Index

1. Introduction

2. The Informal Economy

3. The Origin of informality.

4. Causes of the Origin and growth of the informal sector

5. Conclusions

6. Bibliography

1. Introduction

The completion of this work stems from a motivation to find the answers to a series of questions that we consider mandatory every day to tackle the streets of Caracas and as is the case in Peru, there is a growing trend for several years has been presenting informal trade.

When you walk through the streets of most Latin American countries as questions arise: Why the rush of hawkers What factors led them to engage in that activity Which is engaged before this activity

But beyond these questions of a personal level there are other economic, political and social.

It’s about the two issues to which I refer in this work and which try to analyze, develop and respond.

The first chapter, the three that has structured the monograph seeks to establish, at least in substance, and

unite, if possible, the different conceptualizations that are in this sector. Therefore the main objective of this chapter is to define the informal sector, the perspectives from which is focused and the criteria used to define and characterize.

In the second chapter is an analysis of what happens in the informal economic sector between Venezuela and Peru, and one way or another source to consider the problem of informality and the informal economy which has resulted from their existence

Finally, the third chapter the causes of the origin and growth of the sector in our country and the positive and negative consequences that this could lead both to the same sector and the economy in general.

Finally, it is important to clarify that the issues raised in this monograph is only a portion of a subject much larger and more complex, however, left open a parenthesis to expand on the subject, either by me or anyone else in future work or professional development activity.

Overall objective.

A comparison of the informal economy in Venezuela and Peru in the last four years.

Specific Objectives

Know the definition of informal economic sector between Venezuela and Peru in the last four years.

Highlight the origin and the problems of the informal economy between Venezuela and Peru in the last four years.

Clarify the positive and negative causes of the existence of informal sector between Venezuela and Peru in the last four years.

2. The Informal Economy

Many times we read about the underground activities of the informal economy. Conceptually we can provide a very simple definition of this phenomenon. The activities that comprise the informal economy are those activities that have legitimate purposes are based on illegal means to take place. Ie, they are activities that are not inherently a criminal content, but, despite being fairly lawful and proper activities, desirable in a country, have to use illegal means to take place. The most notable economic characteristic of informal activities is that both the people directly involved in them and society in general are better if the law is violated if it is followed to the letter.

Serve to clarify this concept by example (discussed in depth below) of the original street vendors who populate the cities of Latin America. In cities like Mexico City., Sao Paulo, and Lima, which are among the most populous cities and higher density in the world, a key feature is the existence of thousands of street vendors.

The salesman is, first, a businessman. Its purposes are legitimate, ie not meet the legal regulations, failure to comply with labor standards, not paying taxes, because he has no choice but to do so. You can not enter the formal economy because it imposes on Latin American societies at a cost so onerous that it is so insufragable for people and for entrepreneurs with small income. The informalities then a situation where people want to work legally but can not. All that remains is to work in the area of illegality on the loophole left in Latin American society.

Although it varies from country to country, the importance of informality is very broad. In the case of Peru, it is estimated that in general terms the equivalent of thirty percent of gross national product and the equivalent of sixty per cent of man-hours worked are developed in informal activities.

This allows us to draw some initial conclusions. First, that social and economic informality is great, and yes, sixty percent of man-hours are in the informal sector, the government only controls four of every ten hours worked. In other words, the majority of Peruvians work outside the law.

The second conclusion is that, despite its quantitative importance, informal activities have low productivity because, as we have seen sixty percent of the work done only thirty percent of national output. That gets us closer to some problems we will face later on: the lack of legal institutions to maximize its benefits or how to organize more efficiently. The informal, for example, can not go to court to enforce their contracts. Also suffer from a chronic shortage of property rights that ultimately ends up negatively affecting their productivity.

In the case of Informality in Venezuela, we are not in better condition than the Peruvians, since apart from this sector include street vendors, carpenters, painters, artisans, drivers, vendors are also included in this sector employers, employees , workers and family workers who work in companies with fewer than five persons engaged.

For the first half of 2001, the informality in Venezuela reached, non-small figure of 50.8% (4,630,094 workers), and this percentage amount decrease, since for the six months immediately preceding the figure was 53% ( 4,747,800 workers), which clearly represents a decline of 117,706 employed in this sector, particularly on their own. In general, not only in 2000 and 2001, reflecting high rates of informality, but the rate is adjusted in a range between 48.54% to 53.00% from 1998 to today.

