GFI Founder’s Update — October 2020
In September the Global Fairness Initiative (GFI) released a compelling report, Mainstreaming Informality. As part of the report’s launch we are hosting several round table discussions bringing together stakeholders committed to reducing global poverty, including public policy and multi-lateral organizations, non-profits, and governments. Our hope is that through our conversations all of these stakeholders — especially governments — will understand the social and economic imperative of “mainstreaming informality.”
Mainstreaming informality into the policy and programs that drive international development regimes is not only an important message but it is also a practice that if implemented would reduce poverty. An estimated 61% of the global workforce is informal — living and working separately, and excluded from the formal structures, protections, and opportunities. Informal workers are not protected by labor regulations and, consequently, are not entitled to benefits, such as paid annual leave, sick leave, social security, and pension schemes. These workers often work for long hours under harsh conditions and for little pay. By neglecting the informal economy and failing to understand the unique conditions of informal workers, nations are failing to prioritize a central driver of economic growth that can bolster their mainstream economies.
Now imagine if 61% of the global workforce was mainstreamed into the formal economy. These newly formalized workers would then be granted labor protections and benefits. The International Labour Organization (ILO) has found that affording social protections and benefits to informal workers would reduce poverty by ensuring protections during economic upheavals. Put simply, providing benefits like social security and leave payments will cushion workers from economic blows that would otherwise cause them to fall back into poverty and in turn cushion formal economies that rely on informal work as a bulwark against economic collapse.
Mainstreaming informality may seem daunting, but it can be done. To “formalize the informal” development initiatives must be highly inclusive, multi-stakeholder processes from the start. Effective strategies must understand first and foremost the role informality plays within the economic context of the country. Of course, every country will approach the design and implementation differently, but one good place to start is with the data. Where data on the informal economy is missing it should be gathered and analyzed, and policies should then be designed based on this data. And, where the voices of informal workers are lacking they be should be sought out. A successful outcome requires that governments and international organizations MUST include the all key actors influencing and impacted by informality, namely government, the private sector, and most importantly informal workers.
Mainstreaming informality also benefits governments and the private sector. Informality weakens a government’s ability to effectively meet the core needs of its citizens. When informality is large, tax revenue is low and governments struggle to invest in public services and infrastructure, provide social benefits for workers, or deliver on long-term development priorities.
It is also well documented that informality stifles growth and development in the private sector. A high level of informality fuels poor regulatory policies, limited investment opportunities unfair competition, and systemic corruption. Informal enterprises and transactions can also obscure the vitality and transparency of an economy and constrain foreign investment and formal sector growth. These factors often result in stagnant economic growth, which in turn discourages foreign investment and access to higher-value, diversified markets.
So why aren’t more governments and international organizations mainstreaming informality? The reasons range from the benign to the criminal. Governments, overwhelmed by crises — including COVID-19 — have no political will or policy space to collect data and design policies that provide a path form informal workers to formalize. But some governments continue to actively exclude informal workers from every aspect of the economy and society. They do not want to afford informal workers any rights — including political rights.
International institutions have a long history of leading policy efforts that do not benefit workers. Now that COVID-19 has laid bare the vital contributions informal workers make to society and economies, international organizations need to begin mainstreaming informality. GFI’s Mainstreaming Informality report provides practical insights and applications for international organizations, like the UN and the World Bank, to use in designing programs and broader development regimes. It is time for them to step up and lead and incentivize governments to mainstream informality and prioritize the inclusion of informal workers in the global economic development agenda.
Sincerely,
Karen Tramontano
GFI Founder & President
