ENDOGENOUS-ALTERNATIVE PRODUCTION IN LATIN AMERICA AN ALTERNATIVE HYPOTHESIS TO INFORMAL SECTOR ANALYSIS Nchamah Miller OCT 2008
Nov 18, 2015
ENDOGENOUS-ALTERNATIVE PRODUCTION IN LATIN AMERICA
AN ALTERNATIVE HYPOTHESIS TO INFORMAL SECTOR ANALYSIS
Nchamah Miller
OCT 2008
ii
Abstract
The hypothesis proposed in this thesis advocates the view that capitalism as a
system of production is undergoing drastic changes which affect the current
economic and political conjuncture and indicate a transition away from
capitalism. This thesis examines those changes which occur at the level of
history which support this thesis and correspond to mutations to material
social relations as they manifest specifically in regard to agrarian areas. The
historical period examined is the last quarter of the 20th century and beginning
of the 21st as it relates to these social relations of production in Brazil, Bolivia,
Colombia and Mexico.
The purpose of this work is to propose a different conceptualization of relations
of production that more adequately describes the areas examined and which
the author refers to as endogenous-alternative production. This hypothesis
stems from a critique of the work by Hernando De Soto and Victor Tokman in
relation to the informal sector in Latin America.
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Dedication
Table of Contents
1.0 Introduction ....................................................................................................................................... 1
2.0 Approaches to the formal sector and contemporary capitalism ..................................................... 10
2.1 Rethinking Capitalism and the ex-capitalist transition ................................................................ 11
2.2 The Formal Sector ........................................................................................................................... 22
2.2.1 Part A Hernando De Soto and the Formal Sector ......................................................................... 22
2.3 Beyond Regulation Tokman and PREALC .................................................................................... 30
3.0 The discourse of the informal economy .......................................................................................... 37
3.1 Genealogy of the conception of the informal sector.................................................................... 37
3.2 A new institutionalist view of the informal economy de Soto ...................................................... 44
3.3 Tokman and PREALC beyond regulation the informal economy ............................................... 55
4.0 Endogenous-alternative production: making the case in Latin America 69
4.1 Khra ............................................................................................................................................... 71
4.2 Endogenous-alternative production ................................................................................................ 76
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4.2.1 Adjunctive Processes ....................................................................................................................... 78
4.2.1.1 Goods in endogenous-alternative production 80
4.3 Social Protest Movements ............................................................................................................... 85
4.3.1 Bolivia - adjunctive processes and violent de-commodification given the retreat of
capitalist production in areas or sectors considered non-profitable ............................................... 89
4.3.2 Brazil collective struggles grounded by social protest movements whose material
base has a long standing endogenous-alternative production ....................................................... 92
4.3.3 Colombia the trans-acculturation of capitalist consumerism ................................................... 93
4.3.4 Mexico - non-commodification effectively sustained through cultural, traditional and
new social practices ........................................................................................................................ 96
4.4 Conclusion ....................................................................................................................................... 99
5.0 Post-scriptum ................................................................................................................................ 100
6.0 References ..................................................................................................................................... 108
List of Tables
Table 1: Sectors of the informal economy: ...................................................................................................... 49
Table 2: Population and hours worked and informal sector contribution to GDP ...................................... 50
1
Introduction
An integral component of the work in this thesis which corresponds to my critique of the discourse on
informal sector/economy derives from the following general statement:
An alternative more nuanced theorization of capitalism and levels of analysis1 points against a
reductionist view of economic and social exchange in the manner articulated in informal sector/economy
analysis because this analysis does not capture either the effects of complex political processes, nor does it
differentiate between these and normative regulatory and legal institutional conditioning, in short: prevailing
informal sector/economy analyses do not contemplate any ramifications in these relations which arise out of
non-capitalist goods and service production.
The kernel of my task in this thesis is to provide a framework which problematizes current conceptions
of capitalist accumulation. This will provide me with the theoretical grounding to engage in an analytical
refutation of several aspects of the theoretical models contemplated by Latin American Informalists, mainly
Hernando de Soto (De Soto 1989; De Soto 2002, 273) and Victor E. Tokman (Tokman 1992; Tokman 2006, 13).
In respect of their conceptions of the formal sector, this also involves an examination of their specific
methodologies and specific taxonometric formulations for the informal economy.
I believe my contribution in this thesis consists of both my effort to challenge the conception of the
informal sector and in theorizing a new schema of endogenous-alternative production which I locate
historically in Latin America (since this is my area of current research and which also coincides with that
investigated by both de Soto and Tokman during the same time period, the last two decades of the 20th
and
first decade of the 21st
century). The order of the chapters in this thesis follows the outline of my argument. I
begin Chapter 1 by presenting a working hypothesis only; since it is beyond the scope of this thesis to give a
1 I use levels of analysis in the sense developed by Robert Albritton and the Unoist Marxian school of thought
(Albritton 1991a).
2
theoretical explication for what I deem constitutes the current stage of capitalist accumulation. In reading the
work of several Marxist thinkers, this led me to further consider whether, as a result of drastic changes in the
patterns of accumulation of capital, this signals a different stage for accumulation. I answer this in the
affirmative, on my part, and then I look closely at the work of several Marxist thinkers who have commenced
theorizing an ex-capitalist transition, or aspects of it, which could relate to this category.2
Although initially it may seem a severe contradiction in my argument, since I constantly refer to the
term capitalism, I respond that despite falling within the camp which theoretically examines this ex-
capitalist transition it is a completely different matter because when engaging at the level of historical
analysis we examine how capitalist relations operationalize the logic of the expansion of value. Hence, in
this thesis when I refer to capitalism I am referring to the social relations which attend to a political-
economic analysis at the level of history. In other words, the point which I endeavour to defend is that there is
a vast conceptual difference when theorizing the ex-capitalist transition at the mid-range level of analysis to
punctuate the differentia specifica of different stages of accumulation. Nevertheless, the analysis of what
occurs at the level of history is quite distinct and even though we can theoretically posit an ex-capitalist
transition, still, at the level of history, social relations may display the retracted effects of a previous stage of
accumulation. This is simply because the breaks in periodization are not clean and are in fact historically
diffused over periods of time.
At the level of history, social relations refract the logic of the expansion of value by the intermediation
of autonomous practices embodied in ideological, political and legal institutions (for example, the power of the
state is used to give legal sanction to a set of property relations). How this logic refracts in history depends on
2 I try to give the reader an idea of what this transition very generally entails but I do not go into an in-depth
formulation and analysis of the ex-capitalist transition since this would be a work which be would required in
a lengthier treatise. I refer the reader particularly to the work of Thomas Sekine, John Bell and Richard Westra,
although I differ in terms of characterizing the specific of its periodization, but this is a theoretical point which
is of very minor relevance to the present discussion (Bell and Sekine 2001, 37-55). I am also influenced by the
theory of the fall of the profit rate in the work of Robert Brenner (Brenner 2006, 369).
3
the phase of accumulation, the type of nation state and the economic and extra-economic practices it adopts.
Close examination of previous stages of accumulation reveals how the logic of the expansion of value is
disrupted by all manner of social mediations (Albritton 1991a).
Following this rationale, I contend that this logic is even more disrupted in the current stage of the ex
capitalist transition. In other words, the expansion of value directly into social relations is further countered by
all manner of complex cultural, political, ideological and legal subjective manifestations that open possibilities
for changes not contemplated in previous stages of sustained accumulation.3 My analysis looks at whether
there are institutional practices which signal changes in these practices and if these can be attributed to a
dysfunction in accumulation, which I argue signal, but are not the causal factors which trigger the ex-
capitalist transition.
