Human capital, its implication en informal trading pereira

Human Capital: its implication in informal trading

Isabel Pereira Pizani

Abstract

The men and women who occupy public places earning a living in street trading are victims of a double exclusion: on the first front, as a consequence of the statist- rentierdistributive nature of the Venezuelan State and of the attempt to impose a collectivist model in the place of the market and private property -both with strong anti-job-generating traits reflected in the game rules governing the incorporation of Venezuelans into the labor market-, a situation that has resulted in informal work becoming a structural feature of the Venezuelan labor market; and on the second, this differentiating exclusion occurs as a result of the nonparticipation of informals in the building of the knowledge society, a key factor for generating wealth, for innovation, and for adding value as the fruit of the transforming power of human capital.

Key words: Statism, distributive society, human capital, knowledge society, informal workers, contributions and benefits

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Introduction Since Adam Smith postulated labor as the source generating all wealth in 1776, little progress has been made, in relative terms, in managing to convert it into the axis of mankind’s progress. “The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations. (…) It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people.”1 It is not too farfetched to say that much more has been invested in finding ways to supplant labor than in expanding and consolidating spheres of freedom that would permit the creativity of the worker to become the guide and mainstay of the creation of wealth. It was not until half way through the 20th century that some researchers, among them Gary Becker and Amartya Sen, began more definitive research into the importance of the relationship between productivity, labor and the possibility of achieving better standards of living for mankind. This change in direction in thinking was the starting point of an unceasing search for the link between labor, wealth and standard of living.

This short paper responds to this need to understand what participating in the labor market as informals means for workers and the opportunities this offers them. By “informals” we mean workers whose work is based on game rules that are different from and often diametrically opposed to those of the rest of society, i.e. the formal sector that is accounted for and legally constituted.

In the specific case of Venezuela, it is important to note that informality occurs at the heart of a society whose defining trait is that it is a rentier-oil country: “The State is the owner of the revenues it charges and collects from the world market independently of the domestic economy or, what comes to the same thing, of the economic life of the society under its aegis,”2 a circumstance that sets limits on the labor market and puts informal workers in a situation of dual exclusion: exclusion derived from this rentier state having to do with the scant generation of job opportunities and, secondly, the intrinsic separation that engaging in a productive activity on the informal side of the tracks confers. The combination of both factors results in an informal sector that carries most weight within the 1

Smith (1776), u, pages 27 and 41.

2

Baptista (2004) b, page 33.

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labor market, numerically speaking, but offers its members scant possibilities of rising above that situation or consolidating those aspects of their line of work that could become viable.

This paper takes a look at the possibilities of expanding human capital as a result of combining real job opportunities in the formal sector and options for development and consolidation derived from engaging in informal economic activity, this being the main occupation of the majority of Venezuelan workers.

The first part of the paper presents the basic concepts relating to rentierism, as a basis for understanding the general economic dynamic as a determining factor in the labor market structure and an effective cause of informality. It suggests the importance of the absence of links between of the processes of salarization, productivity and salary as essential elements of the labor dynamic. The second part, based on a field study conducted on the streets of Caracas by CEDICE LIBERTAD’s Public Policy Analysis Unit and a comparative analysis of the findings, puts forward the following hypotheses: a) Informal economic activity is not one engaged in by choice; and b) the level of education of the population in the economically active age group has little impact on their incorporation into the labor market. Both hypotheses clearly show us how decisively general economic conditions affect the possible options open to the informal worker.

Finally, a number of conclusions are presented as a point of departure for further research together with proposed general guidelines for defining public policies and other measures that local and central government could adopt immediately.

1. Basic Concepts The labor market can be defined as an area of human relations that clearly expresses the way in which a society is made up: the type of prevailing economic development, game rules, current social conventions, the rates of productivity derived from efforts in the field of knowledge-technology, and the level of education of the working population, to name just a few of an infinite number of variables.

We live in salaried work societies that hinge on two principles, relative security for all those taking part in the economic process derived from game rules adopted by common accord, and the calculability of costs, expectations and risks over the long term. Salaried work is, moreover, the base of the Welfare State and Social Security. Only when societies

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achieve near full employment can the economically active generations finance the older ones.

Salaried work is also a guarantee of democracy. A worker is a citizen whose existence depends on his participation in a market with pre-established game rules and who, in his daily life, actively ensures that those rules are improved. This worker-citizen is, therefore, the bearer of a given order of things, of a project that is translated into his own biography.

The special feature of this research paper on human capital and informality stems from its own proposal; it has to do with determining the limits and restrictions on expansion for those individuals who have salaried status, but in a sense that runs counter to the given order of things and the rules that this society establishes as constituent elements, i.e. established game rules that are formally recognized by society (labor laws, property laws, among others).

An informal worker is defined as being someone who forms part of an income generation process not regulated by society’s institutions in the same way as other similar activities are regulated socially and legally.3 This research paper extrapolates the Richard Barret’s idea regarding efficient organizations to the concept of human capital, understood not merely as a seeking of efficiency and productivity, but as those individuals who, because of their training and personal qualities, are capable of forming part of

“visionary organizations that find a

dynamic equilibrium between the needs of survival and growth, the meeting of their personal needs, economic sustainability, and being socially and environmentally responsible with their community and society in general”.4 Now then, the Venezuelan labor market, like any other, is in fact a variable that depends on the general development option adopted by this society. In capitalism, labor markets clearly express the margins allowed for and restrictions on the economic freedom to invest and, in doing so, to drive the development of the productivity and salarization of the population or, put another way, of opportunities for incorporating workers into relationships of formal wage dependency and prospects of salaries understood as “current schemes of remuneration, benefit or advantage, whatever their denomination or method of

3

Portes, Castells and Benton (1989), q, page 34.

4

Barret (2001), d, page 33.

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calculation, provided they can be given a cash value and are due to the worker for the provision of his service.�5 In market economies, salarization, productivity and the salary are elements bound together in a close relationship, where a variation in one triggers immediate reactions in the others. In societies of a socialist-statist bent, the existence of labor markets is debatable. They will always be the result of the discretionary expressions of those who direct or plan the economy. The incorporation of men into the labor market or salarization, the level of productivity, innovation, technological development and salary levels will be variables that are independent of one another, responding, fundamentally, to the political decisions of those who control the State apparatus and set the objectives of central government planning.

However, in the specific case of Venezuela, taken as a country of a capitalist persuasion, we see that the labor market responds to a socialist-type model, given the superimposition of the weight of the State, endowed with a nature that is intrinsically that of a proprietor, possessor of the ownership and control of the main sources of production of wealth and whose main revenues come from the sale of oil on the international market.

This series of factors determines the specific nature of the Venezuelan labor market, where the weight of the State has the capacity to generate, destroy or simply not create jobs, replacing them with any other means of subsidizing of or transference to sectors of the population of job age in this market.

