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sent under existing forms of state socialism that any inquiry into the actual
social, political, and even cultural processes of the supposedly
"centrally planned economies" is bound to be misspecified unless it takes into
consideration the socialist informal sector.
In most socialist states, due to orthodox ideological hostility against the
"petty bourgeoisie," "refrigerator-socialism," and all forms of individualism in
general, official statistics reveal little about the exact size of informality.
Grossman (1989) estimates that about one-third of Soviet households received
at least 25% of their income from informal sources during the late 1970s. Sur
economic,
at
is John Dewey Professor of Sociology and International Relations
PORTES
ALEJANDRO
Johns Hopkins University, Baltimore, MD 21218.
is a doctoral student in Sociology at Johns Hopkins University, Baltimore,
B?R?CZ
J?ZSEF
MD 21218.
15,Nos. 3-4 17
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18
?
where most systematic research has been
vey data suggest that inHungary
carried out on informality under state socialism ?
roughly three-fourthsof
both families and individuals had been drawing incomes from the informal
sector during the early 1980s, prior to the large-scale legalization of various
informal arrangements (Kolosi, 1984). In the same period, informal activities
were estimated to represent almost 40% of all net population incomes?
ap?
proximately 20% of the total gross national product (GNP) (Galasi and
Szir?czki, 1985: 131). By 1986, the informal sector absorbed about 33% of the
total basic labor time of the population according to a time-budget micro
census taken by theHungarian Central Office for Statistics (KSH, 1987: 13).
Informality as Opposed
toWhat?
Union power;
2.
The regulation of the economy by the state through taxation and so?
cial legislation;
3.
International competition;
4.
5.
Economic crises.
Based on the experience of the last two decades regarding the spread of in?
formal arrangements under capitalism, we have argued elsewhere that infor?
matization ismost likely when a profit squeeze, brought about by increasing
labor costs or competition from cheaper foreign goods, combines with the pos?
sibility of decentralizing work arrangements and the availability of a labor
force to do so (Portes and Sassen-Koob, 1987: 54).
On the other side, the central distinguishing characteristic of state social?
ism is the dominance of the polity over other domains of social reproduction.
In these regimes, planning represents, as itwere, the gigantic embodiment of
social teleology: it is the state's main instrument to insure that itspolitical will
should prevail over economic considerations (B?r?cz, 1987). The bureaucrati
zation of planning and the resulting pervasive shortages of capital, labor, and
commodities are the two most common deficiencies of state socialist
economies (Kornai, 1980).
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19
Since the functioning of the second economy poses a potential threat to the
?
the unidirectional link from the polity to the econ?
monopoly of planning
?
the
second
omy
economy represents a terrainof political struggle "per se."
This political aspect of formal-informals relation was clearly revealed, for in?
stance, in theHungarian state's unprecedented tolerance of early demands for
new informal arrangements in agriculture. The result? micro-plot ("around
?
the-house") informal farming in a symbiotic relationship with large farms
was a compromise solution reconciling the inherent breach of interests be?
tween the state and the peasant segment of civil society. It is this inherently
politicized nature of the second economy thatprevents it from being legalized
inmany socialist states.
What Activities Are Informalized?
Informality extends to an extremely diverse set of productive and distribu?
tive enterprises. Under capitalism, peripheral and advanced alike, informal
economic activities have been detected in a broad gamut of sectors ranging
from themost technologically backward to themost advanced. Examples from
the literature include the footwear, garment, food, drink, construction, con?
struction materials, electronics, and chemicals industries in Guadalajara,
Mexico; footwear production and recycling inMontevideo, Uruguay; the con?
struction and garment industries, public transport and auto repair services in
Bogota, Colombia; plastics, toys, and electronics industries inMexico City;
construction, apparel, toys, sporting goods, furniture, fixture, footwear, pack?
aging and electronics industries, transportation and auto repair services, and
retail trade inNew York City; hotels and restaurants, textiles, and construction
activities inMiami; seasonal tourist services, industrial counseling, personal
household services, and artisanal activities in Emilia-Romagna,
Italy; and
footwear, garment, and toymanufacturing, the electronics industry and sea
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20
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21
vanced
Market
of Informality
gender, and age of workers; and (c) family- and kin-based social dynamics.
Observers of the informal sector in theUnited States first interpreted the
phenomenon as the outcome of the presence of a sizable immigrant popula?
tion, essentially arguing that informality in thewealthier countries was created
and maintained by recently arrived immigrant communities. Subsequent re?
search has shown thatwidespread informality can and, in fact, does exist
under advanced capitalism in the absence of or without the involvement of any
immigrantgroup.We add that the experience of state socialist societies further
supports this argument: the second economy is in no way causally connected
with any immigrant group in those countries where immigrants represent, in
any case, a minuscule proportion of the population.
