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The informal sector
Empowered after a century of the labor movement?
By Bonifacio S. Macaranas, Ma. Catalina M. Tolentino and Jorge V. Sibal, UP SOLAIR

The Informal Sector (IS) reflects, according to the International Labor Organization, the survival strategy of the poor. Although highly disadvantaged economically compared to the Formal Sector, the informal workers contribute, according to current estimates, 40 to 50 percent share in the GDP. Despite this, however, the State has given scant attention and support to the Informal Sector.

The Philippine Labor Code, in large part, empowers the formally employed. The Formal Sector (FS) is allowed to unionize, conduct collective bargaining agreements and could stage a strike if their demands for better working conditions are not met. While laws have been passed with the intent to empower and protect the informal workers, these have proved inadequate and underdeveloped. Like their counterparts in other parts of the world, those in the informal sector use traditional technology, exist in substandard workplaces and have poor quality human resources. Despite such conditions, informal work has continually grown and groups sympathetic to the IS would like to see its development through stronger legislation.

This article traces the historical development of attempts, if any, by government to empower the IS, by highlighting the more significant and most recent legislations focused on two of the most numerous informal sector groups: the agricultural workers and the small entrepreneurs.
The IS in this study refers to small farmers and micro entrepreneurs (and their workers). The economic activities of the latter are either own-account or operated by family members, using low-level technology. IS work is characterized by seasonality and instability of employment. Workers lack social protection; some are unpaid or receive wages below the legal minimum rate. Micro enterprises, in particular, often do not possess legitimacy. Despite these conditions, this sector generates employment and income.

Empowerment Defined
Empowerment is the capability to make decisions, to provide solutions to problems, take initiatives and be accountable for the results (Scott and Jaffe,1991). It is “a dynamic process of shifting the balance of social power from one center to another and/or creation of one social class or group of classes and may very well also imply the shift in the economic or political importance of one area or region to another, resulting in a different configuration.” (Luna, 1998)

The first stage of empowerment is organization. When individuals band together and follow a set of rules and structure, they are better able to exercise power. Participation of the IS in decision- or policy-making is the second stage of empowerment. Finally, allowing the transfer of power (by the State) from the traditional center to the informal sector the third stage of empowerment. Traditional center refers to policy-making bodies consisting of government, individuals or institutions.

Historical Overview (1900-1990s)
A hundred years back, the majority of workers in Philippine society was composed of the Informal Sector, counting those based in the major population centers like Manila and even from the countryside. The first labor union, the Union Obrero Democratica de Filipina (UODF), was established by Isabelo de los Reyes in 1902. Membership came from specific trades – barbers, printers, carpenters, hemp-pressers (Ramos, 1976). Those formally employed in factories, offices or government agencies at the turn of the century were relatively smaller in number.

The first clear attempt by government to look after the lot of labor was the creation of the Bureau of Labor in 1908 by Governor William Howard Taft, legitimizing or at least tolerating, trade unionism. Commonwealth President Manuel L. Quezon’s “Social Justice Program” led to the enactment of the eight-hour labor law, workmen’s compensation act, minimum wage law, including the creation of the Government Insurance System. (Ramos, 1976). With the creation of the Court of Industrial Relations under Commonwealth Act 103, government was vested with wide discretionary powers to settle industrial disputes, purportedly as a pro-labor policy. This mechanism, however, enabled government to play the role of an all-knowing decision-maker who did not only settle labor disputes but also checked the activities of trade unions. Thus, it could make or unmake any labor organization. (Ramos, 1976). Even in the early 1950s, empowerment as we understand it today, continued to elude labor, whether based in the rural or urban areas.
The 1953 Industrial Peace Act, sometimes referred to as the Magna Carta of Labor, recognized the right of workers to self-organization for the purposes of collective bargaining, enhancement of workers’ moral, social, and economic well-being and the promotion of sound and stable industrial peace. This legislation, however, covered only industrial or non-agricultural employment, again at the expense of the agricultural workers, organized or unorganized (Ramos 1976). In 1963, the enactment of the Agricultural Land Reform Code extended the same organizational benefits to agricultural employees. Still, the IS, particularly the small farmers and other agricultural workers, were not given adequate social protection and economic support even with the enactment of the Labor Code in 1974. Only in the late 1980s and the early 1990s can we say that more substantial attention was accorded the IS by the government.