The Venezuelan labor market, rather than expressing healthy competition between individuals and reflecting our levels of productivity, is a sphere where the effects of the redistribution policies decided upon or adopted by the proprietor-State at any given moment or in a specific set of circumstances materialize.

Addressing the issue of the possibilities for and restrictions on the development of human capital involves, first of all, a comprehensive empirical view of how the labor market has been formed in its relationship of dependence on the general economic model prevailing in this society. A second approximation reveals informality as one of the forms of specific participation in the labor market, as opposed to the formal sector, that is the sector covered or governed by the framework legally established by society.

Determining the possibilities of and restrictions on the human capital of the informal worker remits us, then, in the first place to the significance of the proprietor-rentier model of the economy in the Venezuelan labor market.

5

Ley OrgĂĄnica del Trabajo (1997), p, page 34.

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2. The rentier, proprietor, redistributive State

The economic theses put forward as a proposal for Venezuela during the second half of the 20th century emerged in a context where there was a need to shake off any remnants of the dictatorships and militarism that had existed for nearly 60 years and the autocratic way of managing and understanding the economy and politics. Up until then, the main beneficiaries of setting up the oil industry in Venezuela had been the military dictators and their cronies. The need to break with that atavism reinforced the proposal of the new ideologues regarding the necessity of putting all the economic power in the hands of the State. “Not a single oil concession for private individuals” 6 was the manifesto and objective of the new leaders, who, in their understandable settling of scores with the old tyrannies, scorning half measures, lumped together all private individuals with the former beneficiaries of the military dictatorships. Thus Venezuelans were stripped of any possibility of making a comeback, this time as the creators of wealth, and a first expropriation was perpetrated, that of participating in the industry that generates practically all the country’s wealth, the oil industry, a circumstance that we will call here “the confiscation of comparative advantages.” 7 As a result of this circumstance, investment in Venezuela in highly profitable sectors or sectors where there are static and dynamic comparative advantages is restricted by the presence of institutions that give precedence to public investment over private investment. This includes the energy sector in general (hydrocarbons, electricity, etc.), mining and tourism, all examples of areas of economic activity where the decisions to invest and redirect resources and productive factors are restricted by a supply of property rights controlled by the State on the basis of formal rules that it shapes to suit the political interests of the day.

The supply of property rights relating to investment in sectors with the biggest competitive advantages is the outcome of a legal scheme of things that is based on the coercive capacity of the political power held by the State. This institutional dynamic, consolidated ideologically, imposes transaction costs that make private investment in those sectors prohibitive. In this way, the productivity potential and the country’s potential

6

Betancourt (1978 ), g, page 33.

7

Pereira y Zanoni (2004), o, page 33.

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are affected, because of the existence of “institutionalized” state monopolies that restrict competition, lessen the possibilities of adding value to our economy and, basically, turn the majority of workers into passive individuals in dealings with the State.

The political consensuses reached in each government express these limitations on investing, which are only made more flexible, in practice, in response to the need to generate fiscal revenues. The State “grants quotas” or it cedes limited property rights to investors only to the point where it gains in terms of power thanks to increased fiscal revenues, which it can distribute. Workers and their families lose the opportunity of having decent jobs and achieving better standards of living as a result of their merits and efforts.

The proprietor-State is not interested in generating value but in obtaining fiscal revenues that will guarantee political power. In the case of the Venezuelan economy, this characteristic, which is frequently got around, defines the structure of the real sector of the economy and determines macroeconomic options for achieving growth and well-being. An economy whose productive apparatus is dichotomized into profitable economic activities (appropriated by the State) and economic activities having scant capacity for generating value engaged in by the rest of society can only generate a labor market with profound restrictions.

In contrast, the perennial proposal to grow based on the development of the private non-oil economy, to diversify building on the growth of sectors where transaction costs are very high and profitability doubtful has turned attempts to industrialize Venezuela into a kind of bottomless pit that swallows up vast sums of fiscal resources. And it could hardly be otherwise, when the State reserves to itself the economic activities having comparative advantages, redistributes fiscal revenues to sectors with low profitability and inhibits competition in a scheme of inward growth. This situation explains the problem that is restricting the country’s possibilities of growth: on the one hand, the infinite and insurmountable transaction costs involved in establishing private investments in profitable sectors and, on the other, a very high “Venezuela Cost”8 for achieving growth in sectors with scant comparative advantages.

This is the distorted situation facing Venezuela’s economic growth and social development: the impossibility of achieving growth in the sectors with the biggest advantages, on the one hand, and, on the other, the use of the resources generated by the profitable state-owned companies to “subsidize” sectors with scant or zero profitability.

8

Penfold (2002), m, page 33.

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2.1. Political Expropriation

This insistence on doing away with the participation of private individuals in the oil business, a kind of anti-caudillo backlash, could have been a passing phenomenon while the aftermath of years of dictatorship dissipated. Unfortunately for us, however, it served as the basis for another and perhaps worse transformation. Although the production of wealth was no longer in the hands of private individuals, it was now in the hands of the State, converted, inexorably, into the recipient and owner of undreamed-of revenues and wealth. The creation of mechanisms of mediation between this omnipotent public machinery and the citizenry became a necessity, particularly given the aspirations of founding a democracy that was inspiring the leaders emerging in the country at that time.

In 1945, the proposal was for a society that disowned the economic citizen, but established the party man as the interlocutor of the State, a newly created monster. Since then, people’s standing as citizens has been linked to their membership of mass organizations. The political and cultural consequences of this belligerence on the part of the political parties are very profound, given that the transfer of responsibility is an attribute of the political organization. In point of fact, this organization is now more responsible than the individual. Henceforth, the sense of individual responsibility was to be conceived of as being directly tied to obedience to the party and, indirectly, as responding to the inexorable and transcendent course of history as a social process. So it is that the party has become the principal interlocutor of the State in the place of citizen participation.

This mediation by the political parties between the citizen and society consummated the second and, perhaps, most terrible confiscation, that of a person’s status as a citizen. The pacts between the parties were to be the fundamental point of political consensus in the relations between the State and society and in the social plurality required by democratic regimes. Henceforth, citizens would not be distinguished on the grounds of merit or civic ethics, but for their loyalty and responsibility to the party. Party membership was to become the most valuable means of identification that would establish the difference between one Venezuelan and the next. The strength of governments would be associated with the consistency and allegiances derived from agreements expressing a new form of tutelage or control, this time plural, clearly replacing the possibility of building a society of citizens. This particular trait assumed by the Democratic State in its early days is what the researcher Luís J. Oropeza describes in the Gendarme Innecesario as being a

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system’s source of legitimacy where control, order and possibilities are still not in the hands of the citizens.

