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Across the border: Immigrants’ economicopportunities, social capital and informal businessactivitiesRobert Kloosterman a , Joanne van der Leun b & Jan Rath ca OTB Research Institute for Policy and Technology , Technical University Delft , PO Box5030, Delft, NL‐2600 GA, The Netherlands Fax: E-mail:b Department of Sociology , Erasmus University Rotterdam , PO Box 1738, Rotterdam,NL‐3000 DR, The Netherlandsc Institute for Migration and Ethnic Studies (IMES) , University of Amsterdam , Rokin 84,Amsterdam, NL‐1012 KX, The Netherlands Fax: E-mail:Published online: 30 Jun 2010.

To cite this article: Robert Kloosterman , Joanne van der Leun & Jan Rath (1998) Across the border: Immigrants’ economicopportunities, social capital and informal business activities, Journal of Ethnic and Migration Studies, 24:2, 249-268, DOI:10.1080/1369183X.1998.9976632

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Journal of Ethnic and Migration Studies Vol. 24 No. 2: 249-268 April 1998

Across the border: immigrants' economic opportunities,social capital and informal business activities

Robert Kloosterman, Joanne van der Leun and Jan Rath

Abstract In this article, we have explored the relationship between informal economicactivities and recent immigrants in the Netherlands. First, we argue that opportunitiesfor a significant participation of immigrants in informal economic activities haveincreased after 1980. On the demand side, the scope for informal economic activities hasincreased because of trends towards disintegration of activities in manufacturing andespecially in service industries, the fragmentation of consumer markets, a gradualemergence of a demand for 'ethnic' products, and also owing to the dynamics of so-called'vacancy chains' whereby indigenous entrepreneurs vacate certain slots and thus createopportunities for immigrant entrepreneurs. On the supply side, processes of socialexclusion and marginalisation appear to contribute to an increased participation ofimmigrants in informal economic activities. More or less permanent high levels ofunemployment are pushing an increasing number of immigrants towards entrepreneur-ship. They usually set up their businesses in those sectors where informal productioncould give them a competitive edge. Through their networks of relatives, co-nationals orco-ethnics they have privileged and flexible access to information, capital and - withrelatively low monetary costs - labour.

The second part of the article presents recent empirical evidence on informal economicactivities on the part of immigrants. The findings confirm that immigrants are indeedheavily involved in informal methods of production in specific sectors.

In industrial times, the expression 'the wrong side of the tracks' referred to thedifferent social world which lay on the other side of the railway tracks. Inthe south-eastern part of Amsterdam, one can see that even in the presentpost-industrial times, railway tracks can still indicate important social andeconomic boundaries. Taking the train from Amsterdam to Utrecht, one can seethe booming office park Amsterdam Zuidoost with its steel and glass officeshousing the corporate headquarters of large multinational firms on the westernside of the tracks. Located almost within walking distance from SchipholInternational Airport, it also has very good alternative transport links as well asexcellent telecommunications. This office park, therefore, is ideally suited to thebrave new world of globalisation. On that same side, we also find the recentlyopened multi-purpose stadium, 'Amsterdam Arena', home ground of Ajax, theworld famous soccer club. The glamorous Amsterdam Arena also stages popularinternational acts such as Michael Jackson, Tina Turner, and Luciano Pavarotti.

Just across the tracks lies the Bijlmer, a mainly residential neighbourhoodwhich shows a very different, but equally telling, side of globalisation. Builtbetween 1965 and 1975, its many multi-storey apartment blocks house a largenumber of recent immigrants. These immigrants are mostly people from formerDutch colonies (Surinam, Dutch Antilles) but, more recently, also comprise anincreasing number of people from, for instance, Ghana and Nigeria and other

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'new' countries of origin. Notwithstanding being adjacent to one of the fastestgrowing office parks in Amsterdam, only a handful of the Bijlmer populationhas found a job in Zuidoost. The expanding global firms, apparently, do notneed the global labour pool from the other side of the tracks. Partly because ofthis, the Bijlmer has a very high rate of unemployment (20 per cent versus anaverage 14 per cent in Amsterdam in total; see Hoolt and Scholten 1996: 76-77),or, to put it more accurately, a very low rate of participation in the formal labourmarket.

The two sides of globalisation, therefore, seem to be able to, literally, coexistnext to each other without really interacting. The old dictum 'East is east andwest is west and never the twain shall meet', therefore, seems to hold true -albeit on a very small scale - for this specific part of Amsterdam. Because of thepoor access to job opportunities, it seems probable that many immigrants in theBijlmer are more or less permanently excluded from the formal labour market.The Bijlmer, however, is certainly not completely starved of immigrant economicactiviy. Research has shown that a broad range of economic activities can befound there (van de Bunt 1992). Catering, video-rentals, 'gypsy7 cabs, cafes, carrepair, hairdressing, child-care centres, garment firms, and other small busi-nesses are located in the Bijlmer. These activities, however, largely take placeoutside the regulatory framework. Independent from ambitious, butmore or less ineffectual, government efforts to create jobs for people living indepressed areas, a significant number of free-spirited people have carvedout openings in the informal economy. This part of the economy, apparently,seems to offer opportunities for immigrants that the formal economy cannotprovide.

Informal economic activities are definitely not confined to immigrants. Earlierstudies have explored the involvement of the indigenous Dutch population inthe informal economy (cf. Fase 1984; Lambooy and Renooy 1985; Kobben andGodshalk 1985; Renooy 1990). Most of these researchers concluded that involve-ment in the informal economy mirrors that in the formal economy. High-paidworkers in the formal economy were found to be high-paid in the undergroundeconomy as well. By the same token, those lacking in social and economic capitaland, hence, playing only a marginal role in the formal economy (e.g. manylong-term unemployed) were also under-represented in the informal economy.Research focusing on the role of immigrants in informal economic activities inthe Netherlands has, so far, been rather thin on the ground (Kloosterman et al.1997b; Rath 1998). In this article, we will present an analysis of the relationshipbetween immigrants and informal economic activities from a more theoreticallyinformed perspective.1

We will argue that the role of immigrants in the informal economy is not themirror image of their marginal position in the formal economy, but rather theresult of it. Just because immigrants, to a large extent, have been excluded fromprivileged positions in the formal labour market, they have become moreprominent in the informal economy. This outcome can be understood only if onetakes account, on the one hand, of recent structural economic changes thatfavour small businesses in combination with processes of exclusion and mar-ginalisation on the formal labour market, and, on the other, of the economicsignificance of human capital and social networks based on ethnicity. Entre-preneurship, as we will show, plays a pivotal role in these informal economicactivities by immigrants. As immigrants are heavily concentrated in the larger

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Immigrants' economic opportunities and informal business activities 251

cities (in the Netherlands especially Amsterdam and Rotterdam; see Tesser et al.1995), we will confine our analysis to urban environments.