Stressing by others, that from the sociological point of view and from the point of view, the situation is similar between the two countries.

Informal Construction.

In the case of Latin America is significant, illustrated at least in the Peruvian experience, the informal sector has a major presence in the field of construction and housing. In fact, Peru’s urban development has been mainly in the informal sector. Most of Lima, about half of their area (Lima is a city of eight million approximately), is developed entirely outside the law, as Peruvians euphemistically called “young people” who are not otherwise the slums (slums) developed by invasion of public or private land by migrants from the countryside to the city over the last forty years. In the case of Venezuela, the situation is almost the same and the origin is in the same variable, the migration of the fields to the city.

The development of the informal housing sector has a great economic, social and political in the case of Peru. First, it is economically significant because the investment made by people in the informal sector in their own homes is approximately 8000 or 8.5 billion dollars, housing investment has been made without any support from the State.

Secondly, it is socially important because it represents the emergence of a new owner sector. Traditionally in Peru, I suppose like the rest of Latin America, the disadvantaged have been absent from the property. Access to property is limited to the wealthy or aristocratic in those countries. Through this process of informal urbanization, however, the most disadvantaged sectors of Latin America have been claiming for itself the right to property, set it active in Latin American cities.

Finally, the informal construction has had a remarkable political significance. Why Politics Because, in this last instance, only people who own fight for something, you have a sense of responsibility, struggle, and political challenge. Countries that do not own weak country where citizens do not face political power because ultimately there is very little room for individual development.

Informal trade

Another important sector in the informal economy is the trade sector. In the past the presence of informal activity in the commercial sector in Peru and Venezuela has been remarkable. Perhaps the most remarkable of all. Many people, of humble origin, probably migrants from the countryside to the city, which, give the situation in which they find they have to engage in trade in order to create a business that enables them to one or another way to earn a subsistence minimum.

Although no census has a current, The Cato Institute estimates that “in 99 and 2000 had about 300,000 street vendors in Lima.” The situation in Venezuela, is already known to everyone around fifty percent of the population works in this sector.

The social importance of the street derives from its claim of private enterprise for disadvantaged sectors of American society. Usually, we read books and listened to programs on radio and television that have tried to convince us that capitalism is something alien to Latin America, whereas those who are entrepreneurs in Latin America are a vanguard of foreign penetration or a lap of aristocracy Columbus, but we are not authentic Venezuelans, Peruvians, and, even, capitalists because of capitalism. This is a lie! To test this, we should not write books, or to quote Adam Smith. To show that is a lie just go wings streets of Caracas and Lima and teach those who refuse to accept the evidence that the poor exert American capitalism in the mimas streets of any American city, but no one has taught, that no have to be rich to become entrepreneurs, they only need to be workers who do not have to be ready to make money, you just have to be sorted, which need not be wise to find an opportunity, they only need to be bold. So that those vibrant streets of business constitute the best argument in favor of entrepreneurship and capitalism in Latin America.

Moreover the existence of the informal commercial sector offers the best available argument to convince those people who have ideological confinement deny that the work and responsibility are virtues inherent in the human.

Informal Industry

As in the development and trade, the presence of informality is also significant in other areas such as industry and services. For industry, the presence of informality obviously occurs in underground activities.

The formal industry is of two types in Latin America, especially in Venezuela and Peru in the last four years. One is the formal industrial informalization own part of their production due to the high cost of regulation or taxes. While hiding part of its revenue, not a different person already established industrial. In many cases it has been forced to do because the cost of legality is very high, but even in the countries mentioned above. Thus has to leave the formality to partly or completely hidden in the information market. This occurs whenever there is a price increase or if it increases inflation, which is an indirect way of raising taxes.

Informal Service

As in previous cases the level of activity of informal services is quite high. I just want to review the case of transport, which is the most notable. In developed countries, public transport is generally the state. Across Latin America, the emergence of large cities has been coupled with the development of large informal transport systems.

Freedom of rates has produced the following phenomenon. There are all kinds of services and at all costs. If you want to go so uncomfortable paying a relatively low price, but instead want to go in a very comfortable air-conditioning and TV, you obviously need to cancel a much higher rate. Even in the two countries (Venezuela and Peru) there is a non stop service from one point to another, so that’s another type of service and other price. All this has been generated in both informally hire vehicles, taxis, as in mass transit vehicles. Is the absolute reign of informal activity.

