ENDOGENOUS-ALTERNATIVE PRODUCTION IN LATIN AMERICA

AN ALTERNATIVE HYPOTHESIS TO INFORMAL SECTOR ANALYSIS

Nchamah Miller

OCT 2008

ii

Abstract

The hypothesis proposed in this thesis advocates the view that capitalism as a

system of production is undergoing drastic changes which affect the current

economic and political conjuncture and indicate a transition away from

capitalism. This thesis examines those changes which occur at the level of

history which support this thesis and correspond to mutations to material

social relations as they manifest specifically in regard to agrarian areas. The

historical period examined is the last quarter of the 20th century and beginning

of the 21st as it relates to these social relations of production in Brazil, Bolivia,

Colombia and Mexico.

The purpose of this work is to propose a different conceptualization of relations

of production that more adequately describes the areas examined and which

the author refers to as endogenous-alternative production. This hypothesis

stems from a critique of the work by Hernando De Soto and Victor Tokman in

relation to the informal sector in Latin America.

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Dedication

Table of Contents

1.0 Introduction ....................................................................................................................................... 1

2.0 Approaches to the formal sector and contemporary capitalism ..................................................... 10

2.1 Rethinking Capitalism and the ex-capitalist transition ................................................................ 11

2.2 The Formal Sector ........................................................................................................................... 22

2.2.1 Part A Hernando De Soto and the Formal Sector ......................................................................... 22

2.3 Beyond Regulation Tokman and PREALC .................................................................................... 30

3.0 The discourse of the informal economy .......................................................................................... 37

3.1 Genealogy of the conception of the informal sector.................................................................... 37

3.2 A new institutionalist view of the informal economy de Soto ...................................................... 44

3.3 Tokman and PREALC beyond regulation the informal economy ............................................... 55

4.0 Endogenous-alternative production: making the case in Latin America 69

4.1 Khra ............................................................................................................................................... 71

4.2 Endogenous-alternative production ................................................................................................ 76

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4.2.1 Adjunctive Processes ....................................................................................................................... 78

4.2.1.1 Goods in endogenous-alternative production 80

4.3 Social Protest Movements ............................................................................................................... 85

4.3.1 Bolivia - adjunctive processes and violent de-commodification given the retreat of

capitalist production in areas or sectors considered non-profitable ............................................... 89

4.3.2 Brazil collective struggles grounded by social protest movements whose material

base has a long standing endogenous-alternative production ....................................................... 92

4.3.3 Colombia the trans-acculturation of capitalist consumerism ................................................... 93

4.3.4 Mexico - non-commodification effectively sustained through cultural, traditional and

new social practices ........................................................................................................................ 96

4.4 Conclusion ....................................................................................................................................... 99

5.0 Post-scriptum ................................................................................................................................ 100

6.0 References ..................................................................................................................................... 108

List of Tables

Table 1: Sectors of the informal economy: ...................................................................................................... 49

Table 2: Population and hours worked and informal sector contribution to GDP ...................................... 50

1

Introduction

An integral component of the work in this thesis which corresponds to my critique of the discourse on

informal sector/economy derives from the following general statement:

An alternative more nuanced theorization of capitalism and levels of analysis1 points against a

reductionist view of economic and social exchange in the manner articulated in informal sector/economy

analysis because this analysis does not capture either the effects of complex political processes, nor does it

differentiate between these and normative regulatory and legal institutional conditioning, in short: prevailing

informal sector/economy analyses do not contemplate any ramifications in these relations which arise out of

non-capitalist goods and service production.

The kernel of my task in this thesis is to provide a framework which problematizes current conceptions

of capitalist accumulation. This will provide me with the theoretical grounding to engage in an analytical

refutation of several aspects of the theoretical models contemplated by Latin American Informalists, mainly

Hernando de Soto (De Soto 1989; De Soto 2002, 273) and Victor E. Tokman (Tokman 1992; Tokman 2006, 13).

In respect of their conceptions of the formal sector, this also involves an examination of their specific

methodologies and specific taxonometric formulations for the informal economy.

I believe my contribution in this thesis consists of both my effort to challenge the conception of the

informal sector and in theorizing a new schema of endogenous-alternative production which I locate

historically in Latin America (since this is my area of current research and which also coincides with that

investigated by both de Soto and Tokman during the same time period, the last two decades of the 20th

and

first decade of the 21st

century). The order of the chapters in this thesis follows the outline of my argument. I

begin Chapter 1 by presenting a working hypothesis only; since it is beyond the scope of this thesis to give a

1 I use levels of analysis in the sense developed by Robert Albritton and the Unoist Marxian school of thought

(Albritton 1991a).

2

theoretical explication for what I deem constitutes the current stage of capitalist accumulation. In reading the

work of several Marxist thinkers, this led me to further consider whether, as a result of drastic changes in the

patterns of accumulation of capital, this signals a different stage for accumulation. I answer this in the

affirmative, on my part, and then I look closely at the work of several Marxist thinkers who have commenced

theorizing an ex-capitalist transition, or aspects of it, which could relate to this category.2

Although initially it may seem a severe contradiction in my argument, since I constantly refer to the

term capitalism, I respond that despite falling within the camp which theoretically examines this ex-

capitalist transition it is a completely different matter because when engaging at the level of historical

analysis we examine how capitalist relations operationalize the logic of the expansion of value. Hence, in

this thesis when I refer to capitalism I am referring to the social relations which attend to a political-

economic analysis at the level of history. In other words, the point which I endeavour to defend is that there is

a vast conceptual difference when theorizing the ex-capitalist transition at the mid-range level of analysis to

punctuate the differentia specifica of different stages of accumulation. Nevertheless, the analysis of what

occurs at the level of history is quite distinct and even though we can theoretically posit an ex-capitalist

transition, still, at the level of history, social relations may display the retracted effects of a previous stage of

accumulation. This is simply because the breaks in periodization are not clean and are in fact historically

diffused over periods of time.

At the level of history, social relations refract the logic of the expansion of value by the intermediation

of autonomous practices embodied in ideological, political and legal institutions (for example, the power of the

state is used to give legal sanction to a set of property relations). How this logic refracts in history depends on

2 I try to give the reader an idea of what this transition very generally entails but I do not go into an in-depth

formulation and analysis of the ex-capitalist transition since this would be a work which be would required in

a lengthier treatise. I refer the reader particularly to the work of Thomas Sekine, John Bell and Richard Westra,

although I differ in terms of characterizing the specific of its periodization, but this is a theoretical point which

is of very minor relevance to the present discussion (Bell and Sekine 2001, 37-55). I am also influenced by the

theory of the fall of the profit rate in the work of Robert Brenner (Brenner 2006, 369).

3

the phase of accumulation, the type of nation state and the economic and extra-economic practices it adopts.

Close examination of previous stages of accumulation reveals how the logic of the expansion of value is

disrupted by all manner of social mediations (Albritton 1991a).

Following this rationale, I contend that this logic is even more disrupted in the current stage of the ex

capitalist transition. In other words, the expansion of value directly into social relations is further countered by

all manner of complex cultural, political, ideological and legal subjective manifestations that open possibilities

for changes not contemplated in previous stages of sustained accumulation.3 My analysis looks at whether

there are institutional practices which signal changes in these practices and if these can be attributed to a

dysfunction in accumulation, which I argue signal, but are not the causal factors which trigger the ex-

capitalist transition.

In the second section of Chapter 2, I look at the work of both de Soto and Tokman and their specific

conceptualizations of the formal sector. Here, I critically examine de Sotos argument that the informal

economy is constituted within a realm of illegality that acts to subvert the legal mechanism which prevents

access to the economic system (De Soto 1989, xx). In his view both the formal sector and informal economy

have been prevalent as institutions through out a long trajectory in history. Next, I expand on why, in Tokmans

model, legal regulation is the principal mechanism of regulation between the formal sector and informal

economies, which emerge on account of the fragmentation of the labour force, as a consequence of the crises

of employment brought by neo-liberal restructuring and, previous to that, the failure of the import substitution

industrialization (ISI model) in the global south.

