Untying the Knot of Venezuela’s Informal Economy

The Sabana Grande in eastern Caracas is one of the city’s most famous streets, and it has seen many changes in its short life. Until the 1940s, most of it still lay under sugarcane fields. But by its 1970s heyday the shopping boulevard was the scene of a flourishing café culture that for many Caracas intellectuals of a certain generation has passed into legend, a relic of a safer, wealthier, more cosmopolitan city.

J.P. Leary

The Sabana Grande in eastern Caracas is one of the city’s most famous streets, and it has seen many changes in its short life. Until the 1940s, most of it still lay under sugarcane fields. But by its 1970s heyday the shopping boulevard was the scene of a flourishing café culture that for many Caracas intellectuals of a certain generation has passed into legend, a relic of a safer, wealthier, more cosmopolitan city.

Today, the Sabana Grande is the site of the Venezuelan capital’s main informal marketplace, lined tight with tents and tables selling Colombian textiles, pirated music, Chinese electronics and manicures. The publisher’s blurb of a new book on that imagined “golden age,”, Sabana Grande era una fiesta (Sabana Grande was a Party), puts this latest change rather tragically: “Its celebrated bohemian fame,” the editors lament, “was displaced by an army of merchants and the noise of the pirate CDs that that now permit no talk of poetry.” Antonio Rojas, who has watched the street’s transformation during his 29 years manning a corner newspaper kiosk, looks at it this way: “Capitalism has no mother, and it forgets everybody.”

Oil capitalism, with its booms, busts and fundamental unevenness, has an especially short memory. Indeed, it has so deeply reshaped the geography of Venezuela and Caracas over the last few decades that the contemporary metropolis of 2.5 million people bears almost no resemblance to the provincial capital of even 60 years ago.

The most rapid period of change took place during the 1950s rule of Marcos Pérez Jiménez, a general who intended, in a Venezuelan dictatorial tradition, to modernize the nation by transforming its built environment through massive investment in public works and infrastructure—and heavy demolition of the old capital. Farmers left a vanishing agricultural sector to help fill the Guaire river valley with the expressways, universities, bridges, tunnels and new housing developments of modern Caracas. At the same time, these migrants built their own vibrant neighborhoods on unoccupied land in the hills and ravines of the valley. In 1940, for example, La Vega was a colonial-era village in the coffee hills southwest of Caracas. Today, it’s one of Caracas’ largest barrios, with a population the size of Pittsburgh’s, but unlike Steel Town, La Vega is still growing.

The barrios of Venezuela’s cities started growing when the mass exodus from the countryside began in earnest in the 1940s. Here, too, oil has played a central role. Lucrative exports like oil, by overvaluing the domestic currency, make imported goods cheap and undercut domestic production, compromising small-scale farming and other national industries unrelated to petroleum refining. In a relatively short time, peasant agriculture in Venezuela largely faded away, with many of the countryside’s largest landholdings untouched by the 1960s agrarian reform that swept through the rest of the continent. Today, almost 90% of the country lives in big cities, and in Caracas roughly half the population lives in the slums concentrated in the city’s western half.

As in much of the Third World, Venezuela’s dense urban population toils in large numbers in what has come to be loosely known as the “informal economy,” an imprecise category that refers generally to the urban self-employed and other workers who perform unregistered or off-the-books services, often within the “formal” economy or in a position of semi-formal legality. Informal labor is most visible, however, in the form of what Venezuelans call “buhoneros,” or peddlers, the street merchants who colonize public space in urban areas selling all manner of goods and services.

While the growth of Caracas’ informal economy is linked to the growth of the barrio slums, the economy today is not an exclusively barrios labor force. It is also not identifiable with the traditional working class, whose institutions in Venezuela still do not include informal workers’ unions. Many other Caracas buhoneros, in fact, come from a downwardly mobile middle class. One woman who preferred not to give her name has been selling coffee and cigarettes from a stand across from the headquarters of Venezuela’s national petroleum company since her husband’s business failed. She has been unable to find office or cashier work, she says, because “when they ask how old I am, I say 40, and they say ‘no.’ They’re just looking for young girls.”

