Copyright is owned by the Author of the thesis. Permission is given for a copy to be downloaded by an individual for the purpose of research and private study only. The thesis may not be reproduced elsewhere without the permission of the Author. THE CONTRIBUTION OF THE INFORMAl SECTOR TO DEVElOPMENT A STUDY OF STREET FOOD VENDORS IN JAURTA INDONESIA A thesis presented in fulfillment of the requirements for the degree of Master of Philosophy in Development Studies at Massey University Palmerston North New Zealand Fixy 2004 ABSTRACT This thesis discusses how the development strategies and policies implemented by the Government have failed to distribute income and wealth and have exacerbated inequality instead. It shows viewpoints which argued that this kind of development has enriched only a few people while leaving others marginalised. It also reveals that the misconception of ideal development as similar to the state found in developed countries has undermined other forms of economic activities and development which are different from and do not conform to the recipe given by those model countries. It leads to the harsh treatment and affects many economic activities initiated by the marginalised people. This study tries to point out the importance of the informal sector to development, which forms a large portion of the workforce in many developing countries. It studied how these economic activities provided a means for survival for those people. It assesses the contribution of this sector to job creation, income generation activities, improved livelihoods and living standards. It studied the sustainability of this sector against the economic crisis which started in the middle of 1997. It focused on food businesses operated on the Abstract ii sidewalks in the area known as the Segi Tiga Emas (the Golden Triangle) in Jakarta. The results of this study revealed a number of interesting findings. This particular informal sector was found to make a huge contribution to the livelihoods of the people involved in it. It also contributed to the well-being of many people who used its services. Some of the income derived from these businesses was transferred to other provinces from where the vendors came from, meaning it helped in the regional distribution of wealth. As most of these businesses employed relatives or family members it also created jobs for the unemployed. These businesses were found not to be badly affected by the economic crisis and seeing how they had been running for a number of years, they were also sustainable. Unfortunately, this good living enjoyed by the people involved in this sector was only for the self-employed or the owners of the businesses. The wage workers who worked at street food stalls did not receive a good income for their labour nor did they get any protection from the Indonesian Government. Regardless, the existence of the informal sector should not be curbed or eliminated. The Government should t.ake decisive steps in promoting the development of this sector. This promotion should include steps to protect the rights of the workers in this sector. The development policies and programmes should regard the development of individuals, small groups and marginalised people as an important part of development. Abstract iii ACKNOWLEDGEMENTS I could have never been able to write and complete this thesis without the assistance and support given by so many people. Unfortunately, I could not mention everyone in this limited space but this does not mean I thank them less. There are some people to whom I would like to make some acknowledgements for the special roles they had played in the writing of this thesis and during the course of my study. First of all, I would like to say thank you to Dr. Susan Maiava for all her suggestions, assistance and concerns during the writing of this thesis. I would also like to express my heart-felt appreciation to Dr. Tony Banks for his invaluable inputs, attention, guidance and encouragement, for helping me through the most critical stage in my writing. I would also like to thank him for his understanding and friendship during my two years of study at Massey University which had made this study and thesis writing less daunting. To Professor John Overton, thank you so much for all the constructive suggestions which helped a lot to improve this thesis, for being very supportive and available throughout my study at Development Studies. Second of all, I want to express my deepest appreciation to my dearest friends Rini and Mbak Endang who had given their assistance and support without having to be asked when I needed them most. Thank you for being there for me, for being patient and understanding and for thinking of me. Your Acknowledgements iv friendships had helped me through the most difficult time I had to face here. I realise that I am very lucky to have friends like you both. I would also like to thank other friends at the postgraduates' office for all the constructive discussions we have had. Knowing that we were all in the same boat had lifted my spirits up when they were down. My special thanks to Kelly for her assistance in pre-testing my survey-interview questionnaire and for proof-reading my thesis. To