Promotion and Training Issues in the Informal Sector in the Context of Rapid Population Change

1. Introduction

Self-employment - encompassing own-account workers and employers (working proprietors of unincorporated enterprises) - has been an increasing focus of attention in many countries. With slower growth, economic crisis, unemployment and the pursuit of structural adjustment accompanied by a disillusionment with centralised planning and the public sector as instruments for promoting growth and full employment, hopes are raised for self-employment as a means of injecting new vitality into economies while creating employment, income and wealth. There is a growing ascendancy of free market philosophies emphasizing private initiative and enterprise as the mainspring of economic progress. This new wave in the 1980s and beyond represents a reversal - perhaps temporary perhaps enduring - in the long-term trend where non-agricultural self-employment has declined with modernization and development and the urban labour force has become increasingly occupied in regular protected wage employment. The implications of this tendency for the structure and nature of employment may be substantial.

What is the rationale for a strategy which relies heavily on stimulating self-employment opportunities in rural areas and in the urban informal sector? The main reason offered in many countries for promoting small-scale enterprises is that the demand for otherwise surplus labour, a consequence of high fertility, rapid growth of population and the labour force, and rising rural-to-urban migration for employment opportunities, is increased, which raises the income of the poorest groups in society. This is a result of the employment that the self-employed (own-account workers and working proprietors) create for themselves and for others (casual and regular wage employees, apprentices and unpaid family workers). However, small enterprises must be shown to employ both labour and capital more efficiently than larger units, given their real social costs, so that national output grows faster from their encouragement.

What is the justification for such heavy reliance on the promotion of those attached to the informal sector and the small-scale enterprise sector, of which some of the latter may belong to the formal sector in the sense that they are registered, licensed, housed in permanent buildings and use a more capital-intense technology than those found in the informal sector? And what general evidence is there that reliance on informal sector expansion will generate higher economic growth, via more appropriate technologies and an improved distribution of income, from employment expansion and income generation for poor and vulnerable groups of the population? What general lessons can be learned by Pacific Island country planners from the experiences of various policies and programmes to promote self-employment and the informal sector around the world?

The purpose of our paper is to attempt to bring some evidence to bear on some of these questions, without pretending that we can provide complete and adequate answers. The main purpose of our presentation is to stimulate discussion of the issues, identify some consensus in approaches to the problems, and to, hopefully, induce participants to identify policy-relevant strategies for their own country situations.

2. The Demographic and Employment Challenge Facing the Countries of the Pacific¹

Demographic conditions and likely developments in the Pacific will fuel a rapid increase in social service demand in the near future. Most of the countries share certain demographic attributes: young populations, high-fertility rates, low mortality and a highly mobile population and labour force. In the Federated States of Micronesia, (FSM), Marshall Islands, Solomon Islands, and Vanuatu, more than 40 percent of the population is under 15 years of age. Elsewhere, more than a third of the population is under 15 years of age (See Table 1). The large number of young people relative to the size of the total population generates great demand for primary health care and schooling, and will, eventually, lead to a tremendous demand for income generating employment opportunities in the labour market.

Most of these nations are experiencing high-fertility with current total fertility rates clustering in the range of 4-5.5 births per woman. Only in Fiji does the fertility rate begin to approach the lower level of comparable low-middle income nations. A combination of high fertility rates and falling mortality levels characterizes the early stages of the demographic transition in which they now find themselves. Demand for health care, education, and other social services rises rapidly during the early stages of the transition due to the large number of births, the greater number of elderly, and the burgeoning population at the lower age distributions.

Emigration has traditionally been an important demographic safety-valve for small nations, and the South Pacific is no exception. No other region in the world has such relatively easy access to the labour markets of three of the world's most advanced economies - the United States, Australia and New Zealand. Those countries that have most actively exported manpower - Tonga, Western Samoa and Fiji, have both the lowest rates of absolute population growth and the highest social indicators in the region. In Tonga and Western Samoa, remittances from overseas migrants finance practically as much consumption as does agriculture, the largest productive sector. Although a wide range of individuals migrate from the Pacific, those most likely to leave have secondary or post-secondary education and tend to come from the upper-income, urban population.