It is necessary first of all to clarify the concept of informal activities and topresent a brief overview of the conditions where informal production is mostlikely to occur. We will then give an overview of important trends on both thedemand and the supply side of entrepreneurial activities in the informaleconomy. We argue that the potential for informal economic activities by immi-grants in large Dutch cities has been growing since the early 1980s. After havingoutlined this analytical framework, we examine some recent evidence on infor-mal economic activities by immigrants in the Netherlands, especially in thebakeries sector, before concluding the discussion.

Defining the informal economyThe concept of informal economy was once used to analyse economic activitiesoutside the regulatory framework in Third World (African) cities (cf. Hart 1973).It referred to a form of self-employment which was characterised by low entrybarriers in terms of skill, capital and organisation; by family ownership; by asmall scale of operation; by labour-intensive production with unsophisticatedtechnology; and by unregulated and competitive markets (Peattie, in Portes1994: 427). In the late 1970s and early 1980s, however, the British social scientistsGershuny (1979) and Pahl (1984) transferred this concept from Africa to the UK.In his pioneering Divisions of Labour, Pahl tried to gauge the extent to whichinformal economic activities constituted alternative sources of income for thosewho lost their job due to the recession. He concluded that those at the bottomrung of the ladder of the formal economy found themselves in more or less thesame position in the informal economy. Consequently, informal economicactivities seem to reinforce the existing social stratification. In Pahl's perspective,informal economic activities were primarily seen as defensive strategies that aredeployed in response to, for instance, de-industrialisation. In his work, more-over, no specific attention was paid to immigrants, nor did Pahl focus on urbanareas.

On the other side of the Atlantic, the elaboration of the notion of informaleconomic activities took a rather different turn. There, researchers such asPortes, Castells and Sassen explicitly linked informal economic activities to bothimmigrants and an urban context. More specifically, according to them, thesekinds of activities are predominantly undertaken by recent immigrants from theThird World and, as such, constitute one of the hallmarks of global cities suchas New York, Los Angeles and London (cf. Castells and Portes 1989; Portes andSassen-Koob 1987; Sassen 1991). In so doing, they rejected the idea that informalpractices were just an artefact from underdeveloped economies in the ThirdWorld, brought to advanced economies by immigrants as part of theireconomic-cultural heritage. Instead, they argued that these practices are partand parcel of modern post-industrial economies. In marked contrast to Pahland others, the informal economy in their view has a distinct hierarchy withrespect to the formal economy in the sense that those who have poor access tothe opportunities offered by the regular economy, are likely to be over-represented in the underground economy.

In sum, the concept of informal economy travelled from the backwaters to theheadquarters of contemporary capitalism in the span of two decades. This

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252 R. Kloosterman et a\.

conceptual migration eventually became tied to physical migration when itemerged that recent immigrants are strongly over-represented in these informaleconomic activities in advanced urban economies.

As our research is explicitly directed towards the relationship between immi-grants and informal economic activities, we have opted for the concept ofinformal economic activities as developed by Castells, Lambooy, Portes, Renooyand Sassen. We have, accordingly, taken as our starring point the definitionformulated by Lambooy and Renooy (1985; see also Renooy 1990) in themid-1980s:

By informal activities we mean activities aimed at producing a positive effect on income(for the person executing the activities and/or for the person receiving the results), forwhich the terms of legislation and regulations (planning requirements, social securitylegislation, collective labour agreements, and the like) applicable to the activities are notbeing met. (Renooy 1990: 24)

This definition has been adopted by others such as Portes and Sassen-Koob whoadded that:

(...) although this definition encompasses criminal activities, the term is customarilyreserved for such activities as those in the food, clothing, and housing industries that arenot intrinsically illegal but in which the production and exchange escape legal regulation.(Portes and Sassen-Koob 1987: 3D2

The informal economy is thus conceived of as a process of income generationrather than a characteristic of an individual (if only because a moonlighter mayhave an entirely legal job at another time of the day). The decisive characteristicof the informal economy which distinguishes it from the formal economy is thelack of governmental control (Renooy 1990: 25).

Although a useful definition, five observations have to be made. First, thisdefinition is wholly contingent on the regulatory context and this may differfrom time to time and from place to place. What is informal in one place maybe completely legal in another. Prostitution, for instance, is completely illegal ina number of American states but (partly or entirely) legal in other states such asNevada or in countries such as the Netherlands. Moreover, specific regulatorycontexts may even create distinct informal economic activities. By establishingmonopolies for the sale of cigarettes, the Italian government - inadvertently, onepresumes - also created the somewhat peculiar sight of African immigrantsselling cigarettes along major exit routes in cities. This points to the dynamiccharacter of the informal economy. Activities that are entirely legal at one time,may turn out to be illicit at another. Only three decades ago, the Dutchgovernment welcomed undocumented immigrants who were portrayed as'spontaneous guestworkers' (Rath and Schuster 1995: 103; Wentholt 1967: 189).They were duly regularised as soon as they found a job. Today, the Dutchgovernment perceives undocumented immigrants as 'profiteers' who should beexpelled instantly.

Second, being contingent on the regulatory framework also precludes anunequivocal description of the nature and extent of the informal economy.Depending on the rules and regulations one takes as a point of departure, onemay, in one case, describe and measure the informal economy in terms of money(e.g. the amount of evaded tax money). In another case, however, the unit ofmeasure could be in terms of persons (e.g. the number of undocumentedworkers).

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Immigrants' economic opportunities and informal business activities 253

Third, the difference between informal economic activities and criminal activ-ities is not always easy to ascertain. If certain activities are illegal under certaincircumstances, does breaching of the rules imply an informal or a plain criminalactivity? In the Netherlands, legal actions are taken against people who trade inhard drugs; their economic activities are considered as violations of the CriminalLaw. The tax authorities, however, usually consider these same activities as justanother form of income generation and, accordingly, levy taxes. By the sametoken, the criminal is entitled to the same kind of tax deductions with respect tothe costs accrued in the process of income generation (such as the costs oftelephone conversations, the fee for his accountant or the procurement of hisMastino Napolitano or his Magnum for that matter). Having said this, it can beargued that the risks of criminal activities are higher and this may affect thestrategies of the (criminal) entrepreneur. However, this makes the criminaleconomy at best a special variant of the informal economy.