These two major expropriations are at the base of the State that has been built in Venezuela since 1958. These expropriations are defined as a combination of the confiscation of the citizenry by political parties, the establishment of pacts that were to guarantee plural tutelage, and the alienation of economic freedoms and, with them, the possibility of developing our comparative advantages as a country. Both confiscations, the political and the economic, were to become the foundations of the Proprietor-Redistributive State, the political mainstay of the democratic trials of the second part of the 20th century and the attempts to establish a completely socialist regime in the 21st.

2.2. The impact of the “confiscation of comparative advantages” The process of expropriation of comparative advantages, endorsed by powerful pacts among the political parties, is the platform that bestows on Venezuela the nature of rentier society or economy. The main revenue of the country’s economy depends on the price of oil imposed by the world market; it is “income not created by the country,” that is to say income for which there is no entry of labor and capital on the other side of the balance sheet. In this sense, it is income without a balancing entry in terms of production… “The State is the owner of revenues it charges and collects from the world market outside the domestic economy, or put another way, apart from the economic life of the society under its aegis.” 9 The appropriation of the oil industry by the State, which gives rise to the expropriation of comparative advantages as a means of sustaining the rentier economy, is a determining factor in Venezuela’s economic and social future, given its direct effects on the basic structure of the labor market and because of its social repercussions in terms of the depreciation of human capital as the engine of economic development.

The structure of the Venezuelan economy and, in particular, its labor market, is an expression of the ideological-political visions that have prevailed in the management of the country, a situation that is reflected in the different degrees of fragmentation that characterize the labor market as an overall structure. By fragmentation of the labor market we mean the coexistence within it of segments differentiated on the basis of specific economic logics.

9

Baptista (2004), b, page 33.

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This nature of the structure of employment in Venezuela is apparent when we observe the overwhelming presence of informal workers, both in terms of physical space and over time, as a category that is more numerous than public and private sector employment combined. This means that the majority of Venezuelan workers are not protected by the legal and regulatory framework that covers the formal worker, and which gives rise to a series of basic contributions and benefits aimed at ensuring their welfare as individuals and as a group. The most obvious conclusion is that two logics of workers’ material reproduction coexist in the labor market, with the informal strategy predominating.

Understanding this fragmented nature of the labor market allows us to appreciate more fully the behavior and reactions of variables such as the level of employment, unemployment, informality, the types and quality of jobs, wages and income and, most important, it allows us to approach poverty as a phenomenon that results from the dynamic interrelating of these variables. On this point, it is worth formulating some preliminary considerations to be used as a working hypothesis, which are derived from the premise of revenue being used as a mechanism of distribution and not as capital for generating new wealth and opportunities; in other words, taking into account not the usufruct of the revenue but the fact that this revenue does not imply any major domestic productive effort. a. The fragmentation of the labor market is a phenomenon generated autonomously.

It has no preconceived form. It is the product of the interrelating of the economic, political and legal game rules under which it falls and which constitute its quasimaterial means of support. b. If we accept this premise, the second has to do with identifying the game rules that determine the Venezuelan economy and, therefore, the labor market: public ownership of the profitable sectors of the economy, political-legal restrictions on the participation or intervention of private investment in the development of these sectors, and the proprietor-rentier nature of the State. This public control of the lion’s share of the economy supports the imposition of a state agent with a political rationality that seeks power, crushing and squeezing out the economic rationality that should prevail in the wealth generation process and, with it, the creation of productive jobs as the substratum for incorporating Venezuelans into opportunities for human, physical and material development. c. Based on the foregoing, it is possible to reach an approximation to a preliminary conclusion: the goals and objectives of the Venezuelan economy are not geared

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primarily to the creation of wealth. Given the prevalence of the political interest over the economic, the purposes of the economy are tied to the generation of fiscal revenues in order to sustain the political power structure. This explains the historical difficulties Venezuela faces when it comes to adopting an appropriate path for developing the economy other than the one deriving from the distribution of revenues. d. Control of the economy by the public sector based on ownership of the industries that are most profitable, extremely capital intensive and generate few jobs, added to the scant political interest in developing or opening up areas of investment downstream in these industries that would permit the involvement of sectors other than public capital, limits or restricts the capacity for generating jobs in the domestic economy. If the dominant rationality is not the creation of wealth and, if the basic economic activity is a poor job-generator, then the formal labor market in Venezuela will be very restricted insofar as its capacity for expanding employment is concerned, as it has always been. e. Domestic private investors are relegated to sectors with low profitability compared to the economic potential of the country. As this is the only way of sustaining these private activities, the State maintains a structure that subsidizes private economic activity either directly or indirectly. The private sector emerges in the shadow of the State. This is the closing move in a perverse game played out within Venezuela’s institutional framework: the political-legal framework turns the State into the economy’s employer, denies the rest of society the right to invest where it can obtain a return, but, at the same time and out of the need to maintain itself in power, shares these resources out among the population and subsidizes unprofitable activities that reduce the impact of unemployment and poverty. This process explains the confiscation of the comparative advantages as a basic malaise of the Venezuelan economy, a confiscation that explains the Venezuelan economy’s scant capacity for generating jobs and the high cost of producing them for sectors with low profitability. The paradox is that, when the majority of these private incursions into the economy produce poor results, the private sector is blamed for its low level of profitability and for wasting public funds. f.

The demand for productive jobs is not a priority, and the growth of employment is discretionary depending on the volume of revenues obtained by the State. When there is an abundance of resources, owing to rising international oil prices, the

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State, as a form of indirect subsidy, permits itself to finance more jobs in the public sector with no regard for their productivity and transfers resources to private undertakings with small chance of success. When oil prices fall, the margin the State has for implementing these mechanisms for generating employment shrinks or disappears. The notion of labor is not strictly associated with the generation of added value, and a considerable number of surplus unproductive jobs are generated within the public sector. This is what causes the deep crises and Venezuelans’ scant ability to weather the storms resulting from a reduction in public funds. g. The qualification of the labor force is not a determining factor for its entry into the labor market, except in the modern, highly technified sectors. This manifest incapacity of the Venezuelan productive apparatus, added to the high cost of doing business for the private sector, forces the majority of Venezuelans to develop strategies for generating income outside the formal economy, engaging in activities that do not contribute, on a large scale, to the gross domestic product. This is a situation that does not worry the governments, as long as the revenues from the state-owned companies are sufficient to meet their fiscal requirements. In point of fact, the informal economy is left practically undisturbed by the authorities, even when it becomes a nuisance, takes over public places and contributes to their deterioration or poses a threat to public health. h. The absence of productive activity is financed by the State through social spending (missions or social programs, subsidies, handouts), which, in turn, is fed by oil revenues. There is a trade-off between salaries and social spending to ensure peace in the country. Rather than use fiscal revenues to protect the highly vulnerable sectors, they are allocated to disguise the structural lack of jobs and salaries facing the population in the economically active age group. i.