Labour Force Indicators

Formal job creation in the Pacific has been slow and disappointing, characterized by a heavy reliance on public sector employment, with a low rate of female labour participation and a heavy reliance on agriculture to generate jobs (Table 2).

During the decade ending in 1986, labour force growth was insufficient to keep pace with the growing population of graduates and school leavers. The growth that did take place was, by and large, dominated by an expansion of the public sector. As growth in this sector slows, a key challenge will be to increase the relevance of social services to facilitate employment creation in the private sector. To identify appropriate training programmes for those embarking on self-employment opportunities, particularly in the informal sector, remains a key public policy issue throughout the Pacific region.

Manpower demand projections have been made for a number of South Pacific economies. These projections are subject to a considerable margin of error but generally suggest that the capacity to generate employment will be closely linked to the level of private investment and growth, two key indicators of the level of social services required.

In the past, skill gaps in the public sector - of which there are many - have been used as an indicator of the demand for specialized training. Forecasting demand for skills based on public sector requirements is no longer appropriate, since fiscal constraints will limit growth in public sector employment. Education planners will need to pay more careful heed to the needs of the private sector in setting curricula and providing specialized training, especially for employment outside of the formal sector.

As the private sector becomes more important in the growth process, manpower demand may well exhibit initial signs of sluggishness. This is due to the small size of the private sector in most Pacific countries and the need to adjust from a public-sector dominated labour market to one in which private sector skills and orientation are required. As private sector activity increases, manpower demand may recover as well. Even if private sector demand for labour becomes sluggish in the transition phase to higher growth, the promotion of human capital must continue if long term development is to be realised.

The number of government employees relative to the size of the total population is relatively high and unsustainable over the long term. In the past, the public sector has provided a livelihood to more than two-thirds of all persons with post-secondary education. In addition, remuneration of civil servants is high, with average public sector salaries being 4-6 times per capita income, compared with developed country standards where the range is 1.5 - 2.5 times average per capita incomes. In a world dominated by structural adjustment, curtailment in public spending and retrenchment of public sector employees, future sources of employment growth must be sought outside the public sector.

A competitive, export-oriented economic environment demands that workers be able to perform new and multiple skills. These, in turn, invoke a requirement that future workers need to be taught the basic cognitive skills of reading, writing and arithmetic necessary to learn specific skills. In many studies around the world it has been consistently found that the rate of return to primary education is greater than the return to higher levels of education (Psacharopoulos, 1985). In economies experiencing dramatic changes, including unanticipated shifts in markets, climate and technology, a broad base of general skills through basic education is more critical for success than is specialized education. General education is likely to pay for itself in the long run, enhances receptivity to knowledge and new techniques, and improves the cost effectiveness of later training². This does not imply that post-secondary education can be ignored; but that improvements in post-secondary education need to be based on a sound primary and secondary education, while education of an elite group without mass education is unlikely to engender sustained economic growth over the long run.

In all Pacific countries except for Vanuatu, there is virtually universal enrolment at the beginning of primary education. Enrolment is usually not compulsory in most countries, however, either because there is no policy or because it is not enforced, and up to 15 percent of the children drop out before the end of primary school. In areas with rapidly growing populations (e.g. Majuro in the Marshall Islands), children have had to be turned away from primary school because of insufficient numbers of teachers and schools. Only in Fiji and Tonga is compulsory primary education effectively enforced.

The quality of educational services in the Pacific is seriously deficient, measured in terms of literacy levels and secondary school achievement indicators. Low quality education contributes to high drop-out rates and raises the unit costs of providing a given amount of training.