The Agriculture Sector
Farmers comprise the biggest group within the IS. They are also the most economically marginalized among all types of workers. As of January 1999, the agricultural sector (by major industry group) accounted for 11,306,000 workers or 39.85 % of total employment in the country.1 In 1995, the recorded average monthly compensation of workers in the agriculture sector was the lowest at P4,032 compared to all other sectors by major industry groups. 2 Most workers of this type are seasonally employed by landlords. Small landowners are also often the tillers of the land together with their families. Available data from the Bureau of Agricultural Statistics show that in 1980 and 1991, small farms (from one to 2.99 hectares) comprised the biggest number of farms registered in the country, followed by farms of one hectare and less.

To improve the lot of the agricultural sector, a number of laws were passed with the explicit intent of empowering the farmers.

Chapter II, Section 5 of the Magna Carta for Small Farmers (RA 7607) recognizes the right of farmers to organize. Small farmers are to receive assistance from government in establishing self-help organizations such as farmers’ cooperatives and associations, and, in particular, marketing cooperatives. Section 6 provides for farmer representation in government. After organizing themselves, farmers who have been elected in the barangay, municipal, provincial and regional levels are to elect from among themselves national officials who are to sit in the boards of concerned government agencies such as the Philippine Coconut Authority, the National Food Authority, the Philippine Crop Insurance Corporation, the National Irrigation Administration and others. In all other levels, the farmer representatives are to serve as members of planning and implementing units of the local governments and act as the official representatives of the farmers with whom the government is to coordinate.

RA 8435 or the Agriculture and Fisheries Modernization Act, approved on December 22, 1997, is the most comprehensive law. It provides for citizen participation, directly or through duly elected or designated representatives, in policy formulation and decision-making through the establishment of appropriate mechanisms and providing access to information. People’s organizations, cooperatives and Non-Government Organizations (NGOs) are therefore to be strengthened by establishing and improving mechanisms and processes for their participation in government decision-making and implementation.

To prepare the farmers for global competitiveness, RA 8435 maps out a modernization plan for the agriculture and fisheries sectors which can help improve their profitability through an adequate and rational delivery of support services. It focuses on food security, poverty alleviation and social equity, income enhancement and profitability, and sustainability. The Department of Agriculture is the primary government agency tasked to implement the plan, in consultation with the farmers and fisherfolk, the private sector, (NGOs), people’s organizations and the appropriate government agencies and offices. These groups are to formulate and implement a medium- and long-term comprehensive Agriculture and Fisheries Modernization Plan.

RA 6982 or the Social Amelioration Program in the Sugar Industry provides for a National Tripartite Council to serve as an advisory body to the DOLE. Comprising the Council are: from the formal sector, two representatives each from the planters and millers; from the informal sector, two representatives each from the field workers and mill members; a representative from the Sugar Regulation Administration as ex-officio member; and the Secretary of DOLE as ex-officio chair.

The law also provides that the State may create a District Tripartite Council to involve the IS in policy-making at the lower level. The regional director of the DOLE is to act as ex-officio chair while two representatives each from the formal sector (planters and millers) and from the IS, two field workers and one mill worker are to serve as members.

While these laws encourage farmer participation in policy and decision-making, there are cases where the decision-making bodies are chaired by the heads of principal government agencies who may be able to gain control over these bodies.

Small and Medium Enterprise Sector
Small and Medium Enterprises (SMEs), which include micro and cottage enterprises, are business activities or enterprises engaged in industry, agribusiness and/or services whether single proprietorship, cooperative, partnership or corporation. RA 6977 categorizes SMEs according to amount of assets: micro enterprises are those with less than P50,000, cottage enterprises with P50,001 to P500,000, small with P500,001 to P5,000,000 and medium with P5,000,001 to P20,000,000.3

Certainly, not all SMEs have low capital investments and therefore may not be included in the IS. Cottage enterprises, small and medium scale enterprises, may already be able to afford some form of medium technology and comply with legal documentations required of business establishments. What are clearly included in the IS, therefore are the micro enterprises. Based on a study conducted by Alonzo and Mangahas (1990), micro enterprises in many cases, lack legitimacy and are single-person or family-run operations.

