Reason For The Growth Of Informal Economies

Essay, Research Paper

In this essay I will endeavour to provide reasons for the phenomenal

growth of the informal economy. Firstly, I will provide a brief definition

of informal and formal economies. I will also discuss the inequalities and

instability of the formal economy environment. Focusing on the

manoeuvres which manufacturers and individuals use within the informal

economy to alleviate these stresses. I will also put forward a concept of

Interactive Distribution which combines the best of what informal and

formal economies have to offer the economic environment. Creating a

powerful system of a informal distribution of goods and services. Thus, it

is my opinion that these inequalities within the formal economy, compared

to the attractive informal alternatives available to individuals and

corporations ensure the growth of the informal market.

Finally, I will give an overview of New Zealand s history, politics and

economy from which I will submit possible New Zealand reasons for the

growth of informal economies. Alternative income, created from the

informal system such as the fleamarkets around New Zealand. Also I will

discuss the cultural significance informal (traditional) economies have for

the Maori people of Aotearoa.

An informal economy co-exist, within the formal or capitalist economy.

Working entirely or partially outside the framework of production and

distribution of goods and services within our economy. The formal

sector is our capitalistic principles that regulates our market. Capitalism s

main function in my opinion is to continually replicate itself establishing

its set of structures and regulation, to the benefit of few.

The inequalities that exist within our global economy concerning labour

and wages have seen the rise in unemployment and an increasing gap

between rich and poor. The lack of economic opportunities have also

plagued our formal economy placing pressure on individuals and

manufacturers to seek new forms of production and distribution.

As Moser (1978) stated

The accelerated growth model … aimed to increase overal

national growth through policy of accelerated industrialisation …

industrial expansion would result in increased wage sector

employment on the basis that there was inevitably a positive

relationship between the growth of output, employment and labour

productivity, while the filter down effect would lead ultimately to

the redistribution of resources and income throughout society ( p.

1042).

This theoretical assumption has fallen well short from it s original goal.

As the redistribution of resources and income in our competitive

environment have see the polarisation of wealth for the few and the

increase poverty around the world.

Majority of businesses around the world are involved in retail sales which

have their own problems such as expensive overhead, wages,

advertisement, storage facilities and distribution. All adding up to

decreasing profits and an increasing cost to consumers. The informal

economy gives multinational corporations the opportunity to subcontract

assignments to informal organisations.

By making use of informal distribution networks, industries

eliminate the substantial cost of maintaining a permanent sales

force (Portes, Sassen-Koob 19XX p. 38).

Our capitalist thirst for profit has encouraged exploitation of minorities

and underdeveloped countries such as Nike in China and sweatshops in

Mexico.

Individuals also have the opportunity to benefit in this volatile

environment. Individuals or groups of individuals from developed

countries are able to act as middle men/women. Drawing upon their

informal social networks they can create a core group of informal

employees utilising skills to complete work. The monetary earnings of

these informal ventures may vary, but can be much higher when compared

to formal employment (Garcia, Kelly 1985). For the employees who are

faced with economic uncertainties informal ventures are a better choice

than poverty.

The potential growth for manufacturers to use home based social

networks, create a niche market of potential customers. These business

ventures that rely on the informal organisation of social networks and

production of goods and services in the formal economy. Have created a

market of interactive distribution .

Network marketing or interactive distribution creates home-based

enterprises with access to multiple manufacturers who deal directly to one

principle corporation. This is a powerful informal economy distribution

system, distributing goods and services produced in a formal economy

environment. Manufacturers are able to bypass wholesalers, retail outlets,

promote products and service directly in the home and avoid expensive

overheads. Yager (1994 : 70) s

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