Fourth, within one given regulatory context, and regardless of its potentialcriminal content, it may still be hard to delineate formal and informal economicactivities. If an employee of a firm parks his van without paying the parking feeto deliver a package, should this be considered a form of informal production?Furthermore, no ordinary person of flesh and blood is capable of knowing all therules and regulations by heart, let alone live by them. Especially in advancedwelfare states such as the Netherlands with its enormous corporatist legacy ofrules and regulations, it seems nigh impossible to avoid some form of informalproduction. What is considered to be an informal economic activity thenbecomes, to a certain extent, a matter of arbitrariness.

Fifth, to examine informal economic activities one also has to take intoaccount the ways in which government agencies actually deal with these activi-ties. Law enforcement is not self-evident nor does it follow a fixed course. Thishas, among other reasons, to do with the way in which it is organised. Thegovernment may assign many or only a few powers to enforcement agencies,and/or may give them the power to establish their own priorities. Thesepriorities are affected by political decisions as well as the caseload, the interpret-ation of the job, the motivation and the efforts of the law enforcers themselves.The system of law enforcement may undermine itself when the financial or othercosts of policing the rules become a greater burden to society or to the industryconcerned than taking a more lenient position. For this reason, the new Labourgovernment in Britain has intended to relax the procedures relating to theemployment of illegal immigrants (The Independent, 29 May 1997). Labour,moreover, believes that strict law enforcement has deterred many employersfrom giving jobs to ethnic minorities and that it has created a new market forfalse ID papers. By relaxing the rules the government tries to prevent suchperverse effects. The actual law enforcement is to some extent dependent onthe culture of public administration in general, and of the enforcing agenciesin particular. Perhaps partly as a result of their plethora of rules, the Dutchhave developed a rather awkward way of dealing with certain infringements:they are officially tolerated as part of the typical Dutch policy of gedogen, 'a nigh-untranslatable term that means looking the other way when you must' (TheEconomist, 12 October 1996; for a more sophisticated view see Blankenburg andBruinsma 1994). Most famous (or notorious) in this respect is the Dutch policytowards soft drugs; although illegal, they are tolerated within certain limits. Thissame approach of gedogen is also used to refer to certain activities undertaken by

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immigrants. The sale of foodstuffs in mosques in Rotterdam, for instance, isillicit but nevertheless tolerated, because it provides the cemaat with importantfinancial resources which it otherwise cannot obtain (Rath et al. 1996). Likewise,the authorities have designed quite a flexible set of transitional arrangements forIslamic butchers working with no permits because of the prevailing importanceof the sale of halal meat.

The implications of these observations are far-reaching. Against the grain ofmany popular views, there is no sharp demarcation between 'the' formal and'the' informal economy. On the contrary, there is an extensive and ever-changingtransitional area in which the formal economy gradually becomes transformedinto a more informal one.

Given this overall complexity, informal economic activities can, in practice,only be studied fruitfully by pre-selecting a specific set of rules (e.g. minimumwage or sales tax) and then investigating certain firms or individuals who breachthem, and examining the processes which lead to these infringements. In ourresearch, emphasis is placed on infringements of regulations concerning taxes,minimum wages and labour conditions. These regulations are crucial legalconstraints for any kind of formal production in any advanced economy.Breaching them may, therefore, constitute a serious deviation from the formaleconomy.

Profits and costsIt can be argued that informal economic activities only make sense where theprofits of doing so exceed the costs. The potential profits are then firstlydetermined by the regulatory framework. The higher the level of taxes andsocial contributions, the more remunerative it becomes to find a way aroundthem. Also, the more production is regulated in terms of working hours, hiringand firing, health and environmental conditions, the more, in principle, can begained by ignoring them. This view could was recently also embraced in anarticle in The Economist (3 May 1997). It was argued that next to the heavy taxburden 'the most important cause of the thriving black economy is excessiveregulation of labour and product markets'. This argument was based on thework of Schneider who has managed to construct a hierarchy of black economiesby examining the amount of unexplained cash sloshing around in the economy.The notorious (or famous) case of Italy is located at the top of this ranking witha shadow economy comprising no less than 25 per cent of the Gross NationalProduct. Orderly Switzerland is found at the bottom (with about 8 per cent).Oddly enough, highly regulated welfare states such as the Netherlands andGermany are located in the middle section together with, for instance, Britainand Australia (about 15 per cent). The United States is near the bottom with just10 per cent of the Gross National Product.

The regulatory framework is, however, not the only factor as potential profitsare also dependent on both the labour-intensity of the production and thestructure of the market within which a firm sells its products. The higherthe labour-intensity, the more it makes sense to break the rules with respect to,for instance, minimum-wage regulations, social contributions and workinghours. In this case, labour is the most important production input and, conse-quently, economising on its cost is a sensible strategy. Furthermore, the incentiveto revert to informal ways of production is also dependent on the market where

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Immigrants' economic opportunities and informal business activities 255

a firm sells its products. If it produces for a market where competition is centredon quality rather than on price, lowering the costs of production by switching toinformal production makes less sense. A lower price has only a small impact onthe volume of sales and informal production may even jeopardise the quality ofthe firm's products. At the lower end of the market, where the added value isrelatively low and labour-intensive, things are rather different. If a firm com-petes primarily on price, then price-cutting can be an effective strategy. Survivalof the firm may even depend on the ability to produce cheaply. In a situation,therefore, where a firm is confronted with a market where price competitionreigns, a premium is put on flexibility of production, and where production ishighly labour-intensive, benefits from informal production could be rathersignificant. We will elaborate the role of the market further below.

Costs of informal production are related to, first, the availability of informalproduction inputs (primarily labour) and, second, the risk of being caught. Theavailability of informal production inputs is determined partly by the avail-ability of alternatives. If, for instance, a worker can easily find work in the formallabour market then, because of the risks involved, informal labour may evenbecome too expensive for firms. On the other hand, if a certain category ofworkers is marginalised and has difficulty in gaining access to the formal labourmarket, employers will be faced with a cheap pool of labour that is probablywilling to engage substantially in informal production. Undocumented workers,for instance, are legally excluded from any kind of formal production andinformal work may be their only resort to surviving on their own (Burgers andEngbersen 1996; Staring 1998; van der Leun 1995).