In the second section of Chapter 2, I look at the work of both de Soto and Tokman and their specific
conceptualizations of the formal sector. Here, I critically examine de Sotos argument that the informal
economy is constituted within a realm of illegality that acts to subvert the legal mechanism which prevents
access to the economic system (De Soto 1989, xx). In his view both the formal sector and informal economy
have been prevalent as institutions through out a long trajectory in history. Next, I expand on why, in Tokmans
model, legal regulation is the principal mechanism of regulation between the formal sector and informal
economies, which emerge on account of the fragmentation of the labour force, as a consequence of the crises
of employment brought by neo-liberal restructuring and, previous to that, the failure of the import substitution
industrialization (ISI model) in the global south.
In the last four decades, a growing number of analyses have been developed to explain modalities of
socio-economic exchange outside of wage relations, which have been attributed to self-provisioning, micro-
3 I should also make the point, naturally, that I am not arguing that the disruptions to the expansion of value
are causal to the ex-capitalist transition.
4
enterprise, or the black market particularly as these prevails in the global south.4 In Chapter 3 I look at the
genealogy of this body of literature and examine why the discourse of the informal economy engages with a
specific problematique5 which centres on explicating the socio-economic relations of populations living in
poverty in many regions of the world today.6 Given the recent explosion of analyses on this topic, and for
purposes of narrowing the scope of this thesis, I limit my discussion to what I believe are the two main
4 Along with other scholars, I use the term global south to indicate the economic disparateness in the third
world locally and at the level of the nation state, and also to indicate the political dependency of the global
south to the dominant global north. This conception allows integrating into the analysis the disparities which
also occur within the global north (for example, some areas of the southern states of the US, and the aboriginal
communities of Canada), which are also comprised within the global south. Therefore, the terms north and
south are not geographically limiting. A further nuancing is made by differentiating between third world
societies which are located in the global south, and fourth world societies which are located in the global north
although the term is also used to define absolutely impoverished nations in the south . For example Hoogvelt
also claims that the geographical polarization has been replaced with a social one (Hoogvelt 2001, 14-42).
5 Problematique or problematica is a word of Latin roots used in contemporary romance languages to express
the confluence of set of problems yet to be fully articulated, hence, it denotes the emergence of ideas, concepts
and contradictions to create epistemological foundations or to express, at another level, those conjunctural
problems yet to be analyzed (some of which may be in the process of yet being defined and explicated). A
problematic is, as it were, the beginning of a process of understanding and defining questions.
6 Competing conceptions of the social economy have been developed by other thinkers, for example Polanyi
(Mingione 1991, 85-87) prior to the concepts of the informal sector / economy which are sometimes used
mistakenly as homonyms for the social economy. Because the concept of social economy has been used within
very distinct frameworks and is not counter-positioned to a formal sector I am not including its analysis
within this thesis. The work on the social economy coincides in part with my analysis in that many of its
proponents position the social economy in relation to the social relations of capitalism but differs in that many
thinkers primarily use the concept in relation to the global north. A different conception of the social economy
is made by thinkers of Cuba and China, and an examination of these is also beyond the scope of this thesis
(Acevedo Fals 2006; Reyes Fernandez 2006). In Venezuela the conception of the social economy ties directly to
state policy and to constitutional and political changes to attain participatory democracy in progressive
changes proposed by the Bolivarian Republic of Venezuela (Navarro 2008). In Venezuela the concept of the
social economy also ties to work on endogenous development see footnote 10.
5
approaches which have emerged from the genealogy of the discourse - that of the informal sector and informal
economy7- with respect to Latin America and which are exemplified in the work of de Soto and Tokman.
Although Informalists8 and I share the same intellectual curiosity epistemologically, we position
ourselves very differently in relation to the problematique i.e. the lacuna in theorizing the socio-economic
relations of populations located theoretically at the interstices of the so-called formal sector by Informalists,
and viewed through the lens of a stage of capitalism in my case. Methodologically we also have different
approaches. First, Informalist analysis of the informal sector/economy is, with very few exceptions, based on
direct empirical analysis. This quantitative analysis is at the same time automatically delimited by the
ascriptions of criteria derived from normative readings of the informal sector. Second, spatially locating
(through a priori criteria), and further categorizing populations constantly displaced (as are those living in
poverty in the global south) merely reflects control groups used in defining statistical population records but
cannot render a reading of the complex factors which vitiate these relations.9 Over and above these
7 By discourse I refer to the all the literature, debates and critiques, pamphlets and media coverage in every
language in which the terms informal sector/economy are appropriated, but in many cases this is characterized
by a lack of a shared approach. Only in a few attempts have there been efforts to frame research within an
explicitly constructed theoretical framework and, in general, most of the discussion has taken place to the
measure that the term has been inserted into language practices but through different signifiers. Chapter 3 is
dedicated to this discussion.
8 In this thesis I use the word Informalists to signal those thinkers, researchers and, in general, proponents of
both the conception of the informal sector or economy. Informalists do not differentiate between either of
these standpoints.
9 Bourgeois economists have admitted to this problem: This discussion of alternative perspectives on
informality brings into sharp focus the question of the most appropriate way to define and measure the
informal sector. This is a question which has attracted little or no detailed attention in the literature. The
purpose of the present paper is to attempt to redress this. This lack of attention may arise from the paucity of
data on a sector which by its nature is problematic to define. Thus researchers tend to fall back on the
pragmatic and judicial use of data on employment status and sectoral affiliation. There is little discussion of
the sensitivity of any conclusions drawn to issues of measurement and definition (Rossini and Thomas 1990,
125-135). Also, *t+he size of the informal sector can be estimated differently depending on how the concept of
informality operationalizes and what empirical information is relevant and available for the particular purpose.
The information below presents general guidelines on informal sector measurement as well as examples of
6
methodological considerations, the main thrust of Chapter 3, however, is to look at what account de Soto and
Tokman give of the informal economy. In the main, de Soto proposes that the informal economy is constituted
within a realm of illegality and the black market through specific institutions in modern society and has been
prevalent throughout a long trajectory in history. Tokman, on the other hand, argues that this informal
economy emerges in modern society given contemporary social relations and ties to the market and wage
relations mediated directly by legal regulation.
The last section of Chapter 3 signals why, unlike Informalists, I do not use quantitative data, primarily
relying on a reading of historical records gathered by contemporary historians who do not emphasize
quantitative methods in their work. I believe the advantage in approaching the problematique through
historical records allows me to pose wider questions which are not limited to specific data and therefore
confined to taxonometric criteria. Curiously, and although in general terms we necessarily reach different
conclusions, I have found points of commonality. In particular I can say this of de Soto: in his work he questions
the sole mediation of relation by an extraneous normative regulation (the state) and proposes other vectors of
analysis particularly internal (to the informal sectors) such as cultural norms and their inter-relation with state
normative apparatus.
While I also posit a dominant structural relation, capitalism, this does not correspond to a dominant
variable. The category which I propose as an alternative to the informal sector/economy - endogenous-
alternative production - derives causally from a multiplicity of factors reflected from the social relations of
capitalism. The general term of reference in my approach is only limited by the questions I ask and which touch
directly on those aspects derived from the problematique i.e. the analysis of socio-economic activity of social
actors living in poverty in different socio-topographical spaces at the interstices of capitalism, specifically in
Latin America.
empirical work where the estimates of the size of the unofficial economy and informal sector were used (The
World Bank Group 2006).
7
The work of Informalists, both theoretical and empirical, has reaffirmed my view that in contemporary
society, when looking more closely at the data available on informal sector or economies, there are clear
indications of the configuration of what I call endogenous-alternative production10
. Ironically, there are
indications of clear political activity present, yet latent, in Informalist analysis. Political activity is not weighted,
given their specific quantitative methods. However, their research shows that in informal economies there are
clear patterns not only of political activity but that, in fact, such activities tie to non-capitalist goods and
service production (de Sotos work particularly provides fascinating examples of this, which I expand on in
Chapter 3.)
