Street Vendors and the Informal Economy in Peru

After a long trip in the Amazon rainforest, wandering around the cities of Lima and Cusco presented very different scenes. In contrast to the tropical Amazon rainforest, these arid cities conformed more closely to my preconceived ideas about Peru. One of the most impressive things, especially in Cusco, was the street vendors.

A vendor in Cusco

I was initially not so surprised that street vendors could be found everywhere in the city since this kind of scene is common in China, even in the mega-cities of Beijing and Shanghai. However, when I found the problem behind was about the informal economy, this phenomenon turned out to be an investigable topic and could be served as a proxy of informal economy. Street vending is a typical informal trade, as mentioned in a Hernando De Soto study, and one of the “three major areas in Peruvian society dominated by informality” (De Soto, 1989). Informal trade, according to De Soto, is pervasive in Peru. “There are around 1,500 informal street vendors in downtown Lima” (Vigo, 2013). In Cusco, street vending is a part of local traditional culture that has been part of the downtown of Cusco since pre-colonial times (Steel, 2012). Street vendors seem a crucial part of the city rather than a nuisance because these street sales are all about local items, such as Peruvian barbecue with grilled beef, pork and chicken mixed with potato. Others sell handicrafts, including stone carvings, necklaces, and scarves. In my view, they are the cultural symbols of Peru, similar to the gorgeous cathedrals and incredible ruins of the ancient Inca Empire, which representing the iconic features of Peru.

However, in the Peruvian government’s view I must be a weirdo since they treat street vendors as a constraint on the national economy.

 

As in other developing countries, Peru has been undergoing rapid urbanization, which has stimulated a tremendous increase in urban economic activity in the formal and informal sectors. Based on a lecture to our group by Fernando Villarán, professor and former Minister of Labor, 19 percent of Peru’s GDP in 2007 was from the informal economy. Informal employment dropped from 79 percent to 75 percent of the workforce from 2007 to 2010. National governments often suggest that informality can jeopardize a country’s economy. The control of street vending intensified when the historic center of Cusco started to attract national and international attention. “In line with the modernist development visions that permeated the academic reasoning of the 1950s and 1960s, these forms of commerce were thought as backward, inefficient and detrimental to national development programmes” (Cross, 2000). Although local municipalities have adopted regulations to attempt to discourage street vendors (Steel, 2012), these itinerant sellers have never surrendered to central power and continually search for ways to remain on the streets, playing a cat-and-mouse game with municipal managers.

De Soto explains, however, that the street vendors were not productive due to their poor ability of providing sufficient goods and services (De Soto, 1989). Moreover, informal vending does not contribute revenue to the national economy and instead has costs in terms of public services.

Personally, informality is a phenomenon that can be transformed with higher efficiency rather than a simple problem that should be solved by aggressive governmental involvement. In De Soto’s view, institutional reforms for addressing informality should involve abandoning current government regulations of trade and other areas. The informal economy needs free capital and free markets to become essential players in the economy, “thereby creating a path of market-oriented reforms” (Marquez, 1990). Instead of condemning informality as a nuisance to the economy, the government ought to recognize informality by reducing burdensome restrictions and cutting bureaucracy’s role in the economy, informal trade will expand, and their incorporation into the formal economy will benefit both sectors of the economy (De Soto, 1989). Fernando Villarán suggested something similar at our meeting in Lima. He also supported the idea that the government should allow market forces to compete under appropriate regulations. Economic reform requires a comprehensive and well-designed plan that includes all the main actors.

References

Marquez, A. (1990). The Other Path by Hernando De Soto. Boston College Third World Law Journal, 204.

Soto, H. d., & Instituto Libertad y Democracia (Lima, Peru). (1989). The Other Path : The Invisible Revolution in the Third World (1st ed.). New York: Harper & Row.

Steel, G. (2012), Whose Paradise? Itinerant Street Vendors’ Individual and Collective Practices of Political Agency in the Tourist Streets of Cusco, Peru. International Journal of Urban and Regional Research, 36: 1007–1021.

Vigo, M. (2013). Downtown Lima Sees Increase in Informal Street Vendors. Retrieved from http://www.peruthisweek.com/news-downtown-lima-sees-increase-in-informal-street-vendors-13521

Cross, J. (2000) Street Vendors, Modernity and Post Modernity: Conflict and Compromise in the Global Economy. International Journal of Sociology and Social Policy 20.1/2, 30–52.

– Zili Zhang

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