitants and users who
might not have liked the style, understood what it meant or even known
how to use it.” (Jencks 1996:475) Thus, those left out of the dream
could neither benefit from it, nor fully escape from its effects.
Nor did the decline of modernism bring the poor any direct
advantages. Harvey defines this process as a shift from Fordism to
flexible accumulation. This process “spelled danger for traditionally
organized businesses, sparking a wave of bankruptcies, plant closures,
deindustrialization, and restructuring…” (Harvey 1990:155) The
economies of scale sought by Fordist mass production were supplanted,
at least to some degree, by economies of flexibility. In effect the growth
of regulatory and labor power in the first world economies grew to the
point that they produced a competitive disadvantage, leading “either to
the rise of entirely new industrial forms or to the integration of Fordism
with a network of subcontracting and ‘outsourcing’ to give greater
flexibility in the face of heightened competition and greater risks.”
(Harvey 1990:155-6) In effect, the modernist compromise whereby
workers gave up control over their labor in exchange for a modicum of
Volume 20 Number 1/2 2000 37

wealth and security unraveled in the face of competitive pressures. Not

only were workers paid less in the aggregate, but they also took greater
risks as jobs moved rapidly to find the lowest wages.
The “great sucking sound to the south” that Ross Perot alluded to in
the 1992 debate over the passage of the North American Free Trade
Agreement with Mexico and Canada had really begun decades before
as plants and production had relocated to Mexico, Taiwan, South Korea
and myriad other nations (or even poorer regions of the same nation)
where labor costs were lower and regulatory enforcement was less
complete.
Postmodernity, then, reflects a stage in economic development in
which capital is free to go wherever profits are higher without the need
to worry about the welfare of workers or consumers. Investment is
made based upon the assumption that consumers will be found
elsewhere in the world market, thus escaping from the Fordist need to
pay wages and benefits high enough so that the workers could
themselves consume the products they produce.
As far as the Third World is concerned, postmodernism implies
business as usual. While new investment pours in, wages levels remain
low for the vast majority of the population. For the first world, however,
the effect is to produce new forms of employment that lack the security
and wage guarantees of modern industry. The result is an increase in the
labor market without, however, a corresponding increase in the average
wage. Outside of a few privileged sectors, people are paid less for doing
more: a violation of the very laws of supply and demand that seems to
throw the logic of classical and neoclassical economics into question.
Street vending, modernity, postmodernity and the informal
economy
Street vending usually falls within the category of informal economic
activity. This category includes “the production and exchange of legal
goods and services that involves the lack of appropriate business
permits, violation of zoning codes, failure to report tax liability,
non-compliance with labor regulations governing contracts and work
conditions, and/or the lack of legal guarantees in relations with
International Journal of Sociology and Social Policy 38

suppliers and clients.” (Cross 1999: 580). This definition does not
imply a “black/white” definition of informality, but rather the
possibility of differing degrees of informality, since an enterprise or
business relation could be formal by some criteria, but informal by
others. For example, a workshop or street stall may have a permit, but
not pay taxes. Or it may pay taxes but not have a legal contract with its
employees. Another dimension of informality that is little discussed in
the literature but very often important in terms of individual motivation
is the actual social relationship between economic actors: one might
compare, for example, a consumer at a Walmart or McDonalds, who
has a purely formal relationship with the enterprise and its staff, and the
customer of a vegetable stall, where interpersonal relations and trust
become important, for example, in the question of whether the produce
is fresh or the balance fairly weighted.
The relationship between the informal economy and modernity was
obviously problematic from the start, given the discussion in the
previous section. As the state’s regulatory system expanded to
encompass every aspect of economic activity in order to regulate and
order the relations between owners, employees and consumers, it has
become more and more difficult for the poor, in particular, to establish
businesses that met all of the growing legal requirements. Not only are
these requirements costly, they may require the assistance of lawyers,
accountants or other specialists—services typically out of the reach of
the poor. De Soto (1989) argues that this over-regulation is itself
directly responsible for spurring the growth of the informal economy by
creating an entrepreneurial incentive to skirt the regulatory system, thus
allowing them to compete with multi-national corporations. But the
problem is a bit more complex.
While the growth of the modern corporation, which used mass
production to reduce the units costs of these requirements, allowed
savings to be passed on to consumers, this process is limited in its
capacity to meet the needs of the population. It is only feasible where
there is a mass market, meaning a sufficiently large pool of potential
consumers with both the income and the desire to purchase the product.
Luxury niche markets, on the one hand, and mass poverty markets, on
Volume 20 Number 1/2 2000 39

