Protests, initiated by government’s expulsion of unlicensed street vendors in a Mexican town, turn violent.
Although it seems that kicking out informal vendors from the market was just a spark which ignited some deep-rooted, mostly political tensions, the situation with informal vendors is worth elaborating on. Legally, authorities, of course, have the right to ban informal traders since they are effectively breaking the law by not obtaining a license or paying taxes. But, there are laws and there is a reality. And while laws may make informal vendors illegal, they also make vendors informal in the first place.
This is what Hernando de Soto discovered while working on bringing the poor in Peru into the formal economy in the 1980s and 1990s. Instead of labeling informal vendors as criminals breaking the law, de Soto asked a question – “Why are these people in the informal economy in the first place?” And the answer that he discovered was that laws made it too costly for small vendors to become part of the formal economy. At the same time, he saw that they wanted to be part of the formal system, because being in the informal sector they lacked access to key public services and were an easy prey to corrupt government officials.
Last year, president Mugabe decided to rid his country of illegal street vendors by……chasing them off the streets, putting them to jail, and confiscating their property. And, there are no signs that this will stop in the near future.
Hernando de Soto tried to open a business. The results shocked him.
With the help of five university students who spent several hours a day wending their way through Peruvian bureaucracy, he discovered that to obtain a legal license to operate even such a small business took 289 days and cost 31 times the average monthly minimum wage.
This experience opened Hernando’s eyes and suddenly he saw the informal sector problem from the inside-out. He saw people who want to be part of the system but can’t due to the bureaucratic hurdles they face. Now, who thinks bureaucrats in Zimbabwe left their air-conditioned offices and did the same before they led an attack on the informal sector?
And before I forget, guess which country has the highest cost (by far) of registering a business out of 155 countries? You are correct – its Zimbabwe, at a whopping 1,441.5 % GNI per capita. The closest to Zimbabwe is Sierra Leone at 835.
Published Date: May 05, 2006