Rentierism and the expropriation of comparative advantages produce a separation between fundamental categories at the very base of the labor market: salarization is not driven by the dynamics of the economy or the need to ensure greater yield on investments. To the same extent, the growth of salaries does not operate as a process that is closely linked to increases in productivity. This relation between salarization, productivity and salaries in the Venezuelan rentier economy is not, therefore, a determining factor in the size, composition and structure of the labor market.

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j.

The extension of salary relations is extremely limited, a situation that is translated directly into informality as a consequence of the tremendous difficulty of obtaining access to a real income that is the product of work, of being cut off from the formal economy, and of poor access to systems of contributions and benefits that back up the worker’s well-being and social stability.

k. This structural differentiation in the labor market –its fragmentation in other wordsstems from this perverse dynamic that ruptures the intimate relationship between salary, productivity and salarization. l.

This situation has given rise to the splitting off and formation of economic, cultural and political sectors, each with their own particular game rules, dissimilar and contradictory goals and objectives, and values that are an expression of the deep splits and differences that exist in Venezuelan society.

3. The extension of salary relations

The extension of salary relations and the defragmentation of the labor market have been pre-requisites for capitalist expansion and ensuring the domestic social peace of countries. In this regard, it is unquestionable that the well-being in rich countries is closely related to the unequivocal approach adopted by their ruling classes in the search for better conditions for incorporating the huge masses of people occupying wretched jobs into the capitalist labor market.

It was into this dilemma-ridden scenario that the Welfare States emerged at the end of the 19th century as the element providing most solid support for capitalist development in Europe and the United States and as guarantors of the process of homogenization of the salary relation or salarization, by permitting the incorporation of workers into the labor market with lower social costs. The great objective was to consolidate growing, homogenous societies within which it was possible to share risks, societies in which the immense majority of the population would be able to have a stable job.

The great historical role played by the Welfare States was that of establishing a form of conciliation that would get past the “hand-to-hand” combat that was occurring in each factory to obtain better wages. The public sector’s social efforts were focused on this objective: agreeing game rules by setting up a system of risk sharing that would permit capitalist expansion and, at the same time, favor workers. To achieve these objectives, the states, making full use of their fiscal policies, built up social security systems, granted their

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economic agents full freedom, and strengthened the legal bases guaranteeing legal certainty for the expansion of capital. It is worth pointing out here that, in these cases, intervention in the economy by the State was restricted to setting and managing the fiscal policy.

Through the different welfare systems, based on universal systems of contributions by workers and employers, the governments of these countries took on tasks that before had fallen within the private domain of the family or were reserved to the more powerful sectors. Amidst tremendous conflicts, strikes, negotiations and agreements, they implemented measures and took action aimed at backing this profound social migration to new forms of economic participation (extension of salary relations; defragmentation of the labor market), while at the same time setting up systems of social contributions and benefits unheard of until then. In less than a century, they managed to extend access to education and make it compulsory, democratize the entry into universities and training centers, while getting legislation passed that would provide the worker with protection from the complexities of his working life.

The priority for welfare regimes, established as a result of the extension of salary relations, meant, in a more general sense, increasing the value of the human potential of all non-owners so that they would acquire, via that route, autonomy as political citizens and economic entities, a circumstance that guaranteed them the enjoyment of their social citizenship and freedom to sell their labor and their know-how and accumulated skill potential without restrictions, so turning this into the key to individual and collective wellbeing.

Another decisive player joined this process of increasing the value of the salary, underpinned by the different types of Welfare States and welfare systems: the large trade unions, defenders of the financial power of the wage, which were to undergo an intense process of organization and internal democratization throughout this entire period, a basic requirement for ensuring the workers’ representation in dealings with the State and capital.

As can be seen in Table No. 1, the prevailing trend in the United Kingdom, France and the United States has been the extension of salary relations and, with it, of formal employment. By the 90s, more than 80% of the economically active population in each of these countries were wage-earners, a trend that runs counter to what has happened in Venezuela, where growth of the salarized population tends to be dominated increasingly by the informal sector (see Tables Nos. 2 and 3).

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Table No. 1 Salaried Status: International Experience 1688-1993 (Salaried population as a percentage of the economically active population)

United

%

France

%

USA

%

1900

69.8

Kingdom 1688

35.8

1801

43.2

1911

87.2

1866

57.7

1940

75.7

1951

92.8

1926

65.1

1970

89.8

1991

87.9

1982

83.6

1992

91.2

Source: Baptista, Asdrúbal. 2004. “Teoría Económica del capitalismo Rentístico”. Caracas Ediciones IESA 1999.

Table No. 2 Venezuela Salaried population as a percentage of the economically active population (1936- 1995)

Salarization Year

%

1936

37.4

1953

63.6

1961

70.7

1971

78.7

1995

83.8

Source: Baptista, Asdrúbal. 2004. “Teoría Económica del capitalismo Rentístico”.

Caracas Ediciones IESA 1999.

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Table No. 3 Venezuela Population Working in the Formal and Informal Sectors Formal

80

Informal

60 40 20

19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 20 02

0

Source.

Encuestas de Hogares por

muestreo. 1969-2003. Instituto

Nacional de EstadĂ­sticas

Regardless of the ways in which Welfare States operate or the specific details of their social security systems or welfare regimes, it is undeniable that their participation was decisive in the creation of risk-sharing societies that were guarantors of capitalist expansion, the defragmentation of the labor market in an environment or relative social peace and, above all, in benefiting workers without creating disincentives to business investment.

By way of conclusion, it can be said that the combination of the extension of salary relations and the free development of business within the general framework of the Welfare States, the organization of trade union movements, and the expansion of educational-health services permitted the leaders of these countries to incorporate large masses of the population into wealth-generating economic activity, create the conditions for expanding their possibilities of developing human capital and so overcome poverty as a structural problem.

Although these countries may experience periods when the salary loses value or the capacity for employment contracts, neither of these situations constitutes phenomena of poverty as we know them in our country.

In Venezuela, the construction of a risk-sharing society based on defragmentation of the labor market, extension of salary relations, and generation of formal jobs has not occurred. Depending on how the economy is behaving at any given time, informal workers account for just over or just under half the economically active population. Added to this is

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the magnitude of unproductive public sector employment, whose dimensions stem from the rentier nature of our economy.

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Graph No. 1 Structure of the Venezuelan Labor Market 2004 Public Sector 24%

Informal Sector 52%

Some features:  Salarization shows negative fragmentation; majority of nontaxpayers  Predominance of non-salary relations and of sectors providing scant added value (jobs in informal + public sectors)  Private-sector formal market is a comparatively small employer in international terms 

Private Sector 34%

Poor remuneration

 Productivity with zero strategic value in terms of the participation of the sectors

 Impossibility of universal social security owing to the low level of Source: Instituto Nacional de Estadísticas. 2004 distribution

The vast majority of informal workers are either poor or potentially poor, lack savings capacity, do not have ties with the financial system or any possibility of taking part in the contribution systems that would provide them with the protection of social benefits in the event of being unable to work or a family emergency. In Venezuela, only 30% of workers contribute to the social security system. This means that it is impossible to generate possibilities for human development and to deal with poverty without making direct reference to this instability and fragmentation of our labor market.