This rather utilitarian approach of labour recruitment, of course, ignores theeconomic significance of social structures that often support entrepreneurialactivities both in the formal and informal economy. It is quite common amongsmall entrepreneurs to appeal to family members or co-ethnics for all kindsof odd jobs or for assistance during peak hours. They are not infrequentlypaid - if they are paid at all - off the books.

The chances of being caught are partly determined by both the quality and thequantity of the surveillance undertaken by government and other controllingagencies. Politics of tolerance in conjunction with already overworked govern-ment agencies could lower the risk of being caught considerably. The risk ofbeing caught is, furthermore, dependent on the structure and location of theproduction. If informal production takes place in a myriad of small firms, manyof them located somewhere out of direct sight (in backyards in nineteenth-century neighbourhoods or, as in the Bijlmer, in high-rise apartments and inbasements hidden from view), then the chance of being caught is also reduced(cf. Daunton 1983; Savenberg et al. 1993). In addition, large, well-known firmsmay have a reputation to lose if caught engaging in unlawful production.Smaller firms, on the other hand, especially when active at the lower end of themarket, have less to lose, are more flexible and can even choose the option of'disappearing' for a while by filing bankruptcy and subsequently restarting.

The profits and costs of informal activity do not only depend on the oppor-tunity structure, but also on the characteristics of the (informal) entrepreneur,and their interrelationship. Just like in the formal economy, entrepreneurs haveto be capable of identifying the opportunities for informal production and, ofcourse, of seizing them. This is contingent on the economic, human and socialcapital of the entrepreneur. Micro-entrepreneurs often lack the money to hire

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adroit lawyers or financial advisers, so they have to do the bookkeepingthemselves. This mostly narrows the scope of creative bookkeeping and in-creases the risk of mistakes. In any case, their books tend to attract the attentionof the tax service. This is particularly true for immigrants who are then facedwith higher risks.

Owing to their lack of educational qualifications but also owing to the biased,if not overtly racist, recruitment procedures of native employers, the immi-grants' position on the formal labour market is rather weak. This blockedmobility constitutes an important reason why immigrants enter self-employmentbut is not without pitfalls as this same lack of skills and qualifications may alsohamper entrepreneurship in highly regulated markets. In many sectors, entre-preneurs need to have a permit. Starting a butcher's shop or a bakery in theNetherlands, for instance, requires a permit. These permits are given only ifthe entrepreneur can show his professional credentials that have to be obtainedin specific vocational training programmes. Immigrants, being unaware of manyof these rules and regulations, sometimes miscalculate the costs and profits ofinformal activities (Kloosterman et al. 1997b: 74-85).

Informal production, finally, is also related to the social capital of the peopleinvolved. Informal production implies that one cannot call upon the regularinstitutions in case of disagreements. Informal economic activities, hence, haveto take place within frameworks of trust (Epstein 1994). This trust can begenerated by social networks, which enable the informal provision of labour,capital, information and other resources (Roberts 1994). Thus, social networkswill also contribute to a lowering of the chance of being caught. As Portes andSensenbrenner (1993; see also Portes 1994) have argued, immigrants show aheightened sense of community owing to their 'foreignness' and the specificcircumstances created by the processes of migration and settlement. They are,hence, most likely to generate this kind of social capital.

To summarise, informal economic activities as described by Portes, Castellsand Sassen are most likely to occur in small firms that specialise in low-value-added, labour-intensive production which requires relatively modest capitaloutlay. Furthermore, to avoid being caught, these firms have to find ways tokeep comparatively low profiles. To engage in informal production, firms, or tobe more precise, entrepreneurs of micro-businesses, additionally, have to be partof social networks that enable them to obtain labour, capital, information andother resources on an informal basis. The (immigrant-) entrepreneur occupies,hence, the central stage in our study.

To investigate the relationship between immigrants and informal economicactivities, we have to examine the extent to which developments on the demandas well as on the supply side of entrepreneurship have contributed to favourableconditions for these kinds of small firms after 1980. In so doing, entrepreneur-ship will be treated as a fictitious good on a market with a demand and a supplyside (cf. Light and Rosenstein 1995).

Demand side: vacancy chains and the rise of the post-industrialcityThe ongoing processes of replacement and succession of existing firms generatea demand for entrepreneurship. 'New' entrepreneurs fill the economic placesvacated by 'old' entrepreneurs who retired, died, became disabled, found a job

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Immigrants' economic opportunities and informal business activities 257

elsewhere, or moved to other markets (Barett et al. 1996; Kloosterman et al.1997a; Light and Karageorgis 1994; Waldinger 1996). The openings emerge inexisting markets and are possible without basic changes in the economicstructure. The vast majority of these new small firms, operating at the lower endof the market, is marginal on a structural base. For most of these firms thechances of growth are small or virtually absent (cf. Jones et al. 1998). Not onlybecause the neighbourhoods in which they are located are often populated byhouseholds with relatively little purchasing power, but also because movingup-market is precluded by already existing largely oligopolistic big companiesor chain store businesses. The markets for starring entrepreneurs tend to havelow entry barriers in terms of skill, capital and organisation, and are thereforehighly competitive. Entrepreneurs are often recruited from the ranks of the less-privileged parts of the population, such as immigrants, who are willing to workhard for a small salary. To some extent immigrants can create their own marketby trading 'ethnic products'. However, owing to demographic reasons, these areconfined and thus 'captive markets'. In addition, they have to cope with the riskthat others (native businesses, new immigrant entrepreneurs) try to penetratethese 'ethnic markets'. All this creates an inherent pressure for informalpractices.

These vacancy chains thus occur in an economic environment that does notneed to undergo structural changes. However, structural changes do take placeas well, albeit not necessarily in the same market. As a matter of fact, advancedeconomies have gone through a distinct process of economic restructuringwhich, broadly speaking, consisted of, on the one hand, de-industrialisation,and, on the other, an expansion of service activities. As Esping-Andersen (1991,1993,1996) has shown very clearly, the outcomes of this process are to a largeextent contingent upon the institutional framework. There are, however, anumber of common elements. The fact that economic restructuring seems tohave brought about a higher level of income polarisation is one of the moresalient features (cf. OECD 1992). Another common element that has, so far atleast, drawn less attention is the rise in the number of small firms (Light andRosenstein 1995; OECD 1993). The emergence of a post-industrial society seemsto have tilted the opportunity structure - the demand side - in a direction whichis more favourable for small firms. The once overriding advantage of increasingscale of production which favoured ever larger firms seems to have given wayto a more complex system (cf. Piore and Sabel 1984). This shift in the oppor-tunity structure has served to increase chances for small entrepreneurs to set uptheir own businesses.