3. The Origin of informality.

As has been seen and mentioned categorically along the monograph, there informality in the housing industry is informal, there are informal in transport, there are informal in everything. In fact there are informal, men are informal activities. No Venezuelan and Peruvian informal. No! If sixty percent of Peruvians work and fifty percent of the Venezuelan population, takes place in the informal market, is because both Peruvians and Venezuelans, we have a part of our work developed formally and informally developed elsewhere . That is why the Venezuelan and Peruvian constant constantly claiming their right to work regardless of the state without paying taxes, without obeying regulations.

The origin of informality is not a cultural tare in a religious problem, or ethnic origin is in the inefficiency of the law and the ineffectiveness of the state in enforcing this law.

In Peru, as in Venezuela, the amount of time and information needed to comply with the law is very high, in fact comparatively higher than in the U.S. need to comply with the law The difference between developed and underdeveloped, as North (1994), State Authority is the organization efficient. A prosperous country has a law costs low compared with incomes, a prosperous country has a law costs low compared with incomes, a prosperous country that is not has a very high cost of law compared to incomes.

Latin Americans are not sick beings we are measuring the cost of the law. Measure only the law when the cost of complying is greater than their benefit. People obey the law when it suits, if not for you, not met, it is rational to be so.

In Latin America and in Venezuela and Peru in particular, where feasible we have evidence, the law is very expensive. It is so costly that it distorts the market and to exclude the most disadvantaged sectors of the population. Why are there so informal Because people, given their low incomes, can not work otherwise unable to comply with the law, can not pay taxes, no access to a formal development built for the paperwork to do so are insufragables. This is objective reality. Tara is not a cultural, not a mental problem, not an ethnic heritage, it is legal discrimination.

The origin of this legal discrimination lies in the undemocratic capitalism, mercantilism. What remains primarily in Latin America is a capitalism in which private property is a right not a privilege, private enterprise is therefore also a privilege, leaving practically out the possible existence of a competition. The state is responsible for denying the legal obstacles with this capability conservation makes us keep the dinosaur of commercialism, which is ultimately what we suffer: The great state and useless, on the one hand, and hypocrisy, on the other. This generalization of the hypocrisy that can maintain the privilege system in Latin America can be without doubt the main cause of our underdevelopment and our crisis.

Problems on the Informal Economy

The phenomenon of informal economy has implied a series of problems that are often not taken into account when doing the analysis where this sector is involved, an appropriate approach to the problem of informal calls as soon as possible to differentiate on the various risks which are threatened, among which are:

Which by its nature of informal workers are most frequently reported from the employment perspective, as self-employed or family helpers

The informal economy absorbs the vast majority proportions of younger workers and older population. Of the youngest by the economic necessity that they can be present, as a follow-up studies or training or simply because their experience is not enough to enter the formal sector, as regards those who are older abandoned by the system are made up of retirees with special skills looking to offset their pension, leaving companies displaced by generations of relief or have been dismissed by reducing costs and you can not get a new formal job also is important to mention the inclusion of women in this sector, who finds a chance to get paid for their work contributes household income.

Suffer from lack of legal protection, referring to the lack of a legal framework that protects the exercise of the people working there are working. They are devoid of legality to protect its work and will exercise a minimum guarantee of survival.

We could refer to the prevailing attitude and conduct of the State in its various policy interventions, through taxes, prohibitions, regulations, restrictions, control of inflation and inefficient management of public enterprises, the law ignores them and keeps them apart from social security, in some cases repressed and harassed, difficulty in obtaining the validity of this sector, the problem has not been understood as a structural phenomenon and by state governments or by national informality may have grown temporarily due to the recession of the labor market, but it is undoubtedly a structural phenomenon that accompanied us in the future, it is noteworthy that within the implicit costs and risks they face informal workers are the anguish, persecution, repression and constant rattles, irregular permits and disappearance of the good product of police corruption, which does not happen in the formal sector.

Besides constituting a social security problem due to the absence or lack of organization of work, which creates the need for a stay negotiating for control of capital-labor conflict in these capitalist societies. They are also a public safety problem, especially when it has been reduced to medical care and pension and retirement system, which together with the gross distortions that are created in education services, housing for the high rate of immigrants generate social problems and tensions, not to mention that these informal degrade and destroy the city rapidly becoming spaces in markets, which obstructed pedestrian traffic and accumulate large numbers of garbage.

