The New Underground

September 25, 2007

The day Rafael Ramírez lost the factory job he had held for twelve years, he felt completely uprooted. “The SAID factory was like a family to me,” he says. “With so many people out of work, how was I going to make a living?” The next morning he began the rounds of the few factories remaining open in La Paz, only to find that despite his experience as a machinist, no jobs were available.

The 1989 closure of the SAID textile factory, high on a hill above La Paz’s center, symbolizes the de-industrialization Bolivia has suffered during a decade of economic crisis, compounded by the New Economic Policy (NEP) implemented in 1985. Once a prosperous mill which employed 3,000 workers, SAID’s failure to modernize contributed to a steady decline. “When I started in 1975,” says Ramírez, “there were only 1,000 people employed in the whole factory. Retiring workers were not replaced and the numbers slowly dropped.”

The factory’s death knell began in 1985. “We couldn’t compete with contraband coming in from neighboring countries and the state subsidies which had propped up the factory were cut,” explains Ramírez. “The management offered payoffs to those who gave up their jobs voluntarily. By 1988, there were only 200 workers left.” When the factory finally shut down, its premises remained vacant for over a year. The site is now used occasionally for fairs where small vendors and artisans sell their wares. Current plans are to turn it into a shopping center.

The $300 severance pay Ramírez received lasted his family four months. By then he realized that he had little chance of finding a steady job. With $1,000 borrowed from a relative, he bought ground coffee which he took to the eastern lowland city of Santa Cruz to sell, only to find the market flooded with cheaper coffee from Brazil. A year later, having lost much of his capital, he began selling contraband goods in an open air market in El Alto, the sprawling shantytown city above La Paz. But he was unable to earn enough to make ends meet. His wife took over the stall, and he set up a small folding table and typewriter on a downtown avenue where he now works filling out tax forms. “I make about 15 bolivianos a day ($4.25) and with what my wife earns in the market, we just get by.”

Bolivians are exemplary survivors. In the face of acute political instability, an economy dependent on world market fluctuations, and the highest infant mortality rate on the continent, people like Rafael Ramírez have developed a remarkable capacity to face economic insecurity. But the NEP, adopted in the midst of the country’s worst economic crisis this century, has generated unprecedented levels of hardship.

Since 1985, an estimated 45,000 jobs in state mining and public administration have been eliminated. Factory closures resulting from free import policies caused the loss of at least another 35,000. “I’m really not sure from one day to the next if I’m going to be able to put food on the table for my five children,” says Ana de Patiño, whose husband worked for 35 years in the Colquiri tin mine. “My husband earns six bolivianos a day ($1.75) when he can find temporary work on construction sites. We never thought this could happen--that the mines would shut down and we would be left high and dry.”

Steady migration away from the countryside has converted what was twenty years ago a primarily rural society to one in which just over half the population lives in urban centers, the majority in conditions of extreme poverty. With no state unemployment benefits and existing social services suffering severe cutbacks, shantytown dwellers in the principal cities of La Paz, Santa Cruz and Cochabamba rely on family and community networks and ingenious survival strategies. The moment the earth is turned on a new construction site, an improvised lunch counter appears nearby, set up by women who haul pots of cooked food from their homes to feed the workers. On La Paz’s Buenos Aires Avenue, the clogged traffic provides one ex-miner with the chance to earn $2 a day changing bills into coin for slow-moving buses.

Over 60% of the urban population now supports itself through this type of “informal” activity, characterized by its small scale, lack of access to capital and training, and low productivity. Francisco Figueroa of the Confederation of Artisans, Vendors and Meat Sellers prefers the term “micro-enterprise.” “Small vendors lack legal protection, but we pay taxes both to the municipality and to the national government,” he says. “So we resent it when people call us informal.”[1]

Besides farming, most formal economic activity in Bolivia has been in the realm of minerals export. The minimal quantities of processed food and textiles produced for the local market never provided many jobs. But the application of the NEP led to a mushrooming of small urban businesses. Two thirds of these involve commerce, which has been growing at a rate of 11% since 1985, contrasting sharply with overall slow and even negative economic growth.[2]

The growth of such businesses, reflecting the formal economy’s inability to absorb labor, has gone hand in hand with a steady drop in earnings among informal workers, now 37% lower than in 1985.[3] Silvia Escóbar of the Labor and Agrarian Development Studies Center (CEDLA) estimates that only half are able to cover their families’ basic food costs.

