The paradoxes of informalizing street trade in the Latin American city

1. Introduction

A Google image search using the term “informal economy” renders more pictures of street vendors than of any other occupation. Compared to off-the books factory or home-based workers, street vendors, however, are not always the largest informal-worker group across cities of the developing world, although it represents an important source of employment for urban poor women[1]. Given its marginal status as an occupation, the links between street trade and the informal economy are undeniable. Yet, this connection has also influenced the way scholars and policy makers conceptualize this occupation, which has important implications for shaping the local policy environments of street vendors.

The informal economy refers to a wide range of low-productivity occupations that either lack adequate social protection or fail to comply with business regulations. Scholars had repeatedly criticized this definition for its analytical flaws (Breman, 1976; Peattie, 1987; Morales, 1997, 2001). But as scholars continue to study the informal economy, street trade has gained popularity as either a shortcut for the unregulated economy or a testing ground to explore the limits of state enforcement. As early as the 1970s, scholars studied street trade to theorize about the links between the informal and the formal economy (Bromley, 1978), the informal economy connections to urban poverty (Teltscher, 1994; Steel, 2008) and the role of regulation (Contreras and Thomas, 1993; De Soto, 2002). Case studies on street trade have highlighted the social and political consequences of “informal” politics in the region (Cross, 1998a, b; Crossa, 2009; Garcia Rincon, 2010) and, just recently, lenient policy responses toward street vendors have been conceptualized by political scientists as a form of “informal” welfare (Holland, 2016).

These informal economy studies have served to gain insights on street trade by analyzing its heterogeneity and politics of enforcement; however, scholars have rarely addressed how framing street trade as an informal occupation has affected its regulatory environment. Recent single-city and cross-sectional case studies have shown that the informal label is more explicit in current regulations (Roever, 2006) and in official public discourse (Hunt, 2009). Given the divergent urban political regimes in Latin America (Goldfrank and Schrank, 2009) and the competing perspectives that have dominated the informal economy debate at different times (Portes and Schauffler, 1993; Rakowski, 1994; Biles, 2009), more comparative and historical studies are needed to understand the conditions by which local governments used different informal economy theorizations to frame policy toward street vendors.

Through a comparative case study of two contrasting political regimes—neoliberal Lima and socialist Bogota, I argue that, rather than being an inherent trait of this occupation, the framing of street trade as an informal occupation has primarily responded to different priorities of development, stages of urbanization and political changes in local governance. Despite academic evidence challenging former assumptions of the dominant theorizations of the informal economy, I demonstrate how local governments have continued to use the basic tenets of these theories to validate their regulatory approaches - particularly the dualist and legalist but influenced as well by the structuralist and voluntarist[2]. Regardless of the informal-economy perspective used in contemporary local policy frames and the push for more comprehensive policies at the international level, the use of these assumptions suggests that the increasing visibility of street trade as a subject of policy through the informal label—what I call its “informalization”—has fostered its local delegitimation as a spatial and economic practice within neoliberal and socialist/progressive contexts.

I start by revising the connections between street trade and informality in the policy-oriented and scholarly literature. The next section describes the methodology. Then, I analyze policy frames attending to three critical urban transition: the period from the 1970s to end of the 1980s, when most Latin American economies adopted the Import by Substitution Industrialization (ISI) development model and the informal economy debate started; the early 1990s, when the structural adjustment policies fostered labor-market deregulation and economist Hernando de Soto’s legalist approach challenged previous casual relationships about the informal economy; the 2000-2010 period, when Latin America consolidated as a free-market economy and many international development agencies agreed upon the need to formalize the informal sector. In each of these periods, I examine the social contexts by which local policy frames aligned with particular theoretical assessments of informality. Finally, I summarize the findings and discuss their practical and theoretical implications.

2. The informal economy debate and street trade in Latin America

Street vendors represent from 5 to 10 percent of the total employed population across Latin American cities (Roever, 2010) as an economic practice and subject of policy, street trade precedes the informal-economy debate in Latin America. In some cities, selling or bartering in open-air plazas and broadly defined public spaces can be traced to pre-Hispanic times (Hirth and Pillsbury, 2013). Ordinances and decrees regulating, prohibiting and enacting evictions have been documented as early as colonial times (Ghersi et al., 1998; Salazar, 2004; Chavez and la Flor, 1998). But it was not until the mid-twentieth century that street trade gained visibility as a social problem beyond public-order concerns. I will argue that the concept of the informal economy made street trade a subject of scholarly research and increased its visibility as a subject of development policy.