The curricula of primary and secondary education are not sufficiently related to the social and economic activities in which most of the students will eventually find employment. Consequently, the vocational flavour of primary and secondary education is very weak in these countries, despite the fact that most school leavers return to village life and small scale agriculture. Few schools provide any useful instruction in the scientific underpinnings of agriculture or its business aspects, beyond the typical school garden.

Vocational education has not been emphasized by most governments in the past, and strategies adopted for skills training have had a mixed record. Governments have tried to integrate vocational training into regular secondary systems. Fiji, for example, has 25 multicraft centres with an enrolment of about 700. Kiribati has a specialized vocational school. Specialized agricultural and marine schools at the secondary level exist in a number of Pacific countries. Most teacher and nurse training institutions take students after Form 5 or later, but there are three such institutions (in Tonga, Vanuatu and Kiribati) which take students after Forms 3 and 4. While the supply of vocational training opportunities is not negligible, it lags well behind demand and is poorly integrated into private sector training programmes. Training for self-employment in the informal sector is in its infancy in the Pacific region.

Table 3

Projected Annual Growth of the Labour Force and
Recent Expansion of Formal Sector Employment

	Growth in Labour Force p.a.	Growth in Formal Employment p.a.
Fiji	12000	4000
Solomon Islands	7500	550
Tonga	530	340
Kiribati	980	?
Tuvalu	73	50
Western Samoa	1260	919

Source: World Bank (1993) and various country papers of the ILO/UNDP/AIDAB project "Employment Promotion Manpower Planning and Labour Administration in the Pacific.

In this respect the island countries share in the world-wide global problem. As one commentary as succinctly stated the dilemma:

"The economies of the less developed countries are about to face perhaps the greatest challenge in their histories: generating a sufficient number of jobs at reasonable wages to "absorb" their rapidly growing populations into productive employment. In terms of absolute magnitude, this challenge has no precedent in human history. In some respects, the challenge is also unprecedented in terms of its nature, given, on the one hand, the limited availability of natural resources (especially land) in many countries and, on the other hand, the widespread availability of advanced technology" (Bloom and Freeman 1986, p.381).

The great challenge to human and employment planners in the Pacific is clearly portrayed in Table 3. The labour force is growing much more rapidly in most of the Pacific island countries than the rate at which formal sector employment has been growing in the recent past. The residual group of job-seekers need training in order to seek productive, income-generating opportunities outside of the formal sector, many as self-employed entrepreneurs in the non-agricultural informal sector.

What forms and kinds of training for self-employment can serve to promote labour absorption in order to satisfy the great bulk of new entrants to the labour market, particularly in the context of the Pacific?

3. Training for Employment in the Informal Sector

What is the justification for heavy reliance on the promotion of those attached to the informal sector and the small-scale enterprise sector (of which some of the latter may belong to the formal sector in the sense that they are registered, licensed, housed in permanent buildings and use a more capital-intensive technology than those found in the informal sector?). And what general evidence is there that reliance on informal sector expansion will generate higher economic growth, via more appropriate technologies and an improved distribution of income, from employment expansion and income generation for poor and vulnerable groups of the population? What general lessons can be learned by Pacific Island planners from the experiences of various policies and programmes to promote self-employment and the informal sector around the world? It is thus useful to briefly review findings with respect to analysis of micro enterprises, as well as interventions in other countries and regions, as an introduction to our analysis of the situation in the Pacific.

The main reason offered for promoting small-scale (micro) enterprises as against larger enterprises is that the demand for unskilled and otherwise surplus or underutilized labour is increased, which promotes income and employment growth amongst the poor and so reduces poverty. To be accepted, proponents of this policy must also show that aggregate output will not fall as a result, since this might offset the promised income redistribution effect. The most convincing evidence would be if small enterprises employ both labour and capital more efficiently than larger production units, given their real social or opportunity costs, so that national output would rise as well as being distributed more equally (Little, Mazumdar and Page, 1987, p.5). The static case for promoting such small units is that they use factors of production more efficiently, given their social costs. However, if they use both more labour and more capital to produce a unit of output then their promotion cannot be justified on efficiency grounds.