Over 30,000 vendors, nearly all of them women, fill the streets of La Paz daily, one vendor for every 30 people. The more established sell from fixed stalls, while many peddle minuscule quantities from wraps spread on the sidewalk. With so many now laboring in petty commerce or micro-enterprises, the character of the labor movement, and workers’ basic values and roles are changing. In the long term it promises to alter the face of Bolivian society in fundamental ways.

Micro-enterprises often reproduce the complex network of relationships traditional in native culture. A small hand-knit sweater business studied by anthropologist Hans Buechler, for example, is run with the labor of unpaid family members, capital from close kin, and the participation of distantly related kin.[4]

Traditional concepts of reciprocity provide people with some protection against falling incomes. In times of shortage, consumers are assured that their regular vendors will put goods aside for them. Another reciprocal arrangement is found in the pasanaku rotating credit system, which allows people with limited resources access to a small amount of capital. Between 10 and 20 people each contribute a certain weekly or monthly quota and take turns receiving the total collected.[5]

These types of relationships give income-generating activities in Bolivia a particular logic. Small businesses with close links between family and business earnings reflect a search for subsistence income rather than the rationale of accumulation.[6] Diversification is a strategy widely used to minimize risk. Many vendors knit for the handicraft market at their food stalls. Recent migrants to the city often maintain a plot of land in their community of origin for basic foodstuffs.

Aside from perpetuating already low living standards, such work is tremendously unstable; as the informal sector grows, instability has become the norm in employment. According to Silvia Escóbar, the work discipline of the labor force has been undermined by the lack of fixed jobs. Alongside factory closures and an undercapitalized uncompetitive artisan sector, booming micro-enterprises are placing Bolivia’s long-cherished goal of industrialization ever farther out of reach.[7]

Rather than depending on interaction with the formal economy as in many countries, Bolivia’s urban commercial sector responds more closely to the dynamics of the country’s dominant export activity, the coca/cocaine trade, whose profits are largely laundered through contraband. While unregulated economic activities predate the emergence of the drug business, they were rapidly penetrated, expanded and strengthened by profits from cocaine.[8]

The influx of cocaine money also spawned informal banking services, operating mostly in dollars. The hyperinflation of 1983-1985, when savings in Bolivian currency could lose 10% of their value per day, further strengthened the move to dollars. Today, even in isolated rural areas, peasants will ask foreigners to convert their bolivianos into dollars. Flavio Chambi is one of scores of ex-factory workers who change currency on busy La Paz street corners. He explains, “People would rather deal with us than with banks—we’re more accessible and more personal.”

The explosion of smuggling since the NEP was imposed benefits principally those with government ties who can bring in large shipments using false customs documents. But the trade also provides an income for hundreds of Bolivians who trek across the borders with some savings, and return with a variety of goods over rutted roads in the back of open trucks. Those who work in this “contraband of the ants” have to haggle with wholesalers, haul heavy loads, and face hostile customs officials who often demand bribes or confiscate merchandise. When they finally get their goods to market, competition is fierce and profits low. “I used to make about $20 a trip,” says 58-year-old Berta Calle, who travels regularly to Chile, “but now I earn as little as $6 each time.”

Smuggling is not only the domain of the poor. Bolivia’s small middle class has also resorted to such strategies to lessen the impact of the economic crunch. Marlene Rodríguez’s job as a teacher is so poorly paid that every two weeks she leaves her teenage daughters at home and hires a substitute teacher so that she can travel to Chile and smuggle back bundles of second-hand U.S. clothing.