the other, both present problems for mass production and distribution
chains. For luxury goods, the limited market niche itself reduces the
benefits of economies of scale. In the poverty stricken areas of the Third
World, and in the inner city areas of the First, the cost of many mass
produced articles is still to high for the consumer market, assuming that
all the production and distribution costs of bringing the product to the
consumer are formalized.
This has several repercussions that can be best demonstrated by the
use of examples. First, supermarket chains, which are the quintessence
of modernist retailing, are almost always far more visible in middle
class residential areas than in either wealthy or poor neighborhoods.
Despite their efficiency when presented with a mass consumer market
able to pay their formal costs, they cannot compete, apparently, with
either the boutiques of wealthy areas nor the small stores and street
markets in poor areas. (Tokman 1978) Where formal regulations are
strictly applied, as is more usually the case in the First World, this has
created the curious phenomena that food and other essential goods are
more expensive in poor neighborhoods than they are in middle class
areas. However, where there is an active informal economy, street
markets and informal producers can step in to fill this niche passing on
the savings of their lack of formality (and their added flexibility) on to
the poor (or rich) of these areas.
To take another example, many formal products are available in
poorer areas, but only because they are provided by informal stores and
stalls. The popularity of Coca Cola, Pepsi and innumerable other snack
and consumer products is made possible in Third World countries by
the small-scale distribution channels of these products that makes
ample use of informal and semiformal distributors and retails outlets
that reduce the final cost to the consumer in poor areas. Alonso (1981),
for example, uses his study of neighborhood stores in Mexico City to
argue that they are, in fact, a form of disguised employees of these large
corporations. Bromley (1978) makes a similar argument with respect to
some street vendors (particularly ice cream and newspaper vendors) in
Columbia. Whether they are considered employees or independent
contractors, the fact remains that their low overheads allow for a much
International Journal of Sociology and Social Policy 40

broader distribution system for such products, and multi-nationals in

these nations have deliberately aimed their distribution strategies to
favor such small retailers.
Thirdly, of course, is the production of goods by informal
enterprises—small workshops, homeworkers and even “sweatshop”
factories—that either produce directly for consumers or, because of
competitive outsourcing by formal firms fighting to lower their costs, as
suppliers of labor-intensive intermediate goods for formal factories and
distributors.
Finally, in reference to luxury markets, the growth of the informal
economy in Southern Italy and Miami has been tied to the growth of
luxury niche markets in these areas (Portes et al, 1989). In the case of
street vending this is most apparent in the growth of “Farmers Markets”
in the United States and their equivalents in other First World nations
that sell high priced vegetables and fruits to consumers willing to pay
more for organic foods or the assurance or at least belief that their
produce is fresh.3
Going back to Le Corbusier’s modernist vision of urban space, the
informal economy, and street vending in particular, would very much
provoke in the modernist that “sensation, so insupportable to man, of
shapelessness, of poverty, of disorder, of wilfulness.” To the extent that
the modernist ideal was shared by elites in the First and Third Worlds
alike (particularly in as much as Third World elites considered
“modernization” to imply the approximation of the western modernist
ideal in external form), the presence of large street markets was the
clearest sign of the “disorder” and “wilfulness” of the informal
economy that needed to be stamped out.
In his classic study Peddlers and Princes (1963) the anthropologist
Clifford Geertz reflected the belief shared by most scholars at the
time—that street markets and bazaars were part of a romantic past that
had little place in the “modern” world. According to the modernist
developmental vision that permeated the scholarship of the 1950s and
1960s, these forms of commerce were seen as backward, inefficient and
detrimental to national development schemes, taking up and wasting
Volume 20 Number 1/2 2000 41

