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Peru Services
The formally legalized side of the service sector
includes
both government and private services. Government services,
measured by payments for inputs in the absence of any
recognized
standard of output, have grown remarkably fast. As
evaluated in
current prices, government services increased from 4
percent of
GDP in the decade of the 1950s to 9 percent in 1990.
Among the private service-sector activities, retail and
wholesale trade has been the most important, accounting
for 13.7
percent of GDP in 1988. Financial and business services
were next
most important at 8.5 percent of GDP, followed by
transport and
communications at 7.4 percent. Electricity and water
constituted
a small share of output in 1988, at 1.3 percent of GDP,
but they
increased at a very high rate from 1970 to 1988: their
output in
1988 was 3.4 times as high as in 1970. Although these
formal
service-sector activities have, for the most part, shown
significant growth even during the difficult 1980s,
national
accounts indicated that the largest of them--retail and
wholesale
trade--did not grow at all between 1980 and 1988. But that
official measure was not readily credible, given the
country's
population growth and especially the rapid growth of the
urban
population. The official measure apparently reflected the
fact
that a growing share of trade was being carried out by
unregistered individuals and firms.
Official statistics on production and employment are
always
subject to many reservations in Peru, as in all developing
countries, but especially so for the service sector. Much
of what
is going on among these activities is outside the formal
framework of the economy and very difficult to measure. In
1990-
91 many service activities were legally registered,
reported
sales and profits for tax purposes, and were in all
respects
within the formal accounting system of the economy. But
many
others were unregistered and might not even be known to
exist as
far as the government's statistics were concerned. That is
true
in any country for some activities, particularly those
that
operate against the law. It is also true on a massive
scale in
Peru for people who are just repairing shoes, making small
items
in their homes to sell in the streets, or in general
trying to
survive by activities that are perfectly normal and
productive
but not registered with the government. Peru has a massive
informal sector (see Glossary),
which includes more than
half the
total urban labor force. This sector accounts for a high
proportion of personal services and retail sales
activities, as
well as considerable industrial production.
Exactly when and why these informal sector activities
moved
from a marginal to a large share of the economy are open
questions. One strongly argued view, associated
particularly with
the work of Hernando de Soto, author of El otro
sendero
(The Other Path), is that regulatory activities of
government proliferated from the 1960s onward, imposing
intolerable costs on private business activities. A
slightly
different but consistent view is that the rapid growth of
the
informal sector coincided with increased business
taxation,
beginning at the end of the 1960s. The two interpretations
fit
each other, but the former lends itself more to a general
argument against government regulation of business,
without
paying much attention to the fact that the growth of the
informal
sector means a shrinking tax base for the society.
Both of these analyses surely capture much of the
causation
behind the growth of the informal sector in Peru, but they
may
deflect attention from two other explanations that could
be more
important. One of them concerns the generalized
deterioration of
the economy and the consequent weak growth of job
opportunities
in formal-sector employment. With the rapid growth of the
labor
force, and a high rate of migration to the cities, the
number of
people looking for work far outpaced the number of formal
job
openings. The answer for those without regular employment
in the
formal sector has been to create self-employment
activities of
their own or to work for relatives in small-scale
operations,
often on a basis of family sharing rather than regular
wage
employment. These people do everything from selling coat
hangers
on sidewalks in the center of the city to putting together
computers from discarded spare parts. In this view, the
problem
is not so much government regulation or excess taxation as
it is
one of macroeconomic failure of the economy as a whole.
The
informal sector may be in part a way to avoid regulation,
but
more fundamentally it is a necessary means of survival, a
constructive answer on the individual level to lack of
success at
the level of the macroeconomy.
Still another interpretation that must be considered
centers
on the background of the migrants to the cities. They have
been native Americans and
mestizos (see Glossary) from rural
communities in which ways of earning a living are bound
within traditional family and community relationships. Production
is carried out on a self-employed or very small-scale basis
with a minimum of the kinds of accounting, financial, and legal
complications of modern society. The new migrants to the
cities look for work and guidance from former migrants and
especially relatives from the same communities who are carrying on
much the same kinds of activities as they knew at home. They
recreate in
Lima the kinds of informal activities they have always
known. In
this view, the informal sector is largely a cultural
phenomenon,
by no means explicable in purely economic terms.
Succeeding governments have gone back and forth in
their
treatment of the informal sector, at times trying to crack
down
on unregistered vendors and their sources of supply, and
at other
times trying to provide them with information and
technical help.
The formal business sector might be expected to press for
regulation of these activities because the legally
registered
firms must pay the higher costs of following regulations
and
paying taxes: competition is not even. But then the formal
sector
is itself divided. Because some of these firms cut their
own
costs by subcontracting activities to the informal sector,
to
some degree they share in the same profit from being
outside the
law. Everyone recognizes that the informal sector is the
source
of livelihood for a great many people without alternative
opportunities and that helping to make them more
productive could
yield important gains for them and for Peru. The other
side of
the coin is that those in this sector pay no attention to
the
legal system, to health and safety regulations, or to the
society's need for a tax base to support necessary public
functions.
Data as of September 1992
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