In the last four decades, a growing number of analyses have been developed to explain modalities of

socio-economic exchange outside of wage relations, which have been attributed to self-provisioning, micro-

3 I should also make the point, naturally, that I am not arguing that the disruptions to the expansion of value

are causal to the ex-capitalist transition.

4

enterprise, or the black market particularly as these prevails in the global south.4 In Chapter 3 I look at the

genealogy of this body of literature and examine why the discourse of the informal economy engages with a

specific problematique5 which centres on explicating the socio-economic relations of populations living in

poverty in many regions of the world today.6 Given the recent explosion of analyses on this topic, and for

purposes of narrowing the scope of this thesis, I limit my discussion to what I believe are the two main

4 Along with other scholars, I use the term global south to indicate the economic disparateness in the third

world locally and at the level of the nation state, and also to indicate the political dependency of the global

south to the dominant global north. This conception allows integrating into the analysis the disparities which

also occur within the global north (for example, some areas of the southern states of the US, and the aboriginal

communities of Canada), which are also comprised within the global south. Therefore, the terms north and

south are not geographically limiting. A further nuancing is made by differentiating between third world

societies which are located in the global south, and fourth world societies which are located in the global north

although the term is also used to define absolutely impoverished nations in the south . For example Hoogvelt

also claims that the geographical polarization has been replaced with a social one (Hoogvelt 2001, 14-42).

5 Problematique or problematica is a word of Latin roots used in contemporary romance languages to express

the confluence of set of problems yet to be fully articulated, hence, it denotes the emergence of ideas, concepts

and contradictions to create epistemological foundations or to express, at another level, those conjunctural

problems yet to be analyzed (some of which may be in the process of yet being defined and explicated). A

problematic is, as it were, the beginning of a process of understanding and defining questions.

6 Competing conceptions of the social economy have been developed by other thinkers, for example Polanyi

(Mingione 1991, 85-87) prior to the concepts of the informal sector / economy which are sometimes used

mistakenly as homonyms for the social economy. Because the concept of social economy has been used within

very distinct frameworks and is not counter-positioned to a formal sector I am not including its analysis

within this thesis. The work on the social economy coincides in part with my analysis in that many of its

proponents position the social economy in relation to the social relations of capitalism but differs in that many

thinkers primarily use the concept in relation to the global north. A different conception of the social economy

is made by thinkers of Cuba and China, and an examination of these is also beyond the scope of this thesis

(Acevedo Fals 2006; Reyes Fernandez 2006). In Venezuela the conception of the social economy ties directly to

state policy and to constitutional and political changes to attain participatory democracy in progressive

changes proposed by the Bolivarian Republic of Venezuela (Navarro 2008). In Venezuela the concept of the

social economy also ties to work on endogenous development see footnote 10.

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approaches which have emerged from the genealogy of the discourse - that of the informal sector and informal

economy7- with respect to Latin America and which are exemplified in the work of de Soto and Tokman.

Although Informalists8 and I share the same intellectual curiosity epistemologically, we position

ourselves very differently in relation to the problematique i.e. the lacuna in theorizing the socio-economic

relations of populations located theoretically at the interstices of the so-called formal sector by Informalists,

and viewed through the lens of a stage of capitalism in my case. Methodologically we also have different

approaches. First, Informalist analysis of the informal sector/economy is, with very few exceptions, based on

direct empirical analysis. This quantitative analysis is at the same time automatically delimited by the

ascriptions of criteria derived from normative readings of the informal sector. Second, spatially locating

(through a priori criteria), and further categorizing populations constantly displaced (as are those living in

poverty in the global south) merely reflects control groups used in defining statistical population records but

cannot render a reading of the complex factors which vitiate these relations.9 Over and above these

7 By discourse I refer to the all the literature, debates and critiques, pamphlets and media coverage in every

language in which the terms informal sector/economy are appropriated, but in many cases this is characterized

by a lack of a shared approach. Only in a few attempts have there been efforts to frame research within an

explicitly constructed theoretical framework and, in general, most of the discussion has taken place to the

measure that the term has been inserted into language practices but through different signifiers. Chapter 3 is

dedicated to this discussion.

8 In this thesis I use the word Informalists to signal those thinkers, researchers and, in general, proponents of

both the conception of the informal sector or economy. Informalists do not differentiate between either of

these standpoints.

9 Bourgeois economists have admitted to this problem: This discussion of alternative perspectives on

informality brings into sharp focus the question of the most appropriate way to define and measure the

informal sector. This is a question which has attracted little or no detailed attention in the literature. The

purpose of the present paper is to attempt to redress this. This lack of attention may arise from the paucity of

data on a sector which by its nature is problematic to define. Thus researchers tend to fall back on the

pragmatic and judicial use of data on employment status and sectoral affiliation. There is little discussion of

the sensitivity of any conclusions drawn to issues of measurement and definition (Rossini and Thomas 1990,

125-135). Also, *t+he size of the informal sector can be estimated differently depending on how the concept of

informality operationalizes and what empirical information is relevant and available for the particular purpose.

The information below presents general guidelines on informal sector measurement as well as examples of

6

methodological considerations, the main thrust of Chapter 3, however, is to look at what account de Soto and

Tokman give of the informal economy. In the main, de Soto proposes that the informal economy is constituted

within a realm of illegality and the black market through specific institutions in modern society and has been

prevalent throughout a long trajectory in history. Tokman, on the other hand, argues that this informal

economy emerges in modern society given contemporary social relations and ties to the market and wage

relations mediated directly by legal regulation.

The last section of Chapter 3 signals why, unlike Informalists, I do not use quantitative data, primarily

relying on a reading of historical records gathered by contemporary historians who do not emphasize

quantitative methods in their work. I believe the advantage in approaching the problematique through

historical records allows me to pose wider questions which are not limited to specific data and therefore

confined to taxonometric criteria. Curiously, and although in general terms we necessarily reach different

conclusions, I have found points of commonality. In particular I can say this of de Soto: in his work he questions

the sole mediation of relation by an extraneous normative regulation (the state) and proposes other vectors of

analysis particularly internal (to the informal sectors) such as cultural norms and their inter-relation with state

normative apparatus.

While I also posit a dominant structural relation, capitalism, this does not correspond to a dominant

variable. The category which I propose as an alternative to the informal sector/economy - endogenous-

alternative production - derives causally from a multiplicity of factors reflected from the social relations of

capitalism. The general term of reference in my approach is only limited by the questions I ask and which touch

directly on those aspects derived from the problematique i.e. the analysis of socio-economic activity of social

actors living in poverty in different socio-topographical spaces at the interstices of capitalism, specifically in

Latin America.

empirical work where the estimates of the size of the unofficial economy and informal sector were used (The

World Bank Group 2006).

7

The work of Informalists, both theoretical and empirical, has reaffirmed my view that in contemporary

society, when looking more closely at the data available on informal sector or economies, there are clear

indications of the configuration of what I call endogenous-alternative production10

. Ironically, there are

indications of clear political activity present, yet latent, in Informalist analysis. Political activity is not weighted,

given their specific quantitative methods. However, their research shows that in informal economies there are

clear patterns not only of political activity but that, in fact, such activities tie to non-capitalist goods and

service production (de Sotos work particularly provides fascinating examples of this, which I expand on in

Chapter 3.)