This shift in the opportunity structure has been attributed to the rise of theservice sector in general, the trend towards outsourcing, the introduction of newtechnologies (e.g. information technologies) that enable profitable production ofsmaller series (flexible specialisation), the lack of responsiveness of large firmswith respect to both innovation and shifts in markets, and a trend towardsfragmentation of markets on both the higher and the lower end of producer andconsumer markets (Light and Rosenstein 1995).

A rise in the number of small firms and the number of self-employedindividuals has also been evident in the Netherlands, although this happened ata somewhat later stage than most other OECD member states (see Table 1).A sustained rise occurred only after 1985. More recent figures, however, seem tosuggest that a growth acceleration is taking place.

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Table 1. Self-employed persons in the Netherlands, in total numbers and as percentagesof total labour force, 1975-1993 (agriculture excluded)

n%

1975

4039.2

1977

3868.7

1979

4008.8

1981

4559.4

1983

4048.6

1985

4048.4

1987

4347.9

1989

4487.8

1991

4767.7

1993

5508.7

Source: OECD (1995: 314-15).

If one descends from the national level and moves to that of cities, it becomesclear that at the level of the latter the process of economic restructuring hasmanifested itself in a very pronounced manner (Burgers 1996; Fainstein et al.1992; Hamnett 1996; Kloosterman 1996a, b; Kloosterman et al. 1997a, b;Levine 1992; Sassen 1991). In these larger cities, the joint processes of de-industrialisation and the rise of the service sector has taken place in very closeproximity. Hence, it is to be expected that the opportunity structure in urbanareas has also shifted in a direction favouring small firms. As Sassen (1991) hasargued, opportunities for small firms have opened up, especially at the lowerend of the market. Small firms catering to large firms (e.g. cleaning, delivery) aswell as small firms selling their goods and services to (well-to-do) householdsare then intimately connected to the emergence of a post-industrial city (cf.Kloosterman 1996b). According to Sassen, these small firms are extensivelyengaged in all kinds of informal activities.

The shift towards self-employment has also manifested itself in the four mainDutch cities. The number of self-employed individuals in Amsterdam, Rotter-dam, The Hague and Utrecht increased by 20 per cent between 1981 and 1993,whereas the number of employees rose only by 7 per cent in that same period(SCP 1996: 97). Research has revealed a marked growth of the number ofself-employed persons in retailing, wholesale, restaurants and personal servicesin Amsterdam and Rotterdam after 1990 (Kloosterman and van der Leun 1998;Kloosterman et al. 1997a). Thus far, however, immigrants predominate in thevacancy chains of the 'more traditional' markets. They are gradually penetratingthe (personal) services market, but their proportion is as yet relatively small.

The changes in the opportunity structure in advanced economies in the lasttwo decades have been quite favourable for small firms. The ensuing renaissanceof small firms has occurred on a national level, and particularly in urban areas.Furthermore, growth of the number of self-employed in urban areas includednot just high-tech activities but also low-value-added activities. It may even bethe case that a post-industrial city is polarised in this respect (Burgers andKloosterman 1996). It seems obvious, therefore, that the opportunity structure inDutch cities has moved in a direction which is more favourable for economicactivities where informal production might be a useful strategy. However, thisis not self-evident. Opportunities have to be first identified and then seized.Before moving on to present some evidence on the involvement of immigrantsin the informal economy, we will examine developments on the supply side.

Supply side: the establishment of immigrants communitiesThe potential supply of immigrant entrepreneurs is determined by the size of therelevant population, its resources and its proclivity for entrepreneurship. As for

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Immigrants' economic opportunities and informal business activities 259

Table 2. Proportion of the immigrant population in the fourlargest cities in the Netherlands, 1975-1995

AmsterdamRotterdamThe HagueUtrechtNetherlands

1975

66552.2

1980

1110983.2

1986

16141494.3

1992

272522176.9

1995

3229

21

Source: Tesser et al. (1995: 56).

the latter, some immigrants entered the country with the sole purpose ofestablishing themselves as entrepreneurs. Many immigrants, however, did notsettle with that purpose. Various immigrant groups show different levels ofeconomic, human and social capital and (thus) different rates of self-employment. Their spatial concentration in specific cities and within those citiesin specific neighbourhoods affect those rates as the very existence of immigrantcommunities themselves generate a demand for 'ethnic' products as well as ademand for 'non-ethnic' products produced by co-ethnics. Immigrants, more-over, generally occupy a disadvantaged position on the labour market and thisconstitutes another incentive for self-employment. Their lack of economic andhuman capital interferes with their entrepreneurship in the sense that they aremore or less funnelled to the markets with low entry barriers. Within thesemarkets, at the lower end of value-added entrepreneurship, they do have acompetitive advantage compared with many native entrepreneurs. The lack ofopportunities outside their own enterprise in combination with their specificsocial embeddedness provides them with the entrepreneurial drive to stretch therules. The step from informal money lending, exchange of information andassistance - all quite common practices within immigrants communities - toillicit activities is not far removed, particularly when the entrepreneurs can onlymake small profits, if any, in highly competitive markets.

Although the increase to some extent reflects a change in definition, there hasbeen a strong growth in the immigrant population in the Netherlands, especiallyin the four largest cities (see Table 2). In Amsterdam and Rotterdam, about athird of the total population is of recent immigrant origin. The numbers ofimmigrants from new countries are rising, but immigrants from the formercolonies Surinam and the Dutch Antilles and immigrants from Morocco andTurkey (former guestworkers) are still the most numerous. The recent growthhas also brought about a more balanced composition of the immigrant popu-lation, both in terms of age and gender. Although segregation remains relativelylow (compared with, for instance, the USA), immigrants are strongly concen-trated within these four cities in late nineteenth-century working-class neigh-bourhoods and in post-war, high-rise neighbourhoods.