Granted, these inter-relations appear to be of minor interest to Informalists who, instead, focus their
work on describing these so-called subsidiary economies in terms of the degree of delimitation by legal barriers
and income creating activities. Thus, in general, any expression of non-conformity, or struggle, against the
state legal or labour regulatory apparatus is deemed by Informalists to be a social response directed against
legal barriers to gain admittance within a formal sector. Informalists do not conceive these manifestations of
political struggle to be against historic manifestations of political and socio-economic institutions which refract
the logic of profit within relations in history. On elaborating the thesis on endogenous-alternative production, I
propose to make this differentiation clearer and suggest that in the normal course of events, at any given time,
economic exchange is embedded within predetermining political relations (not only in terms of non-capitalist
goods and service production) as it attains in the global south.
The problem that I then face in chapter 3 is how to frame the potentiality of endogenous-alternative
production in analytical terms that can be articulated with the theoretical framework offered in Chapter 2. The
analysis and critique of the discourse of the informal economy led me to consider the following questions. How
10 The term desarrollo endgeno (endogenous development) is quite different from what I propose in my
theory on endogenous-alternative production. Endogenous development ties either to bourgeois conceptions
of development or, in the case of Venezuela, to alternative forms of development that tie directly with
proposed changes to state policy as it attends to internal development and market relations in general (Ochoa
Arias, 2005, 1).
8
and to what extent does capitalism penetrate non-capitalist goods and service production? Does there exist, at
the level of history, a new schema of production for populations located in the global south and how does this
link with capitalist commodities in terms of inputs and outputs?
I also had to look at providing a theoretical explanation for unaccounted changes in patterns which
social relations were evincing if even a scintilla of credence were to be given, while not necessarily ascribing to
the arguments or conclusions offered by Informalists, but which some of their data provided. However, I was
led to reflect that if, on the one hand the hypothesis of the ex-capitalist transition had some value, and if
historical data (as well as empirical data) signalled the opening of new social spaces, there was a conceptual
need to provide a theory of whether a new schema of production is in the processes of emerging - this is what I
call endogenous-alternative production. This theory flows from the question which asks whether, to the extent
that social actors at the interstices of the global south have devised an alternative schema of production, this
can be understood as a collective social response to a confluence of a complex economic, cultural and political
practices which is also located within a matrix of hierarchies derived from cultural mores and practices.11
In chapter 4, I present my thesis on endogenous-alternative production with three purposes in mind:
(a) to answer the questions I believe touch on the problematique investigated in the informal economy
discourse; (b) to undertake a comparative analysis between endogenous-alternative production at the level of
history (because I believe this roughly corresponds to the empirical analysis of the informal economy in
Informalist approaches); and (c) to argue against the rationale which explicates socio-economic relations in
terms of what I deem to be a taxonometric straight-jacket in social analysis in the last two decades of the past
century and the beginning of the 21st
century in Latin America. The basic assumption taken in my general view
is that new relations of production are emerging at the sites where capitalism did not fully penetrate societies
such as those located in the global south. The question is how, at the level of history, does this inhere in
11 For example: patriarchal, matriarchal and racial conflicts due to cultural practices of age privileging and age-
or ethnic discrimination.
9
endogenous-alternative production and which adjunctive processes arise on account of two conflicting
tendencies in the global south?
As a partial response, my argument contends that in these new spaces complex political activities also
contain inherited cultural conceptions of ethical relations and given that many social actions are mediated by
these imperatives (which generate both political and ethical motivations or constraints) this may cause
contradictions or conflicts in interpretations of normative structures (the case of the cultivation of, what has
been branded as illicit crops in Colombia and Bolivia is an example which is expanded on in Chapter 4). To
explain the mediation between endogenous-alternative production I develop another concept, adjunctive
processes. I use this concept to: (a) denote that there is an articulation and mediation between endogenous-
alternative production, and the contradictions which arise from market relations, specifically those which
attend to the links with capitalist commodities, as inputs, and refraction (see chapter 2 for a definition of this
term) and of capitalist institutional practices; and (b) to explicate and compare modalities of production such
as non-capitalist goods-and-service production and capitalist relations of production.
Historically contextualizing endogenous-alternative production requires punctuating how it differs
from non-capitalist goods and service production and I give examples of this taken from Brazil and Mexico. I
will attempt to expand on this general argument and give examples taken from historical analysis of Bolivia,
Brazil, Colombia and Mexico from the work of several Latin American historians.
The concluding Chapter 5 will be more in the line with a self-critique of the task I have attempted in
this thesis. I, therefore, am the first to concede that this is a first very general attempt to offer an alternative
conception to the discourse on the informal sector/economy: and, therefore, is a completely different approach
to the analysis of the complex changes taking place in the socio-economic relations of those peoples who
through civil war or famine (or other natural or social causes) the United Nations considers to be displaced
persons in contemporary Latin America.
10
Approaches to the formal sector and contemporary capitalism
The rationale behind this chapter is that rather than making a quantitative/qualitative assessment of
each potential area of study (the informal economies), I first look at the arguments which ground the formal
sector and how these a priori assumptions embedded within them apply to the later inscription of the
informal economy.12
My purpose here is to examine the hypotheses presented by Hernando De Soto and
Victor E. Tokman and their theories touching on what dominant social relations attend to economic enterprise
and how these are configured within the last quarters of the 20th
century in Peru and Latin America in general.
I focus on their explications of the type of mediations within the formal sector, and how they theorize modern
society and the economic conjuncture in elaborating their specific theoretical frameworks and its application
to their particular conceptions of the informal economy. At the same time, I use this discussion to punctuate
why and how our approaches differ and the implications of these differentia specifica in the work of De Soto
and Tokman on the formal sector and mine on the contemporary phase of capitalism.
Since I will be comparing each of our respective theoretical frameworks I begin this chapter with a
section on rethinking capitalism, and I present my hypothesis on capitalism as part of my review and analysis
of what I believe are the limitations of the formal/informal paradigm. My purpose is two fold. First, I will
present a hypothesis on the consequences of what has been referred to by some Marxist Unoists as the ex-
capitalist transition based on the argument that in order to begin explicating the dramatic changes which are
taking place at the interstices of capitalism, generally the global south and specifically Latin America, the
possibility that we have entered into a phase of ex-capitalist transition should at least be contemplated.13
I
12 In Chapter 3 I shall engage in the differentiation between the informal sector and informal economy.
13 By ex-capitalist transition I refer to a very long transition and I do not mean that all of a sudden the
practices and institutions of capitalism cease to operate. What I wish to signify is that deep struggles emerge
against these and slowly their effectiveness withers. The social relations and processes which aid the
momentum of capitalist logic are slowly becoming ineffectual and have ceased to be effective, particularly at
its weakest point (where it has been least strong), and specifically in areas at the interstices of capitalism. But,
11
discuss these aspects in the first section of this chapter by engaging in a discussion of the economic
conjuncture, explaining why the logic of the Law of Value does not fully penetrate social relations at the level of
history and even less so on those relations at the interstices of capitalism (in this case Latin America).14
The last
section addresses my second objective in this chapter which is to examine and contrast the theoretical
frameworks advocated by Hernando de Soto and Victor Tokman, particularly, since both examine the same
problematique as outlined in Chapter 1, but offer opposing renditions of what constitutes the relations of the
formal sector.