The connection between street trade and what would later be labeled informal sector dates to the 1960s with debates surrounding urban marginality. The contrasting development of a modern industrial sector alongside sprawling slums and a growing marginal workforce in Latin American cities was part of the early sociological and economic debates in the region. Whereas Germani’s (1968) marginality theory argued that the failure to incorporate rural migrants to modern urban institutions prevented widespread social modernization in Latin America, Marxist dependency theorists referred to this marginal workforce as permanent by-product of dependent capitalist development (Quijano, 1969; Nun, 1969). Based on these dualistic conceptualizations, occupational analysis of urban marginal employment included street vendors (Lambert, 1965; Alessio, 1970) but they were not studied in detail.

During the 1970s, although marginality debates and critiques continued (See e.g. Perlman, 1976), the concept of the informal sector rapidly gained popularity for its potential to articulate existent employment policy initiatives promoted by the International Labor Organization (ILO). Keith Hart (1973), an economic anthropologist, used the term “informal sector” to refer to illegitimate and legitimate income-generating activities performed by the urban poor in Accra, Ghana. Hart claimed that informal economic activities had the potential to provide economic opportunities for the jobless and reduce the earnings gap for the underemployed. His conclusions echoed some of the recommendations drafted earlier in the ILO-Regional Employment Programme for Latin America and the Caribbean for Colombia, which noted the dilemma of focusing exclusively on economic growth in the modern sector to promote employment (Peattie, 1987). Following the diagnosis of dependency theorists who equated the informal sector to the low-productivity sector, (Prebisch, 1962; Pinto, 1970), the general focus was to use policy toward this sector to promote equity within goals of economic growth through industrialization (Peattie, 1987; Nuñez Castrejón and Gómez Chiñas, 2008).

Scholars initially claimed that the segmentation between formal and informal distorted the comprehension of urban economies (Breman, 1976; Sethuraman, 1976; Moser, 1978). As research on the informal sector followed, street trade provided a case study that challenged dualistic theorizations. In a pioneer study, Bromley (1978) examined the employment structure and social organization of street vendors in Cali, Colombia. He found that street trade presented an internal heterogeneity that questioned the default assumption of informal economic activities as truly independent economic activities unconnected to the formal sectors of the economy. Indeed, he found that a sizable proportion of vendors worked as commission sellers or had dependent relationships with suppliers of merchandise that produced goods in the formal sector. The analysis of street trade highlighted the links between formal and informal enterprises, which resulted in different employment relations.

Between the 1980s and the 1990s, definitional critiques of the informal sector continued (Papola, 1980; Peattie, 1987). However, research- and policy-expertise discussions reached a wider interdisciplinary audience, from international development agencies to local non-profit organizations and think tanks (Rakowski, 1994). At this time, changing economic conditions born of the Latin American structural adjustment and austerity fiscal reforms increased unemployment, making evident the declining opportunities in the formal sector and lack of elasticity to cushion the effects of the informal sector[3]. Some of these trends were exemplified in street trade studies. Unlike previous characterizations that linked the informal workers with “secondary” workers (Mazumdar, 1976) Contreras and Thomas (1993) found that most street vendors in Santiago de Chile were heads of households, usually unemployed men, for whom street trade was the main source of income. Their study was the first to emphasize the role of regulation. They argued that restrictive policies provided greater incentive for police harassment, resulting on limited capital accumulation among street vendors.

As the Latin America’s economy opened to international trade, poverty rates soared. As a result, theorizations on the casual links of the informal economy expanded during the 1980s and 1990s. The structuralist/neo-Marxist approach conceptualized the informal economy as a global phenomenon explained by shifts in the expansion of capitalism (Castells and Portes, 1989). Because of developed countries’ outsourcing, subcontracting expanded to the developing world. As local economies in Latin America restructured to sustain the growth and profits of capitalist industries in developed regions, labor marginalization deepened. Structuralist theorizations largely analyzed changes in the manufacturing sector, but street trade studies followed as well. Teltscher (1994) found that the subordinate role of street trade within global and national supply chains translated into differences in capital accumulation among street vendors in Quito, Ecuador. Most advantaged vendors were able to import directly foreign products that required high capital investment. In contrast, those who were trading indirectly national products, which required little capital investment, faced greater competition and low returns.