Resources in advanced economies consist first and foremost of human capitalacquired through education. On average, the immigrant population is (much)less well educated than the indigenous Dutch (Tesser et al. 1996:152). Significantdifferences, however, exist within the immigrant population. Surinamese andAntilleans are on average much better educated than Turks and Moroccans. The

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extensive knowledge of Dutch that almost all Surinamese and Antilleans possesshas been a notable advantage. Even though second generation Turks andMoroccans have better educational qualifications than their parents, they are stillwell behind Surinamese and Antilleans.

These differences in the average level of education are clearly reflected in therates of unemployment. The rate of unemployment among Surinamese andAntillean men in 1994 was about four times as high as that of the indigenousDutch which stood at about 5 per cent; the rate for Turkish and Moroccan menwas no less than 6.5 times as high in that same year (Tesser et al. 1996: 79). Thesemuch higher rates of unemployment among immigrants are not a very recentphenomenon. A huge re-organisation took place in the wake of the second oilcrisis in the early 1980s in the Netherlands (cf. Kloosterman 1994). The numberof available jobs in manufacturing decreased dramatically and many Turkishand Moroccan workers, mostly from the less-skilled segments of the workforce,were given notice. Lacking in both educational qualifications and fluency inDutch, they found themselves at the end of the hiring queue. Consequently, theirrates of unemployment - which used to be lower in the days of the guestworker-programme - quickly rose above those of the indigenous population and stayedthere. Significant parts of the immigrant population thus came to occupy amarginalised position in the Dutch labour market.

This process of the dosing-off of opportunities on the labour market hasencouraged immigrants to set up their own businesses (cf. Bronsveld 1994:181-221; Tesser et al. 1996:118). Owing to their relatively poor access to financialresources and their meagre educational qualifications, many immigrants haveonly very limited options. Immigrant entrepreneurs are therefore primarily to befound in those segments where new firms require small outlays of capital andwhere labour is consequently the most important input. These segments are, asa consequence, relatively easily accessible, which, in turn, makes them highlycompetitive. As the added value within these segments is relatively low,competition has to be centred on prices. In labour-intensive production, compet-ing on prices is almost wholly determined by labour costs. Cutting the costs oflabour by infringing regulations can be a sensible strategy in these circum-stances. Informal production on a more permanent basis can occur only withina framework of trust. This framework can be provided by ethnicity which helpsto constitute social networks within which informal transactions take place. Theprocess of marginalisation, by contributing to the emergence of a 'reactiveethnicity' has, thus, indirectly created the conditions for informal economicactivities.

Immigrants in the Netherlands thus find themselves at the intersection ofdifferent important developments: on the one hand, the exclusion from theformal labour market, on the other, the opening up of opportunities for smallbusinesses at the lower end of the market. This particular segment of the marketis dominated by price competition and informal practices could make a differ-ence. A case study of informal economic activities in one such segment followsbelow.

BakeriesThe above has served to identify the theoretical characteristics of the sectorswhere an abundance of informal economic activities can be expected. In line

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Immigrants' economic opportunities and informal business activities 261

with this categorisation, the incidence of informal production is due to a specificcombination of supply-side and demand-side characteristics. The structure of themarket promotes the creation of firms that produce on a small scale, which arecharacterised by low entry barriers in terms of skill and capital, and which areable to operate in a highly competitive market. We expect these firms, operatingat the lower end of the market, to increase their proportion of the marketprimarily by virtue of flexibility and by competing on price rather than onquality. The most evident route to survival, hence, is cutting (labour) costs. Thisstrategy, however, is only partially feasible within the prevailing regulatoryframework. If one goes beyond this framework by evading payment of taxes orsocial contributions or by ducking the minimum-wage and working-hour regu-lations, considerably more can be gained. These strategies - illegitimate as theymay be - can be very profitable, as production is typically very labour-intensive.The entrepreneur may, moreover, tap resources such as social capital. Throughtheir networks of relatives, co-nationals or co-ethnics they have privileged andflexible access to information and capital, with relatively low monetary costs.The use of social capital within the current opportunity structure gives thesebusinessmen a competitive advantage, both within the formal and informaleconomies.

Within the Dutch economy these phenomena can be observed in a number ofservice and manufacturing sectors such as catering, garment production, clean-ing, prostitution, butchers, bakeries and so on (see Kloosterman et al. 1997b;Rath 1997b). Here we confine ourselves to briefly presenting empirical infor-mation on one specific sector, namely that of bakeries.3 This sector is interesting,simply because almost everyone - immigrant and native — consumes bread ona daily basis. It can therefore be assumed that bakeries operate in a relativelystable market, and that immigrants enter these markets either as entrepreneursin a vacancy chain and/or as entrepreneurs responding to specific ethnicdemands.

During the past decades, the number of bakeries (i.e. units for the productionof bread and bread-associated products) has decreased considerably. More than35 years ago, in 1960, there were 10,139 bakeries in operation, but this numberhas gradually decreased to 3,140 in 1994 (NBS 1994). The number of sales outletsis considerably higher, namely 12,208, because quite a number of firms haveopened branch stores. In the four main cities an opposite development seems tobe taking place: during recent years the number of bakeries appears to beincreasing. Remarkably, mainly Turkish and Moroccan bakeries account for thisincrease. They use nostalgic or Islamic names such as My Turkey, Brothers,Medina or Mevlana, or have intriguing, sometimes typically Dutch names such asMadelief (Daisy) or De Gouden Korenaar (The Golden Corn Ear). In 1994, 133immigrants were running bakeries.4 This is shown in Table 3. By mid-1996, thisnumber had already increased to 153 immigrants.

Although more than half of all bakeries are located in the countryside, only afew of these are run by immigrants. In the main cities, however, the opposite isthe case. The number of immigrant businesses in Rotterdam is relatively high; asis shown in Table 4; one out of every three bakeries is an immigrant-ownedbusiness. Particular streets are home to several bakeries, all serving the sameclientele. Some bakeries have filled slots left vacant by native bakeries whomoved out of the neighbourhood or out of the sector altogether. Others haveestablished new firms to serve the communities of Turks or Moroccans, or justfollowed 'successful' pioneers.

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Table 3. Bakeries by location and by origin of the entrepreneur

4 main cities39 large provincial towns63 small provincial townsCountrysideTotal

Total number

338631432

1,7393,140

Total(%)

11201455

100

Immigrant(n)

744496

133

Immigrant(%)

563374

100

Source: NBS (1994: 51).

