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Reason For The Growth Of Informal Economies

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    In this essay I will endeavour to provide reasons for the phenomenalgrowth of the informal economy. Firstly, I will provide a brief definitionof informal and formal economies. I will also discuss the inequalities andinstability of the formal economy environment.Focusing on themanoeuvres which manufacturers and individuals use within the informaleconomy to alleviate these stresses. I will also put forward a concept ofInteractive Distribution which combines the best of what informal andformal economies have to offer the economic environment. Creating apowerful system of a informal distribution of goods and services. Thus, itis my opinion that these inequalities within the formal economy, comparedto the attractive informal alternatives available to individuals andcorporations ensure the growth of the informal market.Finally, I will give an overview of New Zealands history, politics andeconomy from which I will submit possible New Zealand reasons for thegrowth of informal economies. Alternative income, created from the informal system such as the fleamarkets around New Zealand. Also I willdiscuss the cultural significance informal (traditional) economies have forthe Maori people of Aotearoa.

    An informal economy co-exist, within the formal or capitalist economy. Working entirely or partially outside the framework of production anddistribution of goods and services within our economy.The formalsector is our capitalistic principles that regulates our market. Capitalismsmain function in my opinion is to continually replicate itself establishingits set of structures and regulation, to the benefit of few. The inequalities that exist within our global economy concerning labourand wages have seen the rise in unemployment and an increasing gapbetween rich and poor. The lack of economic opportunities have alsoplagued our formal economy placing pressure on individuals andmanufacturers to seek new forms of production and distribution. As Moser (1978) statedThe accelerated growth model … aimed to increase overalnational growth through policy of accelerated industrialisation …

    industrial expansion would result in increased wage sectoremployment on the basis that there was inevitably a positiverelationship between the growth of output, employment and labourproductivity, while the filter down effect would lead ultimately tothe redistribution of resources and income throughout society ( p.


    This theoretical assumption has fallen well short from its original goal.

    As the redistribution of resources and income in our competitiveenvironment have see the polarisation of wealth for the few and theincrease poverty around the world.

    Majority of businesses around the world are involved in retail sales whichhave their own problems such as expensive overhead, wages,advertisement, storage facilities and distribution. All adding up todecreasing profits and an increasing cost to consumers. The informaleconomy gives multinational corporations the opportunity to subcontractassignments to informal organisations. By making use of informal distribution networks, industrieseliminate the substantial cost of maintaining a permanent salesforce (Portes, Sassen-Koob 19XX p. 38).

    Our capitalist thirst for profit has encouraged exploitation of minoritiesand underdeveloped countries such as Nike in China and sweatshops inMexico. Individuals also have the opportunity to benefit in this volatileenvironment. Individuals or groups of individuals from developedcountries are able to act as middle men/women. Drawing upon theirinformal social networks they can create a core group of informalemployees utilising skills to complete work. The monetary earnings ofthese informal ventures may vary, but can be much higher when comparedto formal employment (Garcia, Kelly 1985). For the employees who arefaced with economic uncertainties informal ventures are a better choicethan poverty. The potential growth for manufacturers to use home based socialnetworks, create a niche market of potential customers. These businessventures that rely on the informal organisation of social networks andproduction of goods and services in the formal economy. Have created amarket of interactive distribution.Network marketing or interactive distribution creates home-basedenterprises with access to multiple manufacturers who deal directly to oneprinciple corporation. This is a powerful informal economy distributionsystem, distributing goods and services produced in a formal economyenvironment. Manufacturers are able to bypass wholesalers, retail outlets,promote products and service directly in the home and avoid expensiveoverheads. Yager (1994 : 70) states that Interactive Distribution…combine the very best aspects of retailing,discounting, warehouse clubs and franchising, and then blendfeatures with the hottest trends known as IN-HOME SHOPPING,INTERACTIVE MEDIA, SMALLER AND NICHE BUSINESSESand HOME BASED ENTERPRISES The business owner of the home-based enterprise benefits from thisrelationship having access to products and services directly in their home. Business owners are also able to purchase products and services atwholesale price/s. Interactive distribution give business owners theopportunity to build their own business. Simply networking and sharingthe opportunity of the system with others, people are able to create abusiness group. The potential growth for manufacturers and the wealthcreation for business owners foresees a bright future. Therefore it is my submission that due to the instability and inequalityexisting within the formal economy, informal businesses are an attractivealternative. Cheap production and distribution alternatives formanufacturers also ensure the livelihood of informal economies. Withopportunities such as interactive distribution available to individuals andmanufacturers, growth in informal economies are certain to continue.