As of 1995, there were 86,484 registered small and medium establishments in the Philippines employing 313,019, less than half of whom are unpaid. Paid employees number only 172,881. 4 Hundreds of thousand others are unregistered single-person or family-run micro enterprises. Many workers in these enterprises live in transitory and substandard conditions. They work longer hours than their formal counterparts (Sibal and Tolentino, 2001). Most are paid on a fixed salary basis, others by piece rate. A considerable number are unpaid but are provided free board and lodging.

RA 6977 covers all categories - from micro to medium scale enterprises, indicating that the law does not make a distinction between formal and informal economic activity. Under Section 5 of RA 6977, SMEs are encouraged to form industry groups at the local and regional levels preferably unified under a national federation or association. Through this legislation, the Small and Medium Enterprises Development Council (SMED) was created and designated as the main agency responsible for the growth of the small and medium enterprises. It is tasked to formulate plans and make recommendations to the President and to the Congress which would then be integrated with the plans of the National Economic and Development Authority (NEDA) plans.

While the SMED is cloaked with the authority to formulate plans and recommend these to the highest offices of the land, the membership of SMED is dominated by officials from the government agencies. Only 3 members come from the IS Sector, one representative each from Luzon, Visayas and Mindanao. With a minority representation from the informal group, it is predictably difficult for the IS to assert its position in policy-making. With hardly any hope for further growth, entrepreneurs could stagnate.

Cooperativism as a form of empowerment
Cooperativism as an economic vehicle aims to provide an alternative production system to the people outside of the State and private enterprise systems. The overall mission of the cooperative movement is to “provide quality products and services to members and consumers in particular, and to uplift the economic, social and political conditions of the masses in general.” (Sibal, 1998)

The number of cooperatives has increased through the years, despite problems and what analysts judged as failed systems. As of February 1999, the total number of registered cooperatives in the country was 46,410. Among the different types of cooperatives (credit, consumers, marketing, producers, service, etc.), the biggest number comes from the agricultural cluster. By region, the Southern Tagalog, Central Luzon and Southern Mindanao regions have the biggest number of registered cooperatives. 5
Under the Aquino administration, Republic Act 6938 and RA 6939 were enacted to strengthen cooperativism and to operationalize Art. XII, Section 15 of the 1987 Constitution which mandates the promotion of growth and viability of cooperatives as instruments of equity, social justice and economic development under the principles of subsidiarity and self-help.
Under the law, a cooperative may be organized and registered by at least 15 persons. Cooperatives may also join federations or unions at the provincial, city, regional and national levels. The Cooperative Development Authority (CDA) formulates and implements plans and programs related to the development of cooperatives. It is empowered to mediate and conciliate disputes within or between cooperatives.

The CDA is governed by a full-time Board of Administrators consisting of a chair and six members to be appointed by the President. A national representative and two representatives each from Luzon, Visayas and Mindanao are to be chosen from the nominees of the cooperative sector. Ex-officio members, one each from the DA, DOTC, NEA, Sugar Regulatory Administration, sit in the Board on a non-voting basis.
The CDA appears to be a potent body that can work for the full benefit of the IS. It is chaired by the IS and its membership is dominated by the IS. It is in the position to formulate plans and implement its programs without the dominant posturing of government.

Conclusion and Implications
Small farmers and micro enterprise workers are allowed to form organizations and to participate in policy-making bodies but the laws do not provide for a transfer of power from the traditional or government decision-makers to the Informal Sector. Decision-making is accorded to these groups among the IS but this process is shared with government representatives. When decision-making bodies are dominated by government representatives, their ideas are bound to prevail over those of the IS.
To strengthen the IS, amendments of the laws may be in order that will allow greater participation of the IS in the decision-making bodies. Better yet, the leadership of the bodies should be relegated to the IS. Among the decision-making bodies cited, the CDA is the only one that is chaired and dominated by the IS themselves with corresponding voting powers (as opposed to the government representatives with no voting powers). This should be the case with the other decision-making bodies so that decisions would, in real terms, emanate from the IS.