Granted, these inter-relations appear to be of minor interest to Informalists who, instead, focus their

work on describing these so-called subsidiary economies in terms of the degree of delimitation by legal barriers

and income creating activities. Thus, in general, any expression of non-conformity, or struggle, against the

state legal or labour regulatory apparatus is deemed by Informalists to be a social response directed against

legal barriers to gain admittance within a formal sector. Informalists do not conceive these manifestations of

political struggle to be against historic manifestations of political and socio-economic institutions which refract

the logic of profit within relations in history. On elaborating the thesis on endogenous-alternative production, I

propose to make this differentiation clearer and suggest that in the normal course of events, at any given time,

economic exchange is embedded within predetermining political relations (not only in terms of non-capitalist

goods and service production) as it attains in the global south.

The problem that I then face in chapter 3 is how to frame the potentiality of endogenous-alternative

production in analytical terms that can be articulated with the theoretical framework offered in Chapter 2. The

analysis and critique of the discourse of the informal economy led me to consider the following questions. How

10 The term desarrollo endgeno (endogenous development) is quite different from what I propose in my

theory on endogenous-alternative production. Endogenous development ties either to bourgeois conceptions

of development or, in the case of Venezuela, to alternative forms of development that tie directly with

proposed changes to state policy as it attends to internal development and market relations in general (Ochoa

Arias, 2005, 1).

8

and to what extent does capitalism penetrate non-capitalist goods and service production? Does there exist, at

the level of history, a new schema of production for populations located in the global south and how does this

link with capitalist commodities in terms of inputs and outputs?

I also had to look at providing a theoretical explanation for unaccounted changes in patterns which

social relations were evincing if even a scintilla of credence were to be given, while not necessarily ascribing to

the arguments or conclusions offered by Informalists, but which some of their data provided. However, I was

led to reflect that if, on the one hand the hypothesis of the ex-capitalist transition had some value, and if

historical data (as well as empirical data) signalled the opening of new social spaces, there was a conceptual

need to provide a theory of whether a new schema of production is in the processes of emerging - this is what I

call endogenous-alternative production. This theory flows from the question which asks whether, to the extent

that social actors at the interstices of the global south have devised an alternative schema of production, this

can be understood as a collective social response to a confluence of a complex economic, cultural and political

practices which is also located within a matrix of hierarchies derived from cultural mores and practices.11

In chapter 4, I present my thesis on endogenous-alternative production with three purposes in mind:

(a) to answer the questions I believe touch on the problematique investigated in the informal economy

discourse; (b) to undertake a comparative analysis between endogenous-alternative production at the level of

history (because I believe this roughly corresponds to the empirical analysis of the informal economy in

Informalist approaches); and (c) to argue against the rationale which explicates socio-economic relations in

terms of what I deem to be a taxonometric straight-jacket in social analysis in the last two decades of the past

century and the beginning of the 21st

century in Latin America. The basic assumption taken in my general view

is that new relations of production are emerging at the sites where capitalism did not fully penetrate societies

such as those located in the global south. The question is how, at the level of history, does this inhere in

11 For example: patriarchal, matriarchal and racial conflicts due to cultural practices of age privileging and age-

or ethnic discrimination.

9

endogenous-alternative production and which adjunctive processes arise on account of two conflicting

tendencies in the global south?

As a partial response, my argument contends that in these new spaces complex political activities also

contain inherited cultural conceptions of ethical relations and given that many social actions are mediated by

these imperatives (which generate both political and ethical motivations or constraints) this may cause

contradictions or conflicts in interpretations of normative structures (the case of the cultivation of, what has

been branded as illicit crops in Colombia and Bolivia is an example which is expanded on in Chapter 4). To

explain the mediation between endogenous-alternative production I develop another concept, adjunctive

processes. I use this concept to: (a) denote that there is an articulation and mediation between endogenous-

alternative production, and the contradictions which arise from market relations, specifically those which

attend to the links with capitalist commodities, as inputs, and refraction (see chapter 2 for a definition of this

term) and of capitalist institutional practices; and (b) to explicate and compare modalities of production such

as non-capitalist goods-and-service production and capitalist relations of production.

Historically contextualizing endogenous-alternative production requires punctuating how it differs

from non-capitalist goods and service production and I give examples of this taken from Brazil and Mexico. I

will attempt to expand on this general argument and give examples taken from historical analysis of Bolivia,

Brazil, Colombia and Mexico from the work of several Latin American historians.

The concluding Chapter 5 will be more in the line with a self-critique of the task I have attempted in

this thesis. I, therefore, am the first to concede that this is a first very general attempt to offer an alternative

conception to the discourse on the informal sector/economy: and, therefore, is a completely different approach

to the analysis of the complex changes taking place in the socio-economic relations of those peoples who

through civil war or famine (or other natural or social causes) the United Nations considers to be displaced

persons in contemporary Latin America.

10

Approaches to the formal sector and contemporary capitalism

The rationale behind this chapter is that rather than making a quantitative/qualitative assessment of

each potential area of study (the informal economies), I first look at the arguments which ground the formal

sector and how these a priori assumptions embedded within them apply to the later inscription of the

informal economy.12

My purpose here is to examine the hypotheses presented by Hernando De Soto and

Victor E. Tokman and their theories touching on what dominant social relations attend to economic enterprise

and how these are configured within the last quarters of the 20th

century in Peru and Latin America in general.

I focus on their explications of the type of mediations within the formal sector, and how they theorize modern

society and the economic conjuncture in elaborating their specific theoretical frameworks and its application

to their particular conceptions of the informal economy. At the same time, I use this discussion to punctuate

why and how our approaches differ and the implications of these differentia specifica in the work of De Soto

and Tokman on the formal sector and mine on the contemporary phase of capitalism.

Since I will be comparing each of our respective theoretical frameworks I begin this chapter with a

section on rethinking capitalism, and I present my hypothesis on capitalism as part of my review and analysis

of what I believe are the limitations of the formal/informal paradigm. My purpose is two fold. First, I will

present a hypothesis on the consequences of what has been referred to by some Marxist Unoists as the ex-

capitalist transition based on the argument that in order to begin explicating the dramatic changes which are

taking place at the interstices of capitalism, generally the global south and specifically Latin America, the

possibility that we have entered into a phase of ex-capitalist transition should at least be contemplated.13

I

12 In Chapter 3 I shall engage in the differentiation between the informal sector and informal economy.

13 By ex-capitalist transition I refer to a very long transition and I do not mean that all of a sudden the

practices and institutions of capitalism cease to operate. What I wish to signify is that deep struggles emerge

against these and slowly their effectiveness withers. The social relations and processes which aid the

momentum of capitalist logic are slowly becoming ineffectual and have ceased to be effective, particularly at

its weakest point (where it has been least strong), and specifically in areas at the interstices of capitalism. But,

11

discuss these aspects in the first section of this chapter by engaging in a discussion of the economic

conjuncture, explaining why the logic of the Law of Value does not fully penetrate social relations at the level of

history and even less so on those relations at the interstices of capitalism (in this case Latin America).14

The last

section addresses my second objective in this chapter which is to examine and contrast the theoretical

frameworks advocated by Hernando de Soto and Victor Tokman, particularly, since both examine the same

problematique as outlined in Chapter 1, but offer opposing renditions of what constitutes the relations of the

formal sector.

Rethinking Capitalism and the ex-capitalist transition

The conception of capitalism utilized here suggests that the logic of the expansion of value only

refracts, and does so unevenly, at the level of history, contingency and need.15

Part of the problem with other

perspectives like De Soto and Tokmans arises because they fail at least to make a distinction between an

abstract level and relations at the level of history. On their part the universal and the particular are articulated

as part of the lived reality and when they speak of for example modern society or the formal sector, even the

informal economy they actually wish to imply that although this may sound abstract it is the organic and

natural formation of contemporary human relations. Naturally, in the chapters that follow in this thesis I

as can be expected, what grows stronger, for a while, is the US military complex (which aims at truncating the

emergence of other social schemas of production), until the economy can no longer supply the resources to

prolong the sustainability of this complex.