    New Zealand is not exempt to the inequalities that are associated with theformal economy. Society and its reality that it creates are based on anAnglo-Saxon ideal that has been misinterpreted, Adam Smiths notion ofa decent society (Heilboner, R., 1997). One can also say that the realitythat haunts New Zealand are also contributed to the persistent naggingby the infamous New Zealand Business Round Table such as theirrecommended policies for New Zealand to push for a free marketeconomy regulated through competition published in Moving into thefastlane, 1996. Somewhere over the last 150 years of New Zealands written history wehave moved away from our community and collective identity towards ahard nosed capitalistic, individualistic society. With New Zealand deregulating the market, the workforce within NZhave undergone dramatic changes such as tariffs on the motor industry. In society there are winners and losers. But the gap between the twogroups in the New Zealand workforce is widening (Chateau, C. 1998). The New Zealand Herald August 8-9 1998 describes one such loser to thegovernments free market philosophy, the closure of Toyota car assemblyfactory in Thames. With closures becoming a common occurrence aroundNZ the question here is what does this mean for us?The struggling economy has taken its biggest hit on the job front in13 years with a wave of layoffs that saw 26,000 fulltime positionslost in the three months to June (New Zealand Herald, Joblessquarter worst in 13 years, August 6, 1998). Our profit seeking society has seen the government cutting benefits,selling off New Zealands own assets, cutting tariffs and cutting taxes. Bycutting benefits we make it harder for families and individuals who aredependant on the government and taxpayers to maintain some kind ofexistence. Within this doom and gloom New Zealand has a strong entrepreneurialspirit.New Zealand has a large informal community of sporadicfleamarkets which exist in our formal economy.New Zealands OtaraMarket a national icon, pull together individuals or groups of individualswho set up store within this informal system selling cheap alternativegoods and services to the general public. The Otara market shows aunique example of how both informal and formal systems can worktogether. The market attracts a large population of people generatingcustomers for themselves and the legitimate stores within the OtaraCentre. Creating work and redistributing money back into ourcommunities. New Zealand Maori and their collective community exist within bothspheres of economies at the same time, as the line between informal andformal economies fade into each other. Drawing upon the uniqueness ofboth formal and informal (traditional) economies. It is my assumptionthat indigenous informal economy or traditional distribution of goods canbe used to maintain or legitimise ones culture. Under the Treaty ofWaitangi, Maori people lay claim to natural resources, the right to berecognised as a people and as an indigenous culture. The traditionaleconomy that exist within the Maori culture enable non monetary forms oftransactions, for example some master carvers except the natural produceof the area (fish, kumera, mutton) as payment. Strengthening therekinship relationship, culture and utilising the resources available to them. With the excess produce they are able to sell these at the marketpurchasing items for the community which are not available in nature.

    In conclusion the informal economy can wear many masks to justify itsown existence. The volatile environment of the formal economy givesway to unique business opportunities. It has provided potential grow forthe manufacturers and entrepreneurials acting as middle men/womenwithin these informal organisations. These business ventures do notfollow the norm of the formal economy, rather an informal businessinnovation. Interactive distribution or network marketing demonstratesthe powerful potential for economic growth when two spheres of ideas arecombined. This business concept allows growth both within the formaland formal economies. The New Zealand fleamarket phenomenon is anexample of an informal system which exists creating employment andredistributes money back into the community. The cultural implication ofinformal economy or traditional economy for the indigenous people ofAotearoa, help maintain ones culture and strengthen kinshiprelationships. Informal economic organisations are growing and will continue to grow inour free market environment. Informal ventures are too attractive to beignored by corporations and entrepreneurial individuals.

    Reference ListChateau, C., Future shocks, New Zealand Herald, August8-9, 1998.

    Heiboner, R., The wordly philosophers, 1980, Business insociety coursebook, 1997.

    Kelly, M. P. F., & Garcia, A. M. (1985). The making of anunderground economy; hispanic workers, homework and theadvance capitalist state. Urban Anthropology 14, 13New Zealand Business Round Table, Moving into thefastlane, 1996, Business in society coursebook, 1997.

    Moser, C (1978). World development, Informal sector orpetty commodity production: dualism or dependence. GreatBritian: Pergamon Press.

    Portes, A., & Sassen-Koob, S. (19XX). Making itunderground: comparative material on the informal economy in western market economies. Unknown.

    Unknown, Jobless quarter worst in 13 years, New ZealandHerald, August 8-9, 1998.

    Yager, D. R. Sr., & Yager, D. (1994). The businesshandbook; A guide to building your own successfulamway business. USA: InterNet Services Corporation.Words/ Pages : 1,658 / 24

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