resources that could be better spent in more productive fashion. From a

cultural perspective, Geertz argued that the “bazaar economy”
hampered the development of a western-style “firm-centered”
economy. For example, he argued, that the practice of haggling that he
saw as typical of bazaar settings focuses competition onto the
relationship between the vendor and the buyer over the value of the
goods involved rather than between vendors themselves. This, he
argued, leads traders to act speculatively and opportunistically, since,
“...the aim is always to get as much as possible out of the deal
immediately at hand. The (bazaar) trader is perpetually looking for a
chance to make a smaller or larger killing, not attempting to build up a
clientele or a steadily growing business” (35). Even though it employs
huge numbers of individuals, Geertz maintained that this system, “has
the disadvantage that it turns even the established businessman away
from an interest in reducing costs and developing markets and toward
petty speculation and short-run opportunism” (28-29).
Similarly, Bairoch (1973) lamented the development of an
“over-distended te rtia ry” —e nc ompa ssing se rvic e s a nd
commerce—that threatened to undermine national development plans
by placing a drag on the economy. Why this growth was occurring
despite expectations to the contrary was little considered, however,
beyond suggestions of cultural and educational backwardness.
It is interesting to remark on McGee’s (1973) study on street vending
in Hong Kong, a rapidly industrializing colony at the time. He notes that
industrialists appealed to the colonial administration to repress street
vending because of a labor shortage in the growing industrial sector at
the time, attacking vendors for their “laziness” in choosing street
vending over factory work. The fact is, McGee points out, that street
vendors simply felt they could earn more on the streets than in the wage
sector. In my own research vendors have many times claimed that street
vending is also a life style choice, allowing them greater personal
freedom and flexibility.
Street vending thus came under savage attack throughout the
modernist era. While one of the criticisms lodged against this activity
International Journal of Sociology and Social Policy 42

was its purported inefficiency, the real problem was it was too
competitive with formal retail outlets, unless they were located in
optimal “modern” areas. Since supermarkets could not put street
vendors out of business through market mechanisms, they had to use
the police system to do it. The solution, therefore, was to ban or
over-regulate street vendors while at the same time redesigning urban
spaces in which they could no longer exist. Suburban subdivisions,
urban decay, and urban renewal projects were all a vigorous part of this
process in the First World. In the Third World, the same processes were
obviously put in place, but with varying success due to the lack of
modernist penetration of society and the ability of those in the informal
economy themselves to evade or resist the modernist encroachment on
their livelihoods. In Mexico City, for example, an extraordinarily
expensive program of repression and market construction managed to
banish street vending for just under a decade in the 1960s, but it
subsequently reemerged stronger than ever (Cross 1998). In Los
Angeles, California, on the other hand, where street vending was also
effectively banished in the late 1950s, it didn’t become a significant
factor again until the 1980s.
In South Africa, Nesvag (2000) notes that street vending was
particularly harassed by the apartheid regime as a way of preventing
Africans from taking control of public space, and the collapse of these
controls beginning in the 1980s formed in some sense a spearhead of
economic resistance to the White-controlled government economic and
political system.
But reemerge they did, as the modernist dream crumbled into
postmodern reality. In doing so, however, they did not simply signal a
return to a romanticized past, but created a rational reaction to the
economic, cultural and social world of today. Postmodernism as a
movement, if we can think of it as such, is concerned first and foremost
with the individual’s attempt to regain control over their lives—control
that is lost in today’s society of mass-production factories and corporate
offices. This is reflected in the renewed growth of small businesses
since the 1980s, as the middle class seeks to avoid the control of salaried
labor. But many are finding that the burden of regulations means that
Volume 20 Number 1/2 2000 43