Rethinking Capitalism and the ex-capitalist transition
The conception of capitalism utilized here suggests that the logic of the expansion of value only
refracts, and does so unevenly, at the level of history, contingency and need.15
Part of the problem with other
perspectives like De Soto and Tokmans arises because they fail at least to make a distinction between an
abstract level and relations at the level of history. On their part the universal and the particular are articulated
as part of the lived reality and when they speak of for example modern society or the formal sector, even the
informal economy they actually wish to imply that although this may sound abstract it is the organic and
natural formation of contemporary human relations. Naturally, in the chapters that follow in this thesis I
as can be expected, what grows stronger, for a while, is the US military complex (which aims at truncating the
emergence of other social schemas of production), until the economy can no longer supply the resources to
prolong the sustainability of this complex.
14 I am not the first Latin American to engage in this debate. Ernesto Guevara, during the 1960s, participated in
a critical debate on the workings of the Law of Value in societies in transition, and this led to what in Cuba
became knows as el gran debate. Also, Guevara was very attentive to Marxs discussion on phases of
transition in his later years when discussing Russia (Guevara 2006, 31-33).
15 Again this was part of the great debate in Cuba: the extent to which social economies refracted the logic of
the Law of Value and could interfere or circumvent with its workings. In this debate the works of Rosa
Luxemburg and Nicolai Bukharin were hotly debated (Mora 2006, 17-28).
12
intend to dispute this methodological reductionist artifice and the reader will decide whether my argument
deserves consideration.
Whereas, in the approach advocated here, we can theoretically conceive that capital accumulates on
account of the logic of the Law of Value: yet, to explicate how this occurs at the level of history, requires
separating the conception of this logic from its reflection in the materiality of social relations. One of the
advantages of this approach is that there is an allowance made for the complexity of other human motivations
and contingency.16
In the Unoist approach, which frames my analysis, there is such a separation between the
epistemology of each of Marxs categories in Capital and that which we aim to observe at the level of history.
The work of this thesis pertains particularly to the level of history and political economy; therefore, I
will refrain as much as possible from engaging at an abstract level of analysis and the dialectical relation of
these categories proposed by Marx. The argument on the contemporary configuration of capitalism are made
at two levels: (a) the mid-range level which means an analysis of the relatively autonomous practices 17
in the
current stage (which involves an analysis of the US nation state and the ways in which it exerts its power as the
16 An example of how we explicate abstract mediations in contrast to understanding the mediations at the level
of history comes from Marx analysis in Capital. In chapters one and two he explicates the nature of the
complex opposition and inter-relation between value/use-value and exchange value as abstractions taken from
the circulation of commodities, but in order to explain their materiality he also provides a concretization of
their materiality by way of the commodity and the social relations of capitalism in history. His empirical
example is 20 yards of linen equal l coat are not merely to show a differentiation in materiality but to depict
how through in history relations of production have a materiality in commodities (Marx 1990, 125-187). At the
same time he expresses dialectically (abstractly) the relation between use-value, exchange value, and the
expansion of value. This abstract discussion pertains to what in Unoist thought pertains to the first level of
analysis, but in this thesis I do not contemplate an analysis at this abstract level and will be restricted to the
mid range level and the third level: that pertaining to history and political economy.
17 The concept of relatively autonomous practices allows specifying actions taken by capitalist institutions
(political, legal or ideological) to support or undermine capitalist accumulation at a specific stage of
accumulation and how these refract onto capitalist goods and services production (Albritton 1991a2, 32, 36).
This level of analysis is specifically useful because it stands in contrast to the institutionalist approach taken by
De Soto, and in the case of my work allows specifying those institutions pertaining to mid range level analysis
(eg.: eg. corporations, nation state policies) and those pertaining to specific historic instantiations, such as
trade unions and other politically constituted groups.
13
primary global hegemon),18
in order to establish the inter-relation between the hegemonic practices of the US
and the complex of economic and extra-economic relatively autonomous practices of nation states in Latin
America; and, (b) a level which grosso modo corresponds to the so-called informal economies, which I posit as
the history of social relations at the interstice of capitalism. At the level of history, particularly at the interstices
of capitalism, the expansion of value meets with all manner of social contradictions and barriers, and is
therefore not the sole constitutive factor of socio-economic exchange and production.
Non-capitalist goods and service production occurs where labour relations are not subsumed to
capitalist wage relations, and the means of production are necessarily owned by the workers. (I am hesitant to
refer to the manufacture in contemporary sites in the global south of this type of production either as petty
bourgeois production or even less informal sectors, for reasons which will become apparent in the analysis of
endogenous-alternative production, see Chapter 4). This can be readily seen from the following example. In the
production of goods at the interstices of capitalism, the manufacturing process may utilize mass produced
commodities (eg. the flour for tortillas) and the goods produced are either for self provisioning within small
communities or sold to outside merchant sectors and even directly by street vendors. Although the ultimate
good is made through non-capitalist labour relations, the inputs utilized (since they are produced by agri-
business) are bearers of the marks of refraction of the logic of profit and through this mechanism and money
exchange, non-capitalist good and service production is tied to capitalist production.19
This example is given to
indicate the latent refraction of capitalist penetration (through commodities) at the interstices of capitalism.
Looked at another way, the social relations of capitalism do not have an equivalent expression in non-capitalist
forms of production of goods and services, but they are often linked to them through commodity forms of
exchange, including money.
18 I prefer to use an understanding of the term hegemon offered by Brenner because it captures the subtleties,
along with the internal and external contradictions of the nation state which I find the term imperialism
completely elides (Brenner 2006, 248- 271-280).
19 I change this terminology to make specific distinctions in Chapter 4.
14
However, several questions come to mind with this illustration, starting with whether the flour is
crucially needed by communities for their survival, or whether they have alternative inputs to produce these
goods. To what degree is this is so? Can these communities find an alternate input which reduces their
dependence on capitalist commodities as inputs and how might these choices affect their social relations?
Another question is whether these exchanges organize collectives or only latently influence the actions of
members in which this production takes take place. While Marxs argument that commodity production is the
central organizing unit of capitalism applies to capitalistically produced commodities only (Marx 1990, 124-
177) it opens up another question relating to the degree that its logic of social relations penetrates
communities located at the interstices of capitalism.
The problem this thesis contemplates involves examining how and which barriers emerge to the
refraction of this logic in history at the interstices of capitalism, and addressing it requires locating the phase of
capitalist accumulation currently prevailing, the type of nation state characteristic of this phase, and the
economic and extra-economic practices the state adopts to facilitate accumulation in this phase. This analysis
necessitates a specification of the historical epoch being examined as well as engaging in a mid-range level of
analysis to examine how, through a given set of relatively autonomous practices, the Law of Value is
refracted onto the level of history. This also involves exploring the extent to which the economic sphere
remains dominant and how it imbricates onto political, ideological and legal practices (Albritton 1991a2, 32,
36). This approach to periodizing capitalist accumulation and disentangling the analysis of relatively
autonomous practices from the analysis of social relations at the level history is informed by the work of
Unoist Marxists.20
There are different positions with respect to periodizing the ex-capitalist transition,21
however, I
take the view that this occurred in or around the energy crisis of the seventies when the US hegemon readily
20 The work of Robert Albritton, John Bell, Thomas Sekine and Richard Westra.
21 I should point out that by ex-capitalist transition I refer to a very long transition and I do not mean that the
relatively autonomous practices, and institutions of capitalism all of a sudden cease to operate, what I wish
15
admitted that it could no longer rely on an inexhaustible source of cheap oil, and there was a veritable crisis of
confidence in the ability to maintain its consumerism.22
It is doubtful whether the US could continue to support
its internal consumerist automobile market based on the gas guzzling automotive industry it had developed as
its primary use-value for accumulation (Albritton 1991c, 226). Added to this, the oil crisis forced changes in
consumption patterns which affected the USs ability to compete with the European and Japanese emerging
automotive industries which had the technologies required for an automotive sector with lesser gasoline use.23
Actually, even prior to the 1980s and specifically after that period, the US entered into a downturn period
manifested historically by the drop in profit rates and characterized by periods of short equity booms and
bubble bursts (Brenner 2004, 57-71). In addition, the US was forced to re-configure its internal structural and
political state power dynamics because the economic crisis had also translated into a crisis of its authority
(Soederberg 2004, 62).