Unlike the structuralist standpoint, focused on the expansion of capitalism as fueling the informal economy, the legalist or De Soto approach argued state’s over-regulation inhibited capitalist gains from filtering down to the urban poor (De Soto et al., 1986). According to De Soto’s study of informal trade in Lima, the daily tax collected by local governments entitled street vendors to special ownership rights on the street and slowed down the pace by which street vendors were moving to roofed markets (De Soto, 2002, p. 91). In his analysis, the existent regulation equated to extralegality –a non-state based regulatory environment that prevented street vendors to reach their entrepreneurial potential. Although his data did not substantiate the claim of a slowdown in vendors’ construction of roofed markets[4], De Soto and his collaborators advocated that the state should simplify regulations to encourage street vendors’ transition to roofed markets.

Along with the wealth of empirical research, the ILO renewed its focus on the informal economy and influential agencies such as the World Bank (WB) positioned on this debate. The ILO redefined measurement guidelines for informal enterprises and informal jobs (ICLS 15th, 1993, ICLS 17th, 2003), incorporated regulatory environments as contextual factors in analyzing the informal economy (Tokman, 1990), and called for the active role of the State in promoting equitable labor policies and accommodating survival enterprises through heterogeneous strategies (Tokman, 1989). Between 2000 and 2010, the WB added the voluntarist approach to the above three theorizations (Perry et al., 2007). This approach characterizes the informal economy in Latin America as a voluntary unregulated small-firm sector (Maloney, 2004), in which informal entrepreneurs and workers weigh the costs and benefits of formality. In this perspective, non-compliance results from a continuum, in which at one extreme, there are situations of exclusion, but in the other, workers and entrepreneurs prefer to avoid regulation (Perry et al., 2007).

In recent years, the ILO and the WB have convened in promoting the transition from the informal to the formal economy through differential approaches. The ILO pioneers a rights-based approach that coincides with the need for equitable policies claimed by structuralists. For instance, the ILO Recommendation No. 204 Concerning the Transition from the Informal to the Formal Economy provides a set of guidelines for governments to promote formalization within the principles of decent work and inclusive development, including the implementation of stable regulatory frameworks for street vendors (ILO, 2015) and has published a compilation of best practices (ILO, 2016). In contrast, the WB promotes an economic growth-based model that focus on initiatives encouraging formal entrepreneurship. For informal trade as a whole, WB’s concerns focus on keeping an attractive economic climate for investors and reducing unfair competition (Benjamin et. al., 2014) through administrative simplification and cost reduction for business registration (Sislen et al., 2007). Although street vending is not a WB target policy group, this agency has commissioned studies on this sector (Mitullah, 2003) and their pro-business initiatives and urban initiatives have influenced street trade policy in many cities in the developing world (Lyons and Titus Msoka, 2010).

Within the informal economy framework, street trade is more than an ordinary occupation. Its prevalence have come to represent a faulty sign of uneven development, one that is mostly explained by the need for employment and the corresponding lack of adequate options to work or start a business. Yet, none of the major theorizations captures all the various motives why people engage in this occupation (Williams and Gurtoo, 2012) or offer substantive guidelines to formulate adequate regulations (Chen, 2007, pp. 9-10). Nonetheless, as the informal economy debate frame international commitments and national policy, these assessments translate into local regulations. This paper will address how informality assessments have historically been used to frame regulation approaches toward street trade, the context by which these frames gained institutional support and state integration, and whether they have served to validate either exclusionary or inclusive policies in Latin America.

3. Methods

In addition to newer developments regarding the informal economy debate, the transition from ISI to a free-market economy has also brought about significant changes in Latin American cities. This transition contributed to a rise in open unemployment, informal employment—as measured by lack of social security protection, income inequality, and crime victimization rates (Portes and Roberts, 2005), which have intensified the tensions among users of public space (Sabatini, 2006; Caldeira, 2000). While across Latin America these urban changes vary only in degree, political responses have resulted in divergent urban policy regimes. Goldfrank and Schrank (2009) identify two poles of these regimes in the region, socialist and neoliberal, which formed as a response to the free market transition. Most governments in the region incorporate some aspects of these two policy regimes, as municipal authorities try to balance the need to integrate into the global economy and the internal demands of their constituents. Yet, the differences in emphasis can significantly influence the political process by which authorities frame street trade policies.

To sample the convergence in urban trends and divergence in urban regimes in the region, I examine the changes in local policy frames toward street trade in Lima and Bogota from the 1970s to the end of 2010. Both cities share similar trends and characteristics regarding informal employment[5], residential segregation[6], and have underwent successful historic-center recovery in the mid-1990s. Between 2005 and 2010, these two cities exemplify the divergence in urban regimes (Goldfrank and Schrank, 2009). Lima’s policy corresponds to the municipal neoliberalism which prioritizes accumulation using regulatory rollbacks as a means to attract foreign investment and Bogotá’ falls within the municipal socialism prioritizing redistribution and therefore implement policies to democratize the use of public funds and other compensatory mechanisms. This contrast of contexts permits to examine how parallel processes of urban change incorporate divergent assessment of the informal economy in urban governance.