14 I am not the first Latin American to engage in this debate. Ernesto Guevara, during the 1960s, participated in

a critical debate on the workings of the Law of Value in societies in transition, and this led to what in Cuba

became knows as el gran debate. Also, Guevara was very attentive to Marxs discussion on phases of

transition in his later years when discussing Russia (Guevara 2006, 31-33).

15 Again this was part of the great debate in Cuba: the extent to which social economies refracted the logic of

the Law of Value and could interfere or circumvent with its workings. In this debate the works of Rosa

Luxemburg and Nicolai Bukharin were hotly debated (Mora 2006, 17-28).

12

intend to dispute this methodological reductionist artifice and the reader will decide whether my argument

deserves consideration.

Whereas, in the approach advocated here, we can theoretically conceive that capital accumulates on

account of the logic of the Law of Value: yet, to explicate how this occurs at the level of history, requires

separating the conception of this logic from its reflection in the materiality of social relations. One of the

advantages of this approach is that there is an allowance made for the complexity of other human motivations

and contingency.16

In the Unoist approach, which frames my analysis, there is such a separation between the

epistemology of each of Marxs categories in Capital and that which we aim to observe at the level of history.

The work of this thesis pertains particularly to the level of history and political economy; therefore, I

will refrain as much as possible from engaging at an abstract level of analysis and the dialectical relation of

these categories proposed by Marx. The argument on the contemporary configuration of capitalism are made

at two levels: (a) the mid-range level which means an analysis of the relatively autonomous practices 17

in the

current stage (which involves an analysis of the US nation state and the ways in which it exerts its power as the

16 An example of how we explicate abstract mediations in contrast to understanding the mediations at the level

of history comes from Marx analysis in Capital. In chapters one and two he explicates the nature of the

complex opposition and inter-relation between value/use-value and exchange value as abstractions taken from

the circulation of commodities, but in order to explain their materiality he also provides a concretization of

their materiality by way of the commodity and the social relations of capitalism in history. His empirical

example is 20 yards of linen equal l coat are not merely to show a differentiation in materiality but to depict

how through in history relations of production have a materiality in commodities (Marx 1990, 125-187). At the

same time he expresses dialectically (abstractly) the relation between use-value, exchange value, and the

expansion of value. This abstract discussion pertains to what in Unoist thought pertains to the first level of

analysis, but in this thesis I do not contemplate an analysis at this abstract level and will be restricted to the

mid range level and the third level: that pertaining to history and political economy.

17 The concept of relatively autonomous practices allows specifying actions taken by capitalist institutions

(political, legal or ideological) to support or undermine capitalist accumulation at a specific stage of

accumulation and how these refract onto capitalist goods and services production (Albritton 1991a2, 32, 36).

This level of analysis is specifically useful because it stands in contrast to the institutionalist approach taken by

De Soto, and in the case of my work allows specifying those institutions pertaining to mid range level analysis

(eg.: eg. corporations, nation state policies) and those pertaining to specific historic instantiations, such as

trade unions and other politically constituted groups.

13

primary global hegemon),18

in order to establish the inter-relation between the hegemonic practices of the US

and the complex of economic and extra-economic relatively autonomous practices of nation states in Latin

America; and, (b) a level which grosso modo corresponds to the so-called informal economies, which I posit as

the history of social relations at the interstice of capitalism. At the level of history, particularly at the interstices

of capitalism, the expansion of value meets with all manner of social contradictions and barriers, and is

therefore not the sole constitutive factor of socio-economic exchange and production.

Non-capitalist goods and service production occurs where labour relations are not subsumed to

capitalist wage relations, and the means of production are necessarily owned by the workers. (I am hesitant to

refer to the manufacture in contemporary sites in the global south of this type of production either as petty

bourgeois production or even less informal sectors, for reasons which will become apparent in the analysis of

endogenous-alternative production, see Chapter 4). This can be readily seen from the following example. In the

production of goods at the interstices of capitalism, the manufacturing process may utilize mass produced

commodities (eg. the flour for tortillas) and the goods produced are either for self provisioning within small

communities or sold to outside merchant sectors and even directly by street vendors. Although the ultimate

good is made through non-capitalist labour relations, the inputs utilized (since they are produced by agri-

business) are bearers of the marks of refraction of the logic of profit and through this mechanism and money

exchange, non-capitalist good and service production is tied to capitalist production.19

This example is given to

indicate the latent refraction of capitalist penetration (through commodities) at the interstices of capitalism.

Looked at another way, the social relations of capitalism do not have an equivalent expression in non-capitalist

forms of production of goods and services, but they are often linked to them through commodity forms of

exchange, including money.

18 I prefer to use an understanding of the term hegemon offered by Brenner because it captures the subtleties,

along with the internal and external contradictions of the nation state which I find the term imperialism

completely elides (Brenner 2006, 248- 271-280).

19 I change this terminology to make specific distinctions in Chapter 4.

14

However, several questions come to mind with this illustration, starting with whether the flour is

crucially needed by communities for their survival, or whether they have alternative inputs to produce these

goods. To what degree is this is so? Can these communities find an alternate input which reduces their

dependence on capitalist commodities as inputs and how might these choices affect their social relations?

Another question is whether these exchanges organize collectives or only latently influence the actions of

members in which this production takes take place. While Marxs argument that commodity production is the

central organizing unit of capitalism applies to capitalistically produced commodities only (Marx 1990, 124-

177) it opens up another question relating to the degree that its logic of social relations penetrates

communities located at the interstices of capitalism.

The problem this thesis contemplates involves examining how and which barriers emerge to the

refraction of this logic in history at the interstices of capitalism, and addressing it requires locating the phase of

capitalist accumulation currently prevailing, the type of nation state characteristic of this phase, and the

economic and extra-economic practices the state adopts to facilitate accumulation in this phase. This analysis

necessitates a specification of the historical epoch being examined as well as engaging in a mid-range level of

analysis to examine how, through a given set of relatively autonomous practices, the Law of Value is

refracted onto the level of history. This also involves exploring the extent to which the economic sphere

remains dominant and how it imbricates onto political, ideological and legal practices (Albritton 1991a2, 32,

36). This approach to periodizing capitalist accumulation and disentangling the analysis of relatively

autonomous practices from the analysis of social relations at the level history is informed by the work of

Unoist Marxists.20

There are different positions with respect to periodizing the ex-capitalist transition,21

however, I

take the view that this occurred in or around the energy crisis of the seventies when the US hegemon readily

20 The work of Robert Albritton, John Bell, Thomas Sekine and Richard Westra.

21 I should point out that by ex-capitalist transition I refer to a very long transition and I do not mean that the

relatively autonomous practices, and institutions of capitalism all of a sudden cease to operate, what I wish

15

admitted that it could no longer rely on an inexhaustible source of cheap oil, and there was a veritable crisis of

confidence in the ability to maintain its consumerism.22

It is doubtful whether the US could continue to support

its internal consumerist automobile market based on the gas guzzling automotive industry it had developed as

its primary use-value for accumulation (Albritton 1991c, 226). Added to this, the oil crisis forced changes in

consumption patterns which affected the USs ability to compete with the European and Japanese emerging

automotive industries which had the technologies required for an automotive sector with lesser gasoline use.23

Actually, even prior to the 1980s and specifically after that period, the US entered into a downturn period

manifested historically by the drop in profit rates and characterized by periods of short equity booms and

bubble bursts (Brenner 2004, 57-71). In addition, the US was forced to re-configure its internal structural and

political state power dynamics because the economic crisis had also translated into a crisis of its authority

(Soederberg 2004, 62).