Even if small enterprises are more socially efficient and they employ more labour per unit of output, additional evidence on the extent of their competitiveness with the output of larger enterprises should be examined before their promotion can be justified economically. If their products do not compete with those of larger enterprises, then a reduction in the costs of production of small-scale units would lead to only a limited increase in their sales as demand would not switch from the output of larger to smaller units. A greater increase in their markets and a rise in the demand for labour by micro enterprises would result from a reallocation of the pattern of overall demand in favour of their products. This might be accomplished by a redistribution of income, if indeed it is established that their goods and services are purchased largely by the poor.⁴

Alternatively, in some productive sectors, the output of micro and large enterprises may be highly competitive such that a small change in the relative costs of production would lead consumers to switch their demand towards the more labour-intensive small plants, so that the demand for labour would be correspondingly increased.

To know whether there is much to be gained by a policy of favouring small-scale enterprises (or ceasing to disfavour them) requires disaggregated inquiry into the nature of markets because the degree of competitiveness between small-scale enterprises and large-scale enterprises will vary a great deal with the production sector ... many of the failures of targeted approaches to aiding small enterprises, including the training of handicraft workers, seem to be attributable to a failure to ask whether an increased output - of products or of skilled workers - would find a market (Little, Mazumdar and Page, 1987, p.6).

From their empirical study of narrowly-defined manufacturing sectors in India, Little, Mazumdar and Page (1987, pp. 313-314) found that the employment size of an enterprise is a very poor indicator of its capital intensity and productivity as well as of total factor productivity and technical efficiency. They found that many small enterprises with less than ten workers were not the most labour intensive, while their capital productivity and technical efficiency were very rarely the highest among size classes in their industry. They found that differences in labour intensity between industries were much greater than differences existing between enterprises within an industry. Therefore, they conclude that policies should be favoured which alter the patterns of demand in favour of labour-intensive industries. To this end, measures to promote exports, farm output, particularly that of small farmers who have been found to be more efficient, and income redistribution would help to raise the overall rate of growth of employment.

In addition, they argue that banks should be permitted to charge higher rates of interest for loans to small firms, since they are both more risky and more costly to administer. On the other hand, the authors claim that while very small manufacturing firms with less than ten workers should not be relied upon for the efficient employment of factors of production, they must also not be discriminated against. The overall objective of supply-side intervention in favour of such small firms must be to identify individual winners and to provide them with the necessary inducements. Positive intervention is more likely to be successful at a stage when evidence already exists of some initial individual success. While these findings are based on Indian data, they likely have broader relevance, and are at least a basis for plausible hypotheses.

By its very nature, self-employment income, particularly that arising from the informal sector, is notoriously difficult to define conceptually and to measure correctly. The self-employed receive the rewards of their labour, either in kind or from the profits of the sale of their output. Differentiating between the returns to labour, land, capital and entrepreneurship is an almost impossible task (van Ginneken, 1988, p.94). Notwithstanding these difficulties, many investigations into the functioning of the urban informal sector have compared the earnings levels of the self-employed with rewards in the rest of the economy. The general impression is that the self-employed in the informal sector perform as well as or better than many in formal sector jobs as revealed in surveys from Kumasi, Nouakchott, Freetown, Calcutta and Bangkok (Kahnert, 1987). In urban Juba, southern Sudan, House (1987) found that the great majority of self-employed proprietors of informal enterprises earn more than the minimum wage in government service, although this was true of only one-third of wage employees in the sector.

Vijverberg (1988a, 1988b) concluded from his study of non-agricultural family enterprises in the Cote d'Ivoire that self-employment was often the outcome of an adverse selection process: self-employed workers had poorer wage employment alternatives than the average wage worker. Yet, they received a bonus in the form of returns to capital that may help to compensate for the lower marginal returns to labour such that they may still view work in the family enterprise as the most attractive employment alternative. Indeed, he found monthly rates of return to capital to vary significantly, but to be generally very high, indicating the relative scarcity of capital. He concludes that public policy to make capital more widely available would be beneficial for the smallest enterprises as well as being economically efficient.