The empirical evidence draws from a combination of sources in these cities: metropolitan street vending ordinances and laws from the mid-1970s to 2010, historical censuses and household surveys-based estimations of street vendors[7], local archival research and 64 semi-structured interviews—54 policymakers at different governmental dependencies and 10 key informants—conducted in Lima and Bogotá during 2008 and 2009. Key informants were selected using snowball sampling to identify local leaders in the street vending sector and other commerce-based organizations in both cities. Public officials and policymakers were contacted after compiling a list of institutions in each city that formulate policy toward street vendors. Out of 54 interviews, 33 correspond to local, 11 to metropolitan and 10 to national agencies. Interviews lasted from 45 minutes to an hour and were recorded when permitted. Audios and notes were transcribed, coded and analyzed using NVIVO. I traced vertically how the framing of street trade aligned with national policy agendas in each city and horizontally how these frames matched the urban patterns in both cities. Nonetheless, given the focus on social contexts for this paper, interviews are presented in an analytical narrative rather than a detailed exploration of public officials rationales for policymaking. Table I summarizes the findings of the comparative case study over three critical urban transitions. I will describe these findings in detail in the following sections.

4. Urban transitions and street trade policy in Lima and Bogota

4. Conclusions and implications

Even though the discussion regarding the analytical flaws of the informal economy definition has faded over time, scholars have recently contested the use of the informal economy framework in street trade research (Bromley, 2000; Morales, 1997). They argue that the emphasis on the “unregulated” excludes from the analysis the political process by which different social institutions contribute to construct the “standards” set by law (Cross and Peña, 2006; Morales, 2001). Departing from the literature that emphasizes the politics of enforcement (Cross, 1998b; Holland, 2015; Cuvi, 2016), this paper takes a step forward by analyzing policy framing; that is, how city governments have aligned street trade policies with the competing perspectives of the informal economy used in the international and national development agenda. It has examined the many contextual factors that have made possible this alignment, such as the expansion of modern retail, increased political capabilities and resources for local enforcement, a higher state integration between local governments and judiciary resolutions, as well as multi-scalar connections with international development organizations.

An important contribution is that two distinct urban policy regimes, which rely on divergent informal policy approaches, converge at building a regulatory framework that decouples the right to work from the right to claim access to public space. As street trade becomes an informalized occupation, it becomes perceived as a form of substandard employment in need to be upgraded out of the streets. Compared to Lima’s legalist focus, Bogota’s dualist and structuralist approaches made this city more rights-oriented. Yet, this does not make a substantive difference in terms of the informalization and marginalization of street sellers. Therefore, in these apparently antagonistic approaches, the assessment of informality has served to validate interventions aimed at best economically integrate street vendors but without recognizing them as legitimate users of public space. These findings contradict general assumptions that may have equated socialist or progressive urban policy regimes with proactive inclusive policymaking, or neoliberal urban policy regimes with exclusionary outcomes. Either by formalizing street vending or upgrading options to trade, both approaches have used the binary of “informal/formal,” relying in malleable theorizations, to justify local governments’ increasing surveillance of public spaces, making street vendors even more elusive to the reach of regulation.

The failed formalization or upgrading attempts of both of these city experiences should invite policymakers to revisit their assessment of street trade as an employment problem. Ultimately, all occupations exist because of the need to work, but, even the least desirable occupations become viable employment options when they have a role to play in their corresponding social contexts. Beyond street trade role as source of employment, the literature on street trade in Latin America and elsewhere is still scant when it comes to empirical analysis and evidence-based research on street trade role in economic development, walkability, crime or neighborhood revitalization (Wongtada, 2014).

Perhaps it is too late to abandon the “informal” label, after all many grassroots organizations have been able to scale up through these international debates. Nevertheless, scholars should direct their attention to how these debates translate into local policies and have concrete consequences in framing local interventions toward vulnerable urban occupations. In that regard, we should move past the categorization of the “unregulated” and the emphasis on “compliance,” to analyze the social and political process that create occupation-specific detrimental regulatory environments and social outcomes[14]. Otherwise, as scholars, we will be contributing to the persistent discourse of “othering” rather than untangling the political forces that shape the delegitimization and marginalization of disempowered citizens.