Have restricted access to commercial credit and banking, in the absence of equity, the only possibility of obtaining funding is the credit, but do not have access to the loans offered by the financial system because of the requirements, and that the fact it is an activity that is not legally registered and that offers no guarantee of strength or stability, the latter factor that contributes greatly to hinder the credit support and financial resources that could be used to improve the sector’s production activities .

Alongside these same problems generate the existence of poverty, which in recent years has grown significantly. This leads us to believe that informality and poverty are linked by joint events and a list of such coincidental, not causative, of the same process of economic and social stabilization. In any case, the link between poverty and the informal economy are the mechanisms for generating income in the labor market as a dominant factor and condition of meeting the basic needs of families.

So we can conclude that the main problem is where to locate or how to measure the informal sector, so the question arises what if this is not essential, as is being able to redeem their potential to contribute to its transformation In this sense, Miguel Labacana (1991) states:

While the informal sector remains merely an object of study which is devoted to explore the genesis, the conceptualization, without fully understanding its mechanisms of reproduction and the problems that this entails, its role will remain limited.

4. Causes of the Origin and growth of the informal sector

Throughout all the work we have been exhibiting extensively details the various causes and motives that determine the existence of an informal sector in the economy, therefore we consider necessary in this direction, only make a listing of situations that accelerate this phenomenon , and which we have spoken during this work.

a) The origin and the informal sector perspective as manifestations of a surplus of unequal endowments of capital and goods are the main factors that cause an imbalance in the labor market, which is manifested in the existence of the informal sector.

b) The oligopolistic nature of the modern sector enterprises requires the owners of these companies to reconcile the gigantism of their investments by choosing those techniques (production, administrative, and managerial) to enable them to simplify, to mechanize and automate their management to minimize the use of its scarce resource: The management capacity, at the expense of maximizing the use of capital. Therefore, more intensive activities in the use of capital are more attractive to investors in the modern sector. This process has consequences for income distribution and demand for labor. It is then that these strategies of oligopolistic firms determine the demand for labor is less than that posed by simple models of competitive markets. This is the main explanation for the existence of a surplus in the urban labor supply that is faced with the choice between informal employment, unemployment and the withdrawal of economic activity.

c) The conduct of modern business determines the segmentation of the labor market a significant number of workers who benefit from a share of the oligopolistic nature of the business income and other amounts, usually less significant but also of workers excluded from these benefits and forced to survive as they can in informal activities with low profitability.

d) The imbalance in the labor market where it is not possible to reconcile supply and demand, the different characteristics between them, is what has been called structural unemployment: the main feeder of informal workers. The presence of this component is undoubtedly important in generating a number of workers who are being marginalized in the market.

e) You can add to the problems of demand for temporary situations. Cyclical unemployment is generated as a result of cyclical changes in the economy often go through from time to time, which tends to be minimized during periods of high activity.

5. Conclusions

Discussions on the phenomenon of the informal economy are far from exhausted, even more so when taking into account that informality is a feature of capitalist societies.

The growth of the informal economy has paralleled the rise of the crisis of international capitalism on a current system that is capable of employment absorption rather low, as compared to reality, limited investment in preventing the establishment of new generators work and the possibility to enlarge the already bulging bureaucracy of the States, is reflected in an imbalance between supply and demand in the labor market, so we’ve seen unemployment as a result of this crisis, trying to see the informal sector as a solution creed by the population to counter the serious economic and social effects.

As has been observed in this research, the analysis was driven primarily by macroeconomic level, being understood that this level of analysis, there are still many questions to be clarified in this veritable maze in which people are caught living a instability, insecurity, low incomes and low satisfaction of basic needs, they launch into the adventure of entering the informal sector, where any benefit is obtained through the direct effort and not the welfare State concerned.

One should understand that the country’s development is not a wish can be made by law or decree, or the spark of wishful thinking, but in a long and courageous collective process that must involve all the forces shaping society

6. Bibliography

Cato Institute for Economic Development in the Americas. Available on the Web:

National Institute of Statistics (. Ist Semester of 2001) Executive Summary of the Status of Force. Venezuela.

North, Douglas C (1994) Potential and disadvantages of developing countries in the era of globalization. Videoconferencing. University of Oxford.

Ramirez, Tulio (1998) How to do a research project. Caracas. Editorial Tulio Ramirez.

Torcuato Di Tella (1990) Dictionary of Social and Political Sciences. Puntosur editors, Argentina.