The London School of Economics and Political Science The Politics and Institutions of Informality and Street Vending in Mexico: The Case of Mexico City Julio A. González A thesis submitted to the Department of Government of the London School of Economics for the degree of Doctor of Philosophy, London, May 2016 DECLARATION I certify that the thesis I have presented for examination for the MPhil/PhD degree of the Lon- don School of Economics and Political Science is solely my own work. The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without my prior writ- ten consent. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 99,964 words. 1 ACKNOWLEDGEMENTS This work is dedicated to all those who have no other option but to work every day in the informal sector for their livelihood. Their struggle to support their families against all odds has inspired this thesis. I hope that they can find a better future with all the rewards they deserve for their hard work. A major research project like this is never the work of one person. The contributions of many dierent people, in their various ways, have made this possible. I would especially like to extend my appreciation to the following individuals. I am indebted first and foremost to my two supervisors, George Philip and Francisco Panizza, of the Department of Government of the London School of Economics and Political Science (lse). Their patience, support, and kindness in dicult times, as well as their academic ex- perience, have been invaluable to me. I am also grateful to Barbara Petrongolo and Radha Iyengar of the lse’s Department of Economics for their guidance and advice. I would also like to thank my examiners, Jean Grugel and Jean-Paul Faguet, for their helpful criticism and encouraging advice on improving the final version of this thesis. This work benefited from interviews, comments, and discussions with many contributors. My special thanks go to Alejandra Barrios Richards, María de los Angeles Araiza, and Pa- tricia López from the Asociación Legítima Cívica Comercial A.C.; Cuauhtémoc Cárdenas Solórzano, Saúl Figueroa Hernández, and Margarita Rodríguez Galindo; Manuel Camacho Solís and Carolina Alonso; Jesus Garibay and David San Mamés; Marcelo Ebrard Casaubon; Raul Monge (Proceso); Miguel Angel Toscano;Edgar Antunez; and Alma Rosa Moreno Razo. My sincere thanks go to several researchers who work or have worked on the topics of infor- mality or street vending in Mexico. Among them, I would like to mention Eduardo Rodríguez- Oreggia (itesm-cem), Héctor Castillo Berthier (unam), Ángel Calderón Madrid (El Colegio de México), Manuel Perló Cohen (unam), and Santiago Levy (Inter-American Development Bank). Likewise, I was inspired by the work of several experts on these topics, and discussed it with them: Jaime Saavedra (Ministry of Education, Peru), Wil G. Pansters (University of Groningen), Francis Teal (University of Oxford), William Maloney (World Bank), Norman Loayza (World Bank), Hernando de Soto (ild), Sally Roever (wiego), Gary Fields (Cornell University), John J. Bailey (Georgetown University), and Roberto Ortega Lomelín (Univer- sity of Oxford). I would specially like to express my gratitude to John C. Cross, who not only laid important foundations for the study of the informal sector in Mexico, but also guided this research. I am grateful to my professional mentors in Washington—José Luis Guasch, Luis Andres, Jordan Schwartz, Soumya Chattopadhyay and María Angeles Oliva Armengol—for encour- aging me to pursue doctoral studies. I am also thankful to Consejo Nacional de Ciencia y 2 Tecnología (conacyt), Fondo para el Desarrollo de Recursos Humanos (fiderh), and lse Postgraduate Research Scholarship for providing me with financial support, which allowed me to pursue my graduate school studies. One of the greatest pleasures of studying at the lse has been the opportunity to meet not only great minds, but also great people. The following is not an exhaustive list of individuals who have influenced my journey, but rather those who have had a significant impact on me. I would like to mention and thank my colleagues Helen Addison, Anar Ahmadov, Simon Bastow, Stefan Bauchowitz, Annie Bird, Anita Brkanic, Juergen Braunstein, Kenneth Bunker, Sonia Bussu, Chelsea Byers, May Chu, Ignazio de Ferrari, Jan-Emmanuel de Neve, Ursula Durand, Mariana Escobar, Feline Freier, Daniel Grizer, Kathleen Henehan, Felipe Heusser, Pinar Kenanoglu, Ting Luo, Pietro Maettone, Fabio Miessi Sanches, Alia Mossallam, José Javier Olivas, Maja Rasmussen, Fabrizio Scrollini, Mike Seiferling, Hans Trees, Rachel Tsang, Julie Vogt, and Marta Wojciechowska. They reminded me that criticism is part of the game, listened to and debated ideas with me, and reminded me that learning also occurs outside the classroom. I also would like to thank Lila Caballero, Gisela Calderon, Erik Chavez, Mauricio Dussauge, Ninfa