Olive thank you for being so nice and perceptive. To my other friends in development studies, thank you for making my time in New Zealand full of fun and memorable. Many thanks are due to other lecturers in development studies who have contributed so much during my study at Massey University. I would also like to thank all the personnel at ISO, Sylvia, Sue, Philip and Joe who had paid so much attention and given all the help they could to make my study ran as smoothly as possible. I must thank NZAID for providing a scholarship which has made this study possible for me. To my Indonesians friends who welcomed me warmly into their community, thank you for all your assistance and friendships. Particular thanks to Mbak Iin, Mbak Erny and Pak Achmad, Mbak Erna and Pak Trie, Pak Indra and Mbak Jassi, Mbak Ana, Pak Arifin, Mbak Yanti, Mbak Novi and Mas Wawan, and many other who had been very kind and helpful. To Adrian, many thanks for your willingness to help when I was in 'exile' and to Kyi Kyi for keeping me company. To Barbara thank you for providing a place where I could work and focus on my thesis. Acknowledgements v There were a number of people who had given their assistance and cooperation during my research and study. To all of them are my gratitude sent. I want to thank all the street food vendors who had spared their valuable time to take part in my research. Particular thanks are sent to Ms. Hani from ADB, Ms. Nio from Atmadjaya University and Ms. Dewi from the Central Bureau of Statistics. I also wish to express my thanks to all my colleagues and superiors at the Ministry of Cooperatives and Small Medium Enterprises for their support and patience. To Mrs. Hermien Head of Data and Information and my other colleagues in that Department who had to work for these past two years without me. Special thanks to Mr. Wayan Suardja, the Head of the Bureau of Planning and Data, for all his attention and support for my study. I would also like to express my deepest appreciation to Mr. Fajar Sofyan the Ministry Secretary for all his encouragement, support and belief in me. Last but not least, I would like to thank my family who has been extremely understanding of my needs, who is always there for me. I have just realised that I never say that I love you. Please allow me to say it now, I do love you all and am sorry for my detached manner and self-centredness. Thank you for being very patient and for always wishing all the best for me. This thesis is dedicated to you. My apologies to other people I have forgotten to acknowledge in here, thank you for all your contributions in the course of my study and life here in New Zealand. Acknowledgements vi Thesis Title Abstract Acknowledgements Table of Contents List of Tables List of Figures Glossary CHAPTER ONE INTRODUCTION 1.1 Introduction TABLE OF CONTENTS 1.2 1.2.1 The Formal and Informal Sectors The Failings of the Formal Sector 1.2.2 Growth and Advantages of the Informal Sector and Its Increased Importance in Development Theory 1.3 Micro and Small-Scale Enterprises 1.4 The Case of Indonesia 1.5 The Objectives of the Thesis 1.6 Research Methodology 1.7 Thesis Outline Table of Contents ii iv vii xiii xv xvi 1 1 3 4 4 7 8 9 10 11 vii CHAPTER TWO LITERATURE REVIEW Introduction Definitions The Emergence of the Informal Sector Theories 13 13 15 20 2.1 2.2 2.3 2.4 Characteristics of the Informal Sector in Developing Countries 23 2.4.1 2.4.2 2.4.3 2.4.4 2.4.5 2.4.6 Interrelationship between the Formal and Informal Sectors 23 Why Work in the Informal Sector 24 2.5 2.6 Who Works in the Informal Sector? Decision Making Processes Strategies (Strengths and Weaknesses) Legality The Informal Sector in Comparative Regional Perspective The Contribution of the Informal Sector 2.6.1 Income Generation 2.6.2 Employment Creation 2.7 Summary CHAPTER THREE THE INFORMAL SECTOR IN INDONESIA 3 .1 Introduction 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.3 Overview of Economic Development in Indonesia Historical Context Economic Crisis and Its Impacts Implications for the Informal Sector Poverty Migration (Urbanisation) Unemployment Overview of the Informal Sector in Indonesia Table of Contents 24 25 26 26 28 31 32 33 36 38 38 39 39 42 43 44 47 49 53 viii 3.4 Street Food Businesses 54 3.4.1 Health Issues 54 3.4.2 Legal Issues 55 3.4.3 The Role of the Informal Sector in the Economy 56 3.5 The Role of the Government 57 3.6 Summary 59 CHAPTER IV RESEARCH METHODOLOGY AND FIELDWORK 60 4.1 Introduction 60 4.2 Research Design and Procedures 62 4.3 Methodology in Practice 65 4.3.1 Design of Survey-interview Questionnaire 66 4.3.2 Participant Observation 69 4.4 Research Population 70 4.5 Ethics 72 4.5.1 Fieldwork Logistics 74 4.5.2 Consent of Participants and Conducting Interviews 74 4.5.3 Treatment of Oat.a 75 CHAPTER FIVE FIELDWORK DATA ANALYSIS 76 5.1 Introduction 76 5.2 Street Food Vendors 79 5.3 Profile of the Owners 81 5.3.1 Educational Background and Gender 81 5.3.2 Age and Marital Status 83 5.3.3 Origin and Years Spent in Jakarta 85 5.3.4 Reasons for Working in the Informal Sector 87 5.3.5 Business Strategies 91 Table of Contents ix 5.3.6 Vendors' Livelihoods and Well-being 95 5.3.7 Problems 97 5.4 Profile of the Workers 99 5.4.1 Educational