Capitalism is 3rd World's Safety Net

While Americans weather layoffs and watch their 401ks dwindle, the developing nations in which many of our products originate are being hit even harder by the global downturn. Many of these developing nations have virtually no social safety net, and job loss can be crippling. However, as jobs manufacturing good to be sold to the West dry up, many are turning to the "informal economy" the open air markets, street vendors, and in-home manufacturers which make up more than half the economy in countries ranging from India and Mexico to much of sub-Saharan Africa.

The informal economy consists of cash and in-kind transactions and its practitioners do not pay taxes, hold licenses, or obey regulations. Pay is simply however much money is made, and there are no benefits. Because informal businessmen pay no taxes and work on a cash only basis (they seldom capitalize through loans, nor do they put savings into banks) economists have generally seen them as a drag on the economy. But as export-based jobs dry up, it provides a fallback safety net for many workers:

Until late December, Pilaporn Jaksurat, 33, was working full-time on a cotton spinning machine in a textile mill in Bangkok. She made about $7 a day and her benefits included bonuses of $30 a month for good attendance and a severance package worth about $800.

Then she was laid off when her factory, which sells fabric to clothing manufacturers in Europe, said it had to cut costs to cope with the global economic crisis. Finding a similar job wasn't an option, since other local factories were also dumping staff due to a massive decline in orders from buyers across Europe and North America. She decided to start her own business, selling shots of medicinal wine to truck drivers and motorcyclists on the highway by her home -- an adult version of the neighborhood lemonade stand. With help from friends, she fashioned a makeshift bamboo stand on vacant grass by the roadside. The start-up cost was about $275, she says, paid for with money from her severance package.

A few weeks later, shouting to be heard over the roar of oncoming trucks, Ms. Pilaporn says she's making a profit of about $10 a day after expenditures for ingredients, including herbs and wine. That's better than the $7 or so she made at the garment factory. She likes being her own boss, she says, and the income allows her to keep sending money home every month to help support her parents and 2-year-old child, who live together in a rural area in northern Thailand.

"It's a bit noisy here, but you get used to it," she says. If business "keeps up like this, I'll be fine."

The outcomes of this shift aren't always so good. While Ms. Jaksurat makes more than she did in her export-based job, most others find themselves making less.

Kavitaben Uttambhai Parmar, 25, says she had one of the better jobs in the city until recently, stitching pants and other clothes in one of the few remaining major textile factories. During her five years there, her salary more than tripled to 115 rupees per day [about $2.25]; she recently dreamed of buying a refrigerator. Then one day in November, she was laid off with one of her best friends, 30-year-old Jayshree Kantilal Makvana.

"That was a bad day for us," says Ms. Parmar, whose income helped support a household of five, including her mother, brother, sister and grandfather. "I went home crying."

Both later found informal work, doing stitching for a smaller textile company that pays only by the piece, allowing each woman to earn about 50 rupees per day [about one dollar]. They also are making bracelets in their spare time to sell at festivals for about five rupees per 12 dozen.

Ms. Parmar says she is cutting back on electricity. Ms. Makvana says she's using city buses to get around instead of more expensive rickshaws. But they're happy they're still earning something.

"At least we're surviving," Ms. Makvana says.

In countries such as India where resources do not allow for providing the kind of social safety net services we take for granted in the US (much less the more expansive "guaranteed living wage regardless of employment" some advocate for) this kind of underground free market economy often provides the safety net, in combination with family/community support networks.

I also always find it a bit humbling reading about how prized manufacturing jobs that pay only a few dollars a day are in many developing nations. One often hears well meaning people in our country talk about wanting to avoid buying clothes made in developing nations, because of their concerns about unfair labor practices. And yet, it was those "Made in India" and "Made in Tailand" labelled products which gave Kavitaben Parmar and Pilaporn Jaksurat their jobs -- and decrease in demand for them which caused them to be laid off. Here's hoping that one way or another, Ms. Parmar gets to buy her refrigerator some day and that the deman for Ms. Jaksurat's roadside drink stand holds up.