The extension of salary relations in the formal sector, or salarization, as an alternative to poverty implies, then, generating jobs as a response to the demand for economic development and salary relations that are valid insofar as they contribute to the expansion of physical and human capital and to the generation of goods that consumers need and find desirable at home and abroad.

4. Productivity in a rentier society

The oil revenue that the Venezuelan State receives is income that has no counterpart in terms of productive effort. This initial circumstance indicates that the

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salaries set within the domestic economy have little to do with productivity -unlike what happens in capitalist societies where salaries closely follow increases generated in productivity-, a trend that accentuates the lack of linkage between productivity, salary and salarization -fundamental variables in the growth of employment and the extension of salary relations- in the Venezuelan rentier economy and restricts workers’ potential for human development.

Although it can be said that increased productivity is not sufficient to definitely ensure improvements in the social conditions of the worker, it is unquestionable that, in order to guarantee social rights, it is necessary that society’s productivity levels be increased to the point where resources are available from which to distribute any surplus.

This is not a situation that prevails in oil rentier societies, where the State’s fundamental income is not linked to increases in endogenous productivity. In these cases, redistribution or sharing out automatically becomes a discretionary function of the sectors or institutions that control the flow of income and, ultimately, it is a product of the game rules agreed upon by a given society for distributing that fiscal revenue.

When the revenue is channeled to encouraging a domestic productive structure where this income is used as seed capital, a kind of original sum to finance new economic activities that will generate new income, the linkage between productivity, salary and salarization is formed immediately. The rate of benefits that this type of investment produces for society will be directly related to the productivity of labor and the competitiveness of the products generated by this activity. In this situation it can be expected that the salarization process, understood as the generation of opportunities for incorporating workers into dependent, formal salaried relations, will be reinforced.

Establishing the link between productivity, salary and salarization is a pre-requisite not only for achieving improvements in people’s standard of living, but also for achieving a true strengthening of democracy. If this link exists as a fundamental of economic fact, the fate of the working population will not depend on chance external circumstances, as in our case, where the variations in the price of oil on the world market, the volume of oil sold and, above all, the political decision and political interests are the factors that prevail when it comes to directing the redistribution process. If the link between salary, salarization and productivity does exist, a healthy competition can be established between the State, business and workers to determine growing salary levels that are sustainable over time.

The trade unions can make sure that the level of wages are representative of workers’ efforts and that achievements in productivity are translated into salary improvements;

19

similarly, the extension of the salaried population would occur as a result of the expansion in economic activity, and not as a result of a decision to increase jobs in the public sector or in any other unproductive activity.

As can be seen in Table no. 4, in the main developed countries, salaries, while very near productivity levels, always remain below them.

Table No. 4 Productivity and Real Salaries, Various Countries

Germany

France

Italy

United

Europe

USA

Kingdom 1965- 1981 Productivity

4.0

4.1

4.4

3.3

3.9

1.4

Salaries

3.8

3.4

4.6

2.9

3.6

1.1

Productivity

1.9

2.3

2.3

1.8

2.1

0.7

Salaries

0.7

1.1

0.8

1.5

1.0

0.5

1981 -1997

Source: Baptista Asdrúbal. 2004. “Teoría Económica del capitalismo Rentístico”. Caracas Ediciones IESA 1999.

In the case of Venezuela, this relationship does not exist and may be the opposite; the growth or decline in salaries is not a direct consequence of variations in productivity (see Table No. 5).

Given the economic power of the State, its capacity to generate employment at its discretion based on its policies for redistributing revenue, and the considerable subsidizing and protection of domestic industry, a margin or degree of independence between the worker wage and productivity variables is created. “…the rates showing the behavior of both indicators since 1958 permit the observation that, while per capita GDP is at 1962 levels, the productivity of the employed work force in the country is only 70% of what it was in 1958. In other words, today, each worker produces 30% less than his counterpart might have generated in 1958. Current academic discussion links productivity and long-term growth to the effort of developing human and social capital, the quality of institutions, the strength and flexibility of labor markets and, in general, to conditions that might promote and favor investment in all areas having positive consequences for the human development of all a country’s citizens. It is for this reason that verifying this continuous

20

deterioration in the contribution made by production is a crucial element for the future and prosperity of Venezuela. Low productivity also implies declining real remuneration, which means that better conditions can hardly be expected for workers and for the population in general.�10

10

Curiel (2005), i, page 33.

21

Table No. 5 Productivity and Real Salaries, Venezuela (1953 -1980)

Period

Productivity

Salaries

1953-1961

5.6

6.8

1961-1970

4.8

4.1

1971-1978

-1.4

2.5

1978-1995

0.3

-5.2

Source: Baptista Asdrúbal. 2004. “Teoría Económica del capitalismo Rentístico”. Caracas Ediciones IESA 1999.

The lack of linkage between salaries and productivity affects all Venezuelan workers, except those who work in the private sector, where benefits depend on the profitability of the business. In the case of the informal workers, income depends not so much on the productivity of their work but on the existence of game rules that will allow them to obtain additional benefits, such as not existing as far as the tax authorities are concerned, which means they do not pay either taxes or municipal business licenses, evading the labor costs implicit in the labor law, and evading fixed costs, such as paying for electricity, renting premises, etc.

5. Devaluation of education in the rentier economy The absence of linkage between salary and productivity, typical of the rentier society, has as one of its correlates the devaluation of the credentials of human capital as an irreplaceable requirement for the generation of income. Despite the huge amounts of resources obtained by the State from oil revenues, Venezuelan statistics show that the number of people without specific job qualifications in the Venezuelan labor market is extremely high, a situation that affects more than three quarters of people in the economically active age group. These same statistics also show, however, that the number of people with higher education qualifications is twice the average of that in developed countries. This paradoxical situation is due to the peculiarities of the Venezuelan education system, which offers university education as an alternative to

22

joining the labor market, for the privileged, but lacks opportunities for acquiring mid-level qualifications that would allow the mass of the population to obtain the qualifications they need, pressed, as they are, to start working at an early age. This contradictory situation of a large mass of people without qualifications and a sector with university qualifications that is larger than the averages in more developed countries shows the lack of linkage between education and the country’s development requirements. There are no opportunities for the majority to obtain qualifications. The structure of the levels of education within the informal population reflects averages similar to those prevailing in the formal sector, with 81% also lacking any professional qualification.

