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Small Firms, the Informal Sector, and the Devil's Deal
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Small Firms, the Informal Sector, and the Devil's Deal 1By Judith Tendler Everybody loves small firms.Whether big donors or small, bilateral or multilateral.Whether left or right, government or non-government, practitioners or academics, myself included.Small firms have even gained a prestigious place in the firmament of social policy, where microcredit and other small-firm programs are seen as forming a safety net into which the poor can gently fall.But this is exactly where the trouble begins, and that's what this article is about.Over the last decade or so, myriad programs, projects, and policy reforms have focused attention on informal-sector firms (IS) and small firms (SF) in general, as part of a broader social-policy agenda of reducing poverty and unemployment.2 Despite this welcome attention, many planners in developing countries nevertheless continue to view SF/IS programs as "only" welfare, rather than the stuff of "serious" economic development.The particular form taken by SF/IS support in many countries reinforces this view, as explained below, as does the way SF/IS support is often embedded in politics.This jeopardises certain benefits, ironically, that we hold crucial to the current agenda of reducing poverty and unemployment: greater observance by firms of environmental and labour regulations, sustained increases in efficiency and productivity in local economies and, as a result, improvement in the quantity and quality of jobs.I was first struck with the darker side of small-firm and informal -sector support when interviewing economic-development officials in the Brazilian state of Pernambuco.I was curious to
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“That sector is hard to tax (Tendler 2002; Bird and Wallace 2003; Kloeden 2006).”
From Tax And Development: Donor Support To Strengthen Tax Systems In Developing Countries (2014) · cites this paper as Tendler 2002
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- jeopardise its support among the Owambo-speaking majority; "The Politics of Revenue Mobilisation: Explaining Continuity in Namibian Tax Policies," Forum for Development Studies (No.1, June 2001, p. 142). Italian political scientists studying Italy's postwar period have pointed explicitly to the importance of "[clientelist generosity -in the form of regulation to protect small business, a lax approach to tax collection for the self-employed, and so on -was systematically directed at these groups"; see Jonathan Hopkin and Alfio Mastropaolo, "From patronage to clientelism: comparing the Italian and Spanish experiences," Chapter 7 in Clientelism, Interests, and Democratic Representation: the European Experience in Historical and Comparative Perspective, edited by Simona Piattoni (Cambridge: Cambridge University Press, 2001). Suzanne Berger's work on this same subject in Italy and France is cited in the following note, #6. For an interpretation of small-firm politics in the U.S. economy as affecting viewpoints and policies, see Charles Brown, James Hamilton, and James Medoff, Employers Large and Small (Cambridge, MA: Harvard University Press, 1990).
- Using the small-firm sector to maintain employment and the social peace is not unique to the current period, or to less-developed countries. In work on the political economy of industrial policy in France and Italy, published more than 20 years ago, the political scientist Suzanne Berger explicitly linked the small firm programs and regulations that developed in France and Italy during the 1970s to the simultaneous pursuit of a large-firm industrialisation strategy by those very same governments. She had posed the question of why two countries that had so explicitly pursued a large -firm modernisation industrial policy could at the same time have enacted such pro-small firm legislation and assistance. It is from her work that I take the term, "keeping the social peace." See, "The Uses of the Traditional Sector in Italy: Why Declining Classes Survive," in: The Petite Bourgeoisie, edited by Frank Bechafer and Brian Elliot, pp. 71-89 (New York: Saint Martin's Press, 1981); and "The Traditional Sector in France and Italy," in: Dualism and Discontinuity in Industrial Societies, edited by Suzanne Berger and Michael Piore (Cambridge: Cambridge University Press, 1980),Chapter 4, pp. 88-131.
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Tax And Development: Donor Support To Strengthen Tax Systems In Developing Countries
Fjeldstad, O. (2014) · Public Administration and Development · doi:10.1002/pad.1676 · Cited by 96
“A large share of the economic activity in poor countries is located within the informal sector.6 That sector is hard to tax (Tendler, 2002; Bird and Wallace, 2003).”
Coslovsky, S. V. (2014) · World Development · doi:10.1016/j.worlddev.2013.07.012 · Cited by 41
Metadata
- Authors
- Tendler, J.
- Corresponding author
- Tendler, Judith
- Venue
- IDS Bulletin
- Publisher
- Institute of Development Studies
- Published
- 2002-07
- Volume
- 33
- Issue
- 3
- Pages
- 1-15
- ISSN
- 0265-5012 (ISSN-L)
- 1759-5436
- OpenAlex
- W2159101248
- Cited by
- 137
- References
- 0
- Citations by year
- 2024: 5 · 2023: 24 · 2022: 6 · 2021: 8 · 2020: 20 · 2019: 4 · 2018: 6 · 2017: 3 · 2016: 5 · 2015: 3 · 2014: 8 · 2013: 6 · 2012: 5
- FWCI
- 13.96
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- IDS Bulletin (publishedVersion)
- Figshare (submittedVersion, cc-by)
- OpenDocs (Institute of Development Studies) (submittedVersion)
- Topics
- Social Sciences › Geography, Planning and Development › Local Economic Development and Planning
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Microfinance and Financial Inclusion
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Education and Labor Relations
- Keywords
- small business, informal economy, microcredit, poverty reduction, unemployment, economic development policy, environmental regulation, labor market regulation, productivity, job creation, politics of development, developing countries
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