The deepening of the crisis occurred through the Asian financial collapse in the late 1990s which also

signalled an economic structural transition. As a consequence, I argue that a new political, though no longer

pre-eminently economic, hegemonic form has emerged which can no longer be consolidated entirely by the US

but requires the additional consolidated political power of the G-7. In an attempt to attenuate the crisis, the G-

7 slowly built the necessary economic institutions, politically attempting to reconfigure both their economic

and political domination through a global neoliberal apparatus. It aimed at re-imposing conditions favourable

to signify is that slowly their effectiveness withers, that capitalist logic penetration does not gather momentum where it has been least strong, specifically in the areas at the interstices of capitalism. But, as can be expected what grows stronger, for a while is the US military complex, until the economy no longer can supply the resources to prolong the sustainability of this complex.

22 I adhere to Albrittons periodization of the different phases of capitalism and his conception that the stage of

consumerism commenced broadly the 1920s to 1960s (Albritton 1991, b223). I but differ however on what is

happening in the contemporary phase.

23 This is a simplification on my part, in effect Japan and Europe adopted changes which affected not only those

between capital and labour but also the relation of technology in production. An analysis whether this

constituted the first move away from the Fordist production paradigm to post-Fordism, or whether this

suggestion is inaccurate is beyond the scope of this thesis. I thank John Simoulidis of York University for

pointing to my lack of clarity in this regard.

16

to accumulation through the mediation of the New International Financial Architecture (NIFA), which

developed out of the Financial Stability Forum (FSF), in part, by consolidating a set of international standards

and codes referred to as the Reports on the Observances and Standards Codes (ROSCs) (Soederberg 2004, 1-

28).24

The NIFA set of institutions did not alleviate the causes of the crisis (namely an absolutely

unsustainable and ferocious appetite for colonial natural resource extraction required for industrial production,

the decrease in GDP and excess capacity) and its measures were merely palliative, aimed at dealing with the

permutations and combinations of capital as it corporations fled from region to region, to and fro between

industrial, financial sector and banking sectors as multinationals rushed to impede the slide of industrial profit

rates in their investment portfolios. These machinations, in sum, gave the appearance of an overall increase in

accumulation (Brenner 2006, xxiv, 145, 159). And this gave the nation state architects of the NIFA the

confidence to believe that there was no crisis, especially not in the global north.

Sustainable accumulation in the global north required three fundamental material conditions without

which it is doubtful that, at this stage, bourgeois corporations could meet their input needs (but these would

nevertheless deepen the crises further), namely: (a) obeisant dependent nation states of the global south; (b)

the supply of cheap skilled labour (particularly for mining, communications and IT technology) and unskilled

labour (in maquiladoras for consumer goods) in the so called free trade zones producing mass non-essential

commodities; and, (c) the capture of these obeisant states as suppliers of natural resources to the global

north.25

24 I argue in Chapter 3 that the application of the conception of an informal sector becomes an intrinsic

component of this standardization.

25 In previous stages of accumulation the ransacking of natural resources was not tied to the sustainability of

the economies, nor accumulation, after that, in my opinion, the two oil crises of 1973 and 1979 demonstrate

that without this natural resource the economies of the global north would go into a tailspin dive. In the global

south oil exploration took place, at that time, mainly only by US corporations operating in the global south and

it was these corporations, not the states where these resources were located which now acquired the power

17

I contend that something is seriously amiss when neither the economic or extra-economic practices of

the US state nor the availability of growing opportunities for foreign direct investment (FDI) are sufficient to

even sustain even a semblance that these are a viable solution to their problems, and that these can no longer

be contained within their borders. To make matters worse, and under the pretext of the global war on

terrorism, the US has not been prepared to lose its ranking as the sole politico-military hegemon, and it

remains committed to flexing its military muscle to guarantee secure access to territories of compliant and

even non-compliant foreign nation states to further US colonial ambitions.26

All of these are causally related to

the implementation of neoliberal policies (this is, admittedly, a simplification of the problems because an

analysis of US geo-political strategies in the current phase of capitalist development is far beyond the purview

of this paper).

It is my hypothesis that after the 1980s, capitalism as the paradigm for the expansion of value finds

limited expression through the purely economic function of financial institutions and multinationals. Au

contraire, capitalist profiteering depends more and more on political and international legal institutions, as

well as military power, to pave the way for financial, banking and production operations, in order to make

actual and tangible profits (recent scandals show why some of the financial statements of US corporations

either mystical or virtual tales (Markham 2006, 742). Therefore, it becomes relevant to contemplate the

possibility that rather than entering into a new stage of accumulation we may be entering into a phase of ex-

capitalist transition (Bell and Sekine 2001, 37-55).27

I recognise that it is challenging to think in terms which

problematize the conception of the sustained accumulation of capitalism as usual, or the havoc and

within that region to decide where further exploration would take place, and that the formation of OPEC

served those interests, although in appearance OPEC functioned as a monopoly. The nation states of the global

south had not yet developed gas guzzling infrastructures.

26 I use colonialism because this form of power counts on the support of locals and does not require massive

movements of population of the dominant power which I attach to imperialism. I also use this term because

the word colonialism connotes resistance from those being colonized, again, something which may be lost in

the semantics of imperialism.

27 There are some differences between the periodization in my approach and John Bells and Thomas Sekines.

18

contradictions brought about by the neoliberal apparatus with the object of naturalizing market relations and

mitigating the effects of the current crisis.28

Nevertheless, it is my contention that thinking in these terms

allows problematizing the conception which equates capitalist economic production and exchange relations

with political relations such as the so-called new imperialism or the neoliberal apparatus to the relations of

capitalism and impedes an analysis of the degree to which relatively autonomous practices refract the Law of

Value and the degree of extra-economic intervention required on the part of political and legal institutions to

sustain accumulation.

I am quite cognizant of the voluminous work required to present a full argument on the ex-capitalist

transition and to keep matters within a reasonable length I propose presenting my argument in terms of the

following syllogism.29

If capital accumulation is unsustainable and if failing relatively autonomous practices

rather than alleviate, feed this crisis (particularly those practices attending to political, legal and ideological

articulations), then capitalism is not sustainable on its own logic, its own social relations or mode of

production. Therefore, either new practices emerge which lead to this transition or other efforts to restore

capitalism are undertaken which may further aggravate the waves of crises. It follows that if capital

accumulation is unsustainable and is fed by failing relatively autonomous practices (particularly those

attending to political, legal and ideological articulations) these must create dysfunctional mediations which

destabilize accumulation and investigating how these reflect onto each historic conjuncture helps us to

understand the nature of the ex-capitalist transition.

Assuming the above, capitalism as a social relation and system of production is showing signs of

fatigue and may even be no longer sustainable, but this does not mean that the capitalist webs of political and

28 I remember when I began work on this thesis and mentioned a crisis and recession and the merriment many

had at my suggestion that finally capitalism was showing structural cracks.

29 There are many other arguments which apply to theorizing the phase of ex-capitalist transition (Bell and

Sekine 2001, 37-55). My gratitude to Richard Westra who allowed me to read the draft of his work Political

Economy and Globalization (London: Routledge 2009 forthcoming) and which has been influential in the

elaboration of the hypothesis of the ex-capitalist transition.

