Small Firms, the Informal Sector, and the Devil's Deal

Abstract

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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