The government has taken some steps to alleviate the conditions of the Informal Sector. The political power vested on government officials assures them of making important decisions that will give true empowerment to the IS. To concretize the decisions, collaborative efforts between the LGUs and the national government representatives must be made. Their vantage point provides them access to the sources of funding and enables them to tap human resources to give flesh to the support structures and institutions geared to uplift the IS. Their decisions and active personal involvement in pursuing the implementation of programs should redound to the benefit of the IS. Without this element in the established framework of laws, related legislations, and institutions or implementing agencies, the IS will remain disadvantaged and will have to do their own lonely battle for emancipation from poverty.

Management or the employer sector and their associations also have a role in providing opportunities for IS empowerment. Being the owners and/or stewards of capital, the business sector must recognize its responsibility to society. While it owns up to caring for its stakeholders particularly its employees by sustaining the viability of its endeavors, this sector can wield its respectable status vis-à-vis government to ensure the passage of relevant policies and programs that will truly empower the IS. It knows how best to realize down-to-earth solutions for the implementation of projects for the IS. In fact, it could go a step further by incorporating into their outreach programs, (for example, community relations programs) efforts to form cooperatives or IS associations. Providing the support systems to collectivize the IS within the community can be a mutually gainful arrangement for both the employer/management and the IS. Replicating this social arrangement regionwide or nationwide will lead to increased benefits to the economy, not to mention the direct enhancement of the IS’s real hope for decent livelihoods. As in all endeavors requiring strong cooperative efforts, genuine and honest leadership among the key decision-makers, is the call of the hour, to ensure a sustained holistic development and empowerment of the IS.

In this endeavor, the role of the trade unions cannot be ignored. Their historical experience in the struggle for a better way of life for workers dates as far back as the late 1800s and thus puts them as “blood brothers” with the IS. When big companies downsize, the unions have to cope with the reduction of their numbers, if not their very existence, as in the past three years with the onset of globalization. In the face of a bleak economy, trade unions should find relevant and more creative ways of strengthening their ranks. And what more appropriate way than harnessing the potentials of the IS, with its teeming millions and their inherently enterprising spirit (no matter how ‘insignificant’ or simple) by force of circumstances. What is important is that the trade unions or labor movement in general cannot ignore the informal workers who still have to find their niche in society. Whether the unions provide assistance in terms of training or funds, or in helping the IS set up their own organizations or fully integrating them as members, what is important is the political will of trade unions to push for programs for the benefit of the IS.

Civil society groups or people’s organizations — civic clubs, religious organizations, community associations, peasant and fishers groups, and various other groups – whose advocacies are directed to the upliftment of marginalized sectors, can also wield their influence. With their boundless energies and at times their vast resources (especially among the so-called ‘elite’), these people’s groups can exert pressure in the formulation of policies and programs that will benefit the IS. Their integrity and credibility serve as strong attraction to various international NGOs and even governments to provide all types of support from funding to more direct involvement. Indeed, these groups of various admirable causes should be tapped as partners of the government, the owners/managers of businesses, the trade unions and their representative organizations to enhance the lot of the IS and help transform IS potentials into productive endeavors
Help may be forthcoming from the various sectors of society, but the IS themselves have to act on their own, first and foremost, to transform themselves to be more productive members of society. Organizing themselves into self-reliant centers of economic, social and political power will be their best participation yet in contributing their ideas and plans to the government agencies or private sector associations to which they are already a part, as officially mandated by government.

Taking honest and serious advantage of assistance offered by the various sectors of society is definitely a sine qua non if the IS have to take a big leap forward in enhancing their capability to be significantly empowered.

End notes
1 2000 Philippine Statistical Yearbook, NSCB
2 1997 Yearbook of Labor Statistics
3 As of 1991 only, the figures are subject to review and adjustment
4 2000 Philippine Statistical Yearbook, NSCB
51999 Philippine Statistical Yearbook, NSCB

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