19

ideological power and legal institutional arrangements protecting private property automatically cease to

operate. As a matter of fact, it leaves socially inerasable palimpsest of domination processes. This explains

why I argue that the transition is a long historic process which has many contradictions, especially ones that

even enhance the ability of different blocs of investment capital to survive. The difference is that once the ex-

capitalist transition commences to the point that relatively autonomous practices become more stringent and

corporations, government agencies, nation states will act as if the contradictions that emerge are natural

and can be controlled politically, the closer the waves of booms and bubbles. 30

This thesis has another corollary: when capitalism is viable, a set of relatively autonomous practices

(each depending on the phase of accumulation) are inserted to prop accumulation and these refract a

particular response into the third world such as so-called development programs. But if capitalism is no longer

viable, it stands to reason that the old set of practices can no longer reconstitute a failing economy and

therefore can no longer achieve the same results and therefore capitalist social relations become less and less

viable. Because of this, in the post 1980s era, capitalism as the paradigm for the expansion of value through

social relations, found limited expression through the purely economic function of financial institutions and

multinationals, and it had to depend on the authority of political and international legal institutions along with

military power to pave the way for financial, banking and production operations. Of course, there were profits

in some sectors but this is quite different from maintaining the magnitude of accumulation.

I contend that the result of this long wave of crises evidences the failure of the capitalist venture to

reconfigure such conditions which are propitious to its reproduction and all that appears relatively operational

at this juncture are stock market exchanges, which depend as they do on state economic policies, but these are

on a collision course with economic institutions (such as the fragility of the US banking system) and other

political and legal practices internal to the US. Since accumulation has, at the very least, been diminished, if not

30 The correlation between the oil crisis of 2008 and the managed drop of the US dollar coupled to the

increase of the price of oil is an example.

20

actually retarded, the US opts for political measures to stave off the waves of crises.31

What is important here

is the impact of such a crisis of accumulation onto social relations at the interstices of capitalism and the

manner in which its consequences diffuse into both the political and economic spaces of the global south which

is the area of concern in this thesis.

Truncated relatively autonomous practices refract new dysfunctional forms of mediation and link to

the level of history and impact negatively on those populations who bear the brunt of these crises. For example

the US Federal Reserve may believe it is in control of interest rates, but private Banks use this to their own

advantage and have gone on a spree of sub-prime non-collateral mortgage lending which defeat any policies

of the Federal Reserve. We can no longer afford to think in terms of accumulation as usual taking place

despite all indicators pointing otherwise. Although many contend that arguments for a transition are

theoretical straw men, the question is why is there evidence that we are arriving at a time when accumulation

is retarding and this is creating social havoc in many areas of the planet?32

The global south, however, is only

the recipient of the refraction of these inadequacies and the blundering of relatively autonomous practices

and what cannot be denied, even by Informalists, is that, as a result, dramatic changes have occurred to the

social relations in the global south.

In the consumerist phase of accumulation, the great divide between the global north and global south

became more pronounced (this can be established by the geometric distancing in the GINI indices between

advanced capitalist countries and those in the global south from the period 1960s -1980s and the figures for

today which indicate a geometric differential between them).33

I take the position that this shows the nature of

31 Certainly the work of Robert Brenner is ground breaking in that it anticipates such a possibility and it may be

a disservice not engaging more fully with his work but the focus of this thesis is at another level that which

pertains to the social relations at the interstices of capitalism (Brenner 2006, 369).

32 The fact that accounting practices of corporations have been conceived to show as rosy a panorama of their

accounts as possible makes this all the more sinister.

33 The GINI index reflects the ratios between nation states and their respective GINI coefficient. This coefficient

is a measure of income inequality, with 0 being everyone having the same income, and 1 being one person

21

the crisis in the ex-capitalist transition in which an even greater punctuated division grows between the global

north and south.34

At the same time, vested interests run so deeply engrained (whose influence will remain

secure, unless there is a general bankruptcy) that no one can hazard a guess as to how long the global north

will be able to sustain its ideological construct that both NIFA and Trans-national corporations are the vehicles

to achieve global economic growth and development.

NIFAs unwritten goal is to exert political domination over the global south through a union of

financial institutions, multinational corporations and the adoption of neoliberal policies by nation states.

However, the consequences of this union has had disastrous effects in the global south since the partners,

transnational corporations and neo liberal institutions, inevitably ran into a collision path in the global south as

they have attempted to neo-colonize (privatize) the area and pirate natural resources. Its legacy is a fatal and

chronic crisis of unemployment in the global south which is the thematic that opened the investigations and

research on informal sectors which I address in the following chapters.

In the first phase of the ex-capitalist transition, capitalist accumulation is no longer the means

through which, in and of itself, the social reproduction of vast populations now drawn into the web of

capitalism is secured, particularly in the global south. Given such a crisis, should this not alter the way we view

the changes which accrue in social relations in non-capitalist goods and services production given their inter-

meditations with capitalism in a full blown crisis? I argue that, in a very ironic way, the research which

spawned the discourse on the informal economy (although positing an alternative view to capitalism which is

viewed simply as modern society) has attempted to answer this question. In the following section I look at the

work of two Informalists whose work aims at answering this and other questions pertaining to the social

relations of displaced populations in Latin America.

having all income and everyone else has none. Data available from GINI: GINI index; UN: Data from the United

Nations Development Programme.

34 There are nuances between my appropriation of this concept and that proposed in the work of other Marxist

Unoists which are not relevant to this discussion.

22

The Formal Sector

In general, most approaches to the informal economy share a conception of a general formal sector

and particular site specific informal sectors which operate in tandem with the formal sector. However, there

are crucial differences between the different approaches to the formal sector, particularly with respect to the

following issues: (a) the nature of relations of the informal sector to conceptions of institutions; (b) regulation,

exploitation and human agency; (c) exceptionality portrayed as a social mechanism for a second economy

vitiated by legal structures; and (d) the types of gender relations comprised in the units of organization of these

sectors/economies. It is quite beyond the scope of this thesis to engage with all these approaches, and I limit

my work to the analysis of research by Informalists who engage specifically with elaborating a conception of

the formal sector and the apparatus of inter-mediation between the formal sector and the informal economy.

I will focus on the work of Hernando De Soto (working with the ILD) and Tokman (working with PREALC).

Although I disagree with many of their contentions with respect to the formal sector, I should mention that

despite my strong critique I am indebted to these thinkers because without their work I could not have

developed my thesis on endogenous-alternative production which I theorize in Chapter 4.

Part A Hernando De Soto and the Formal Sector

Simply put a new problematique emerges in contemporary attempts to explain what constitutes and

comprises the informal sector and integral to defining this set of problems is explicating the relationship and

linkages between the formal sector vis--vis informal economies. However much I may critique De Sotos work,

I recognize his attempt to delineate these relations at a theoretical level and to frame his case study of the

informal economy in Peru within that framework.35

In what follows I engage with three of the fundamental

35 In Chapter 3 I will explain why this had not been the practice in research on the informal sector.

23

concepts which delineate his conception of his dominant category of modern Peruvian society and how these

are articulated: the market, the nation state, and the formal sector.

Fundamental to De Sotos thinking is the notion that the market is a natural, homogenous, social

universal relation which ideally should harmoniously mediate the relations within both the formal sector and

informal economy, were it not for excessive legal barriers. Given these barriers, not only has there been an

impediment to the free market, but these barriers have also created extreme economic disparities between

modern society and the informal economy sectors. He makes two further points: first he argues that bad

laws act as barriers for the entry into the formal sector by any social actor not connected to the mercantilist

entrepreneurial formal sector or landowners (De Soto 2002, 189, 202, 208). Secondly he argues that Peruvian

society is far from being a market economy Peruvian society is configured juridico-politically by a mercantilist

nation state (De Soto 2002, 14, 201).

