A Thesis Submitted to the Faculty of the Graduate School of Arts And
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ARGENTINA’S INFORMAL ECONOMY: A CASE STUDY OF PATRIA GRANDE UPON THE INFORMAL TEXTILE INDUSTRY A Thesis submitted to the Faculty of the Graduate School of Arts and Sciences of Georgetown University in partial fulfillment of the requirements for the degree of Masters of Arts in Development Management and Policy By Anna Porembka, B.A. Washington, DC May 1, 2013 Copyright 2013 by Anna Porembka All Rights Reserved ii ARGENTINA’S INFORMAL ECONOMY: A CASE STUDY OF PATRIA GRANDE UPON THE INFORMAL TEXTILE INDUSTRY Anna Porembka, B.A. Thesis Advisor: Matthew Carnes, S.J. ABSTRACT In order to strengthen their economic positions, developing nations like Argentina have produced laws aimed at salient informal manifestations. Argentina’s 2005 law “Patria Grande” sought to answer public outcry after a deadly fire exposed the inhumane conditions of illegal textile workers. What is the relationship between public policy and informality, and what legal, economic, and social characteristics identify the informal economy generally, and in Argentina specifically? What is the historical foundation of Argentine informality, and how has it behaved in the 21st century? Finally, how did Patria Grande develop, and what lessons can we learn from its results? By taking a public policy approach to informality, this study unravels the current characteristics and the historical roots of Argentina’s institution of informality. Three empirically recognized factors of informality are applied in a MIMC model and discussed with regard to Argentina’s history and present condition. These indicators support that, since the 2001-2 crisis, the Argentine informal economy appears to be shrinking, but at a decreasing rate. An investigation into Patria Grande uncovers challenges in enforcement, societal biases toward inaction, and power imbalances and accountability crises imbedded in the production chain. This investigation aspires to be a model to identify and address informality in other sectors, and in other nations. iii The thesis is dedicated to Professor Andrenacci, who inspired this research, and to Dr. Carnes, who read draft after draft, and always answered quickly to even the smallest question I had. Many thanks, Anna Porembka iv TABLE OF CONTENTS Introduction ......................................................................................................................... 1 I. RELATIONSHIP BETWEEN INFORMALITY AND PUBLIC POLICY Introduction ............................................................................................................. 2 What Is Informal Business ...................................................................................... 2 Relationship Between Informality and Policy ........................................................ 3 II. REVIEW OF INFORMAL CHARACTERISTICS Introduction ............................................................................................................. 9 De Soto in Peru: the Aspect of Vulnerability ......................................................... 9 The Privilege of Legality ...................................................................................... 10 The Costs of Illegality ........................................................................................... 10 Real Estate Prices as Indicators of Wealth (and Informal Markets) ..................... 15 Social Aspects of Wealth ...................................................................................... 17 Review of Registration Challenges ....................................................................... 18 III. INSTITUTION OF INFORMALITY: NORTH, SCHNEIDER, AND ARGENTINE HISTORY Introduction ........................................................................................................... 19 North’s Discussion of an Institution ..................................................................... 19 Schneider’s HME Institution ................................................................................ 20 Argentina’s Variety of Capitalism ........................................................................ 21 Political and Socio-Economic Roots of the Informal Institution .......................... 22 IV. MEASURING THE INFORMAL ECONOMY Introduction ........................................................................................................... 34 Choice of Measurement ........................................................................................ 34 Driver Variables .................................................................................................... 37 1. The Tax Burden .................................................................................... 37 2. Intensity of State Intervention into Markets: Costs & Benefits ............ 45 3. The Condition of the Official Economy: GDP and its Variations ........ 50 Estimates of Overall Size and Growth Trends ...................................................... 59 V. CASE STUDY: PATRIA GRANDE AS AN ATTEMPT TO ADDRESS INFORMALITY IN THE TEXTILE INDUSTRY Introduction ........................................................................................................... 65 Legal Context: Government Relationship with Industry, Workers ..................... .65 Social Context ....................................................................................................... 68 Public Response and Renewed Discussion of Informality ................................... 72 Government Response: Executive, Legislative, Judicial Branches ...................... 75 VI. STRUCTURE OF THE INFORMAL TEXTILE INDUSTRY Industry Analysis .................................................................................................. 84 Internal Analysis ................................................................................................... 89 Consumer Impact: Societal Biases Against Direct Action ................................... 94 VII. REVIEW, PUBLIC POLICY RECOMMENDATIONS, AND MODEL OF INFORMALITY Introduction ........................................................................................................... 99 v Review .................................................................................................................. 99 Public Policy Recommendations and “Lessons Learned” ................................. .101 Concluding with a Call to Action: Recognizing Responsibilities, Producing Policy.108 Appendix ......................................................................................................................... 115 Bibliography ................................................................................................................... 118 vi LIST OF FIGURES 1. Spectrum of Legality ....................................................................................................... 6 2. Buenos Aires Neighborhood Real Estate Prices (USD) ............................................... 16 3. Map of Buenos Aires Neighborhood Real Estate Prices (USD) ................................... 16 4. Immigration Flows to Argentina from Select Latin American Countries, 1960-1989 . 24 5. Permanent Immigration Admissions to Argentina by Year, 1995-2002 ...................... 25 6. History of Inflation in Argentina .................................................................................. 26 7. Argentina’s Performance During the Nineties (Note the inflation change) ................. 27 8. Argentina’s Balance of Trade, 1990-2011 .................................................................... 27 9. Argentina’s Current Account, Pre & Post Crisis .......................................................... 28 10. Argentina’s Crime Rate, 1990-1999 ........................................................................... 30 11. Inflation Rate of Greater Buenos Aires, by Government and Private Estimations .... 32 12. Fiscal Freedom Rating, 1995-2012, Compared Regionally & Globally .................... 39 13. Total Time to Pay Taxes (Hours per Year) ................................................................. 40 14. Total Tax Rate (Percentage of Profit) ......................................................................... 41 15. Labor Cost: Manufacturing Industry .......................................................................... 42 16. Trade Freedom in Argentina, 2001-2011, Compared Regionally & Globally ........... 44 17. “Days to Start a Business” in Argentina ..................................................................... 46 18. Trend of State Intervention in Argentina, 1995-2011 ................................................. 47 19. The Benefits of Regulation Complexity ..................................................................... 48 20. GDP per Capita ........................................................................................................... 51 21. Provincial Economic Variation ................................................................................... 52 22. Status upon Inspection by Percent, 2005-2010 ........................................................... 53 23. Total Workers’ Registration Status upon Inspection, 2005-2010 ............................... 54 24. GDP Growth Rate in Constant 2005 Prices ................................................................ 57 25. Rate of Unregistered Workers, 2003-2011 ................................................................. 62 26. Rate of Informality (According to Establishment Size) ............................................. 63 27.