Contrary to all expectations, the research done by CEDICE managed to demonstrate that there are no significant differences between the educational characteristics of informal workers and those of workers in the formal sector: more than 38% of informal street workers are high school graduates or mid-level technicians and 10% have higher education, while the predominant level of education for both sectors, formal and informal, is primary education, which covers more than 50% of the workers in both cases.

Graph No. 2

Graph No. 3

Nivel Educativo de la Fuerza Laboral Ocupada 2004 0% 19%

Nivel Educativo Buhoneros de Caracas

5% 1%

10%

21% 54%

Analfabetas Sin Nivel Básica Media Diversificada y Profesional Superior No Declarado

Source: Instituto Nacional de Estadísticas

1%

51% 38% Sin Nivel Básica Media Diversificada y Profesional Superior

2004Source: UAPPEI, CEDICE LIBERTAD

This devaluation of education is significant when revenue distribution alternatives are generated based on large-scale education-type programs of an inferior quality through which the population is offered mass qualifications without meeting the requirements that would lead to the training of human capital capable of playing a competitive role in the economy, a situation that takes on greater significance when it is understood that joining the informal sector is not a completely autonomous or voluntary decision, as our research shows.

A first conclusion that can be drawn from the analysis of these data is that it is not the level of education that prevents informal workers from joining the labor market, as fairly

23

similar levels of education predominate in the two sectors. Now then, what can be postulated as a deduction is that it is not the levels of education that generate opportunities for joining the formal labor market but the specific characteristics of the general rentier economy model.

6. Is informal work an option chosen voluntarily?

Despite knowing the limitations facing anyone in the economically active age group when attempting to enter the labor market, it is important to understand to what extent informal work can be considered an option chosen voluntarily by the people in this sector, according to the findings of the study conducted by CEDICE. The following graphs show that 60% of street vendors stated that what they know best is an occupation other than commerce/street vending, which is in line with the 80% who have experience in other lines of work.

Graph No. 3

Graph No. 4 Experiencia en Otras Ocupaciones

Lo Que Sabe Hacer Mejor es...

(Distintas al Buhonerism o) 21%

40% Comercio / Buhonerismo 60%

Si

Otro

No

79%

Source: UAPPEI, CEDICE LIBERTAD LIBERTAD

Source: UAPPEI, CEDICE

Moreover, it can be seen that 62% of all informals interviewed had worked in occupations other than street vending for periods of more than two years and a third had worked for brief periods in other occupations.

Graph No. 5 Tiempo Transcurrido desde Última Ocuapción 19%

18% (Distinta al Buhonerism o)

Menos de 1 Año De 1 a 2 Años 20% De 2 a 4 Años 34% 9%

De 4 a 6 Años Más de 6 Años

24

Graph No. 6

Source: UAPPEI, CEDICE LIBERTAD Graph No. 7

Años de Experiencia Como Buhonero 18%

18%

Menos de 1 Año 14%

De 1 a 2 Años De 2 a 4 Años De 4 a 6 Años

7% 43%

Más de 6 Años

Source: UAPPEI, CEDICE LIBERTAD

Source:

UAPPEI,

CEDICE LIBERTAD However, even though the occupation they know best is different from street vending, 64% have remained in this line of work for periods of more than six years. Given these facts, it is worth asking, if a street vendor gives another occupation as what he knows best and has ample experience in other types of job, why does he continue in street vending? One possible hypothesis would be that his continuing in this line of work does not depend on training or experience, but on the lack of jobs in the fields or areas in which he has skills and experience. It also permits us to infer that the possibility of mobility into the formal sector grows less the longer a person remains on the street.

But if, besides that, we add the hours a typical street vendor works, the question that then arises is what is the attraction or what are the motives that induce these people to work between 9 and 12 hours a day, seven days a week, which are normal working hours according to 78% of Caracas street vendors?

Graph No. 8 7%

Graph No. 9

Horas de Trabajo Diarias 18%

15%

19%

(Distinta al Buhonerism o) 10%

2%

Entre 5 y 8 Horas

Días a la Semana que Trabaja Años en Última Ocupación

2% 27%

Menos de 1 Año 3 Días o Menos

4 Días De 1 a 2 Años 5 Días De 2 a 4 Años 6 Días

Entre 9 y 12 Horas Entre 13 y 16 Horas

78% 33%

78%

7 Días De 4 a 6 Años Más de 6 Años

11%

Source: UAPPEI, CEDICE LIBERTAD

Source: UAPPEI, CEDICE

LIBERTAD

25

The hypothesis that joining the informal workforce is not a matter of free choice seems to be confirmed by the study’s findings regarding the perceptions of informal workers, where almost all the answers have to do with the possibility of joining the formal sector. Most aspire to having their own business, formally owned by them, provided the change in their job status does not mean a loss of real benefits enjoyed at present.

26

Graph No. 10 Perceptions of Informal Workers Caracas Metropolitan Area

Percepciones 99% 100%

88%

90%

77%

80% 70%

64%

60% 50% 40%

26%

30% 20% 10% 0%

Tener Comercio Propio

Buhonerismo Acabará Prox. 5 años

Tomaría Trabajo Formal

Aceptaría ese Trabajo Ganando Igual

Se Formalizaría si con eso Ganara Igual

Source: UAPPEI, CEDICE LIBERTAD

As for their aspirations, there are clear references to formalizing their situation, the majority would like the backing of a social security system that protects their families, to pay municipal taxes, and to change over to a formal line of work.

Graph No. 11 Aspirations of Informal Workers Caracas Metropolitan Area Aspiraciones 100% 90%

97%

86%

84%

80%

77%

80%

Cubrir los Costos de SS a sus Empleados y/o Famlia

Pagar Impuestos Sobre la Renta

70% 60% 50% 40% 30% 20% 10% 0%

Cambiar a otra Contar con Seguro Actividad Formal en Social la que Ganase Igual

Pagar Impuestos Municipales

Source: UAPPEI, CEDICE LIBERTAD

27

This verification of the informal worker’s working conditions and the desire of 95% of informal workers to formalize their situation give rise to definite doubts as to whether joining the informal market can be a matter of preference or free choice.

Deseo Graph No. 12 de Formalizarse Aspirations of Informal Workers to join the Formal Economy 5% Caracas Metropolitan Area

Sí 95%

No

Source: UAPPEI, CEDICE LIBERTAD 7. Learning “the other game rules” Besides the outdoor working conditions that the informal workers have to face in order to guarantee a living, they have to adopt or abide by game rules that are different to those prevailing in the formal sector. Factors such as “having someone to take care of the stand,” indicative of the precarious nature of rules governing this line of work or of the absence of formal ownership, and having to depend on direct dealings with persons of influence in order to survive -with the police, for example, for getting round legal procedures and requirements that restrict informality- are part of the cultural environment of the game rules they must learn and master if they are to be reasonably successful in street trading.