they have simply exchanged one form of control for another (Kuratko et
al 1999).
Turning to the Informal Sector as solution
Another option is the informal economy, particularly for the poor of the
Third World. Street vending, since it takes advantage of public
space—and this is in fact where most of the struggle lies—minimizes
overhead costs of rent and utilities, and is thus ideally suited for
informal growth, to the extent that it can withstand hostile attempts to
over-regulate or eliminate it, either through evasion, negotiation, or
conflict. While this re-emergence creates problems for urban planners
and city officials, it should be kept in mind that a good part of the
problem lies not in the phenomenon occurring in their streets, but in
their preconceived notions of the “appropriate” use of public
space. Street stalls get in the way of traffic precisely because city
planners have left them with no other viable place to go.
The paradox is that, despite these problems, the informal sector is
now often called upon by today’s development experts to take over
where the formal sector has failed (Peattie 1987; Cornwall
1998). Throughout the third world and increasingly in the first
government and non-government (NGO) development agencies have
turned to what is euphemistically called the “micro-business” sector to
absorb excess unemployment and pick up the slack on economic
growth. The most popular mechanism of “supporting” this sector is the
use of micro-loans: small amounts of money lent out for relatively short
periods of time for use in establishing or expanding a small business.
While earlier attacks on the informal sector were rooted in an
erroneous belief that they were parasitic because they did not fit in to the
“modernist” vision of the economy, this new belief in the informal
sector repeats the error of thinking about the informal economy simply
in negative terms: that is, in terms of how it is not formal. I call this
“formalomorphism”. While anthropomorphism projects human traits
onto non-human objects or beings—for example, calling a dog good or
bad based on an assumption of human motives—formalomorphism is
the tendency to analyze the “problems” of the informal sector as if it
International Journal of Sociology and Social Policy 44

were a bad copy of the formal. For example, as Rakowski (1994) points
out, the vast bulk of the economic literature on the informal sector
emphasizes what it lacks with respect to the formal sector (Sethuraman
1981; PREALC 1988). It is smaller (less efficiencies of scale); it is
undercapitalized (lack of machinery and/or inventory); it is
underskilled (lack of managerial skill, credentials), and it is not growth
oriented (Yusuf and Schindehutte 2000).
What this perspective tends to overlook are the features that actually
make the informal sector successful—the spirit of survival and
flexibility that attracted the attention of anthropologists to this activity
in the first place (Hart 1973; Birkbeck 1978). They also overlook
problems related to unequal access and exploitation that plague ethnic
minorities and the poor. Unfortunately, while governments and NGOs
pay a lot of lip service to anthropology, managers and boards are far
more impressed by neat economic models and spreadsheets (Raheim et
al 1996; Woller et al 1999). It is probably natural, to put it another way,
for formal organizations to look for formal criteria, and thus for what is
lacking in the informal sector, rather than the positive elements that
exist.
As I argue elsewhere (Cross 1998:33;1999), one way to look at the
difference between formality and informality is as a different mix of
costs and benefits. Formal firms pay the costs of formality (taxes, fees,
higher labor and regulatory costs, etc.) but get benefits that protect their
capital investment and allow them to focus on producing for the mass
market. Informal firms have different costs: they must avoid
harassment from the authorities and lack legal protection, but they are
able to save on labor and regulatory costs and can be more flexible in
their approach to the market because of their small size and because
their overarching motive is simply to provide subsistence for the
family. Typically, formal firms are capital intensive because their
capital is protected and their labor costs are higher. Informal firms are
labor intensive because their capital might be seized and their labor
costs (of the individual or family involved) are lower because of the
lack of alternatives. This means that there is a substantial gulf between
fully informal and fully formal sectors. However I also note that many
Volume 20 Number 1/2 2000 45

enterprises are in fact “semi-formal” because some rules and

regulations may be imperfectly enforced, allowing formal firms to act
informally in some cases, or allowing some informal firms to act more
formally.4
As a result, projects designed to develop the informal sector tend to
ignore the benefits of informality or semi-formality and underestimate
the difficulties of making micro-businesses more like formal
enterprises. Entrepreneurs are taught accounting, project goals focus on
loan repayment, businesses are encouraged or required to conform to
existing regulations, all goals that look great from a formal point of
view. But this is exactly the danger: They potentially undermine the
very factors that make many informal enterprises successful while
imposing formal rules that they are unable to deal with. From engaging
in a flexible and evolving economic activity focused on family
subsistence needs (and often involving the avoidance of control by
authorities), they are sucked into a rigid set of rules that they can barely
understand and even less likely to be able to challenge or manipulate.
While their businesses may be more “accountable” they may in fact be
less successful.5
Is there a solution to this dilemma? Can formal organizations help the
informal sector without destroying its advantages? I believe there is,
and the solution is not at all new or radical: it is simply to focus on
expanding zones of informality or semi-formality, rather than
expanding specific informal enterprises. The idea would be to create
specific geographic areas and/or economic sectors in which small, low
capital, individual or family-run firms are allowed to operate under a
self-regulating system with tax and regulatory enforcement reduced to
the bare minimum. In other words, to recognize a system of
semi-formality on the level of entire low-income neighborhoods,
focusing on goods and services that can be provided by
micro-enterprises.
Street markets are an excellent example of the benefits of this
approach. Where street markets have become vibrant sources of
economic growth, it is due to the fact that they have been able to avoid
International Journal of Sociology and Social Policy 46