The deepening of the crisis occurred through the Asian financial collapse in the late 1990s which also
signalled an economic structural transition. As a consequence, I argue that a new political, though no longer
pre-eminently economic, hegemonic form has emerged which can no longer be consolidated entirely by the US
but requires the additional consolidated political power of the G-7. In an attempt to attenuate the crisis, the G-
7 slowly built the necessary economic institutions, politically attempting to reconfigure both their economic
and political domination through a global neoliberal apparatus. It aimed at re-imposing conditions favourable
to signify is that slowly their effectiveness withers, that capitalist logic penetration does not gather momentum where it has been least strong, specifically in the areas at the interstices of capitalism. But, as can be expected what grows stronger, for a while is the US military complex, until the economy no longer can supply the resources to prolong the sustainability of this complex.
22 I adhere to Albrittons periodization of the different phases of capitalism and his conception that the stage of
consumerism commenced broadly the 1920s to 1960s (Albritton 1991, b223). I but differ however on what is
happening in the contemporary phase.
23 This is a simplification on my part, in effect Japan and Europe adopted changes which affected not only those
between capital and labour but also the relation of technology in production. An analysis whether this
constituted the first move away from the Fordist production paradigm to post-Fordism, or whether this
suggestion is inaccurate is beyond the scope of this thesis. I thank John Simoulidis of York University for
pointing to my lack of clarity in this regard.
16
to accumulation through the mediation of the New International Financial Architecture (NIFA), which
developed out of the Financial Stability Forum (FSF), in part, by consolidating a set of international standards
and codes referred to as the Reports on the Observances and Standards Codes (ROSCs) (Soederberg 2004, 1-
28).24
The NIFA set of institutions did not alleviate the causes of the crisis (namely an absolutely
unsustainable and ferocious appetite for colonial natural resource extraction required for industrial production,
the decrease in GDP and excess capacity) and its measures were merely palliative, aimed at dealing with the
permutations and combinations of capital as it corporations fled from region to region, to and fro between
industrial, financial sector and banking sectors as multinationals rushed to impede the slide of industrial profit
rates in their investment portfolios. These machinations, in sum, gave the appearance of an overall increase in
accumulation (Brenner 2006, xxiv, 145, 159). And this gave the nation state architects of the NIFA the
confidence to believe that there was no crisis, especially not in the global north.
Sustainable accumulation in the global north required three fundamental material conditions without
which it is doubtful that, at this stage, bourgeois corporations could meet their input needs (but these would
nevertheless deepen the crises further), namely: (a) obeisant dependent nation states of the global south; (b)
the supply of cheap skilled labour (particularly for mining, communications and IT technology) and unskilled
labour (in maquiladoras for consumer goods) in the so called free trade zones producing mass non-essential
commodities; and, (c) the capture of these obeisant states as suppliers of natural resources to the global
north.25
24 I argue in Chapter 3 that the application of the conception of an informal sector becomes an intrinsic
component of this standardization.
25 In previous stages of accumulation the ransacking of natural resources was not tied to the sustainability of
the economies, nor accumulation, after that, in my opinion, the two oil crises of 1973 and 1979 demonstrate
that without this natural resource the economies of the global north would go into a tailspin dive. In the global
south oil exploration took place, at that time, mainly only by US corporations operating in the global south and
it was these corporations, not the states where these resources were located which now acquired the power
17
I contend that something is seriously amiss when neither the economic or extra-economic practices of
the US state nor the availability of growing opportunities for foreign direct investment (FDI) are sufficient to
even sustain even a semblance that these are a viable solution to their problems, and that these can no longer
be contained within their borders. To make matters worse, and under the pretext of the global war on
terrorism, the US has not been prepared to lose its ranking as the sole politico-military hegemon, and it
remains committed to flexing its military muscle to guarantee secure access to territories of compliant and
even non-compliant foreign nation states to further US colonial ambitions.26
All of these are causally related to
the implementation of neoliberal policies (this is, admittedly, a simplification of the problems because an
analysis of US geo-political strategies in the current phase of capitalist development is far beyond the purview
of this paper).
It is my hypothesis that after the 1980s, capitalism as the paradigm for the expansion of value finds
limited expression through the purely economic function of financial institutions and multinationals. Au
contraire, capitalist profiteering depends more and more on political and international legal institutions, as
well as military power, to pave the way for financial, banking and production operations, in order to make
actual and tangible profits (recent scandals show why some of the financial statements of US corporations
either mystical or virtual tales (Markham 2006, 742). Therefore, it becomes relevant to contemplate the
possibility that rather than entering into a new stage of accumulation we may be entering into a phase of ex-
capitalist transition (Bell and Sekine 2001, 37-55).27
I recognise that it is challenging to think in terms which
problematize the conception of the sustained accumulation of capitalism as usual, or the havoc and
within that region to decide where further exploration would take place, and that the formation of OPEC
served those interests, although in appearance OPEC functioned as a monopoly. The nation states of the global
south had not yet developed gas guzzling infrastructures.
26 I use colonialism because this form of power counts on the support of locals and does not require massive
movements of population of the dominant power which I attach to imperialism. I also use this term because
the word colonialism connotes resistance from those being colonized, again, something which may be lost in
the semantics of imperialism.
27 There are some differences between the periodization in my approach and John Bells and Thomas Sekines.
18
contradictions brought about by the neoliberal apparatus with the object of naturalizing market relations and
mitigating the effects of the current crisis.28
Nevertheless, it is my contention that thinking in these terms
allows problematizing the conception which equates capitalist economic production and exchange relations
with political relations such as the so-called new imperialism or the neoliberal apparatus to the relations of
capitalism and impedes an analysis of the degree to which relatively autonomous practices refract the Law of
Value and the degree of extra-economic intervention required on the part of political and legal institutions to
sustain accumulation.
I am quite cognizant of the voluminous work required to present a full argument on the ex-capitalist
transition and to keep matters within a reasonable length I propose presenting my argument in terms of the
following syllogism.29
If capital accumulation is unsustainable and if failing relatively autonomous practices
rather than alleviate, feed this crisis (particularly those practices attending to political, legal and ideological
articulations), then capitalism is not sustainable on its own logic, its own social relations or mode of
production. Therefore, either new practices emerge which lead to this transition or other efforts to restore
capitalism are undertaken which may further aggravate the waves of crises. It follows that if capital
accumulation is unsustainable and is fed by failing relatively autonomous practices (particularly those
attending to political, legal and ideological articulations) these must create dysfunctional mediations which
destabilize accumulation and investigating how these reflect onto each historic conjuncture helps us to
understand the nature of the ex-capitalist transition.
Assuming the above, capitalism as a social relation and system of production is showing signs of
fatigue and may even be no longer sustainable, but this does not mean that the capitalist webs of political and
28 I remember when I began work on this thesis and mentioned a crisis and recession and the merriment many
had at my suggestion that finally capitalism was showing structural cracks.
29 There are many other arguments which apply to theorizing the phase of ex-capitalist transition (Bell and
Sekine 2001, 37-55). My gratitude to Richard Westra who allowed me to read the draft of his work Political
Economy and Globalization (London: Routledge 2009 forthcoming) and which has been influential in the
elaboration of the hypothesis of the ex-capitalist transition.
