Local Economies workshop
Session 3: Enterprise and Informality
Economic Informality in South Africa: practice and policy
David Neves (PLAAS, UWC)
(Beginning of his paper not recorded)
The arena of small-scale enterprise – where black South Africans earnings are extremely
low, the average mean earnings are very low, it is female dominated and it’s clustered
mainly around retail.
This is a theoretically interesting question, but it’s a question which also has great
public policy salience, because presumably the informal sector could be a source of
employment in a national context where poverty and unemployment levels are very high.
Over the years there have been some quite scattered guesses as to why this sector is much
smaller than we’d expect, and it’s inhibited by a whole range of things including the kind
of special labour markets and human capital legacies of colonialism and apartheid, which
is fairly self-evident. The literature has also identified capital and credit constraints, so
basically if they’re small scale survival businesses they struggle to get credit and capital,
they are often quite unfavourably positioned within the larger structure of the economy,
within the larger value chains. This is 21st century South Africa. A hundred years ago
there might have been more spaces for small entrepreneurs to carve out spaces for
themselves in the economy, but in the current day economics it’s far more difficult. And
there’s also a suggestion, although it’s quite ambivalent that there are regulatory barrier
constraints.
What I sought to do in this research was to look at the sort of lowest rungs of the
informal sector, so I’m not looking at entrepreneurs, but at micro, nano-entrepreneurs and
the informally self-employed. I’m looking at the very lowest, almost survivalist level.
The research consisted of in-depth fieldwork in both urban and rural settings. It’s helpful
to kind of sketch out that the focus in this research was both on the enterprise and on the
household. A lot of research looks at either one or the other. Within the business studies,
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business school tradition, there’s a focus on enterprises, and within anthropology and
sociology there’s very often been focus on the household as its fundamental unit of
analysis. We try to look at both domains; it’s important to do this in order to understand
the transfers and synergies that one finds between households and enterprises. These are
often quite difficult to capture analytically because they’re hidden: the use of residential
spaces for work, the use of unpaid kin, the high levels of off-take one often finds in these
contexts. A colleague of mine once remarked he wasn’t sure whether these households
were eating their stock or if they were selling their groceries, and I think that captures the
porosity and the blurring of boundaries within these particular kinds of units. This focus
is also important if one wants to understand the social networks within which these
activities are invariably embedded. One has to look at enterprises and the hard realities of
the enterprise if you want to understand the value chain and the way in which these
enterprises are often quite vulnerable, quite marginal footholds within the larger structure
of the South African economy. Just think about it for a moment: the basket of stuff that
poor South Africans access and buy, with the possible exception of medicinal herbs,
everything comes from the formal sector, everything comes from the large industrial
component of the economy.
Our research suggested that successful informal self employment had the
following characteristics: these enterprises often were marked by an access to formal
sector income, so there’s often this sort of dichotomy sketched out between these
informal enterprises and formality, but if you look at the reality, very often within the
household context, somebody’s earning a formal sector income or there’s a remittance.
There’s often an ongoing connection with the formal sector, with ongoing resource flows
from one to the other. These enterprises and these activities, these people, they often
relied on/had favourable histories of skills and education – sometimes formal education,
sometimes they were inducted into systems of informal kind of apprenticeship. So they
had to have a similar history to be successful.
I think a fourth point is that one often finds multiple activities and synergies
between enterprises and households and between activities. It’s very seldom that the
informally self-employed at this level just do one thing – they have a whole portfolio of
activities, often quite small activities, but they interlink and they shift over time and over
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seasons and according to the amount of labour available from the household. Think of the
story of the little shebeen where there’s a spaza shop and in the afternoon when the
children come home from school and can tend to the braai fires, braaied meat is sold to
the passer-by. They also had to rely on household labour capacity: households had to
provide labour capacity to run these enterprises. Very small, quite atomised households
often struggle to muster up the sort of labour to engage in these activities.
I want to run through a handful of findings before I conclude (refers to slide), to
try and tease out the policy implications in a more explicit way. The first point I think is
that one needs to understand the often-divergent objectives to which these activities are
orientated. The neo-classical idea that these are entrepreneurs and they’re trying to
maximise gain and minimise cost is entirely inappropriate, it’s not a helpful way to
understand what they’re doing. Sometimes people are trying to make money, but
sometimes they’re actually trying to bolster their food security, those are similar but
they’re actually different objectives. So sometimes they eat their stock because in fact the
spaza shop is about supporting household food security. We’ve also got examples and
case studies where households were trying to locate themselves within their social
networks, they were trying to concretise their place within larger social networks and the
profit motive was not terribly prominent.
(Refers to slide) It’s important to recognise the importance of social networks.
Contrary to how they’re frequently represented in the literature, social networks they can
be facilitating and inhibiting, sometimes almost paradoxically at the same time. The kind
of social networks that enable people to deploy the labour necessary to engage in these
activities might also, for example, exercise redistributive claims against activities and
against enterprises. The spectre of redistribution was quite prominent in many of these
case studies. People often strategise quite carefully about how to acknowledge, how to
meet, how to manage, how to deflect, how to kind of control for redistributive claims:
both from kin but also from forms of crime, and the like.