Other research in various geographic settings has confirmed that the self-employed in small-scale enterprises obtain higher rewards than if they were in wage employment in the formal sector. In Mogadishu, Aboagye (1988) found that informal artisans receive incomes far above those of senior government officials while the wages of employees in the informal sector are greater than incomes in the modern sector. Teilhet-Waldorf and Waldorf (1983) considered the self-employed in the three occupational groups of vendors, brick-haulers and carriers, and shopkeepers in the informal sector of Bangkok. They found that average earnings were significantly higher than those of unskilled workers in formal employment, both within government and in private industry. About one-third of their sample had moved to self-employment from being wage earners in the formal sector.

Growth of flexible, "atypical" employment patterns, such as putting out work also found in the urban informal sector is seen by some commentators to represent an open challenge to all the basic principles which have previously determined the development of labour law. The consequences of the present trends in both developed and developing countries towards widespread informal employment contracts and growing self-employment are felt by Cordova (1986) to be enormous, even potentially disastrous, both with respect to protective labour legislation and the balance of labour relations. While accepting that the self-employed in the informal sector often earn more than formal sector employees, and that they are not necessarily more vulnerable than other workers, the ILO (1988) is concerned about their lack of social protection and the non-regulation of working conditions. Work is often highly irregular, with earnings and employment directly dependent on current sales of goods and services, and for some, the lack of legal status can mean periodic harassment by overzealous policemen. This is often the case for street vendors of food and vegetables, and for those selling many other goods and services.

The emergence of self-employment and wage employment in the urban informal sector in developing countries can be viewed as a reflection of the failure of development planning to create adequate job opportunities in the formal or modern sector (ILO, 1987, p.9). Its growth might be viewed as a corrective response to the lack of employment creation in the capital-intensive sector so that the urban economy's human resources are utilised more fully. The co-existence of the dualistic formal and informal sectors is sometimes thought to reflect the prevalence of certain market imperfections and barriers to entry to the capital-intensive, high-productivity sector.

The emergence of the informal sector can therefore be interpreted as a manifestation of the adjustment process. To the extent that this process is muted by market imperfections, it is evident that the object of research and action in this field should be to examine the pervasiveness of such imperfections and their consequences and, in the light of the findings, suggest remedial measures. The need for intervention cannot be overemphasized given the misallocation of resources that the process entails besides equity implications (ILO, 1987, p.10).

This short section examines some of the broad implications and general lessons derived from various programmes and policy interventions to promote urban self-employment and the growth of small-scale enterprises in various parts of the world. In turn, they can be used later as guidelines and standards against which to assess prevailing and proposed programmes and policies for the sector in the Pacific Island countries.

Many of the most common constraints faced by would-be self-employed entrepreneurs have been identified in numerous surveys of the informal sector conducted around the world in recent years. They include the lack of capital, both finance and physical equipment, technical know-how, lack of suitable working premises and the relatively high cost in both time and fees of becoming registered and licensed. Other related problems often mentioned include shortages of raw materials, difficulties of obtaining credit from financial institutions and the absence of institutional support. Once started they face problems relating to the limited size of the market, perhaps because of competition from other informal sector operators as well as from the formal sector, lack of working capital, inadequate managerial and technical skills, including skilled workers, poor infrastructure, and insecurity of tenure because of the often negative attitude of the authorities.

In her review of over 20 micro-enterprise promotion programmes from various countries, Stearns (1985) used four important criteria to evaluate their impact: the degree of employment created; the extent to which incomes were raised; the level of financial self-sufficiency attained; and the number of people who benefited. She concludes that the most effective programme design is one which targets very poor entrepreneurial clients, emphasizes credit rather than business education, relies on client self-selection rather than programme staff for assessing credit worthiness, and initially extends very small loans with the proviso that larger sums will be forthcoming if repayment is full and prompt. A programme with these characteristics lends itself to institutionalization and helps to empower the poor via community-level organizations. Programmes which create links between the informal and formal sectors are to be encouraged when, if institutionalized, they create greater opportunities for micro enterprises. More traditional programmes which stress business education as well as credit are found to be the least successful. They are expensive, teach very few clients, and do not raise incomes any more than programmes which alone focus on credit.

