Tag Archives: developing countries

informal economies

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I’m somewhat interested in the idea of informal economies. According to this paper from the National Bureau of Economic Research, economists tend to think they’re bad – either a cause of poverty and slow development, or a symptom of it:

We establish five facts about the informal economy in developing countries. First, it is huge, reaching about half of the total in the poorest countries. Second, it has extremely low productivity compared to the formal economy: informal firms are typically small, inefficient, and run by poorly educated entrepreneurs. Third, although avoidance of taxes and regulations is an important reason for informality, the productivity of informal firms is too low for them to thrive in the formal sector. Lowering registration costs neither brings many informal firms into the formal sector, nor unleashes economic growth. Fourth, the informal economy is largely disconnected from the formal economy. Informal firms rarely transition to formality, and continue their existence, often for years or even decades, without much growth or improvement. Fifth, as countries grow and develop, the informal economy eventually shrinks, and the formal economy comes to dominate economic life. These five facts are most consistent with dual models of informality and economic development.

I’ve never bought into the idea that informal economies are 100% bad. I’ve been very lucky to spend some time in central Thailand, right on the edge between a rural and urban area, and to experience a mix of the informal and formal economies. It makes perfect sense that higher-tech sectors like mining, manufacturing, banking, and so forth are run by efficient, formal, corporations. But lower-tech service sectors provide a chance for “poorly educated entrepreneurs” (a pretty condescending term, actually) to provide everyday goods and services to each other at low cost and practically no overhead. Why is it “efficient” to pay $10 for a tasteless corporate meal at the mall, with most of that money going to pay rent to a real estate corporation and its army of lawyers, accountants, human resourcers, and insurance agents, plus the gas and wasted time to get there, vs. $2 for a tastier meal from a neighborhood entrepreneur? When you stop and chat with your neighbor, that’s culture and social capital, not “inefficiency”. And when something bad happens, you and the neighbor are going to lean on each other for help, not the lawyers and accountants working for the faceless corporation that runs the mall.

fish passage on the Mekong

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According to NPR, Laos is building several dams on the Mekong and there’s an argument about whether the fish passage systems that have been designed will be effective:

“I’m confident that the mitigation measures we can employ here will allow fish to pass the barrier we’re going to create. From studies we’ve done, the impacts people are saying the project will cause, change in flow, quality, sediment distribution, fish food, none of those things are going to arise from this project.”

The risks the dolphins downstream face are real, Hawkins says, but he says that’s because of bad fishing practices, tourism and poor management. As for migratory fish that use the Hou Salong channel, Hawkins says, the fish passageways his company, Megafirst, are building around the site should take care of the problem…

“The effectiveness of such fish passage mechansims is quite OK, let’s say, quite well proven for European or North American rivers, where we have small number of species that are well known,” Meng says. “But in the Mekong, we don’t have five fish species which we have to take care of, we have 70, maybe even more, and we have no clue about them. So building something for them to migrate up and down with, that’s just guessing at the moment.”

Trandem of International River says fisheries experts estimate that at least 43 species of fish are likely to go extinct because of the impact of the dam, including the Mekong giant catfish, the world’s largest. Sedimentation — the silt the river carries downstream to Cambodia and Vietnam — is another problem. The Xayaburi will have major food security implications as well, Trandem says.

“By blocking sediment, we know that where there’s a lot of agricultural productivity and rice growing, these areas are going to suffer a lot because they’re no longer getting the same nutrients,” she says. “And so this will have a significant impact, especially in the Cambodian flood plains but also in Vietnam’s ‘rice bowl,’ which is really the center of rice production for region.”

This is all interesting to me because of the question of whether technology like fish ladders can mitigate our environmental impacts. Even if it can, I don’t doubt for a second that there is a lot of bad development going on that will impact the ecosystem regardless of what is done with fish passage.