This article first appeared on La Tercera on October 02, 2020.

The pandemic has radically altered the economy of all countries, without exception. In Chile, the crisis has translated into an increase in unemployment, which has reached 12.9%, according to the latest report of the National Statistics Institute (INE).

And it is precisely the high unemployment that has led many people to look for a way to survive through businesses, which are not always formalized, and which in the long term can be a problem for the national economy.

This group includes small “businesses” that operate on a low scale, have a low level of organization, or are not legally constituted; independent workers who do not declare their activity or street commerce, to name a few examples. In some cases, it could even be interpreted as a type of hidden unemployment, since they probably looked for work, without success, managing to generate money.

The big problem is that each of these cases is outside the administrative controls, being invisible to the eyes of the State and, therefore, impossible to regulate.

When we think of informal commerce, we usually associate it with street vendors, however, it goes much further. According to a study by the National Chamber of Commerce (CNC), during the first quarter of this year, 14% of e-commerce transactions were informal. The total expenditure in online retail purchases -without considering tourism and entertainment- was US$ 596 million between January and March, and of that amount, US$ 83.4 million were informal purchases in digital retail, which do not pay any kind of tax.

Generally, labor informality begins as a way to get by during a crisis or lack of employment and is designed to survive in the short term. But, sometimes they extend in time and continue under the wing of informality, despite having the conditions to regulate their situation. In Chile, there are good instruments to create companies, such as “Tu Empresa en Un Día” (Your Company in One Day), which does not involve costs. In addition, our country ranks 59th in the Doing Business ranking, highlighting among its main strengths the opening of businesses, a pillar that increased by 2.3 points by including the online registration system for closed companies. In addition, the protection of minority investors increased by 6 points.

Although we often think that these types of companies “do not harm anyone”, in practice, since they are not formalized, they do not exist and, since they do not exist, the law does not apply to them, which is a problem for governments in their efforts to “line the playing field” and prevent the commission of crimes such as corruption, money laundering, financing of terrorism, receiving (marketing of stolen goods), among others, which are regulated by the Law on Criminal Liability of Legal Entities and other laws. In the case of informal companies, the ability to regulate is completely lost, leaving the law itself a dead letter.

Countries with high rates of informality, started little by little to realize that a large percentage of the economy was represented by this item, causing a trade-off in governments, which must decide between increasing unemployment rates (closing these companies) versus formalizing the economy.

On the other hand, informal companies also threaten free competition, since the law does not apply to them, they do not pay taxes, nor are they required to comply with certain measures, such as sanitary ones, paying lower costs than a formal company.

The transition from informality to formality is an issue that must be addressed. This requires a policy that involves and considers different actors, from the State to civil society, that is designed for the long term, and that, among other measures, includes financial education to guide the creation of businesses.

However, we all have our share of responsibility in this matter. On the one hand, the informal self-employed must be committed to becoming formalized, since the end does not justify the means and because being informal is “cheating”. And, on the other hand, there is the duty of those of us who acquire products and services to demand formality and ask for the corresponding receipt or invoice. It is not a question of criminalizing, but many times by thinking that we are helping an entrepreneur, we are finally contributing to the increase of unregulated commerce, the lack of control, and the increase of corruption.

By Susana Sierra