Supporting economy's informal sector

When the informal sector of the economy employs 72 per cent of the workforce, according to a World Bank (WB) report, it is not hard to understand why the benefits of growth do not trickle down to the masses. The obsession with the Gross Domestic Product (GDP) as the sole measure of growth has blinded the majority of the modern-day development thinkers to the hollowness of the abstract mathematical figure. Because, it does not reflect the real world. Consider the poor day labourer who is sitting in the hot sun at the Goalchamot 'labourers hat (market)' in Faridpur. Mostly, farmhands, these labourers from different parts of the country come here in the hope of selling their labour. But this time, there are fewer buyers than usual. Worse yet, the price they (the prospective buyers) are offering is too low for them to accept, especially when food prices have gone sky-high.  Not accepting what the prospective employers are offering may mean going hungry that day. Even so, they won't agree to such a low price for their labour, which is the only asset in the world they can sell.

Since this is the season for harvesting onion, farm labourers from adjacent as well as far away districts have converged at this spot in Faridpur. But the market is down. This is but a microcosm of the entire country when it comes to the condition of day labourers who belong to the vast informal sector of the economy.

Being informal, this labour market is basically an unstructured one.  As a result, the labourers lack bargaining power. So, it is the hirers who have the last say in deciding workers' daily wages. The government did set some rates for hiring different categories of workers but who is going to challenge if any farm owner, or any other prospective employer offers a lower rate that is lower than the one decided by the government? Where will these workers go to lodge complaints and seek redress if these workers are deprived of their due? So, it is hardly surprising that buyers dictate the informal labour market of Bangladesh.

The WB report further highlights the low productivity of informal workers in Bangladesh as they earn less than half the average wage in the formal sector. This wage gap is also reflected in the low contribution of the informal sector to the country's GDP, which stands at around 30 per cent (of the GDP). As things stand, the growth figures calculated every year could be many times more had the contribution of the remaining 72 per cent workforce been taken into account. The lack of social protection is a significant issue for informal workers in Bangladesh. Only around 4.0 per cent of informal workers have access to any form of social protection, compared to 35 per cent of formal workers. This lack of social protection puts informal workers at risk of income shocks, illness, and injury, which push them further into poverty. So much for the informal workers of the country. But their possible employers, who range from private individuals, micro, cottage, small and medium enterprises lack access to many facilities that formal sectors get.

For instance, they have little or no access to formal credit available to the formal sector such as from banks and other financial institutions. This is a significant constraint for informal enterprises in Bangladesh. Reports further have it that 62 per cent of the enterprises in the informal sector lack access to formal credit channels. Whereas only around 3.0 per cent can approach financial institutions. Needless to say, this is a big barrier to their growth and productivity. Small wonder that despite their predominance in the economy they have not been able to contribute to the economy at the expected level. But what is the way out?

By allowing these small-scale informal enterprises access to formal credit and other facilities? It is better said than done. It is not that the government is not aware of the importance of the informal sector of the economy. But measures to upgrade their condition is not forthcoming. Actually, the bigger enterprises have a greater influence on financial institutions. As a result, they are crowding out the smaller operators in the formal sector, let alone those in the informal economy.  This is in fact a dog-eat-dog world. What is more, the big businesses have the biggest influence on the government. One of the factors that have led to the situation is the dominance of crony capitalism in Bangladesh. Such capitalism thrives on government favour. The ever-growing size of the non-performing loans is just one indicator of the nature of capitalism in Bangladesh. So, one cannot say that a free market is operating here. It is an anathema to the free market if prices of essential commodities go through the roof when there is no visible shortage of supply of those commodities. But that is the rule here. Fair play has little space in such a market. So, normally, the operators of the informal market also cannot expect fair play when it comes to accessing institutional credit or other government services that other businesses can normally access. However, things may see some changes if the government intervenes in a big way.

It is not exactly government finance that is the answer to the problems the informal sector of the economy is facing. What the informal sector needs is the required policy support so that it may continue to employ the country's largest portion of workforce through its economic activities.

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