19
ideological power and legal institutional arrangements protecting private property automatically cease to
operate. As a matter of fact, it leaves socially inerasable palimpsest of domination processes. This explains
why I argue that the transition is a long historic process which has many contradictions, especially ones that
even enhance the ability of different blocs of investment capital to survive. The difference is that once the ex-
capitalist transition commences to the point that relatively autonomous practices become more stringent and
corporations, government agencies, nation states will act as if the contradictions that emerge are natural
and can be controlled politically, the closer the waves of booms and bubbles. 30
This thesis has another corollary: when capitalism is viable, a set of relatively autonomous practices
(each depending on the phase of accumulation) are inserted to prop accumulation and these refract a
particular response into the third world such as so-called development programs. But if capitalism is no longer
viable, it stands to reason that the old set of practices can no longer reconstitute a failing economy and
therefore can no longer achieve the same results and therefore capitalist social relations become less and less
viable. Because of this, in the post 1980s era, capitalism as the paradigm for the expansion of value through
social relations, found limited expression through the purely economic function of financial institutions and
multinationals, and it had to depend on the authority of political and international legal institutions along with
military power to pave the way for financial, banking and production operations. Of course, there were profits
in some sectors but this is quite different from maintaining the magnitude of accumulation.
I contend that the result of this long wave of crises evidences the failure of the capitalist venture to
reconfigure such conditions which are propitious to its reproduction and all that appears relatively operational
at this juncture are stock market exchanges, which depend as they do on state economic policies, but these are
on a collision course with economic institutions (such as the fragility of the US banking system) and other
political and legal practices internal to the US. Since accumulation has, at the very least, been diminished, if not
30 The correlation between the oil crisis of 2008 and the managed drop of the US dollar coupled to the
increase of the price of oil is an example.
20
actually retarded, the US opts for political measures to stave off the waves of crises.31
What is important here
is the impact of such a crisis of accumulation onto social relations at the interstices of capitalism and the
manner in which its consequences diffuse into both the political and economic spaces of the global south which
is the area of concern in this thesis.
Truncated relatively autonomous practices refract new dysfunctional forms of mediation and link to
the level of history and impact negatively on those populations who bear the brunt of these crises. For example
the US Federal Reserve may believe it is in control of interest rates, but private Banks use this to their own
advantage and have gone on a spree of sub-prime non-collateral mortgage lending which defeat any policies
of the Federal Reserve. We can no longer afford to think in terms of accumulation as usual taking place
despite all indicators pointing otherwise. Although many contend that arguments for a transition are
theoretical straw men, the question is why is there evidence that we are arriving at a time when accumulation
is retarding and this is creating social havoc in many areas of the planet?32
The global south, however, is only
the recipient of the refraction of these inadequacies and the blundering of relatively autonomous practices
and what cannot be denied, even by Informalists, is that, as a result, dramatic changes have occurred to the
social relations in the global south.
In the consumerist phase of accumulation, the great divide between the global north and global south
became more pronounced (this can be established by the geometric distancing in the GINI indices between
advanced capitalist countries and those in the global south from the period 1960s -1980s and the figures for
today which indicate a geometric differential between them).33
I take the position that this shows the nature of
31 Certainly the work of Robert Brenner is ground breaking in that it anticipates such a possibility and it may be
a disservice not engaging more fully with his work but the focus of this thesis is at another level that which
pertains to the social relations at the interstices of capitalism (Brenner 2006, 369).
32 The fact that accounting practices of corporations have been conceived to show as rosy a panorama of their
accounts as possible makes this all the more sinister.
33 The GINI index reflects the ratios between nation states and their respective GINI coefficient. This coefficient
is a measure of income inequality, with 0 being everyone having the same income, and 1 being one person
21
the crisis in the ex-capitalist transition in which an even greater punctuated division grows between the global
north and south.34
At the same time, vested interests run so deeply engrained (whose influence will remain
secure, unless there is a general bankruptcy) that no one can hazard a guess as to how long the global north
will be able to sustain its ideological construct that both NIFA and Trans-national corporations are the vehicles
to achieve global economic growth and development.
NIFAs unwritten goal is to exert political domination over the global south through a union of
financial institutions, multinational corporations and the adoption of neoliberal policies by nation states.
However, the consequences of this union has had disastrous effects in the global south since the partners,
transnational corporations and neo liberal institutions, inevitably ran into a collision path in the global south as
they have attempted to neo-colonize (privatize) the area and pirate natural resources. Its legacy is a fatal and
chronic crisis of unemployment in the global south which is the thematic that opened the investigations and
research on informal sectors which I address in the following chapters.
In the first phase of the ex-capitalist transition, capitalist accumulation is no longer the means
through which, in and of itself, the social reproduction of vast populations now drawn into the web of
capitalism is secured, particularly in the global south. Given such a crisis, should this not alter the way we view
the changes which accrue in social relations in non-capitalist goods and services production given their inter-
meditations with capitalism in a full blown crisis? I argue that, in a very ironic way, the research which
spawned the discourse on the informal economy (although positing an alternative view to capitalism which is
viewed simply as modern society) has attempted to answer this question. In the following section I look at the
work of two Informalists whose work aims at answering this and other questions pertaining to the social
relations of displaced populations in Latin America.
having all income and everyone else has none. Data available from GINI: GINI index; UN: Data from the United
Nations Development Programme.
34 There are nuances between my appropriation of this concept and that proposed in the work of other Marxist
Unoists which are not relevant to this discussion.
22
The Formal Sector
In general, most approaches to the informal economy share a conception of a general formal sector
and particular site specific informal sectors which operate in tandem with the formal sector. However, there
are crucial differences between the different approaches to the formal sector, particularly with respect to the
following issues: (a) the nature of relations of the informal sector to conceptions of institutions; (b) regulation,
exploitation and human agency; (c) exceptionality portrayed as a social mechanism for a second economy
vitiated by legal structures; and (d) the types of gender relations comprised in the units of organization of these
sectors/economies. It is quite beyond the scope of this thesis to engage with all these approaches, and I limit
my work to the analysis of research by Informalists who engage specifically with elaborating a conception of
the formal sector and the apparatus of inter-mediation between the formal sector and the informal economy.
I will focus on the work of Hernando De Soto (working with the ILD) and Tokman (working with PREALC).
Although I disagree with many of their contentions with respect to the formal sector, I should mention that
despite my strong critique I am indebted to these thinkers because without their work I could not have
developed my thesis on endogenous-alternative production which I theorize in Chapter 4.
Part A Hernando De Soto and the Formal Sector
Simply put a new problematique emerges in contemporary attempts to explain what constitutes and
comprises the informal sector and integral to defining this set of problems is explicating the relationship and
linkages between the formal sector vis--vis informal economies. However much I may critique De Sotos work,
I recognize his attempt to delineate these relations at a theoretical level and to frame his case study of the
informal economy in Peru within that framework.35
In what follows I engage with three of the fundamental
35 In Chapter 3 I will explain why this had not been the practice in research on the informal sector.
23
concepts which delineate his conception of his dominant category of modern Peruvian society and how these
are articulated: the market, the nation state, and the formal sector.
Fundamental to De Sotos thinking is the notion that the market is a natural, homogenous, social
universal relation which ideally should harmoniously mediate the relations within both the formal sector and
informal economy, were it not for excessive legal barriers. Given these barriers, not only has there been an
impediment to the free market, but these barriers have also created extreme economic disparities between
modern society and the informal economy sectors. He makes two further points: first he argues that bad
laws act as barriers for the entry into the formal sector by any social actor not connected to the mercantilist
entrepreneurial formal sector or landowners (De Soto 2002, 189, 202, 208). Secondly he argues that Peruvian
society is far from being a market economy Peruvian society is configured juridico-politically by a mercantilist
nation state (De Soto 2002, 14, 201).
