Making Do A Call for Collaboration
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FORMAL SECTOR LINKAGES Debates in the field of development grow especially fierce on the topic of “top-down” versus “bottom-up.” The former argument is that developing countries need an influx of capital from outside through investment and exports, so capital-intensive projects should encourage advanced manufacturing techniques and business process outsourcing. As we saw in Chapter Two, this approach tends to exclude a large portion of the population, leading to social inequalities. Conversely, the latter argues that the informal sector should be empowered to grow its capacity gradually so that microenterprises can meet the needs of the indigenous population. Yet, as we saw in Chapter Five, these businesses still need investment and technology from the outside to grow. But development isn’t an either-or proposition: it is important to promote the formal and informal sectors concurrently, so long as a focus is also placed on the middleware, or linkages between the two. Of the late industrializers—the countries that have developed within the last half a century—those who have seen the most success were able to bridge the gap between the formal and informal sectors. For example, the government of South Korea enacted policies in 1982 to promote linkages between large and small enterprises.81 The Small- and Medium-Industry Systemization Law reserved certain sectors for small subcontractors, prohibited contractors from dominating subcontractors through stock ownership, provided financial incentives to subcontractors to upgrade their factories, and set guidelines for fair practices in subcontracting agreements. This legislation was successful, but subcontracting policies may not work everywhere or anytime.83 It has to make financial sense for companies to form backwards linkages. At Kenya’s stage in development, it may be too cheap for formal enterprises to import machines and raw materials and too expensive to subcontract domestically. But this situation can be corrected through protectionist policies and upgrading the technological capacity of the informal sector. In contrast, the Government of Kenya’s approach in the export processing zones (EPZs) has been to lower the cost