The odds are against starting a business in the bakeries trade: during the pastdecades the per capita consumption of bread has decreased to an average 60kilos by year, with immigrants consuming just slightly more. In addition, manynative Dutch consumers show an increasing preference for wholemeal bread andsmall luxury rolls. Although the production of these sorts of bread is quiteprofitable, most Turkish and Moroccan bakeries confine themselves to bakingTurkish and Moroccan bread. These products differ from Dutch or WesternEuropean types of bread in that no animal fats are used. A producer of raw foodmaterials was ingenious enough to develop a vegetable-based alternative forthese target groups.

The immigrant bakeries businesses constitute a market share of approximately3.8 per cent of the total production of small- and medium-sized firms in thissector. Production in this sector is usually calculated in bags of flour. Theaverage SMSB processes 38 bags of flour each week; immigrants' businessesprocess only, on average, 33 bags. According to the Dutch Foundation ofBakeries (Nederlandse Bakkerij Stichting) businesses are barely viable if theyprocess only about 15 bags a week. Approximately one out of every fiveimmigrant bakery businesses - 24 out of 133 - do not meet that criterion. Thismeans that a substantial proportion of these bakeries cannot be generating aliving wage. This segment of bakery businesses shows great fluctuations.According to a spokesman, who has been in contact with every immigrantbaker, as recently as 1995 it was the case that 26 bakeries changed ownership, 11bakeries remained in the same hands but re-registered at the Chamber ofCommerce, 2 bakeries moved elsewhere, 12 closed down, and 14 new bakerieswere established. Immigrant businesses change ownership relatively quicklyand this holds for other sectors as well.

Table 4. Bakeries in four main cities (including suburbs)

AmsterdamRotterdamThe HagueUtrechtTotal

Total number

138747452

338

Immigrants

2225198

74

Immigrantbakeries

(%)

1634261522

Immigrants inpopulation

(%)

2420201521

Source: NBS (1994: 53).

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Immigrants' economic opportunities and informal business activities 263

The Dutch Foundation of Bakeries (DFB) has complained about the poormanagement of immigrant bakeries. They are said to lack professional skills, tobe wanting in knowledge of the market, proficiency in Dutch, working capitaland the necessary permits. Most lack business experience and in so far as theyhad professional education in their country of origin, this is not considered bythe DFB as guaranteeing craftsmanship.

The market for their products is based on a clientele of co-ethnics only and istherefore limited. Besides, their customers do not necessarily purchase theirbread at the bakeries. Bread is also sold at (Turkish, Moroccan and Dutch)supermarkets and grocery stores, the street markets and even at (Islamic)butchers. Because the demand is limited (and therefore also the range ofproducts), the bakeries attempt to secure (or extend) their share of the market bycalculating keenly competitive prices. An 800 gram white bread will then bepriced at only NLG1.50 or even at NLG1.25, instead of the more reasonable priceof NLG2.00 (NLGl equals US$0.5). Such a low price at best barely pays the costswhich have been incurred, and in following this pricing structure the business-man seriously jeopardises his profit margin. Many bakeries, moreover, maintainextremely poor bookkeeping. This does not help ensure a better and morerealistic insight of the cost involved. Bakers often 'forgef to take full account ofthe payment of taxes and social contributions, and of such costs as the depre-ciation in value of existing machinery and of new investments.

Bakeries use a changing combination of strategies to maintain business,approaches that are geared mainly to lowering the costs and that includeinformal practices. The first strategy is investing as little as possible inmachinery and marketing. They tend to install second-hand dough mixers,kneading machines and ovens rather than new ones. These machines arecommonly bought on credit from the (Dutch) firm that has traded them in fromDutch bakeries. The second-hand machines are not always of good quality.There are cases in which the oven has leaked gas. The bakeries, moreover, do notspend much money on the design of their shop and on the presentation of theirproducts, not to mention the marketing of their products. A number of bakerieshave been located in converted living rooms.

The second strategy for lowering costs is the use of cheap materials. Onesupplier of flour delivers through a Turkish middleman. Despite the fact thatthis flour is relatively cheap, native Dutch bakeries have no interest in it. Thequality of that flour is poor and therefore the flour is more difficult to process,and yields an inferior product. The quality is sometimes so poor that the flourcannot be fully processed by machines. This means that the baker needs a largerworkforce (which increases the costs).

The third strategy is the evasion of taxes, social contributions, membershipduties or other costs. Bakeries are compulsory members of the Dutch Foundationof Bakeries, but quite a few 'forget' to pay their membership dues on time. Thepayment of VAT also leaves a lot to be desired. And there are even reports thatsome Turkish bakeries do not pay their suppliers. Some (Dutch) suppliers warneach other not to do business with Turkish bakeries, and if such is inevitable, notto give credit.

The fourth strategy is to hire workers off the books. Processing inferiormaterials with inferior machines compels the baker to hire many workers, butcosts are kept low by doing away with the payment of taxes, social contribu-tions, and fringe benefits. Bakers also hire undocumented immigrants (see, for

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264 R. Kloosterman et a\.

instance, de Volkskrant, 12 October 1993), and call upon relatives and co-ethnicsfor occasional assistance.

The DFB is convinced that immigrant bakeries violate the rules and regula-tions much more frequently than do native bakeries. The Foundation also hasthe impression that agencies responsible for the execution and enforcement oflaws and regulations - such as the Chamber of Commerce, the Food InspectionDepartment, the Aliens' Police, and the Economic Control Department - applyother (i.e. more relaxed) norms with regard to immigrant bakeries. Spokespeoplefrom these agencies deny these allegations and state that they treat all bakeriesequally (Swinkels 1991). The DFB, however, remains unconvinced and speaks ofa 'quasi non-discriminatory public policy'. It is apparently striving for strictercontrols for the immigrant segment of the bakeries sector. Some Turkish bakerscomplain about the, in their view, unnecessarily strict and frequent inspectionsof immigrant businesses.

In the 1990s, the DFB has embarked on a number of projects aimed atorganising immigrant bakers. One project entailed the foundation of a separateorganisation of Turkish bakeries that would be only indirectly associated withthe DFB. The DFB sponsored a number of rallies in the cities of Amsterdam,Rotterdam, The Hague, Breda, Eindhoven, Venlo and Deventer. During thosemeetings, attended by quite a number of bakers, a number of problems werediscussed, varying from the production process, the calculation of prices and themachinery to specific bakers' skills. For some time, a so-called 'contact group' ofTurkish bakers did exist, but at the time of writing such an organisation nolonger exists.

