SURVIVING ON THE ECONOMIC BRINK Maya Entrepreneurs In The Urban Informal Sector Of Guatemala by PER OLE CHRISTIAN STEINERT, Cand. Real., Siv. Ing. Thesis Presented to the Faculty of the Graduate School of The University Of Texas At Austin in Partial Fulfillment of the Requirements for the Degree of Master of Arts The University of Texas at Austin December 1999 SURVIVING ON THE ECONOMIC BRINK Maya Entrepreneurs In The Urban Informal Sector Of Guatemala APPROVED BY SUPERVISING COMMITTEE: __________________________________ Peter M. Ward (supervisor) ___________________________ _____ Henry Selby ACKNOWLEDGMENTS The bulk of my acknowledgments at the completion of this work goes to my supervisor, Professor Peter M. Ward. First, because he kicked me back into the academic discipline as I started my studies at UT after having trotted the globe for five years. Secondly, because he reawakened my true interests - actually, my reason for stopping in Austin in the first place - as I prepared for this research without emphasizing ethnicity, by advising me to focus on the indigenous entrepreneur, something also Professor Bryan Roberts had done earlier, but in vain. And thirdly, because he has been a great inspiration and an outstanding teacher during every one of my semesters at UT since my start in January 1998. There is no wife, muffled children, wonder-secretary or publisher to thank. However, I am grateful and in great debt to everyone of my professors at UT for the guidance, views and inspirations they so abundantly gave me - and not the least for their amazing tolerance towards that argumentative Norwegian in their class. My thoughts are also directed towards my top- drawer friend and mentor of another life, Chunglu, who always told me that I was a person of much curiosity - and thereby turned me into one. Perhaps he also, sometimes, reflects upon the impact of the past that unchallenged was allowed to scatter the rich world we shared, but, from the ashes, opened up new ones for both of us to grab. The reception of a Tinker travel grant to cover transportation in style to and within Guatemala for this research, is cordially appreciated. O.S., August 1999 iii SURVIVING ON THE ECONOMIC BRINK Maya Entrepreneurs In The Urban Informal Sector Of Guatemala by PER OLE CHRISTIAN STEINERT, M.A. The University of Texas at Austin Supervisor: Peter M. Ward This study has focused on the conditions of indigenous entrepreneurs of production in the urban informal sector. In that sense, it is a first of its kind. Eleven Maya entrepreneurs in the city of Quetzaltenango, Guatemala, in five different productive activities, were interviewed. In addition a control group of three Ladino entrepreneurs was established and some large formal enterprises were visited. Besides analyzing the general working situation of the Maya entrepreneurs, the study tested two hypotheses on ethnicity. The first put forward the assumption that Maya entrepreneurs use their ethnic network to promote their enterprises, the other that Maya entrepreneurs are active in certain activities of the informal sector and not in others, due to, for example, structural conditions in the ethnically stratified and segregated society of Guatemala. Neither of these hypotheses were substantiated by the data. However, while ethnic segregation was not observed among Ladino and Maya entrepreneurs of production, there is circumstantial evidence of a structural discrimination that forces many Mayans who do not succeed in establishing a productive enterprise, to try their luck in the less economically promising sector of commerce. Besides the ethnic aspects, the study gave conclusive evidence for answers to some of the questions directed towards the informal sector in general, among them, the question whether or not capital accumulation takes place and, eventually, to which extent. The annual capital accumulation among productive enterprises in the informal sector of the city of Quetzaltenango was modeled. The results indicate an accumulation per year of roughly $1.5 million. Recalculations with a sensible variation of some of the crucial assumptions, gave results within a band of $1.35 million - $1.65 million. The capital is accumulated by 258 enterprises, with four or more workers (including the owner), with a total work force of 1,320 workers, out of a total of 1879 enterprises of production. To this author’s knowledge, no similar attempt of such an estimation has been reported in the literature before. iv The study offers calculations on the economic take-home earnings of some of the Maya entrepreneurs and identifies the mechanisms behind the entrepreneurial successes and failures. It concludes that it is necessary to distinguish between enterprises of production and enterprises of commerce due to their different natures. It presents data on the labor wages in the informal sector. It shows that the salaries are, first, closely related to the productivity of the individual worker, and, second, that, probably more often than not, they are tied to fluctuations in the demand of the market for the products of the enterprise. This means that the salary bracket within one economic activity may vary widely throughout the year. Other topics where the study offers new insight on entrepreneurial practice in the informal sector, are on lending conditions and the use of formal loans, on taxation, on the use of different management schemes and the potential of these, and on productivity and profitability within different economic activities. A list of the findings of the study is given at the end. ---o--- v TABLE OF CONTENT Introduction THE STUDY…………………………………………………………………………………… 1 Objectives………………………………………………………………………………… 1 Scope…………………………………………………………………………………….. ..1 Definitions……………………………………………………………………………..…..2 The Overarching Hypotheses…………………………………………………………. …..3 Research Problems And Methodology…………………………………………………….4 The Environment Of Quetzaltenango…………………………………………………. ….8 The City Of Quetzaltenango…………………………………………………………..…...9 Part 1: The Backdrop 1 BROWSING THE INFORMAL SECTOR…………………………………………….. .12 Background.........................................................................................……………….. ….12 How To Finance An Informal Enterprise………………………………………………. .13 Financial Needs.........................................................................……………….. ….14 Financial Sources.......................................................................……………….. ….15 Formal Loans..........................................…..................………………….. ….15 Semi-Formal Loans......................................................……………………… 17 Informal Loans/Credits..................................................…………………….. 18 Savings.........................................................................………………….. ….19 Miscellaneous..............................................................…………………… …19 Informal Incomes................................................................................……….……… …..20 Capital Accumulation in the Informal Sector.....................................………………. …..21 Interrelationship between Formal and Informal Sector.......................………………. ….23 Subcontracting……………………................……………………………………...23 Formal Lending In The Informal Sector (Guatemala, 1997)…………………… …26 Comments............................................................................................................….. ……27 2 DISSECTING ‘ETHNICITY’.....................................................................…… ………..29 Background……………………………………………………………………… ………29 Ethnicity and the Individual.............................................................………… …………..29 The Politics of Ethnicity.....................................................................……………………32 The Creation of Ethnic Coherence.....................................................………… ………...33 Maya Self-Realization.........................................................................………… ………..35 Maya Activism in Guatemala..................................…………………………… ………..37 Ethnicity in Quetzaltenango: Has much changed over Time?………………… ………...39 Comments............................................................................................………… ………..41 Part 2: Fieldwork and Results 3 TROTTING THE STREETS.............................................................………………… …43 When Theory Meets Reality................................................................................……. ….43 Putting Order To Chaos: Preparing the Interviews....................................…………… …45 People Contacted…..........................................................................………………….….45 Non-Entrepreneurs ...................................................................……………….. ….46 Entrepreneurs ..........................................................................……………….. …..46 The Entrepreneurs - A Perspective................................................…………….. …53 Comments...............................................................................................……………. …..56 vi 4 EARNINGS AND CAPITAL ACCUMULATION ……………...………......……… …57 Salaries of Informal Workers...........................................................….......…………. …..57 Earnings among Informal Entrepreneurs.........................................…........…………. ….62 Take-Home Earnings Of EM-1........................................................…………….. ..63 Take-Home Earnings Of EM-2........................................................…………….