A Dark Side of Globalization: The Formal–Informal Conflict

Abstract

The idea of development is now being integrated with the vision of globalization. It is argued that with appropriate institutional makeovers and optimal monitoring globalization could very well be all-inclusive and thereby could usher in comprehensive development for the laggard countries. In this context, we look at the informal sector - a major site of socio-economic exclusion, placing it within an open economy macroeconomic framework built for a developing country, and ask, whether this Informal sector too, along with other sectors, benefit due to the globalization of the Global South. We construct this macro-model along Kaleckian structuralist lines; however, extending it by incorporating a dichotomized agriculture and a trichotomized Informal sector. In the mainstream literature, the informal sector is often posited as a 'junior partner' of the formal sector and there is predominantly a (two-way) complementary relationship between the two. Further, it is opined that appropriately monitored globalization is beneficial for both. However, we, on the contrary, show that, while globalization could be beneficial for the modern formal sector, for the modernising export-capable-crop producing segment of agriculture and even for that part of the Informal sector which is linked with the formal sector via input-output and market relations, a much larger part of the informality is adversely affected. Even if there is no immediate resource as also market/demand sharing by the formal and informal sectors, we show, deeper integration of the formal sector and agriculture of the developing countries with the global market may generate a variety of effects across the different segments of the Informal sector - while some could benefit, many suffer. A large part of the informal sector suffocates and the workers are impoverished to become the 'neo-nomads' of the 21st century. We take up some theoretical exercises to show such conflicts between the modern and traditional and undertake a detailed empirical analysis using Indian data to verify these theoretical conjectures; and finally, take on some probable policy measures.