By mercantilism De Soto identifies the excessive legal regulation of the state as having precise
commercial redistributive and discriminatory purposes intended solely to favour the privileges of the
commercial and landed classes. This system is geared to maintaining levels of wealth, but does not generate or
reinforce the freedom of market relations. To a great extent, then, Peruvian mercantilism is not democratic
capitalism, but the epicentre for machinations of merchant monopoly activity aided by the state legal
apparatus (De Soto 2002, xx). Mercantilism is primarily a system centered on maintaining and arbitrating
between competing claims for monopoly merchant rights and which does not generate the freedom of
market relations. In other words, that which functions in lieu of the market is a bureaucratic mercantilist legal
state apparatus which has two main functions: (a) to administer state decrees and policies through the
mechanism of a redistributive super-bureaucracy which acts instrumentally to secure the interests of these
monopoly entrepreneurial merchants; and (b) to protect the commercial interests of the entrepreneurial
classes through the device of excessive dirigiste regulation. He argues that, in Peru, mercantilism has existed
and progressed since colonization by the Spaniards and is characterized by authoritarian law making; an
economic system in which the state intervenes directly; obstructive, detailed and dirigiste regulation for the
24
economy; poor or non existent enterprise for those who do not have close ties with the government; unwieldy
bureaucracies, and a population which organizes around distributive combines and powerful professional
organizations (De Soto 1989, 208).
In this view, mercantilism differs from market relations in that the former is comprised of specific
merchant and juridico-legal practices with a high incidence of commercial monopolies in collusion with the
nation states legal regulatory apparatus; whereas in market societies there is little regulation of the economy.
The formal sector emerged in Peru to the measure that Peruvian elites36
adopted European commercial
mercantilist practices and integrated mercantilism into the normative apparatus which functioned to protect
their merchant interests (Douglas North in (De Soto 2002, 177-179). In Peru, this sector has gradually
developed in conjunction with the criollo redistributive institutional tradition operating solely to protect
property rights of the merchant monopolies and the elite latifundistas (De Soto 2002, 202-210, 303).
On its part, the Peruvian state has developed a mechanism for a regime of governance by presidential
decrees utilized to control all aspects of the economy acting as a legal regulatory apparatus. Yet, De Soto is
careful to note the tensions between the formal sector and the Peruvian state. On the one hand, the formal
sector has been constituted through a mercantilist redistributive tradition and in this regard the role of the
state has traditionally been to arbitrate between competing mercantilist blocs of the formal sector. On the
other hand, the state, as an institution, has a long history of enacting economic policies and legal norms in
order to preserve the economic and legal interests of the formal elites. But the elites do not rely solely on the
state for arbitration and have separate institutions, which De Soto calls redistributive combines, used to
settle individual commercial differences and organize monopolies (De Soto 2002, 13, 26, 63, 189, 201, 242).
In many respects De Soto believes the social problems of Peru originate from the relation between the
formal sector and the mercantilist state bureaucratic apparatus on account of the barriers erected between the
36 They are the old business elite and commercial entrepreneurs, who De Soto calls formal business people
(De Soto 2002, 13).
25
formal and informal economies to the sole benefit of the formal sector (De Soto 1989, 133-188). He believes
the lack of social equity on account of the dominance of merchant elite monopolies and property is supported
by a tradition of bad laws and that the social problems in Peru can only be remedied if there are drastic
changes to these bad laws. This system of law is the main barrier to the market economy and any access to
this market would require completely revamping the regulatory state apparatus (De Soto 2002, 174 246-246).
In conclusion there are three important claims attached to De Sotos theory of the formal sector: (a)
that the social relations of Peru have not been penetrated by market relations (he avoids the term capitalism);
(b) this has been prevented by the regulatory barriers erected by the mercantilist Peruvian state; and (c) as a
result of the recombination of economic mercantilist practices and excessive dirigiste economic polices of the
state, the entrepreneurial elite has been successful in monopolizing private property interests to the point that
they have been successful in separately creating their own emporium and regnum to consolidate all aspects of
economic endeavour and exchange in Peru.
Explicating De Sotos standpoint requires pointing to his influence by, and appropriation of, the North
American New Institutionalist approach which basically defines institutions as formal or informal procedures,
norms and conventions embedded in the organizational structure of the polity. New Institutionalists assume
that individuals adhere to certain patterns of behaviour because any other alternative would make them
worse off (this is the equilibrium point): 37
also, they emphasize the highly-interactive and mutually-
constitutive character of the relationship between institutions and individual action (Hall and Taylor 1996, 938
and 948). De Soto is also particularly influenced by Douglas Norths approach to the historical development of
institutions on account of path dependency. Such paths are produced when the state administration adopts
norms, standards, and regulations which over time become entrenched to the point that they become social
habits. On account of this path dependency institutionalized practices are very difficult to alter. For this reason
37 This aspect will become relevant in De Sotos discussion of the informal sector in Chapter 3.
26
the formal sector is an integral part of the path which emerged in Peruvian society once they adopted
European commercial mercantilist practices (Douglas North in De Soto 2002, 177-179).
The first problem with this new institutionalist paradigm is that if, in general, everything social only
evolves into an institution as opposed to say social movements; then, De Soto is left to explain the nature of
market relations, production, and distribution only within the framework of their being institutions. A second
problem arises when he differentiates Latin America from western society in terms that westerners enjoy
freedom as economic agents to participate in market relations (whereas I would argue there is no such realm
of freedom). Thirdly, by positing mercantilism as the dominant relation which attends internally to Peru, De
Soto is left without a mechanism to explain power relations between the global north and south and the global
economy.
But De Soto finds an alternative theory to explicate market relations. He resorts to the artifice that the
market is the sole homogenous natural organic system in modern society and the vehicle to freedom and
democracy. By this ruse, all of a sudden the market is beyond critique (i.e. idealized) simply through his
claiming it to be the realm of democracy and freedom. In responding to this point I draw on my argument
respecting the refraction of the Law of Value to the mid-range level through relatively autonomous practices
(a quasi-equivalent to institutions) and in turn to a third level corresponding to direct political economic
analysis of history. Although De Sotos approach to institutions does have some valid points (the power they
exert is real), he is unable to disentangle the practices of these institutions at an analytical level from economic
and extra-economic practices. He therefore has to resort to idealization of the market because, unless he
resorts to bourgeois economic theory to explain the economic conjuncture (which he does not, other than
through his adoption of the concept of the informal economy) and thus he is left with the sole option of
idealizing these relations, in terms of the economy, which is quite distinct in his thinking from the formal sector.
In other words, the market is the realization of the ideal and the formal sector is the institutionalization
through mercantilist practices of the barriers to this idea.
27
A secondary effect of his reasoning is produced when he selects from the following choices of
conceiving social relations in the formal sector as either purely economic, both economic and political or solely
political: he chooses the latter, thus avoiding having to explain why he does not explicate the articulation of the
formal sector with market relations. He simply claims the latter do not exist because they are subsumed to the
imperative of the mercantilist regime of the elites which he views as being solely politically constituted. As a
result the category, formal sector, is a quasi-historical, quasi-political sphere with merchant exchange, which is
populated by a prototypical social actor, the merchant elite, leaving one to wonder who does the real work.
Who works in this formal sector, only merchants? Who buys their wares, only merchants?
There is some disingenuousness on the part of De Soto in extricating the Peruvian formal sector from
the effects of FDI investment, its subordination to the dictates of institutions such as the IMF and World Bank
and ignoring the contradictions involved with the fact that Peruvian exports are primarily comprised of natural
resources.38
Very pointedly, he dismisses contemporary scholarship which argues that Latin America is
generally an area in which first colonialism and now transnational corporations have heavily exploited the
people and ransacked natural resources. This is a serious flaw because one look at Perus trade balance is
sufficiently indicative of its dependence upon the export of its resources, while at the same time being the
recipient of large blocks of foreign direct investment.39
Instead, when this problem is viewed as a point of
analysis at a mid-range level, then, strictly speaking, transnational corporations along with some intervention
38 I see FDI as a euphemism for neo-colonization processes which continue the ransacking of resources and
exploitation of populations which began under Spanish colonization (Martin 2007, 217); but now have the
patina and credentials of development while in collusion with local political and economic power brokers.