To be sure, immigration and the informal sector are closely related in some
countries. The state's regulations regarding labor immigration represent a set
of bureaucratically enforced nonmarket controls, which are often used to re?
strictor expand the pool of vulnerable and disposable labor.Without immi?
gration restrictions, based on the territorial sovereignty of advanced modern
states, global wage levels would eventually reach parity, and the global dis?
placement of either capital or labor in search of economic advantage would
lose its raison d'etre. Tacit tolerance of clandestine immigration, coupled with
major efforts at keeping it outside the law, have been a characteristic strategy
of U.S.-government policy until recently.Under such conditions, immigrants
represent an ideal labor pool for the underpaid and unprotected jobs available
in the informal economy.
Ethnicity, race, gender, and age are an additional set of social characteris?
ticswhich play an importantorganizing role in the functioning of the informal
sector. In contrast to bureaucratically administered state regulations, they are
normatively enforced on a macrosocietal scale. All of them are ascriptive divi?
sions or groupings which exist in the society, with or without the presence of
informal practices. It has been observed, however, thatmembers of discrimi?
nated ethnic and racial groups tend to be overrepresented as workers in infor?
mal enterprises. Strong support for this observation is lent by evidence from
sweatshops and subcontracting arrangements inNew York City and other ar
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22
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23
sions for their populations. With the exception of retirement benefits, which
are tied to employment, all other welfare provisions are conferred through citi?
zenship. Thus, social welfare spending is, to a large degree, equalized. Fur?
thermore,participation in the second economy tends to be, for themost part, a
part-time pursuit. The typical pattern in countries like the Soviet Union, Hun?
?
the
gary, and Poland is to keep one's employment in the "first" economy
?
state- and cooperative-run sector
and to add various part-time activities in
the second economy (Galasi and Szir?czki, 1986). As a result, a relatively
large proportion of the population occupies dual, and even triple class posi?
tions based on their sectoral involvement (B?r?cz, 1987).
Under this system, statewelfare provisions cover the entire population, in?
cluding work performed in the firstas well as in the second economy. If there
is any flow of subsidies in this arrangement, itoccurs from the state to the sec?
ond economy. Obviously, since the state does not generate any resources of its
own, under state socialism the economy as a whole tends to subsidize part of
the reproduction costs of labor performed in the second economy through
state-mediated redistributive channels. Thus, the two principal subsidies al?
lowing the second economy to function come from unpaid family work, ac?
quired through normatively enforced controls at the household level, and from
the society at large throughprocesses of state redistribution.
Under capitalism, there is a consistent income differential favoring formal
over informalworkers. Within the informal sector itself, there is also a sharp
dividing line between entrepreneurs and theirworkers in termsof their relative
income levels. Evidence fromLatin America indicates thataverage incomes of
informal entrepreneurs triple or quadruple those of workers in this sector and
exceed significantly even those of the formal proletariat (Portes and Benton,
1984).
Under state socialism, the second economy is a source of a different
structuraldifferentiation of income levels.Most working members of the soci?
ety receive incomes in kind through the state's welfare provisions and from
jobs in the "first" economy. In terms of money incomes, themajor distinction
drawn is between those who are involved only in the state- and cooperative
run sector and those who have access to additional incomes from the second
economy. Due to the low average income levels in the socialist sector and to
the fact that the informal enterprise supplies goods and services in high de?
mand, income levels of all workers in the second economy tend to be higher
than those in comparable positions in the first.Except formembers of the po?
litical elite, the bureaucratic apparatus, and topmanagers, noninvolvement in
the second economy is, under these conditions, a sign of grave economic
disadvantage.
As they are forced to subsidize part of reproduction costs of their labor
power under capitalism, informal sector workers rely on various nonmarket
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24
and informalmarket channels tomake up for the deficit, thus creating a sec?
ond circle of enterprise in informal welfare provisions (Sassen-Koob,
1989).
Under state socialism, in contrast, the second economy tends to penetrate
state-managed redistributive systems of social welfare, health care, education,
etc. This latterphenomenon has been labelled corruption, reciprocal exchange
of influence, bribery, tipping, etc. All of its variants involve a formally egali?
tarian system of basic benefits, whose available supply is shorter than demand
or whose quality is less than satisfactory. As these benefits are disposed in
kind throughbureaucratic channels, inequalities are reintroduced into the sys?
tem through informally arranged privileges.
Thus, the ultimate effect of large-scale informalization on social services
turnsout to be rather similar under capitalism and state socialism: under both
systems, there is increased reliance on such channels in order to satisfy basic
needs for the reproduction of labor. Under one set of circumstances, informal
channels emerge spontaneously in order tomake up for the absence of state
provided services; under the other, they essentially colonize the existing, for?
mally universalistic state service system.
Macrosocietal
Effects of Informality
1.
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25
?
an important change in the structureof so?
initial plan-command structure
cial control at theworkplace (B?r?cz, 1987).
Informality increases profitability under capitalism by reducing labor costs
and increasing the flexibility of production arrangements. In thismanner, the
informal sector contributes to the long-term survival of a particular regime of
accumulation. Ironically, the second economy has a similar preservative effect
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26
economy.
NOTES
1. Following Gabor (1979) and many subsequent analysts, we will use the term "second
economy" to denote manifestations of the informal sector under state socialism. For its counterpart
under capitalism, we use "informality under capitalism," etc.
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