The contraband trade is built like a pyramid. A belt of prosperous merchants who market foreign goods is at the top. Below them comes a wide band of intermediaries, which in turn rests upon a mass of peddlers, who manage minuscule amounts of merchandise. “Contraband has been an important vehicle for upward mobility,” explains sociologist José Blanes. “Many of those who channel large quantities of capital into contraband were originally working-class. Traditional mechanisms for moving up the social scale through the dominant political parties or through professional education are no longer operating. We are witnessing increasing marginalization and poverty on one hand, and the growth of a new wealthy mestizo class on the other.”

On my street in downtown La Paz, the two vendors of 1985 have now multiplied to eight. Competition between them is fierce. “When I first started to sell here,” says Horencia Menduiña, “the woman in the next stall got 20 vendors from the area to come and tell me to leave because I was taking their business away. I moved my stall further away from hers, but I spent two years getting city hall permission and almost $300 to have the kiosk built, so I’m not leaving. In the end, the vendor’s union had to intervene. They told me I should have gotten approval first from the local vendors, but I didn’t know that. I thought the city permit and joining the union were enough.”

Although half of all informals remain unorganized, union membership is required to sell in fixed street stalls, and the Confederation of Artisans, Vendors and Meat Sellers has grown to 800,000 affiliates nationally. However, the nature of commerce does little to promote solidarity among union members. “We have constant problems with vendors fighting over space,” admits confederation leader Francisco Figueroa.

For former union leader Rafael Ramírez, the contrast between factory and street is striking. “Although in many ways I like the freedom of working in the street, there’s a lack of trust here,” he says. “In the factory, we all depended on each other for the work to get done, and we knew we had the backup of the union to face our collective problems. Here we each depend on ourselves, so we have very little sympathy for each other. But I try not to forget what I learned in the union: the importance of solidarity with other working-class people. Whenever possible, I don’t charge people who are very poor, or I charge them very little.”

The decline of the traditional proletariat has caused considerable ideological change among the working class, shifting the locus of social and economic demands from the work place to the neighborhood, and from the search for structural change to single-issue strategies. “The social fabric is changing,” explains economist Carlos Torranzo. “These new workers do not have the same tradition of struggle that the miners had.” This has brought a steady erosion of the gains won through decades of trade union struggle. Some two thirds of workers outside the formal economy have no state protection or social security benefits. “Our members aren’t on any payroll, so they aren’t covered by labor law,” explains vendors leader Francisco Figueroa.

The shift away from the employer-employee dynamic, while threatening traditional trade unionism, is reinforcing the family as the principal economic unit. Family-run businesses now comprise 76% of the informal sector. In La Paz, some 167,000 enterprises provide work for 225,000 people, an average of 1.3 workers per business.[9]

The number of women entering the labor market has skyrocketed. Nearly all street vendors are female, reflecting Andean women’s traditional role in commerce, and many of them support their families, despite the dominant view that they are “helping” to supplement their husbands’ income.[10] About one third are heads of households.[11] They work an average of 11 hours daily selling and five more doing domestic chores. With more women doing a double shift, at least one study found that traditional expressions of machismo are gradually giving way, with more men and boys helping out at home.[12]

For rural girls and women, domestic service is still the traditional point of entry into the urban labor market. Modesta Quispe, who works a 75-hour week for $40 a month as a live-in maid, says, “I started when I was twelve when a family from the city came to my community and took me back with them.” A common goal among these women is to become street vendors. “My friends are almost all domestic workers from the countryside,” says Quispe. “We dream of saving enough money to be able to set up our own stalls.”

Self-employment is one of the few options open to women who have small children and must organize their days around running their homes. These women earn only 60% of the average wages of men doing similar work, and they tend to have less schooling. Women’s entry into the labor market is generally motivated by necessity, but once there they tend to appreciate the relative independence gained from having their own incomes. “I like earning my own money,” says street vendor Margaret Laurente, who brings in about $2 a day. “That way I can decide what we most need at home.”

The number of child workers in the street is estimated to have increased 60% since 1985, although Bolivian law prohibits children under 14 from entering the labor force. Starting as young as seven years old, they earn small amounts as shoeshine boys, domestic workers, and market and street vendors, working an average of 15 hours a day. Guillermo Vilela, a lawyer specializing in children’s rights, estimates that the number of children who have given up school to add to their families’ income has increased 45% since 1985.[13] Leaving school may address immediate survival needs, but does not bode well for the country’s future needs for a literate workforce from which to draw skilled labor.