rigid regulatory control and regulate themselves. Mexico City provides

one example of this (Cross 1998), but another is given by the growth of
flea markets and farmers markets in the US. These became popular
precisely because they exist in a form of suspended space with regard to
regulatory control. The rules still exist, but it is understood that
enforcement would be limited. Often, flea markets regulate themselves
to avoid the perception that they were conduits for illegally obtained
goods. Particularly in the third world, the suspension of regulations
often occurs due to the ability of street vendors to avoid regulatory
Volume 20 Number 1/2 2000 47

control and the inability of the authorities to enforce them rather than
some sagacious government plan.

The advantage of making such a policy official is that it is already

occurring unofficially and therefore there would be minimal actual
effect. By allowing micro-firms to remain largely informal within
certain broad guidelines (and making sure that broad public health
concerns are met), the only negative effect is to recognize a “fait
accompli”. On the positive side, however, more people would be
encouraged to open up micro-businesses within these sectors while
enforcement resources could be focused on key issues such as public
health concerns (Adeoti, John O. 2000; Blackman and Bannister 1998).
Finally, such an environment would allow at least some informal firms
to naturally grow until the point at which it makes more sense to become
formal in order to protect their capital and resources.

Conclusion

The informal sector has grown in recent decades because it has success-
fully avoided control by a “modern” state apparatus focused on the
needs and concerns of large business enterprises. But as the modernist
dream has faded into a postmodern reality, with greater flexibility in the
economy and an attempt to use the informal sector to step in where the
formal sector has failed, there is a danger that attempts to “formalize”
the informal sector will threaten the very factors that made it success-
ful. The solution, therefore, is to take advantage of the postmodern em-
phasis on multiple layers of reality. Rather than lowering the formal
system to the level of the informal sector, as some have advocated (De
Soto 1989), or raising the informal sector to the level of the formal sec-
tor, as many development projects focusing on the micro-business sec-
tor seem to attempt, our suggestion is that policy makers create ways in
which formal and informal sectors can exist side-to-side. Continue to
maintain and support the “modern” formal system, but also allow
spaces, or massive micro-business incubators, in which those over-
looked by the formal sector can develop their own solutions to the pov-
erty within which they live.
International Journal of Sociology and Social Policy 48

Endnotes
1. Support for this paper was provided in part by the Behavioral
Sciences Training in Drug Abuse Research program sponsored by the
Medical and Health Research Association of New York City, Inc.,
(MHRA) and the National Development Research Institutes, Inc.,
(NDRI) with funding from the National Institute of Drug Abuse (5T32
DA07233-09). Points of view, opinions and conclusions in this paper
do not necessarily represent the official position of the United States
Government, MHRA, NDRI or any other supporting institution.
2. Another example for the benefits of informality for the well-off is the
personal service industry, where wealthy and upper-middle-class
members hire maids, cooks, etc., usually under the table to avoid paying
taxes and insurance benefits. In the U.S., the bulk of this labor force is
today made up of illegal immigrants, who have difficulty obtaining
employment in the formal sector (Romero 1992). In the third world it is
often made up of recent migrants from rural areas or other people
excluded from the smaller formal sector (Bunster and Cheney 1985).
3. A good example of these are the street vendors I studied in Mexico
City. While they suffered from harassent due to the lack of permits, the
fact that they were well organized meant that the organizations could
protect them by arranging deals with officials, either through bribes or
exchanges of political support. As a result, the streets in some areas of
the city became very lucrative, and vendors could make a good living
selling even high-priced goods.
4. Obviously, this criticism does not apply to all programs. Some of the
earliest programs dealing with the informal sector, such as the Grameen
Bank and the Self Employed Women’s Union (SEWU) were successful
precisely because they were based on the advantages of informality and
stressed advocacy work rather than just lending programs. While these
programs are oft cited as “models”, the emphasis is often placed on their
lending role only (Sreenivasan 2000;Yunus 1999).
Volume 20 Number 1/2 2000 49

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