Mastering the extra-legal game rules allows these workers to cope with the factors associated with informality, such as the insecurity and instability that makes physical control of the stand from which they work enormously important, a variable expressed in the relevance of “never leaving the stand” because of the fear of maybe losing the

28

business or being evicted. Another requirement is being “sharp or on the ball,� which is translated into the capacity to respond immediately to rules that aim to regulate their line of work or any changes in the game rules governing the business. These factors are as relevant as the conventional factors in any commercial relationship, such as treating the customer well, being a responsible person or the level of formal education.

29

Graph No. 13

Índice de Factores de Redes Sociales en el Éxito de la Buhonería 0,3

0,22

0,25 0,2

0,16

0,15

0,16

0,19

Conocer personas influyentes

Tener panas en la zona

0,11

0,15 0,1 0,05 0

Conocer lider de la cuadra

Conocer policias

Conocer maladros

Tener alguien para cuidar el puesto cuando te vas

Source: UAPPEI, CEDICE LIBERTAD Graph No. 14

Índice de Factores de Aptitudes / Actitudes en el Éxito de la Buhonería

0,16

0,15

0,15

0,13

0,15

Ser una persona responsable

Ser respetado

Ser Bachiller

Nunca faltar al puesto

0,15

Buen trato con el público

0,3 0,25 0,2

0,05

0,05

Estar armado

0,1 0,05

Ser violento

0,15

Ser vivo/pilas

0

Source: UAPPEI, CEDICE LIBERTAD

Those who work in the informal sector on a daily basis are exposed to the ups and downs of the contradictions between formal and informal rules, so much so that 10% of informal traders consider that the laws regulating public places -and therefore their business activities- are well defined, while 71% consider that they are either poorly defined (34%) or not applicable (37%).

30

Graph No. 15 Las le yes que regulan el espacio publico estĂĄn:

10%

19%

34% 37%

Bien definidas

Mal definidas

No son aplicables

No sabe/ no responde

Source: UAPPEI, CEDICE LIBERTAD This contradiction is reflected in the perception these workers have of their formal rights as regards the legal situation of their line of business, with 67% of those surveyed recognizing that the Constitution does not grant them the right to occupy the streets, but almost a third pointing out that Article 87 of the Constitution clearly states that they have the right to work as non-dependent workers.

Graph No. 16

ÂżExiste un derecho Constitucional para trabajar en la calle?

No sabe/ no responde 3%

Si da un derecho 30% No da derecho a Trabajar en la calle

Source: UAPPEI, CEDICE LIBERTAD These working conditions that prevail in the informal economy, added to the social friction that adopting game rules that are opposed to those of the formal sector, allow us to infer that remaining in a situation of informality or the difficulty in formalizing their situation is tightly linked to the specific model of work socialization centered on the learning of

31

values contrary to those that govern formal society, owing to the scant opportunities for entering the labor market in an economy founded on the distribution of revenue and not on the generation of productive investment opportunities. This is a situation that denies opportunities for creating formal jobs and casts a shadow over or reduces the role of the factors that have been considered key factors for closing the gap that separates us from more advanced countries: investment in education, opening up to new technologies, and encouraging research and development in the private sector.

While the annual per capita income in the region doubled from US$3,000 to US$6,200 between 1950 and 2000, in developed countries, it tripled from US$7,300 to US$23,000. The number of poor people in Latin America and the Caribbean today comes to nearly 169 million. This phenomenon of lagging behind in the growth of income is due to a productivity gap, which, in turn, stems from Latin America’s and the Caribbean’s inability to keep abreast with adopting new technologies in their productive processes and the slow updating of skills.

To close this gap, it is not enough to simply import the latest technology, it is necessary to bring the level of education and skills of the population up to the level required in order to exploit its full productive potential, because technology and skills closely complement one another.�11

8. Decline in the number of jobs since 1999

In 1999, the clear trend of informal work becoming the predominant activity within the Venezuelan labor market began to emerge. The expansion of informal work, in our view, is going to be closely linked to the new approach adopted by the Venezuelan government, focused on the following elements: a.

Return to centralization and the concentration of power This approach adopted by the Venezuelan government broke with the boost that had been given to redistributing the economic and political power within the country during the decade 1980-1990. This objective, pursued during this period, became evident in the Law on the Direct Election of Governors (1989) and the Decentralization Law (1989), which transferred the management and control of public services to the municipal and state governments. This process of gradually reversing the process of decentralization has meant a return to the concentration of power in the rentier State.

11

World Bank (2003), a, page 33

32

In terms of employment, it has had the effect of discouraging the growth of economic fabrics with their bases in local communities and municipalities and inhibiting the democratic redistribution of regional economic activities. b. Reducing the participation of private enterprise in the country’s economic development. Replacing private activity with public.

The escalation of the penning-in of private companies through laws and decrees that severely restrict economic freedoms, the majority of which contradict the present Constitution, has caused, among other problems, a major shift in economic activity from the private to the public sector. It is worth noting here how the ratio of Total Fiscal Spending to Gross Domestic Product grew from 21.2% between 1990 and 1999 to 24.4% between 2000 and 2004, the latter being the highest rate of growth since statistical records have been kept in Venezuela. This same ratio in the 60s did not exceed 16% according to figures produced by the Central Bank of Venezuela.

This re-orientation of the economy marked the starting point for a gradual escalation of measures, decrees and regulations, conveniently accompanied by threats of expropriations, invasions of private property, and rigidity in the rules for operating private companies, the most obvious result of which is the absence of private investment, both domestic and foreign.

Graph No. 17 Foreign Investment in Venezuela 1996 - 2004

Source: www. venamcham.org

33

With the defining and application of these approaches, the generation of private sector jobs in the labor market began to decline. The number of manufacturing industries contracted by nearly half between 2000 and 2004, from 13,000 establishments to nearly 7,000 in 2004. Industry has declined and with it the number of employed workers in the private sector. What is clear, however, is that, while the decline in the private industrial sector is a negative result in economic-social terms, it is one of the political objectives pursued by the new regime, which aims to cover this vacuum in the generation of employment by slowly and gradually imposing economic establishments based on collective forms of economic organization and ownership.

With this objective in mind, the new law on the functioning of cooperatives was passed, in which cooperatives are conceived of as unions of associated producers with considerable restrictions on incorporating salaried labor, so managing to substitute this type of property ownership for all private sources of generation of employment. These are cooperatives with a strong anti-employment bias, as they are only allowed to incorporate salaried workers as an exception with temporary jobs lasting for up to six months, at the end of which time the worker has the right to demand that he be allowed to become a member on the same terms as the founder members. In situations where the incorporation of new salaried workers is indispensable, because the cooperatives are not in a position to be able to do the work themselves, the law orders that these workers be hired through other cooperatives, companies in the social, participative economy or even enterprises having other forms of legal incorporation. Sanctions, including suspension of certification as a cooperative and fines, are established for cases where salaried workers are hired on a permanent basis.

