Defined as those productive, commercial, and service activities carried on outside the formal embrace of the state—that is, untouched by regulation and taxation— the informal economy in Latin America is increasingly important as an employer in urban areas. Interest in this phenomenon has grown in Central America recently, because the informal sector has absorbed many of the rural migrants driven to the cities by the dislocating effects of the crisis of the 1980s. Concern with the informal economy is due also to the importance assigned to it by currently fashionable neoliberal theories of development, which emphasize deregulation, privatization, and the alleged magic of the marketplace.

Characterized by low wages and low levels of capitalization, as well as by a lack of institutional protection for its workers, the informal sector is traditionally associated with poverty; but few hard data are available regarding its actual composition or its relationship to the larger economy. In their introductory essay to this timely group research effort, editors Juan Pablo Pérez Sáinz and Rafael Menjívar Larín observe that heretofore most descriptions of the informal economy have been either intuitive or based on unsystematically gathered, anecdotal evidence. A more rigorous approach to the problem has long been in order, and it is now offered here. This volume includes, in addition to the editors’ overview, case studies of Guatemala City by Pérez Sáinz, San Salvador by Carlos Briones, Tegucigalpa and San Pedro Sula by Rafael del Cid, San José by Juan Diego Trejos, and Managua by Amalia Chamorro, Mario Chávez, and Marcos Membreño.

As the subtitle suggests, the project seeks to contribute to the debate over the nature and function of the informal economy. Is it simply a “refuge of poverty,” offering subsistence-level, menial employment to surplus labor that the formal sector cannot accommodate? Or is it a benevolent, regulation-free environment in which petty entrepreneurs are free to create “microenterprises,” fostering the accumulation of capital (especially human capital, in the form of trained, experienced workers) for national development? The results of the inquiry are inconclusive, because the data presented demonstrate, more than anything, the broadly heterogeneous nature of the informal sector. The microenterprises of neoliberal fantasy do exist, and many persons now employed in the informal economy have chosen it voluntarily as a means of upward mobility; but dead-end subsistence activities have been the real experience of many others.

Dryly presented and technical in nature, this volume is not addressed to the general reader, but it constitutes an important document for the modern history of Central America. Although specialists may find cause for specific criticism in the authors’ methods or conclusions, the book is also testimony to the growing sophistication of social science in the region. At a minimum, these studies convey the need for caution on the part of area governments, which, moved by faith in a priori models, have undertaken policy initiatives designed to promote the informal economy.