The DFB still encourages immigrant bakers and their workers to follow thecourses that are necessary to enhance the craftsmanship of the baker and - lastbut not least - to obtain a certificate of proficiency. This policy aims to raise thequality of the sector as a whole as well as securing the regularisation of thebusinesses which are operating informally. In the Netherlands, bakers areobliged to have a certificate of proficiency; in the case of Turkish and Moroccanbakers this is the certificate for 'non-Western sorts of bread' (see HandboekMinderheden 3/1000-9). This requirement can be temporarily waived for bakerswho are able to show that they are pursuing the necessary courses. The coursesare currently sponsored by the DFB and the Ministry of Economic Affairs, so(would-be) bakers do not have to bear any costs.

The overwhelming majority of the immigrant bakers are of Turkish origin,only some 20 are of Moroccan provenance and just a few are of Surinamesebackground. It is not immediately clear why Turks predominate in this sector.Most probably, this is a function of their specific social embeddedness. Oneparticular Turkish family is organised in a kind of patronage structure and issaid to own 15 to 20 bakers. This sizeable share of the market enables them todominate the sector. It is well known that members of this family have playeda central role in the organisation of Turkish bakeries; one person has even triedto set up a buyers' co-operative.

The (Turkish) bakeries are very much involved in discussions, albeit notformal negotiations, about the price of bread. Until a few years ago, theminimum price of bread was determined by law. In the process of deregulatingthe economy, the price of bread is now market-led. Turkish bakers repeatedlyreach informal agreement on a minimum price, but every time there is at leastone baker who does not comply with the agreement (which itself is legal). The

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reports are that the large Turkish family just mentioned puts pressure on otherbakers to maintain a specific price, while dodging the agreement themselves. InRotterdam, Turkish bakers agreed to pay NLG10,000 into a joint account.Anyone not complying with the agreement would lose their money. The plandid not work, because a number of bakers were not able to marshall that amountof money. Other methods are used to force competitors to play the gameaccording to the rules. The police are very interested in information about theemployment of undocumented immigrants. Elsewhere, the van of a Turkishbaker was set on fire, because he sold bread below the agreed minimum price.

A quantitative overview of informal activities is not available, but the exampleof immigrant bakers working at the lower end of the market reveals that they,at least, are very much inclined to avoid the rules. At the same time, it is clearthat many strategies are pursued to achieve a kind of regularisation of the sector.Not only is a variety of law enforcement agencies active, but both formal andinformal organisations of bakery businesses are endeavouring to organise immi-grant bakers, seeking to ensure adherence to certain rules and to bring about anincrease in skill level. Furthermore, the policy of the national government toderegulate economic life - stripped from its political humbug - has createdspecific forms of regulating informal activities. The abolition of the legal mini-mum price of bread and the relaxation of the closing hours of sales outlets areexamples. A couple of years ago during the Ramadan, some immigrant bakersstill got into trouble with the authorities because they sold bread after six o'clockin the evening (see Rath et al. 1996; Gooi en Eemlander, 7 December 1990). Thisproblem has now been resolved. However, this deregulation has also increasedcompetition and, concomitantly, pressure on informal production.

Marginalisation and informal economic activitiesHigh rates of unemployment among immigrants (and especially among Turksand Moroccans) for over a decade are a clear indication of structural processesof marginalisation in the Dutch labour market. Within the specific context of theDutch welfare state, marginalisation in the labour market - driven by a combi-nation of educational shortcomings, lack of fluency in Dutch, spatial mismatchesand discrimination - produces unemployment or, in other words, exclusionfrom jobs in the formal economy. This has resulted in a large number ofimmigrants living more or less permanently on unemployment benefit. Morerecently, a different pattern appears to be evolving. Immigrants in the Nether-lands are increasingly setting up their own businesses. In this respect, immi-grants profit from the shifts in the opportunity structure that favour smallbusinesses. As most of these immigrants do not have easy access to substantialfinancial resources, they can only start their businesses in sectors of the economythat require only small capital outlays, that are labour-intensive and that aresubject to keen competition in terms of pricing. Whereas immigrants as (poten-tial) employees are subjected to processes of exclusion, they are segmented asentrepreneurs. The Dutch welfare state thus indirectly contributes to the creationof two different kinds of social positions for immigrants.

We have argued that these segments create a potential for informal economicactivities, provided that, on the one hand, the chances of being caught arelimited and, on the other, that an alternative framework which generates trust

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266 R. Kloosterman et al.

can be made available. These conditions can be met by small firms withdispersed location patterns and by ethnic social networks.

We have presented a case study as an illustration of our theoretical analysis.Turkish entrepreneurs play a prominent role in the bakeries, especially in thefour largest Dutch cities. Bakeries require relatively small amounts of capital andare rather labour-intensive. As expected, informal economic practices are ram-pant in this business. Moreover, ethnic social networks are important in helpingto create the necessary social embeddedness for these informal economic activi-ties. From this perspective, informal production is primarily a poor man'scompetitive strategy. To what extent these kinds of economic activities cancontribute to the opening of an avenue of mobility remains to be seen.

Notes1 This article is based on extensive research into informal economic activities by immigrants in the

Netherlands commissioned by the Temporary Scientific Committee for Minorities Policy (TWCM)and funded by the Dutch Ministry of Internal Affairs (Kloosterman et al. 1997b).

2 Although their definition is practically the same as the one developed by Lambooy and Renooy(1985), they do not explicitly refer to this source.

3 We are indebted to Mr Ekris and Dr Mike Staring (Erasmus University, Rotterdam) for theirinformation about this sector.

4 Information obtained from Mr Ekris, 7 May 1996.

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Author contact details

Dr Robert C. KloostermanOTB Research Institute for Policy and TechnologyTechnical University DelftPO Box 5030NL-2600 GA DelftThe Netherlands

Fax + 31 15 278 3450E-mail kloosterman@otb.tudelft.nl

Joanne van der LeunDepartment of SociologyErasmus University RotterdamPO Box 1738NL-3000 DR RotterdamThe Netherlands

Dr Jan RathInstitute for Migration and Ethnic Studies (IMES)University of AmsterdamRokin 84NL-1012 KX AmsterdamThe Netherlands

Fax: +31 20 525 3628E-mail rath@pscw.uva.nl

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