By mercantilism De Soto identifies the excessive legal regulation of the state as having precise

commercial redistributive and discriminatory purposes intended solely to favour the privileges of the

commercial and landed classes. This system is geared to maintaining levels of wealth, but does not generate or

reinforce the freedom of market relations. To a great extent, then, Peruvian mercantilism is not democratic

capitalism, but the epicentre for machinations of merchant monopoly activity aided by the state legal

apparatus (De Soto 2002, xx). Mercantilism is primarily a system centered on maintaining and arbitrating

between competing claims for monopoly merchant rights and which does not generate the freedom of

market relations. In other words, that which functions in lieu of the market is a bureaucratic mercantilist legal

state apparatus which has two main functions: (a) to administer state decrees and policies through the

mechanism of a redistributive super-bureaucracy which acts instrumentally to secure the interests of these

monopoly entrepreneurial merchants; and (b) to protect the commercial interests of the entrepreneurial

classes through the device of excessive dirigiste regulation. He argues that, in Peru, mercantilism has existed

and progressed since colonization by the Spaniards and is characterized by authoritarian law making; an

economic system in which the state intervenes directly; obstructive, detailed and dirigiste regulation for the

24

economy; poor or non existent enterprise for those who do not have close ties with the government; unwieldy

bureaucracies, and a population which organizes around distributive combines and powerful professional

organizations (De Soto 1989, 208).

In this view, mercantilism differs from market relations in that the former is comprised of specific

merchant and juridico-legal practices with a high incidence of commercial monopolies in collusion with the

nation states legal regulatory apparatus; whereas in market societies there is little regulation of the economy.

The formal sector emerged in Peru to the measure that Peruvian elites36

adopted European commercial

mercantilist practices and integrated mercantilism into the normative apparatus which functioned to protect

their merchant interests (Douglas North in (De Soto 2002, 177-179). In Peru, this sector has gradually

developed in conjunction with the criollo redistributive institutional tradition operating solely to protect

property rights of the merchant monopolies and the elite latifundistas (De Soto 2002, 202-210, 303).

On its part, the Peruvian state has developed a mechanism for a regime of governance by presidential

decrees utilized to control all aspects of the economy acting as a legal regulatory apparatus. Yet, De Soto is

careful to note the tensions between the formal sector and the Peruvian state. On the one hand, the formal

sector has been constituted through a mercantilist redistributive tradition and in this regard the role of the

state has traditionally been to arbitrate between competing mercantilist blocs of the formal sector. On the

other hand, the state, as an institution, has a long history of enacting economic policies and legal norms in

order to preserve the economic and legal interests of the formal elites. But the elites do not rely solely on the

state for arbitration and have separate institutions, which De Soto calls redistributive combines, used to

settle individual commercial differences and organize monopolies (De Soto 2002, 13, 26, 63, 189, 201, 242).

In many respects De Soto believes the social problems of Peru originate from the relation between the

formal sector and the mercantilist state bureaucratic apparatus on account of the barriers erected between the

36 They are the old business elite and commercial entrepreneurs, who De Soto calls formal business people

(De Soto 2002, 13).

25

formal and informal economies to the sole benefit of the formal sector (De Soto 1989, 133-188). He believes

the lack of social equity on account of the dominance of merchant elite monopolies and property is supported

by a tradition of bad laws and that the social problems in Peru can only be remedied if there are drastic

changes to these bad laws. This system of law is the main barrier to the market economy and any access to

this market would require completely revamping the regulatory state apparatus (De Soto 2002, 174 246-246).

In conclusion there are three important claims attached to De Sotos theory of the formal sector: (a)

that the social relations of Peru have not been penetrated by market relations (he avoids the term capitalism);

(b) this has been prevented by the regulatory barriers erected by the mercantilist Peruvian state; and (c) as a

result of the recombination of economic mercantilist practices and excessive dirigiste economic polices of the

state, the entrepreneurial elite has been successful in monopolizing private property interests to the point that

they have been successful in separately creating their own emporium and regnum to consolidate all aspects of

economic endeavour and exchange in Peru.

Explicating De Sotos standpoint requires pointing to his influence by, and appropriation of, the North

American New Institutionalist approach which basically defines institutions as formal or informal procedures,

norms and conventions embedded in the organizational structure of the polity. New Institutionalists assume

that individuals adhere to certain patterns of behaviour because any other alternative would make them

worse off (this is the equilibrium point): 37

also, they emphasize the highly-interactive and mutually-

constitutive character of the relationship between institutions and individual action (Hall and Taylor 1996, 938

and 948). De Soto is also particularly influenced by Douglas Norths approach to the historical development of

institutions on account of path dependency. Such paths are produced when the state administration adopts

norms, standards, and regulations which over time become entrenched to the point that they become social

habits. On account of this path dependency institutionalized practices are very difficult to alter. For this reason

37 This aspect will become relevant in De Sotos discussion of the informal sector in Chapter 3.

26

the formal sector is an integral part of the path which emerged in Peruvian society once they adopted

European commercial mercantilist practices (Douglas North in De Soto 2002, 177-179).

The first problem with this new institutionalist paradigm is that if, in general, everything social only

evolves into an institution as opposed to say social movements; then, De Soto is left to explain the nature of

market relations, production, and distribution only within the framework of their being institutions. A second

problem arises when he differentiates Latin America from western society in terms that westerners enjoy

freedom as economic agents to participate in market relations (whereas I would argue there is no such realm

of freedom). Thirdly, by positing mercantilism as the dominant relation which attends internally to Peru, De

Soto is left without a mechanism to explain power relations between the global north and south and the global

economy.

But De Soto finds an alternative theory to explicate market relations. He resorts to the artifice that the

market is the sole homogenous natural organic system in modern society and the vehicle to freedom and

democracy. By this ruse, all of a sudden the market is beyond critique (i.e. idealized) simply through his

claiming it to be the realm of democracy and freedom. In responding to this point I draw on my argument

respecting the refraction of the Law of Value to the mid-range level through relatively autonomous practices

(a quasi-equivalent to institutions) and in turn to a third level corresponding to direct political economic

analysis of history. Although De Sotos approach to institutions does have some valid points (the power they

exert is real), he is unable to disentangle the practices of these institutions at an analytical level from economic

and extra-economic practices. He therefore has to resort to idealization of the market because, unless he

resorts to bourgeois economic theory to explain the economic conjuncture (which he does not, other than

through his adoption of the concept of the informal economy) and thus he is left with the sole option of

idealizing these relations, in terms of the economy, which is quite distinct in his thinking from the formal sector.

In other words, the market is the realization of the ideal and the formal sector is the institutionalization

through mercantilist practices of the barriers to this idea.

27

A secondary effect of his reasoning is produced when he selects from the following choices of

conceiving social relations in the formal sector as either purely economic, both economic and political or solely

political: he chooses the latter, thus avoiding having to explain why he does not explicate the articulation of the

formal sector with market relations. He simply claims the latter do not exist because they are subsumed to the

imperative of the mercantilist regime of the elites which he views as being solely politically constituted. As a

result the category, formal sector, is a quasi-historical, quasi-political sphere with merchant exchange, which is

populated by a prototypical social actor, the merchant elite, leaving one to wonder who does the real work.

Who works in this formal sector, only merchants? Who buys their wares, only merchants?

There is some disingenuousness on the part of De Soto in extricating the Peruvian formal sector from

the effects of FDI investment, its subordination to the dictates of institutions such as the IMF and World Bank

and ignoring the contradictions involved with the fact that Peruvian exports are primarily comprised of natural

resources.38

Very pointedly, he dismisses contemporary scholarship which argues that Latin America is

generally an area in which first colonialism and now transnational corporations have heavily exploited the

people and ransacked natural resources. This is a serious flaw because one look at Perus trade balance is

sufficiently indicative of its dependence upon the export of its resources, while at the same time being the

recipient of large blocks of foreign direct investment.39

Instead, when this problem is viewed as a point of

analysis at a mid-range level, then, strictly speaking, transnational corporations along with some intervention

38 I see FDI as a euphemism for neo-colonization processes which continue the ransacking of resources and

exploitation of populations which began under Spanish colonization (Martin 2007, 217); but now have the

patina and credentials of development while in collusion with local political and economic power brokers.

