JOHN D CONROY
CANBERRA - In my recently-published book, The Informal Economy in Development, I have tried to explain what ‘informal economy’ means, and why it matters for Papua New Guinea.
Economic informality is often misunderstood and disrespected. My book argues that many kinds of informal economic activity are socially-useful.
They should not be banned and informal workers should not be treated unfairly.
Government departments responsible for PNG economic policies should welcome the growth and diversification of socially-useful informal activities.
And if economic informality infringes any of PNG’s laws and regulatory requirements, then perhaps those laws and requirements should be reconsidered.
At this stage in the history of PNG, with its relatively low level of economic development, I believe the informal economy is still too small, not too large.
First we should understand what is meant by the terms ‘informal economy’ and ‘economic informality’.
Most people in modern PNG have only limited and unreliable access to cash income. Only a few find ‘formal’ jobs with regular incomes.
Fortunately, most families still have access to some agricultural land, so that growing some (or most) of their own food helps them to ‘get by’.
Some rural people have land suitable for cash crops and are close enough to markets to earn some cash. Others pick up cash by working casually for wages on larger land-holdings.
Some have enough resources to set up in bisnis, including trucking and transport, processing and trading in cash crops, livestock rearing and a variety of service activities.
A small number of rural workers also have access to formal wage-employment.
Formal employment means they work for someone who reports their status to government, observes employment regulations and sends income tax payments to government for them.
Many rural families receive income from more than one economic activity. Many also benefit from remittances sent by relatives working elsewhere in PNG.
Rural households put together portfolios of economic activity which give them support by drawing on a number of sources of income.
A typical household portfolio will include some subsistence production (food grown for consumption at home) and some cash-earning activities.
These may be formal activities – for example the salary of a household member who is a teacher or council-worker, or the profits of a business owner or cash-crop producer large enough to pay income tax. But most rural cash earnings are likely to be informal.
Rural informal activities are not measured adequately by government officials.
Government has some idea how much coffee (for example) is grown by smallholders, how much produce is sold at various markets, and how much alluvial gold is panned in streams by informal miners, but estimates of earnings from these are guesstimates.
Between the subsistence farmers (at one extreme) and the tax-paying business owners and formal employees (at the other) there is a huge rural informal economy, whose size is difficult to estimate.
It is called informal because it occurs largely outside the reach of government regulation. It is not enumerated – meaning it is not measured adequately. It is not counted accurately in PNG’s Gross Domestic Product (GDP) and nobody really knows how big it is.
Rural informality is only part of the picture. There is also an urban informal economy, providing incomes which help most urban dwellers get by in towns, where formal jobs are scarce.
A job is formal when it occurs within the framework of government regulation. Formal workers are protected by legislation and are eligible for a range of employment-related benefits (sick leave, holiday pay, superannuation) while also paying income tax.
But informal workers, who are self-employed and/or involved in household economic activities, have no employment rights or legal protection.
They are not counted (enumerated) in the national workforce and what they produce is – at best – only guesstimated for inclusion in the GDP.
When comparing formal and informal workers we can see that formal workers operate in a structured workplace environment with standard working hours. By contrast, informal workers work wherever and whenever they find opportunity, and for as long as they can.
As we have seen, the labour of formal workers is measured in the GDP, whereas what informal workers produce is not adequately counted (unenumerated).
But not being counted doesn’t mean their work is unimportant. The informal economy puts food on almost every dinner table in Port Moresby and other urban places.
This story of a binary distinction between formal and informal workers has become more complicated in recent years, because a new group of wage-earning workers is emerging.
They are hired by private sector employers – often recently-arrived Asian entrepreneurs – on conditions inferior to those set out in employment regulations.
Called unregulated employees, they are members of a precariat – an insecure workforce – mostly found in retailing and construction jobs.
Since the newer employers try to hide their activities from government their workers are un-enumerated.
This unfortunate situation is due to three factors: population growth, stagnant job creation in the formal (non-mining) economy, and the State’s incapacity to enforce workplace registration and keep track of foreign immigrants.
More rapid economic growth and more effective regulation would convert many of these precarious workers to formal status, providing them with legal protections.
Just as happens in rural areas, urban households in PNG have portfolios of economic activities. Some family-members may hold formal jobs while others are informally-engaged.
Many individuals with formal jobs also have sidelines which earn them some extra, informal cash. Informal activities include many forms of trading (and re-trading), food preparation, provision of shelter and a growing range of services.
However not all goods and services exchanged informally are legitimate or socially-desirable. Criminal activities – including theft, robbery and bribery – are an important element in both the urban and rural informal economies.
Such activities are not defended here. Crime is a law and order problem, but creating opportunities for unemployed persons to earn money through legitimate informal activity is part of the solution to economic crime.
Better still would be for government to create opportunities for formal employment. But it will be generations before PNG’s economy is in a position to mop up all informal workers into formal jobs.
My book takes an historical approach to these problems, to explain how PNG arrived at its present situation.
The story starts with the arrival of European influence in the German, British and Australian colonies which became modern PNG.
European traders and officials were responsible for introducing Melanesians to ‘the market’ – a completely unfamiliar system of monetised production and exchange.
By becoming engaged in market transactions Melanesians were linked into an international trading system.
This was a system for which they were ill-prepared, although in German New Guinea their adjustment was assisted by the activities of an immigrant community of Chinese artisans and traders.
My narrative is set in three colonial urban centres and their respective rural hinterlands, focusing on how native peoples in and around Rabaul, Port Moresby and Goroka struggled to accommodate themselves to rapidly changing economic and social circumstances.
In an epilogue to the book I examine the present status of informal economic activity in PNG, and consider informality’s potential to provide better livelihoods for the nation’s people in future.