Let me not poach the information and arguments presented in this fine analysis of the informal transport economy of Ashima Sood’s recently published paper in the Economic and Political Weekly (Mumbai), other than to cite her opening summary: “A February 2010 judgment of the Delhi High Court called into question several assumptions underlying policy thinking on the cycle rickshaw sector. Examining these assumptions in the light of new research and advocacy efforts, this article considers the prospect of policy and regulatory reform. With the cycle rickshaw sector as a case study, it argues that the punitive regulatory framework governing the sector embodies the dualist or even parasitic models that inform policy on informal services more broadly. Assessing the larger viability and contribution of informal sector activities requires more attention to local and sector-specific micro-processes.”
A Future for Informal Services?
The Cycle Rickshaw Sector as Case Study
- Ashima Soud, Economic and Political Weekly, 20 October 2012
- – -> Complete original article available here.
If economic debates were settled in court, then the February 2010 judgment of the Delhi High Court striking down key aspects of the long-standing Delhi Cycle Rickshaw Bye-Laws of 1960 could count as a clincher. The questions it implicitly answered were: Is the cycle rickshaw sector, like other informal services sector activities, doomed to die out as the “Walmart” theory of economic development suggests (La Porta and Shleifer 2008), with policy simply a facilitator of that inevitable outcome? Or do informal services have a role to play in a modern economy, one that policy should actively recognise and encourage?
By decisively affirming the latter policy path, the judgment not only overturned legal precedent, but also called into question a whole series of assumptions underlying policy thinking on the cycle rickshaw sector. Though ostensibly applicable only to Delhi, the judgment allows revaluation of the legal framework governing the cycle rickshaw sector in other cities across India. More broadly, the verdict also offers an alternative lens to examine the informal service sector’s role and fate, one that is more informed by local micro-processes than macroeconomic analyses. The cycle rickshaw sector can be seen as a (legal) test case with the potential to reinvigorate wider discussions about the future of informal services in India’s economy, and the appropriate policy response towards them.
Debating the Cycle Rickshaw
To understand the terms of the larger debate surrounding the informal sector, note that almost from the time of its coinage the term “informal” was understood to characterise a set of economic activities that were and would increasingly become more marginal as economies developed (Bhowmik 2009). A recent and influential exposition of this “dualist” paradigm in mainstream development economics – the “‘Walmart’ theory of economic development – by economists La Porta and Shleifer (2008: 344-47) argues that “high productivity comes from formal firms and in particular from large formal firms”.
They contrast the dualist model to a “romantic” view, ascribed to Hernando De Soto, which posits that the productivity of in-formal sector firms is constrained primarily by lack of access to secure property rights and finance and by government regulations. The far more jaundiced “parasite” view of the informal sector, which La Porta and Shleifer trace to the McKinsey Global Institute, suggests that “informal firms … hurt growth both because their small scale makes them unproductive and because they take away market share from bigger, more productive formal competitors” (2008: 277). Using cross-country World Bank data to test these three models, La Porta and Shleifer find most support for the dualist model and conclude that the informal (or “unofficial”) economy “with its millions of entrepreneurs” has little to contribute to modern economies (2008: 347) and can be expected to “disappear” over time. The appropriate policy stance towards the sector is one of benign neglect to help hasten this inevitable demise, with more proactive encouragement and support to formal economic activity.
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Revisiting the Debate: A Research Agenda
To return to the question posed at the outset: Is the cycle rickshaw sector destined for the relic heap of creative destruction as India “develops”? Or could it continue to grow and generate sustainable above-subsistence livelihoods for the urban poor? And how can policy and law encourage the latter outcome both for the cycle rickshaw sector and for informal services more widely?
The emergence of the pedicab in the iconic metropolises of the west – from London to New York – provides at least a symbolic answer to the first question (Dunlap 2009; Grynbaum 2009; Clark 2004). Even as these cities debate an appropriate regulatory response to the success of the rickshaw, they remain unburdened by postcolonial prejudices.
Another sort of response comes from the scattered but steady stream of commercial, institutional and technological innovations around the cycle rickshaw. In addition to the Rickshaw Bank and its improved Deepbahan, these include projects to use the cycle rickshaw as an advertising medium, as well as the electric (Elecsha) and solar-powered rickshaw (Solekshaw) (Ministry of Science and Technology 2008) and the dial-a-cab Ecocabs service in Punjab. There have been numerous more mundane design improvements, including some by cycle rickshaw drivers.
The suite of design improvements could raise productivity and thereby earnings, but regulatory and policy reform is an essential prerequisite for the sector to realise its potential. Hope for the sector may yet lie in its demonstrated value as non-motorised transport on automobile-choked Indian roads.
Nor is this innovative potential restricted to the cycle rickshaw sector alone. It applies far more widely to the gamut of informal services, from street vending to informal repair activities, hitherto dismissed for their low productivity.
Yet the absence of a strong knowledge base on informal services, combined with hostile or indifferent policy environments, creates a vicious cycle such that the livelihood and social potential of these activities are overlooked. And the oversight justifies further neglect. The little-understood impact of policies encouraging formal retail on informal retail services is a case in point.
Understanding the productivity potential of informal services requires research insight into supply chains, market conditions and institutional contexts so that technological and institutional innovations can be optimally applied. Equally, a social security net for workers in these sectors can help enhance risk-bearing capacities in the face of change.
The case of the Indian cycle rickshaw sector might appear to support a legalist understanding of the informal sector a la De Soto, where the high costs imposed by regulation stifle the enterprise of drivers and garage owners alike. However, the cycle rickshaw case also demonstrates that separating the dynamics of inherent growth or stagnation from the effects of regulation is near impossible when there are punitive regulatory paradigms in the informal services sector. At the same time, in a scenario of jobless growth of the kind witnessed in the Eleventh Plan period (2007-12), the prognostications about productivity offered by the dualist paradigm seem almost beside the point.
The cycle rickshaw sector case study shows that ground-level regulatory regimes mirror, if imperfectly, aspects of macro-level policy stances. Also, the variety of urban experience suggests that configurations of local actors and forces have a make-or-break role in determining not only local enforcement of these regimes, but also, by extension, the long-term viability of the sector. The challenge then is to let policy at the macro scale learn from the local.
I have tried to contend that instead of macroeconomic determinations, understanding of the informal sector should rely on location-specific sectoral accounts. Attention to micro-processes in specific informal services sectors and cities can help inform larger academic and policy debates about the role and future of the informal sector. One hopes that the resurgence of the cycle rickshaw on Delhi roads is the harbinger of just such a new research and policy agenda.
–> Complete original article available here.
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About the author:
Ashima Sood is Senior Assistant Editor at Economic and Political Weekly. She is a graduate of the Delhi School of Economics and holds a PhD in Economics from Cornell University. A list of her recent writings on the importance of the informal economy and the great importance of our better understanding thereof, can be seen here.
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It is all too easy, it seems, to forget the informal economy, or worse yet to do our best to banish it for whatever, we may think, compelling reasons, despite the fact that policy makers and their advisors rarely have the full information and analysis in hand that shows it actual contributions, but also the associated problems, et al. We can thus thank Ashima Sood for this timely and important reminder.