A third finding is the centrality of forms of economic governance (refers to slide),
understood quite expansively: it includes both formal state-driven attempts to regulate
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informality but also the kinds of informal popular forms of governance and practice. This
is often something that enterprises and activities have to grapple with.
I want to move now to reflect on some of the general points I have sketched out in
relation to policy and how policy around economic informality is imagined and practised
in the South African context. (refers to slide).The first point is understanding the plurality
of objectives. In much of the policy terrain, the template that’s applied is this idea of a
neo-classical human actor who simply wants to maximise profit. When policy makers
look at what happens on the ground, they find people running these enterprises and
engaging in these activities that are simply deficient. “These people don’t keep proper
records” is the frequent complaint one hears from policy makers and even some
commentators in the academic sphere. “They have these terrible redistributional logics,
they’re just bad businesspeople.” Some of these formulations are quite essentialist. There
is talk about South Africa simply not having an entrepreneurial mindset - as though all
the other history, culture and social networks somehow don’t matter. It’s about individual
deficits.
My second point is it’s useful to disaggregate and distinguish. Survivalist
entrepreneurs demand different kinds of interventions, engage in enterprises in different
ways, offer different kinds of objectives and they offer up different points of policy with
leverage.
The third point for policy makers is, there’s a need to recognise the ambivalence
of formalisation. This touches on some of the things already discussed so far this morning
There is an often quite ambivalent legacy of formalisation. In this room I might say “You
know formalisation offers up a mixed bag, it has pros and cons.” In a lot of the dominant
policy imaginary the great panacea is formalisation, it is drawing everybody into the
system and there’s often a distinct lack of reflexiveness about the consequences of
formalisation, particularly for people at the bottom. The modern nation state classically
upbraids people, there is the idea that shack-holders are sitting on this unrealised capital
and every gogo selling six oranges on the side of the road is an incipient micro
entrepreneur. I think it’s actually quite damaging.
Fourthly, there’s a need to understand the importance of infrastructure. In my
experience people say “we don’t want business training, we don’t want micro-credit, we
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want running water or we want somewhere secure to lock up our goods at night”. So
some of the unsexy service delivery stuff is quite important.
My fifth and penultimate point is, there’s a need to think about how we regulate
barrier chains in the formal economy. We don’t really need to look much further than a
series of competition commission hearings into the structure and state of the formal
economy to know that South Africa is characterised by monopoly capitalism, often
vertically integrated, which makes it exceedingly difficult for small-scale entrepreneurs
to gain a foothold in the market.
My sixth and final point is that, in terms of policy, there is certainly scope to look
at the failures of intermediation. When I say intermediation I mean brokers, essentially, to
kind of link the informally self employed to the larger markets and to points in the larger
value chain, sometimes by finding outlets for their goods. There’s been a fair amount of
work done by DTI (Department of Trade and Industry) on this, in their “second economy
strategy paper”. They’ve thought very critically and they’ve offered up some quite useful
examples of points in the value chain where small scale kind of producers can gain a
foothold in the the formal industrial economy. I mean a good example is Liquifruit – “the
marula magic”. Where do you think the marula fruit come from? They don’t come from
large deciduous farms in the Western Cape, they are gathered by rural women in the
northern parts of the country. That’s a classic example of a space where a broker has been
able to link between small-scale agricultural producer/gatherers, to a market.
Discussant:
Detlev Krige (UP)
The papers given by Fraser McNeill and Sam Masinga are good examples of what
Fraser said - some of his informants said that “things are not as they ought to be”. People
are critically evaluating the growing inequalities, what they see to be the immoral
accumulation of wealth. Sam’s account of the struggles that small entrepreneurs face in
developing business is a similar indication that things are not as they ought to be: it’s not
the case that people are unwilling to work or that people are lazy or that there’s not a
work ethic, rather there are massive structural problems in our economy. That is
something that David Neves also talked about, the fact that probably 100 years ago there
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were more spaces in our economy for people to establish new businesses. That is a
commentary on the structure of our current economy.
And it’s only David who talks about policy: he has an amazing ability to both
analyse empirical realities and also fit that to policy. I want to ask him to talk more about
how to differentiate in terms of scale, between those who operate really in the survivalist
sector and those who are perhaps more emerging entrepreneurs. How would policy, and
even the extension of credit, work on a practical level?
And I want to come back lastly to a point that also David made earlier in the day
and that is the reluctance of people to engage with formality, and how easy it is for
people to make use of informal money lenders that are evidently illegal. I want all of
them to reflect on what that says about the relationship between people who participate in
popular, everyday economies and the state. It seems to me that the state has effectively
criminalised a large section of the populace. This was so especially under apartheid. Look
at the way the government tried to control the range of informal activities, such as beer
brewing and even money lending and a range of other activities, and how that has
effectively created, or socialised people into an acceptance of illegality as a pretty normal
state of affairs.
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