39 Figures for 2000-2005 show that Peru has maintained a trade deficit despite its heavy exports of copper,
gold and fishmeal, and that the main recipient of these goods is the US. These figures also show the US as
being the main supplier of consumer goods imported into Peru (Economist Intelligence Unit, Nov 23 2005). This
begs the question of how repatriation of profits is reflected in these accounts and whether these are tied to a
differential foreign exchange rate and, furthermore, of how the role of tariffs on protected imports is
connected to FDI. These types of questions challenge the theory that the Peruvian economy is dominated by a
formal sector comprised only of criollo elites.
28
by dominant nation states of the global north become the primary instruments of neo-colonization of the
global south in their quest for the three elementary components of capitalist production: cheap labour, natural
resources and agricultural products.
De Soto speaks as if all local criollo profits (national elites) were reinvested within the Peruvian
formal sector and blatantly ignores the fact that criollo elites have the ability to export their venture capitals
to the global north. In actuality, the flight of local venture capital has been a serious problem throughout Latin
America and has resulted from the efforts on the part of elites to invest in hard currencies. With this move,
criollo venture capital is tied to the vagaries of the financial markets of the global north and thus, criollo elites
lose whatever vestiges of merchant independence they would have had otherwise, and now become
completely immersed in every crisis facing the global north.
The formal/modern sector framework is set up in such a way that it ignores the causal factors
attending to the exploitation of labour and natural resources as a result of the devastating effects of neo-
colonization of Perus society. De Soto appears too concerned with analyzing the relationship between
mercantilism and the formal sector while ignoring the nefarious effects on Perus economy of the shenanigans
of direct foreign investment. Add to this the schizophrenia of the IMF and WB, at one time demanding
development through the copycat industrialization scheme of criollo import substitution industries (ISI) where
foreign markets were not opened for these products, and now the counter-intuitive move to ISI through neo-
liberal decentralization which De Soto advocates in his position against regulation.
De Sotos conception of the formal sector is an exaggerated glossing over what constitutes the driving
force behind Perus economy, primarily comprised of exports provided by foreign mining corporations
(particularly gold and copper) and fisheries production (in 1994 Peru became the worlds second-largest fishing
nation earning one billion US dollars in export earnings (Economist Intelligence Unit , Nov 23 2005). By
delimiting the formal sector to an institutional form, De Soto also glosses over the political economy of Peru
29
and the extent to which these industries are fully under foreign control.40
Granted, it is completely beyond the
scope of this thesis to enter into an analysis of the effects of the exports of the mining and fishing industries to
the Peruvian economy, but one would expect that, since De Soto is making an argument for the formal sector,
he would at least engage with some of the more obvious contradictions of the Peruvian economy (although
perhaps he puts himself in this position by chauvinistically attributing a totalizing self-contained merchant
structure in his conception of the Peruvian formal sector). This will be discussed in Chapter 3 on the informal
economy, his interest centers on one economic indicator, the amount of GDP produced by the formal sector
and lack of statistics on the informal economy. This focus makes him appear indifferent to what constitutes the
dynamic or the working relationship between the entrepreneurial class and the workers that sustain that
sector, since one will have to assume it is not all completely mechanized.
To conclude, in order to achieve clarity and if we are to think of the specificities of nation states and
their internal economies, unless there is a conception of the social relations which attend to capitalism, in any
of its phases, and a distinction is made between the linkages between political and economic institutions and
their specific practices within these phases, it is quite easy to conflate very different causations into the
analysis of social conditions such as occurs in the analysis of the formal economy in Peru by De Soto, where
everything takes place either within the formal sector, or the informal economy in conformity with their
respective institutional paths.
40 Newmont Mining Corp. (NEM) has a 51.35% stake in Yanacocha, while Buenaventura SAA holds a 43.65%
share in what is one of the world's largest gold mines. The World Bank's International Finance Corp. holds the
rest. The Anta mina operation went into commercial production in late 2001, requiring an investment of more
than $2.0 billion. Its owners are: BHP Billiton with a 33.75% stake; Miranda Inc.-Falconbridge (NERD) with
another 33.75%; Tack Cominco Corp. (TEK.B.T) with 22.5% and Mitsubishi Corp. (MIB.TO) with 10% (Kozak
2007).
30
In the next section I engage with Tokmans work which I consider a critical response to De Soto, and
which is of particular interest in the context of this discussion since he also is a Peruvian who engages with the
problematique at the level of the informal economy in Peru and Latin America.
Beyond Regulation Tokman and PREALC
Tokman sees the problem of earlier research on the informal sector and De Sotos own work as rooted
in the false compartmentalization and dichotomous relation between the formal and informal economy (see
Chapter 3 for the genealogy of these concepts). In formulating his theoretical framework, Tokman uses the
formal sector and modern sector as homonyms being comprised of business and merchant activity both of
which operate in the realm of legality and being conjunctural both are mediated by the juridico legal
regulatory apparatus of the nation state. His work contrasts directly with De Sotos in that he articulates a
clearer conception of, at least what he believes, constitutes the internal relations of the formal sector and
recognizes that these are neither segregated nor occur in a vacuum apart from the informal economy.
For Tokman the formal economy structurally organizes production and productive work-forces at a
global level. He suggests that after the 1980s this sector adopted a different flexible schema of production,
the effects of which have been causally implicated in the severe fragmentation of the labour force.41
He
suggests that the prime motivating factor in the move towards flexibility in the formal economy derived from
the need to reduce labour costs. The aim of flexibility in production was to decentralize away from vast
industrial sites into smaller units of production which could be located where costs would be at the lowest
level. Flexibility and decentralization created a massive surplus population of workers, giving the formal
41 By fragmentation he intends the displacement of the workers outside the wage relation to temporary work,
if and when available, outside production within a tertiary service sector or self provisioning activities. The
labour force becomes fragmented as it becomes redundant to industrial production whereby these workers
only alternative is to find income opportunities through non-waged part time contract work or investing in
micro-enterprise.
31
economy the opportunity to open or change production sites at will. Tokman argues that labour costs have
been kept low because the formal economy has, through its regulatory apparatus, been successful in erecting
blocks that have tended to stall, avoid or diminish trade union power in opposing this restructuring and
outsourcing of work projects. In addition, he argues that the onset of new technologies has further decreased
the reliance of the formal sector on living labour (Tokman 1992, 3-5).
For Tokman there are two vectors of regulation that impact on relations in the economy, these being:
(a) the commercial and industrial sectors private norms and standards; and (b) the state regulatory apparatus
(Tokman 1992, 4-5). Tokman takes the view that in developing countries competitive pressures of excess labour
push down incomes and generate subsistence activities that are not linked to expanding modern sectors, but
cater to low income markets which lack access to capital, technology and skills (Tokman 1992, 4). He argues
that socio-economic activities do not converge in polarized forms, rather, they take place in a continuum of
legality within which the formal economy is located as the dominant sphere of economic enterprise. This
continuum expresses the relationship between the formal and informal economy in terms of legality and
illegality and Tokman argues that both formal and informal economies fall within a grey area of this
continuum. (Tokman 1992, 4-4).
With this methodological premise, I believe Tokman aims to solve the problem of the non-equivalence
of two very distinct social relations (a problem which results in juxtaposing them within a dichotomous
relationship, such as occurs in the work of De Soto), economic exchange and the conformance to legal norms.
Contrary to De Soto, he suggests that a graduated horizontal continuum explains the necessary differentiations
in the realm between legality and illegality42
and the market expresses other relations which cannot be
captured within the intra-relationship, formal/informal sector. For Tokm