From his review of the USAID-funded PISCES project (Programme for Investment in the Small Capital Enterprise Sector), Ashe (1981, 1985) found that, within the category of small urban enterprises, there are distinct levels of potential beneficiaries that correspond closely with the most appropriate type of project assistance. At the lowest level (Level One) are persons not conceiving of themselves as entrepreneurs but undertaking some meagre activity - often petty trade - for mere subsistence. At Level Two are people with a good comprehension of business practices and with a viable going concern. They invest whatever limited resources they have in their businesses. At the highest level (Level Three) the entrepreneurs have better business skills, they understand their markets and can be flexible enough to expand when the occasion arises.

Marginal workers in Level One are often assisted by community-based programmes whose concern is with such basic services as health, education, nutrition and sanitation as well as with enterprise development and income generation. The process of creating new individual and group businesses is usually undertaken as part of an integrated community development effort which promotes collective solutions to problems. At Level Two, programmes often attempt to create small informal groups of business owners from the community where loans are collectively guaranteed. Level Three micro-entrepreneurs have an acceptable inventory, a credit history and someone to co-sign a loan for them so that they can often be reached by innovative bank programmes.

The enterprise development programmes of PISCES provide credit and sometimes organizational and simple management assistance to already existing businesses. Group programmes are aimed at Level Two and individual programmes are aimed at Level Three clients. The emphasis on the solidarity group and loan pay back has several redeeming features. Funding from outside sources is assured by a low default rate which ensures the continuity of the loan fund. Group cohesion is reinforced by ensuring that the loan repayments are made on schedule.

Experiences in individual programmes aiming to reach slightly larger businesses were also encouraging. The projects directly administered by banks share three characteristics: a separate unit in the bank is established to serve micro-enterprises; simple procedures for administering loans; and formalised contractual relationships with formalities held to a minimum. Ashe found that these businesses were able to grow without written records or formal management skills. Credit is often the binding constraint and by keeping loans small - from $200 to $1,000 - and by ensuring frequent loan repayments and tight supervision, the projects avoided the high rates of default of so many other credit schemes.

In the most effective projects, programme inputs reflect the plans and desires of the clients and stay close to the level of skills and knowledge existing in the community. Programmes following this precept tend to be simple and low cost, and closely involve the community groups in planning and execution. The following specific attributes were present in successful projects:

1. Design: most projects were developed only after the problems of the poor were identified. Programme modifications were made via the daily interaction with the beneficiaries;

2. Staffing: field staff need not be trained in business while their most important skill is the ability to relate to the people in poor communities;

3. Outreach: to reach the target group project staff must obtain acceptance in the community for themselves and the programme;

4. Selection: to help the very need, the most important selection criterion is the individual client's reputation for credit-worthiness am ng community residents before acceptance into the group;

5. Loans: loans should be initially small and should be for a maximum of six months. Interest charges should fully cover loan costs while the pay back periods should reflect the cash flow cycle of the business, perhaps daily in the case of hawkers and vendors and monthly in other cases;

6. Job skills training: programmes should combine job skills training with business training and intensive follow-up;

7. Marketing: the demand for skills and products within local communities must be identified as a prerequisite to initiating training and enterprise promotion. Where potential markets lie outside the community, direct intervention may be required to establish marketing channels for client enterprises.

Ashe concludes that owners of urban micro-businesses can use small loans and other assistance productively and effective mechanisms exist for delivering help. Donors need to find ways to work with a multitude of implementing agencies including small local and national non-governmental organizations, larger co-operatives, national development agencies, banks and government agencies.

