No Economic Freedom for the Poor

Given the undesirable high crime rates in most countries, one would assume that most governments would do their utmost to encourage people to make an honest living. Sadly this is not so.

Street and market vending have always played a very important role in the economy, and although this has somewhat diminished with the advent of supermarkets and department stores in the modern era, they remain a very important source of livelihood for many, particularly for those in the lower income bracket and those in less developed countries.
Yet, in many countries, street and market vendors have to fight for the right to earn a living. Street stalls are usually run as informal businesses, and as they often operate without a permit or license, they regularly face harassment by police and city officials, being chased off the streets and frequently having their goods confiscated, as well as extortion from protection racket organized by criminal gangs (or in some cases the city officials and the police themselves!). This situation is exacerbated when cities implemented policies to “improve the environment” for urban residents, i.e. a pro-active policy to remove “illegal” street vendors, as we have seen in the cities of Bangkok and New Delhi earlier this year.

So what you may say – food stalls blocking public footpaths are very annoying, and dangerous at times, as you have to step into the road to avoid them. But who are we to prevent these people from plying their trade? Is the inconvenience of a food stall blocking our path good enough a reason to take away someone’s only means of making a living? Would we rather that these people beg or sell drugs to get by? What else are these people to do?

Economically disadvantaged people have fewer choices in terms of how they make a living. They are faced with the difficult conditions of limited education with no access to capital, nor training and skills to build their business or the experience to obtain other jobs. Street trading is one of the very few real opportunities that unskilled and even illiterate people have to make a better life for themselves.

Street vendors offer a valuable contribution to the economy by providing increased choice and competition, which results in lower prices and higher quality. They provide a wide array of goods and services, particularly in the urban areas, at reasonable prices and convenient locations. Often they are the only affordable option for the lower to middle income groups in many urban cities.

Should governments then not try to incorporate the informal economy generated by these street vendors into their national policies on such issues as poverty eradication, crime reduction and economic growth? Should they not support this sector of the economy by devising means to facilitate their entry into the market and legitimising their existence?

We believe they should, but we are also aware that this is not an easy undertaking.

The problem underlying this is the notion that in a modern economy every type of activity should be regulated by the state. In the name of maintaining social order, consumer and environmental protection, the state relies on a system of licenses, permits and quotas that make it more difficult to engage in certain types of economic activity. This has been going on for a long time, and it is usually sought and welcomed by the established business community, who prefer to keep newcomers out of the sector they are operating in (in Europe this tradition goes back to the Middle ages, when the crafts guilds were established thereby also raising barriers of entry to the professions).

Although big companies complain about the costs incurred to comply with meeting licensing requirements, yet they are aware that the very existence of such requirements in fact provides a form of barrier for more competition from individuals and small companies. The requirements for obtaining a license to do business present a barrier to Market Entry, which can be formidable to some people. As we all know, dealing with authorities in any setting can be very cumbersome, frustrating and at times even intimidating, even to someone who’s educated and familiar with such matters. But for someone with a lower level of education, who doesn’t even know where to begin, the task appears almost impossible.

Unfortunately this is not much understood. Advocates for economic freedom calling for free markets and cut back on regulations and red tape are often attacked as being lackeys of big businesses. However, in reality they are trying to do the opposite, to reduce the hegemony of big business and create a more level playing field for all enterprises no matter how large or small.

The concept of economic freedom holds that the state should only interfere in the economy if absolutely necessary. Given the immense bias against small entrepreneurs that we have just listed, it is useful to ask the question of whether it is necessary to have any business licensing at all. Of course this is not a question that can solicit a simple yes or no, but if rules and regulations are to exist then they must take into consideration the needs and views of those affected, in this case the street vendors.