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December 5, 2020

Struggling working class

Business

December 5, 2020

LAHORE: Informality in an economy is a legacy of colonial exploitation.

In underdeveloped countries, it is a consequence of low capital resources, faulty state policies, economic mismanagement, corrupt practices, and misguided policies of international financial institutions.

Informal work represents a tremendous degree of abuse of the working class. Majority of workers in informal work worldwide, as in Pakistan are women.

These workers are exploited economically as well as socially. Unfortunately, the informal economy in Pakistan is larger than the formal economy.

Informality flourished because even the poorest talented entrepreneurs are unable to get formal loans to expand the business. Informality also suits the formal businesses that benefit from loopholes in government policies to park black money in avenues like the capital market, real estate, or agriculture.

The conditions imposed by the international financial institutions also promote informality. When these institutions force the government to increase revenues by any means, the state, instead of bringing the informal sector into the tax net increases the tax rates on the formal sectors.

In some cases, like in case of importers, the goods are formally imported (even if through under-invoicing), but their supplies down the lane go to the informal sector (retailers most of whom operate informally). Rampant corruption also promotes informality.

Officials become rent seekers to allow businesses to operate informally. The British colonialists were not bothered about informality, as they collected enough taxes for all government operations and development work.

The tax evasion from the formal sectors was almost zero during British Raj. The colonial rulers felt no need to bring shopkeepers and transporters under the net.

Although the entire informal workforce is exploited by the employers, women face more hardships and injustice. In informal work women’s sexual vulnerability is often present and sometimes in a very pronounced manner (this exploitation is also witnessed in the formal sector).

Some policymakers argue that informal work, like for example home-based work is preferred by women because it suits their needs as it allows them time for their household responsibilities.

This may be partially true as usually for formal work women have to cover long distances that are time consuming, making it impossible for them to attend to their own domestic duties.

Women also do not have much legal protection in informal sectors, including agriculture, rag-picking, construction, home-based work, domestic work, street vending, etc.

Workers in the informal economy aspire to be entitled to secure lives and incomes. They too desire to have access to basic social services, such as healthcare, housing, education, and old age security. Informal workers are denied a social and political environment where their basic human rights are respected and guaranteed.

Small, medium and large enterprises, including multinationals also benefit from informal work. In their obsession to cut costs, they reduce labour costs, wages, and benefits.

Another way enterprises cut costs is by keeping contract employees. This also helps them avoid health benefits, social security, etc.

Both informal workers as well as contractual workers have limited bargaining power. With a large majority of workers in the informal sector, the power of those in the formal sector is also diminished.

Women in both formal and informal work are at greater risks. They are often paid less and denied basic rights.

In the post-colonial era, successive governments in Pakistan continued increasing expenses without increasing revenues correspondingly. For a long time, they ignored the informality in the economy.

By the time the governments realised the damages to its finances caused by the informal economy, the sector had become very strong. No soft approach is going to force informal entrepreneurs to come into the tax net. Government must exert its writ with full force.