Some of these conclusions are endorsed by Hill (1983) in his overview of A.T. International's role in the development of the small-scale enterprise sector, based on case studies of urban informal sector promotion programmes in Brazil and the Philippines. Credit emerges as the service offered of greatest utility. Testing a first-time client with a very small loan enables the client to display his credit-worthiness while building his self-confidence and familiarity with the credit institution. Subsequent loans of increasingly larger amounts, dependent on the repayment of the last, keeps risks manageable and ensures that the credit is utilised effectively. Credit-worthiness was confirmed with realised repayment rates of over 90 percent. Hill asserts that universal administration of management training is not cost-effective and believes that the most widely appreciated training comes in the form of practical tips on an informal, on-site basis, e.g. how to open a bank account, where to purchase supplies, how to avoid official harassment, etc. In terms of technical advice, it was revealed that training in equipment maintenance and repair is often lacking and should be an important aspect of programming.

Sethuraman (1985) assesses policies for the informal sector in Indonesia but some of the ingredients of his strategy for employment promotion have universal applicability. He accepts that, while the sector has been deprived of credit, training and technical advice, the availability of resources is not the only problem. The general policy environment, particularly in large urban centres, has not been conducive to the development of the informal sector. In addition, a suitable institutional network is required to communicate with, and channel assistance to, the sector. Activities should be promoted which display growth potential and scope for productivity increase through technological change, capital accumulation and skill development. In this case, policies should favour the promotion of manufacturing, construction and transport sectors, as opposed to trade and service activities where growth is largely involutionary via the multiplication of enterprises, rather than evolutionary or productivity enhancing.

Financial and trade policies at the macro level can significantly influence the evolution of opportunities in the urban small-scale enterprise sector. The allocation of investment within the formal sector is an important instrument for promoting or dampening employment generation in the informal sector. The strengthening of links to the formal sector is viewed as an important way to widen the market for informal sector goods and services. Tariff and exchange rate policies can significantly influence the extent to which the small-scale self-employed can acquire strategic imported raw materials and tools and equipment. Yet a weak aspect of government policy arises from the fact that no single agency is made responsible for the execution, monitoring and evaluation of the policy's impact.

4. Considerations in the Pacific

One evaluation has found no reason to believe that, at an operative level, Pacific island workers are not capable of being as productive as their Western counterparts (Blandy and Richardson, n.d.). The impediments to higher productivity, in practice, are the limited ability to manage (where there do seem to be particular difficulties), the limited level of skill development, the absence of sufficient economies of scale in production and the dearth of sophisticated capital equipment. The small size of most local markets is a key barrier although newer technologies are improving the productivity prospects of small scale production. It may also be that devotion to arduous work and standardized hours are not ingrained in people's values. This does not make them unproductive, provided leisure is properly valued as part of their standard of living.

In the advanced Western Societies there is now a good deal more questioning of the value of separating education and training into formal educational institutions divorced to a large extent from the world of work. This is particularly so with respect to secondary schooling and technical training. The idea of "traineeships" for young people entering the labour market, of more on-the-job training interspersed by focused periods of formal instruction, has gained a strong foothold. Formal education, by itself, is not well adapted to the learning of many of the most useful applied skills, is necessarily general and theoretical in focus, and has a distinct bias towards the literary, white-collar, and potential professional in its value-system.

If development on the basis of village traditions is conceived of as a priority of economic policy, there seems to be a strong case for the learning of village traditions and skills as part of the core primary school curriculum in addition to the cognitive skills, literacy and numeracy, and modern work skills basic to modernization. Traditional skills are also important to people in the formal sector who need to move back to or to maintain customary obligations and ties with their traditional villages. Such traditional skills as what the plants are, what grows, how to grow it, how to cook it, how to catch crabs, how to weave, how to thatch, etc. are basically survival skills in village life. In addition, modern practical techniques of carpentry, mechanical repair, metal work, electrical maintenance, and so on are important. These basic traditional and modern vocational skills should be part of the primary school curriculum in the Pacific Islands.