By 1969, almost half of Venezuela’s working population worked in the informal sector. After historic lows during the 1970s, the percentage of informal workers has not stopped rising since 1980. Since then, Venezuela has experienced one of the most dramatic rates of impoverishment anywhere in the world: the number of people living in official poverty nearly doubled between 1984 and 1995, and those living in what economists call “extreme poverty” tripled during the same period. Today, more than half of the country’s working population works in the informal economy. “Informal” employment exploded throughout Latin America during the debt crises, structural adjustments and “jobless growth” of the 1980s and ‘90s, and in Venezuela, as in many countries, a clear majority (about 60%) of informal workers are women. Indeed, Venezuela is not at all insulated from the continental employment crisis, despite President Hugo Chávez’s stated intent to break from the neoliberal development model.

The Chávez government has channeled state oil revenues into social programs—called “missions” in the evangelical language of chavista leftism—for health, education, job training and nutrition. The government has also implemented economic programs intended both to develop petroleum refining capacity and diversify the productive sector through workers’ cooperatives, small-scale industry and joint private-public ventures administered through a new government body called the Ministry for the Popular Economy. Nevertheless, the government faces a tough battle: the 20-year decline of Venezuelan industry, and the cuts during those years of state investment in health and education, has left the economy less prepared than ever to absorb the increasing number of surplus laborers, most of whom end up in the informal sector in one way or another.

The rate of formal unemployment was a persistent source of criticism for the Chávez government during the early campaigning for the recent elections. Although the government notes that formal joblessness has dropped by 10% since the opposition-led strikes and oil-industry lockout of 2002, these statistical changes don’t necessarily translate into felt differences for those just scraping by, and the official unemployment rate doesn’t account for informal workers anyway. And while Venezuela’s exports generate massive revenue for the state, the only jobs the highly mechanized oil industry creates are in management and engineering. So a popular understanding of Venezuela’s wealth during these flush times for oil prices—petroleum revenues account for half of the state’s revenue—perhaps explains the frustration of some Venezuelans, including informal workers.

“Right now in Venezuela there are the resources to get rid of this whole informal economy, but there’s no political will,” says Luis Bianchi, a part-time mechanic and a former Coca-Cola salesman who came to Sabana Grande 11 years ago after he was laid off. Bianchi is an example of what might be called the informal petit bourgeoisie. The entrepreneurial owner of two large clothing stalls, he is fairly conservative in his outlook, but markedly distrustful of the entire Venezuelan political class, particularly, he said, its anti-Chávez opposition. He says he has attended numerous fruitless meetings to discuss government initiatives to deliver loans to independent producers and cooperatives through state-financed banks. Asked about the microcredit programs promoted by the Ministry for the Popular Economy, Bianchi snaps, “That and nothing are exactly the same.”

Noemi Ramírez, a 67-year-old former seamstress (fired from her factory job, she says, for being a chavista) makes her own clothes at home near Sabana Grande and sells them on the boulevard. Although she would seem a perfect candidate for microcredit, she instead turned to the loan sharks that prowl Sabana Grande, who charged her 40% interest on a loan to maintain her shop and equipment. Nieve Garabatal, a laid-off line cook and mother of four from the Barquisimeto barrios, has sold candy and trinkets for seven years on the streets of Venezuela’s fourth-largest city. She describes microcredits as a potentially valuable program crippled by Venezuela’s famous bureaucracy. She told of hours-long waits at government offices: even then, she says, the promised loan “is always on its way, just behind the mayor or the governor. It will be one day, two days, then a week, then a month. Sometimes it never arrives.”

One vendor, from the sprawling eastern Caracas barrio of Petare, used to work as a carpenter but now sells copied pop and salsa CDs that he buys from DVD- and CD-burning factories in the La Hoyada section of downtown. He claims that in a good week, he can earn 500,000 Bolívares (about $232), roughly equivalent to the new minimum monthly wage for civil servants. For him, at least, informal employment is working fine. “Thanks to this, I have a house,” he says. When I asked him about the Ministry for the Popular Economy, he only said that he worked too much to watch television.