Informal workers are now the rage among international aid and development experts, who often extol the entrepreneurial spirit they supposedly represent. But could such small-scale activities constitute an alternative development model? The government has traditionally ignored small businesses in favor of export-oriented industries and agribusiness. Could a shift in government priorities, advocated by these same development specialists, transform informals into a springboard for sustained economic growth?

As a development strategy, the informal sector offers certain advantages. The average investment required to create a formal sector job has been estimated to be 26 times higher than that needed to create an informal one. In addition, most micro-enterprise manufacturing is almost exclusively based on the use of local resources rather than imports.

The widely circulated position of Peruvian economist Hernán de Soto that the informal sector can provide a solution to the impact of structural adjustment policies finds little resonance in Bolivia. “De Soto’s emphasis on the removal of legal barriers that the informal sector faces makes little sense here,” says Silvia Escóbar. “In Bolivia, the legal registration of businesses is a lot less complicated than the one he describes in Peru. And even if you remove the legal barriers, you still have not addressed the problems of lack of access to credit, low skill levels, low productivity and so on.”

Where the informal economy has become a motor for growth, as in central Italy, researchers have identified a series of factors in its success, such as the development of upscale market niches, strong internal integration and cohesion, and an entrepreneurial environment, all of which Bolivia lacks. But perhaps most importantly, successful informal models in other countries have received considerable government support. If the informal sector is to maximize its potential, it will require innovative responses from the state rather than simple deregulation or rigid centralized planning.

Many policy makers, following de Soto’s lead, have criticized government over involvement, promoting a vision of individual solutions to what are, in essence, structural problems. Following this trend, the conservative La Paz city government, with World Bank support, has developed a program for micro-enterprises which among other things reduces the number of steps needed to register with the municipality.

One Bolivian non-governmental organization, CEDLA, has been working with the artisans’ union to lobby in favor of legislation regulating small productive and service enterprises. “The law would provide artisans with access to credit and technical assistance, some tax benefits and market protection,” explains Silvia Escóbar. Though artisans make up a quarter of the urban informal economy, the flood of contraband has cut into their markets, while mushrooming unemployment and frozen wages have reduced demand. In addition, unemployed workers have increased competition by rushing to set up their own tiny workshops. Artisan producers are increasingly undercapitalized, purchasing smaller quantities of supplies at higher prices, cutting down the amounts they earn. “Another big problem we face,” explains José María Herrera, a goldsmith belonging to the Confederation of Bolivian Artisans, “is getting raw materials. Most are shipped out of the country in bulk.”

The most serious problem experienced by small businesses is their lack of access to credit. Banks provide credit to those with collateral such as cars or houses, not to the urban poor. The informal credit services which have sprung up often charge as much as 7% interest a month.

In the absence of government policy and support, the Center for the Promotion of Economic Initiatives (FIE) provided 1,800 loans to the artisan sector in 1988, almost all backed only by personal guarantees. FIE also offers basic training in administration and bookkeeping. Defaults are rare. “Word contract is still very strong in Bolivian society, stemming from a culture which places a high value on personal honesty,” says director Pilar Velasco. “We never have people asking for more money than they need. The producers we work with are incredibly flexible and innovative, always finding new ways to adapt products to facilitate their sale in a highly competitive market.”

PRODEM, a non-governmental organization set up in 1986 and funded by the U.S. Agency for International Development (AID), makes 2,000 loans yearly, averaging $150 each. Interest rates are the same as those charged by commercial banks. Each loan is guaranteed by a solidarity group, made up of participants who agree to back each other’s loans. “Our default rate is very low--about 0.22%,” explains credit manager Bernardo Santa María. “These people may be poor, but they fulfill their obligations.”

These projects are in some sense formalizing the informal economy, according to sociologist José Blanes. But “the informal sector does not represent an alternative development model for the country,” he asserts. “It is a transitional model only, towards what, we are not sure, but it is clear that the old models are now broken. The problem is that the tendency towards informality provides a very poor base for the country’s future.”