The regulatory framework for these cooperatives reflects the anti-capitalist bias that prevails in the law, which is aimed at eliminating salaried work or reducing to its minimum expression. These cooperatives, which are being promoted by the government as the great alternative to poverty, will be a source of major social conflicts, as, inevitably and because of internal inertia, they will block the entry of new members as a mechanism for preserving a larger slice of the earnings for each of their members, to the detriment of the poor jobless sectors, who will pressure for new opportunities to join.

9. Conclusions

34

In modern, competitive market economies, human development is a priority. In rentier economies, whose main revenue does not come from domestic productive efforts and where salaried labor is not the fundamental linking factor between individuals but rather a determining feature of the separation and differentiation of expectations, human development is not a priority. The absence of this priority as a fundamental in the socialization experience in salaried labor is, moreover, the cause of the proliferation of violent behaviors, insecurity and the destruction of society’s collective assets.

The education and training of the individual lose their strategic importance as a requirement for achieving better standards of living.

The division between the population in the formal sector and the population in the informal sector generates a weakness in terms of contributions that makes it impossible for societies to build up universal assistance and security systems to help individuals cope with life’s ups and downs: illness, old age, losses in the family, and so on.

These conditions, which pose restrictions on the human development of men and women engaged in street trading in public places, make them victims of exclusion twice over, so making them more vulnerable and reducing their possibilities of opting for an alternative that would improve their economic and social circumstances. This double exclusion manifests itself on two fronts: The first has to do with the specific conditions of the economic-political regime that characterizes Venezuelan society insofar as it is a) a statist-rentier distributive society and b) a society where attempts are being made to impose a collectivist production model in the place of the market and private property. Both features of this sociopolitical model have a characteristic in common: their strong anti-job-generation trait expressed in all the public policies, laws and game rules that govern the incorporation of Venezuelans into the labor market. This anti-employment trait has become the efficient cause of the presence of informal work as a structural feature of the Venezuelan labor market.

On the second front, the differentiating exclusion of informal traders occurs as a result of their non-participation or distancing as a social group from the possibilities of human development implicit in the building of a knowledge society and a key factor for generating wealth, innovation and added value as a product of the individual’s subjective transforming power. In street trading, what prevails is the kingdom of “other knowledge” or learning and continuous improvisation of game rules for the survival of these growing social sectors.

35

The two types of exclusion have features in common. Both in the distributive, collectivist societies and in the social groups outside the knowledge society, human capital becomes a passive, dependent factor and not a crucial element for generating wealth.

Education and investment in human capital is not the highest priority; education is not conceived of as the intangible with the highest power of transformation, with the result that belonging to the knowledge society loses its strategic value. The problem becomes more complex given the evidence that any attempt at urban regulation and at re-launching the market economy includes the incorporation of the vast majority of these street vendors into economic activities where the level of training, socialization and work culture are key factors for their effective inclusion.

The existence of these two worlds –the one formal, modern, centered on knowledge and innovation as they key for generating wealth, and the other, on the other side of the tracks and based on the ability and skill for negotiating informal game rules, where shrewdness and the capacity to deal with whoever happens to be in authority takes the place of education- gives rise to an irreconcilable split within society, a situation in which both sides end up losers, inhabitants of the same world and occupying the same geographical space but who view life from totally different perspectives.

The significance of this double exclusion of informal vendors is linked to the fact that, increasingly, in the Venezuelan distributive society, now tending towards collectivism, informal economic activity is becoming predominant owing to the effects of the model itself. A side effect of this expansion in informality is the decline in the importance of education, investment in the individual and the growth of human capital, for the simple reason that the survival of the majorities does not depend on their intrinsic membership of the knowledge society but, rather, on how they manage to get around these formal rules, which do not take them into account.

The alternatives or solutions to this crucial problem must address both of its manifestations: the transformation of the general model, which necessarily has to be reoriented to turning the distributive society into a society based on a system of contributions and benefits, as it only has the individual, the power of human capital as its center, and the revaluation of education and continuous learning as the key factor of change and social well-being.

10. Challenges involved in developing informal human capital in Venezuela

36

Creating opportunities for human development for informal workers involves, first of all, a) a change in society’s understanding and perception of informality as an economic and socio-cultural phenomenon; and b) the generation of expectations of integration or self-betterment within these groups.

If the game rules prevent large segments of the population from gaining access to formal work that generates wealth and viable life projects, society must take steps to engage in self-criticism that gives rise to changes and modifications in those game rules. If the country’s economic strategy prevents the growth of opportunities for business or the salaried population with decent wages and access to social security from expanding, the economy or its pattern of development needs to be re-oriented so that opportunities are made available to all. If the legal framework excludes the informal population, the law as a sphere for intersubjective creation must be rethought so that it gradually opens up to bring the informal population under the rule of law.

10.1. Surmounting the rentier model

It will only be possible to solve the social division implicit in the separation between formal and informal society by surmounting the rentier mode, a task that necessarily involves adopting the following approaches and taking the following measures: 

Restoring to Venezuelans investment opportunities in sectors with comparative advantages.



Extending salary relations by establishing the link between salary and productivity



Increasing the value of and strengthen the capacity for generating value adding activities of the informal sectors.



Giving priority to education as part of a new paradigm that will convert human capital into the foundation of the generation of wealth in our society.

All these reforms are linked to the transformation of the proprietor-State into a manager of democracy and to restoring to citizens the possibility of investing in the sectors having comparative advantages.

10.2.

Mass human development program and capitalizing the informal

sectors

This program would imply:

37



Consolidating the business initiatives of productive units with a low application of capital and scant technological and management development.



Reeducating or retraining informal workers whose line of work is unviable.



Amending the education law and reforming the national education system by establishing professional accreditations for sectors that join the labor market at an early age.



Contributing to the creation of a legal-regulatory framework that counteracts the undercapitalization of companies in low-income sectors.



Promoting economic organizations of informal workers through corporate structures that facilitate trade (e.g. trading companies)



Transferring to organizations of low-income groups methods for negotiating the elimination of useless permits that hinder the exercising of economic freedom and make it more expensive.



Promoting access to financing and technological support opportunities offered by the private sector for informal businessmen



Creating new opportunities for the Venezuelan business sector to negotiate social responsibilities.



Transferring methodologies to the municipal governments that will enable them to effectively negotiate property ownership with the low-income sectors.

38

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f.

Beck, Ulrico (2002). Libertad o Capitalismo. Barcelona. Editorial Paidós.

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Lechner, Norberto (1999). Desafíos al Desarrollo Humano. Individualización y Capital Social. Washington. Inter-American Development Bank.

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