Workers in informal economy need say in global environmental agendas

A world where disastrous climate change is avoided, ecological and resource limits respected, and poverty alleviated will require a different economy. This will mean finding new ways of working – and recognising the limits of the formal economy, as Gordon McGranahan and I explored in a paper just published in the journal Habitat International.

One solution proposed by international agencies is to green the economy by reorienting markets toward more sustainable economic activities. But this green economy agenda risks undermining social and environmental imperatives by assuming that it can just deal with the formal economy.

The majority of the world's population depends on the informal economy (PDF) for employment and income. This is especially the case in the most rapidly urbanising regions where considerably more than half of non-agricultural employment is informal – 82 per cent in South Asia, 66 per cent in sub-Saharan Africa, 65 per cent in East and Southeast Asia.

Informal economic activities are highly diverse, and their varied relations with formal enterprises add to their complexity. Such activities display enormous variations in environmental performance as well – for example, waste recycling versus lead pollution caused by battery reconditioning.

The sheer scale and diversity of the urban informal economy presents enormous scope for engagement in the green economy transition. If green economy initiatives continue to ignore it, not only will these opportunities be lost, but there is a risk that environmentally destructive activities will be pushed into the informal economy.

Alternatively, if a regulatory approach designed for the formal economy is imposed and enforced on the informal economy, there is a risk that the livelihoods of already disadvantaged workers and small business operators will be undermined. 

Risks of ignoring the informal economy 

Though there is no clear line between the formal and informal economies, greening the latter requires a new approach, especially given current tendencies to use regulations to harass enterprises that are engaged in environmentally destructive activities.

This can lead some of them to migrate into the informal economy. In some cases this may simply be the result of economic competition, and the advantage informal enterprises gain from not being effectively regulated. In other cases, formal enterprises may actively seek out ways of shifting to informal enterprises those parts of their supply chain whose costs are much lower if environmental regulations are not followed. 

The use of the informal economy to circumvent regulations is not uncommon, and gives the informal economy a bad name. Companies that obey the regulations understandably object, claiming it is unfair competition. 

Given a serious attempt to transition to a green economy, the informal economy will not be ignored indefinitely if it does attract environmentally damaging activities, and may lead to more vigorous regulation.

Regulating to be green risks being socially destructive

People working in the urban informal economy are often harassed for not conforming to regulations. But the immense scale of urban informality – including where people live and how they generate an income – is the result of a growing gap between existing regulatory frameworks and the socio-economic realities of the urban majority.

This gap reflects regulatory regimes designed for cities that policymakers would like to have, but that much of their population cannot afford.

A reliance on the same kind of regulatory regimes to green the economy would only widen this gap, especially if these regulations are designed with the needs of higher-income groups and larger formal enterprises in mind.

Regulations have a role to play in greening the economy, but also in supporting economic opportunities for the poorest workers and the smallest informal enterprises. To achieve this, regulatory systems must be adapted to better reflect local capacities and socio-economic realities.

In cities where informal economic activities are ill-suited to such systems, urban authorities must engage in alternative, more collaborative ways.

Co-design is the way forward

Informal workers and enterprises must co-design their way into the green economy agenda in collaboration with local authorities. And it can happen – for example organisations formed by waste pickers across Africa, Asia and Latin America are building partnerships with urban authorities to claim their economic rights as green workers.

Women affiliated with Slum/Shack Dwellers International are leading upgrading projects in informal settlements that reduce the environmental problems that affect the labour force and small enterprises; address the development deficits that underpin climate vulnerability in the home, workplace and neighbourhood; and create employment and skills development opportunities for low-income communities. Women's savings groups are also providing micro-loans to small enterprises run by poor women and men.

These initiatives show how informal workers and local authorities are already collaborating to achieve economies that are not only greener, but also more inclusive of disadvantaged women and men.

They also demonstrate the value of supporting women's unpaid reproductive work outside the market (including community organising and strategising around environmental improvements) in achieving this transition. Such support can be adapted to address pervasive gender inequalities in the informal economy, including the severe time poverty women face.

Currently, most governments lack the capacity to co-design the green economy agenda with informal dwellers/workers and urban authorities. They may also not have the experience to engage constructively with the informal sector. In many cities and towns, there is very little good information on this sector, let alone its environmental qualities.

This needs to change. The transition to a greener, more inclusive economy depends on it.

Donald Brown (d.brown.11@ucl.ac.uk) is a consultant in IIED's Human Settlements Group and PhD candidate at the Bartlett Development Planning Unit, University College London.