In the meantime, traditional community values continue to help low-income Bolivians survive the austerity policies which have fallen disproportionately on their shoulders. Among them are the apparently contradictory elements of fierce competition and cooperation. I witnessed a dramatic example of this early one morning in the mining town of Llallagua. The buses were on strike, so the train was packed. Hundreds of people fought tooth and nail to get into the few carriages available. Finally, station personnel added on a box car and those of us left on the platform pushed and shoved our way in, elbows and curses flying. At the last moment, one more woman squeezed on. She was in tears, and explained she had been robbed on the platform. The people in the box car immediately reached into their pockets and passed around a hat for her.

Such spontaneous sharing is inspiring, and it allows thousands to feed themselves and their families each day. The community values by which Bolivians weather the daily struggle may not constitute an alternative model for national development. But perhaps they point the way forward. Only a grassroots movement, it seems, could reconceive development on a more human scale.

Linda Farthing is a Canadian journalist and consultant to community development projects, who lives in Bolivia.


Thanks to José Blanes for commenting on this article.

[1] La Paz micro-enterprises paid over $500,000 in municipal taxes in 1989. About half are also registered with the national government taxation system, but only about 10% actually pay. Antonio Perez Velasco, Roberto Casanovas Sainz, Silvia Escóbar de Pabón, Hernando Larrazábal Córdova, Informalidad e ilegalidad: una falsa identidad (La Paz: CEDLA, 1989).

[2] Roberto Casanovas Sainz, Seminario-Taller, “La Micro-Empresa y el sector informal en La Paz: una perspectiva actual,” (La Paz, Oct. 1990).

[3] Roberto Casanovas Sainz, El sector informal urbano en Bolivia: elementos para un diagnóstico y lineamientos generales de políticas (La Paz: CEDLA, 1989).

[4] See Hans Buechler, “Doña Flora’s Network: Work Relations in Small Industries in La Paz, Bolivia,” in George Gmelch, Walter P. Zenner (eds.), Urban Life: Readings in Urban Anthropology, 2nd edition (Prospect Heights, Illinois: Waveland Press, 1988).

[5] The word is said to come from pasa, Spanish for to pass, and naku, a Quechua suffix denoting reciprocity.

[6] Casanovas, El sector informal.

[7] Industrialization has been held as a goal by every government since the 1952 Revolution. See James Dunkerley, Rebellion in the Veins (London: Verso, 1984).

[8] The links between contraband and the cocaine economy are particularly hard to specify because of the illegality involved. For a discussion of how they affect Bolivia, see José Blanes Jiménez, “Cocaine, Informality and the Urban Economy in La Paz, Bolivia,” in Alejandro Portes, Manuel Castells and Lauren A. Benton (eds.), The Informal Economy: Studies in Advanced and Less Developed Countries, (Baltimore: Johns Hopkins University Press, 1989).

[9] Casanovas, El sector informal.

[10] Silvia Escóbar de Pabón, “Small-scale Commerce in La Paz, Bolivia,” in Marguerite Berger and Mayra Buvinic (eds.), Women’s Ventures: Assistance to the Informal Sector in Latin America, (W. Hartford, CT: Kumarian Press, 1989). The authors express concern that the current aid programs’ emphasis on artisanal production will negatively impact on women, who are largely employed in commerce. They argue that this approach overlooks the fact that commerce does provide jobs and can serve as a stepping stone into service or productive activities.

[11] Vivian Arteaga, and Noemi Larrazábal, La mujer pobre en la crisis económica: las vendedoras ambulantes de La Paz (La Paz: FLACSO/Centro de Promoción de la Mujer “Gregoria Apaza” 1988).

[12] Ibid.

[13] “Today and Tomorrow: Children in Bolivia,” Bolivia Buletin Vol. 6, No. 4, (La Paz, Aug. 1990); Situación de la Niñez (La Paz: SENPAS, 1990).

Tags: Bolivia, austerity, black market, street-sellers, unions

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