39 Figures for 2000-2005 show that Peru has maintained a trade deficit despite its heavy exports of copper,

gold and fishmeal, and that the main recipient of these goods is the US. These figures also show the US as

being the main supplier of consumer goods imported into Peru (Economist Intelligence Unit, Nov 23 2005). This

begs the question of how repatriation of profits is reflected in these accounts and whether these are tied to a

differential foreign exchange rate and, furthermore, of how the role of tariffs on protected imports is

connected to FDI. These types of questions challenge the theory that the Peruvian economy is dominated by a

formal sector comprised only of criollo elites.

28

by dominant nation states of the global north become the primary instruments of neo-colonization of the

global south in their quest for the three elementary components of capitalist production: cheap labour, natural

resources and agricultural products.

De Soto speaks as if all local criollo profits (national elites) were reinvested within the Peruvian

formal sector and blatantly ignores the fact that criollo elites have the ability to export their venture capitals

to the global north. In actuality, the flight of local venture capital has been a serious problem throughout Latin

America and has resulted from the efforts on the part of elites to invest in hard currencies. With this move,

criollo venture capital is tied to the vagaries of the financial markets of the global north and thus, criollo elites

lose whatever vestiges of merchant independence they would have had otherwise, and now become

completely immersed in every crisis facing the global north.

The formal/modern sector framework is set up in such a way that it ignores the causal factors

attending to the exploitation of labour and natural resources as a result of the devastating effects of neo-

colonization of Perus society. De Soto appears too concerned with analyzing the relationship between

mercantilism and the formal sector while ignoring the nefarious effects on Perus economy of the shenanigans

of direct foreign investment. Add to this the schizophrenia of the IMF and WB, at one time demanding

development through the copycat industrialization scheme of criollo import substitution industries (ISI) where

foreign markets were not opened for these products, and now the counter-intuitive move to ISI through neo-

liberal decentralization which De Soto advocates in his position against regulation.

De Sotos conception of the formal sector is an exaggerated glossing over what constitutes the driving

force behind Perus economy, primarily comprised of exports provided by foreign mining corporations

(particularly gold and copper) and fisheries production (in 1994 Peru became the worlds second-largest fishing

nation earning one billion US dollars in export earnings (Economist Intelligence Unit , Nov 23 2005). By

delimiting the formal sector to an institutional form, De Soto also glosses over the political economy of Peru

29

and the extent to which these industries are fully under foreign control.40

Granted, it is completely beyond the

scope of this thesis to enter into an analysis of the effects of the exports of the mining and fishing industries to

the Peruvian economy, but one would expect that, since De Soto is making an argument for the formal sector,

he would at least engage with some of the more obvious contradictions of the Peruvian economy (although

perhaps he puts himself in this position by chauvinistically attributing a totalizing self-contained merchant

structure in his conception of the Peruvian formal sector). This will be discussed in Chapter 3 on the informal

economy, his interest centers on one economic indicator, the amount of GDP produced by the formal sector

and lack of statistics on the informal economy. This focus makes him appear indifferent to what constitutes the

dynamic or the working relationship between the entrepreneurial class and the workers that sustain that

sector, since one will have to assume it is not all completely mechanized.

To conclude, in order to achieve clarity and if we are to think of the specificities of nation states and

their internal economies, unless there is a conception of the social relations which attend to capitalism, in any

of its phases, and a distinction is made between the linkages between political and economic institutions and

their specific practices within these phases, it is quite easy to conflate very different causations into the

analysis of social conditions such as occurs in the analysis of the formal economy in Peru by De Soto, where

everything takes place either within the formal sector, or the informal economy in conformity with their

respective institutional paths.

40 Newmont Mining Corp. (NEM) has a 51.35% stake in Yanacocha, while Buenaventura SAA holds a 43.65%

share in what is one of the world's largest gold mines. The World Bank's International Finance Corp. holds the

rest. The Anta mina operation went into commercial production in late 2001, requiring an investment of more

than $2.0 billion. Its owners are: BHP Billiton with a 33.75% stake; Miranda Inc.-Falconbridge (NERD) with

another 33.75%; Tack Cominco Corp. (TEK.B.T) with 22.5% and Mitsubishi Corp. (MIB.TO) with 10% (Kozak

2007).

30

In the next section I engage with Tokmans work which I consider a critical response to De Soto, and

which is of particular interest in the context of this discussion since he also is a Peruvian who engages with the

problematique at the level of the informal economy in Peru and Latin America.

Beyond Regulation Tokman and PREALC

Tokman sees the problem of earlier research on the informal sector and De Sotos own work as rooted

in the false compartmentalization and dichotomous relation between the formal and informal economy (see

Chapter 3 for the genealogy of these concepts). In formulating his theoretical framework, Tokman uses the

formal sector and modern sector as homonyms being comprised of business and merchant activity both of

which operate in the realm of legality and being conjunctural both are mediated by the juridico legal

regulatory apparatus of the nation state. His work contrasts directly with De Sotos in that he articulates a

clearer conception of, at least what he believes, constitutes the internal relations of the formal sector and

recognizes that these are neither segregated nor occur in a vacuum apart from the informal economy.

For Tokman the formal economy structurally organizes production and productive work-forces at a

global level. He suggests that after the 1980s this sector adopted a different flexible schema of production,

the effects of which have been causally implicated in the severe fragmentation of the labour force.41

He

suggests that the prime motivating factor in the move towards flexibility in the formal economy derived from

the need to reduce labour costs. The aim of flexibility in production was to decentralize away from vast

industrial sites into smaller units of production which could be located where costs would be at the lowest

level. Flexibility and decentralization created a massive surplus population of workers, giving the formal

41 By fragmentation he intends the displacement of the workers outside the wage relation to temporary work,

if and when available, outside production within a tertiary service sector or self provisioning activities. The

labour force becomes fragmented as it becomes redundant to industrial production whereby these workers

only alternative is to find income opportunities through non-waged part time contract work or investing in

micro-enterprise.

31

economy the opportunity to open or change production sites at will. Tokman argues that labour costs have

been kept low because the formal economy has, through its regulatory apparatus, been successful in erecting

blocks that have tended to stall, avoid or diminish trade union power in opposing this restructuring and

outsourcing of work projects. In addition, he argues that the onset of new technologies has further decreased

the reliance of the formal sector on living labour (Tokman 1992, 3-5).

For Tokman there are two vectors of regulation that impact on relations in the economy, these being:

(a) the commercial and industrial sectors private norms and standards; and (b) the state regulatory apparatus

(Tokman 1992, 4-5). Tokman takes the view that in developing countries competitive pressures of excess labour

push down incomes and generate subsistence activities that are not linked to expanding modern sectors, but

cater to low income markets which lack access to capital, technology and skills (Tokman 1992, 4). He argues

that socio-economic activities do not converge in polarized forms, rather, they take place in a continuum of

legality within which the formal economy is located as the dominant sphere of economic enterprise. This

continuum expresses the relationship between the formal and informal economy in terms of legality and

illegality and Tokman argues that both formal and informal economies fall within a grey area of this

continuum. (Tokman 1992, 4-4).

With this methodological premise, I believe Tokman aims to solve the problem of the non-equivalence

of two very distinct social relations (a problem which results in juxtaposing them within a dichotomous

relationship, such as occurs in the work of De Soto), economic exchange and the conformance to legal norms.

Contrary to De Soto, he suggests that a graduated horizontal continuum explains the necessary differentiations

in the realm between legality and illegality42

and the market expresses other relations which cannot be

captured within the intra-relationship, formal/informal sector. For Tokm