Under pressure from formal business owners—who denounce informal markets for blocking pedestrian traffic and underselling their goods, and are eager to collect tax revenue on the vast economy—Caracas officials have made some tentative attempts to police the informal trade, through measures like mandatory vacation days for particular sectors of buhoneros (hot dog vendors, for example, were recently ordered to stay off the streets on Wednesdays. Their union vowed to defy the measure). However, many observers and merchants, in fact, don’t even agree on what exactly the problem is. Is informality simply a quality of life issue, or a structural employment problem of resource-exporting and inequality-producing countries? Should the informal economy simply be regulated and organized through merchant cooperatives, or should informal merchants be given legal title to enter into a formalized open market, as the celebrity free-market economist Hernando de Soto has prescribed?

Economist Isabel Pereira of the Venezuelan pro-market organization CEDICE, which espouses many of de Soto’s theories, sees no immediate solution—a refreshing posture, given the opportunistic euphoria that greets de Soto’s ideas in some circles. Yet she blames Chávez’s economic policy for the employment crisis and Venezuela’s continued oil dependence. “Chávez is making the bad things that were here already even worse,” she says.

Pereira insists that Venezuela never had as pronounced a neoliberal period as some chavistas claim. Rather, “we have to leave behind this rentista model,” she says, referring to the state’s economic reliance on petroleum income in the form of rents and royalties the government charges the private oil companies that extract the oil. The government has expanded a corruption-ridden public sector, Pereira says, and has thrown away money by funding badly performing cooperatives. And instead of helping private enterprise create formal-sector jobs, the Chávez government uses revenues to fund the missions, which are stop-gap solutions, Pereira argues, that are little more than compravotos, or shows to buy the votes of the poor.

But at the same time, her organization’s response to informality (that is, turning to private enterprise) trades what Pereira sees as one old myth, that of the benevolent redistributive state, for another, perhaps more fantastic one: the magic of the market.

Although some informal workers, like Bianchi and Ramírez, aspire to expand their street stalls into more stable enterprises, most buhoneros simply want a regulated indoor marketplace to ply their goods without the stress of the rain and sun and the abuses of the criminals and gangsters that stalk the open-air markets. Most merchants pay a high price just to stay in business: they must pay guards to house their inventory overnight, young porters to carry the heavy carts and, in at least some unlucky cases, an exorbitant “rent”—up to nearly $5,000 a year—extorted by mafias. All this leaves these workers extremely vulnerable, both to the market itself as well as to “formal” employers who can exploit this vulnerability.

In the roofed La Hoyada Bolivarian Market downtown, opened with government help in 2001, merchants pay no rent, but contribute a modest sum for upkeep and security. María Andrade, an Ecuadoran-born resident of working-class Catia and a Chávez critic—“my husband’s a chavista, though,” she says—worked for years in a shoe factory before leaving to sell clothes at her stall under the market’s red roof. “I left on my free will, because it’s better to work for yourself than to have a boss,” she said, a sentiment echoed by many of the merchants in the streets of Caracas, despite the hardships. According to Andrade, eighteen merchants’ associations compete inside the market, and in Sabana Grande alone, there are at least two unions, divided by territory and national politics. The competition and divisions within the buhonero workforce—political, regional and class—make unifying these informal workers as a political force a difficult task.

Bellanid Ramírez, a 67-year old resident of downtown Caracas’ old working-class neighborhood, La Candelaria, sells clothes on the Sabana Grande, keeping an eye on her elderly mother who sits silently in a wheelchair nearby, protected by an umbrella. At an age when she might be retiring, Ramírez is also studying in a government-sponsored baccalaureate program for a career in law. Ramírez is a chavista and is quite clear about why she votes the way she does. “I prefer to die wise, with a profession,” she says. “I have the ability to study. Like Chávez says, we all have these built-up energies. I have the energy too.”


J.P. Leary is a doctoral candidate in Comparative Literature at New York University and was a 2005-06 Fulbright fellow in Caracas, Venezuela.

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