Background and Gender 99 5.4.2 Age and Marital Status 100 5.4.3 Origin and Years Spent in Jakarta 101 5.4.4 Reasons for Working in the Street Food Stall 103 5.4.5 Workers' Livelihoods and Well-being 105 5.4.6 Problems 106 5.4.7 Differences as Compared to Owners 107 5.5 The Contribution of the Informal Sector to the Economy 109 5.5.1 Employment Creation 109 5.5.2 Cushioning the Economic Crisis 110 5.5.3 Improved Livelihoods and Well-being 111 5.6 Interrelationship between the Informal and Formal Sectors 112 5.7 Responses to the Impacts of the Economic Crisis 113 5.8 Relationship with the Government 114 5.8.1 The Role of the Government 115 5.8.2 Experience with Government Officials 117 5.8.3 Legal Issues 118 5.9 Overview of the Findings 119 CHAPTER SIX DISCUSSION 122 6.1 Introduction 122 6.2 The Street Food Stalls 123 6.3 People Involved in the Informal Sector 124 6.4 The Contribution of the Informal Sector to Development 128 6.4.1 Employment 128 Table of Contents x 6.4.2 Income Generation Activities 130 6.4.3 Improved Livelihoods and Well-being 132 6.4.4 Cushioning the Impact of the Economic Crisis 133 6.5 Reasons for Working in the Informal Sector 135 6.6 Issues 138 6.6.1 Legal Issues 138 6.6.2 The Strengths 138 6.6.3 The Weaknesses 140 6.6.4 The Role of the Government (Policy Implications) 141 6.7 Summary 143 CHAPTER VII CONCLUSIONS 145 7.1 Introduction 145 7.2 The Contribution of the Informal Sector to Development 145 7.3 The Strengths and Weaknesses of the Informal Sector 149 7.4 The Policy Implications of the Findings 151 7.5 Summary 152 APPENDICES 155 Appendix 1: Life Time Migration 155 Appendix 2: Survey-interview Questionnaire 156 Appendix 3: Map of the First Site 165 Appendix 4: Map of the Second Site 166 Appendix 5: Map of the Third Site 167 Appendix 6: Letter of Introduction 168 Appendix 7: Information Sheet 169 Appendix 8: Approval, Educational Background, Gender and Age of Participant Involved 171 Table of Contents xi Appendix 9: Number of Workers, Working Hours and Open Days and Daily Income Appendix 10: Marital Status, Children to Support, Residence, Origin, Years Spent in Jakarta, Years of Starting the Business Status and Duration of Employment BIBLIOGRAPHY Table of Contents 172 173 174 xii LIST OF TABLES TABLE 3.1 : Poverty Line in Indonesia (Rp) 1976-1999 45 TABLE 3.2 : The Increase in Number and Percentage of the Poor 1976-1999 47 TABLE 3.3 : Workforce Percentage by Sector in Urban and Rural Areas 1997-1999 50 TABLE 3.4 : The Elasticity of Job Opportunity 51 TABLE 3.5 : Open Unemployment by Gender and Residence 52 TABLE 3.6 : Half Unemployment in Indonesia 1997-1999 52 TABLE 5.1 : Owners, Workers and Others 80 TABLE 5.2 : Educational Background (Owners) 82 TABLE 5.3 : Age and Marital Status (Owners) 84 TABLE 5.4 : Origin and Years Spent in Jakarta (Owners) 85 TABLE 5.5 : Origin and Years of Opening the Current Stall 87 TABLE 5.6 : Reasons for Working in the Informal Sector in Jakarta (Owners) 91 TABLE 5.7 : Number of Workers and Working Hours 92 TABLE 5.8 : Business Strategies 95 List of Tables xiii TABLE 5.9 : Daily Income of the Stalls 96 TABLE 5.10 : Educational Background (Workers) 100 TABLE 5.11 : Age and Marital Status (Workers) 101 TABLE 5.12 : Origin and Years Spent in Jakarta (Workers) 102 TABLE 5.13 : Duration of Employment 103 TABLE 5.14 : Reasons for Working in the Informal Sector in Jakarta (Workers) 104 TABLE 5.15 : Employment in the Informal Sector 109 List of Tables xiv LIST OF FIGURES Figure 4.1: Research Design and Procedures 63 Figure 4.2: Methodology in Practice 65 Figure 4.3: Research Population 71 Figure 5.1: Connection between Questions and Data Found 78 Figure 5.2: Relationship with the Government 116 Figure 7.1: The Contribution of the Informal Sector to Development 147 List of Figures xv ACFTU ADB BPS Ekonomi Rakyat First World GDP GRDP IBRA ILO IMF Jabotabek Kelurahan LDCs MS Es OECD Pemda Pesantren PREALC Glossary GLOSSARY : All China Federation of Trade Unions : Asian Development Bank : Central Bureau of Statistics : People's Economy : Developed countries : Gross Domestic Product : Gross Regional Domestic Product : Indonesian Bank Restructuring Agency : International Labour Organisation : International Monetary Fund : Jakarta, Bogor, Tanggerang and Bekasi : The lowest branch of the Government's body : Less Developed Countries : Micro and Small Enterprises : Organization for Economic Cooperation and Development : City Council : An institution which focuses on Islamic teaching, often considered as an informal education : United Nations Regional Employment Programme for Latin xvi Ramadhan Sakernas SAPs SD Segi Tiga Emas SMA SMP Susenas Third World Trantib Tukang Ojek Glossary America : The month in the Islamic Calendar where the Muslims fast : National Labour Force Survey : Structural Adjustment Programmes : Elementary School : Golden Triangle (Business District Centre formed by three main streets) : Senior High School : Junior High School : National Economic Survey : Developing and Less Developed Countries : City Public Order Force (Agency) whose job is to clean city streets' off of its offenders : People who used their motor cycle (or others' that they rent) to transport people to their destination for an agreed fee xvii