Fuentes, Emanuel González, Mónica Segoviano, and Javier Treviño for being my small Mexican territory while studying in the uk. I would like to express my gratitude to the residents and sta of Goodenough College, my home away from home, especially Ivan Gachet, Diego García Mejuto, Esteban Damiani, Cecilia Dinardi, and Juan José Price. As I already said, there is an infinitely long list of people who kept me going over the years, I cannot name them all but the few whose names I list have helped me to keep my sanity and carry on the doctoral work. Anyone who has written a PhD knows that it is a truly lonesome journey and, needless to say, all of the people mentioned above have been invaluable to me. I would like to thank my family,in particular my parents (Antonio and Margarita) and my sister (Lorena), who will never know the contribution that they made not only to finish this research, but more importantly to my greater outlook on life, for which I am eternally grate- ful. Without their teaching, support, and unconditional love none of this would have been possible. Finally, and most importantly, the path to completing this thesis included meeting and marrying my wife (Laura). She has been my joy, my pillar, and my guiding light, and I thank her immensely for her unwavering love and support. 3 ABSTRACT The informal sector—which includes informal street vending—comprises any economic ac- tivity that takes place outside the regulatory norms of the state—the evasion of tax codes, zoning ordinances, etc.—but does not include the provision of explicitly illegal goods or ser- vices. The phenomenon of ‘informal street vending’ has generally been analyzed from a strictly economic point of view. This research examines informal street vending in Mexico, particu- larly in Mexico City, from political and historical perspectives. The thesis’ main goal is to learn how increasing political competition—resulting from democratization and alternation of political parties in power—aected the politics and policies of informality (informal street vending) in Mexico. Tothis purpose, this work carries out a historical analysis of informal street vending and the policies and regulations implemented over time in Mexico City; a detailed comparative polit- ical analysis of the ex-ante and ex-post situation of informal groups and organizations going through the democratization process and the alternation in power that occurred in Mexico at city and federal levels in 1997 and 2000, respectively; and a case study to examine the largest and most powerful street vending organization in Mexico City. The thesis concludes that increasing political competition—resulting from democratization and alternation in power— did not result in an improvement in the capacity of the Mexico City government or the federal government to control informality and street vending. While democratization and political competition opened the doors for representation and more political participation by street vendors, it also set the conditions for the expansion of the bargaining power of vendor leaders, the multiplication of vendor organizations, the exacerbation of the political struggle between rival vendor groups, and the weakening of the government capacity to implement policies to tackle informality and street vending. 4 CONTENTS 1 Prologue 17 1.1 Introduction . 17 1.2 Concepts and definitions . 19 1.3 Literature review on the informal sector, informal economy, and informality 25 1.3.1 Initial notions of informality, informal sector and informal economy 25 1.3.2 Evolution of the informal sector debate after Lewis and Hart . 28 1.3.3 State regulation and the informal sector . 30 1.3.4 The emergence of politics in the informal sector debate in Latin America 31 1.3.5 The informal sector in Mexico . 33 1.3.6 The conceptualization of the informal sector evolves . 35 1.3.7 Recent developments on the evolution of concepts and policies of in- formality . 37 1.3.8 Political organization in the informal sector . 39 1.3.9 Evaluation of policies and proposals to address informality in Mexico 41 1.4 Research questions and general goals of this work . 44 1.5 Methodology, research design, techniques and information sources . 46 1.5.1 Methodology . 47 1.5.2 Historical research design . 49 1.5.3 Case study research design . 50 1.5.4 Interviews and participant observation . 52 1.5.5 Other methodological issues . 54 1.6 Ethics and the challenges and risks of research . 56 1.7 Street vending as a representation of informality . 58 1.8 Contributions of this thesis . 62 1.9 Description of chapters . 65 2 Informality: Concepts, Attributes, Perceptions, and Policies 68 2.1 Introduction . 68 2.2 The relationship between the state and the individual in the informal sector . 69 2.2.1 Incentives to ‘exit’ the formal sector (in other words, incentives to se- lect entering on not entering the formal sector) .