The secondary school curriculum might also involve a better integration with on-the-job training, technical training and the world of work, although opportunity should be provided for the most academically gifted to graduate to tertiary education. Far more people with technical and vocational skills are needed, compared with what one might call called people with "political skills". There is a widespread view that the private sector needs to be encouraged to undertake more training activities, even if this means shifting government resources from formal schooling to assisting on-the-job training programmes, apprenticeships and youth traineeships in industry.

A way in which this process could be helped (which would also reduce the need for government assistance) is to widen the differential in pay between trainees and skilled persons and to have pay scales which increase more with duration of service. In a labour market with such a wage structure, youth employment opportunities are expanded and the tendency for the teenage unemployment to grow is minimized. In addition, the returns to firm-specific skills acquisition are increased by low job turnover and firms and workers attain higher productivity and earnings (House, 1992).

In most Pacific Island countries the pay differential for youth, or for a learner, is very small (say 10% difference as an order of magnitude). Furthermore, although some employee benefits, such as holidays, increase with duration of service, very often the return to on-the-job experience is minimal. These features of the pay structure contribute to youth unemployment, provide little incentive for people to acquire more practical skills, and provide little incentive for employers to broaden the content of training.

The acquisition of job skills is expensive. The costs include the worker's time spent in learning (rather than in producing), the time of the teachers, the use of equipment for instruction purposes, and the costs of mistakes. The relative importance of each of these will vary with the form of training. Broadly, there are two main places where job skills are learned: formal education institutions and the workplace. It is important to be aware of the greater potential role of the workplace in providing education and job skills, especially for those likely to become self-employed entrepreneurs in the informal sector.

Formal apprenticeships do not play much of a role in the training of skilled workers in the Island countries. We believe that there is considerable scope to expand this form of education and training as a means of upgrading the level of skills available. Apprenticeships have a number of advantages as a vehicle for learning in both the formal and informal sectors.

One advantage is that the apprentice is able to combine the learning of skills with the earning of income. This opportunity ensures that people who do not have the resources to go for several years without an income in order to do full-time formal education courses still have the chance to acquire marketable skills. This can be important for young people who need or want to make some contribution to the material income of the family. It can also enable older people who have responsibility for themselves and dependents to move to new levels or areas of skill. We think it inappropriate to place age restrictions which limit access to apprenticeships for youth. Persons who may wish to enter the cash economy with relevant skills are not just new entrants to the workforce, i.e. young people, but also adults who are currently engaged in the traditional or subsistence economy, or in the cash economy as unskilled workers.

A second advantage is that apprenticeships are not costly to the government. Most of the costs of firm-specific skill training will be met by the employer, in return for having a more productive worker, and by the worker who accepts a low nominal wage during the period of apprenticeship. The employer incurs costs through paying the apprentice more than the value of his production in the early years of the apprenticeship and by providing the skilled teachers' time to train the apprentice, together with any necessary equipment which is being used for training rather than for current output (and any raw materials consumed in the training process). The worker pays by accepting a lower wage than he or she could obtain by working in an unskilled job or in the traditional sector. In return, the apprentice receives marketable skills and the prospect of higher earnings in the future⁶.

A third advantage is that training in firm-specific skills is automatically related to skills which are currently of use to employers and which are learned using equipment and methods viewed by employers as contemporary. For the economy as a whole, this instant relevance can be a drawback, as it may make the workforce less flexible in response to changes in the pattern of work skills required, and in technology. More broadly-based learning in general skills, perhaps enhancing the trainees prospects of self-employment, helps to reduce such inflexibility; but then the apprentice must bear a greater burden of the cost. It is here that government subsidies to training may be considered. This is a particular advantage to economies which have only a small cash, hence taxable, sector. Such training would also encourage apprentices to graduate to self-employment status, given their ability to purchase the requisite site and equipment, which again might require support from government to ensure access to credit windows for aspiring entrepreneurs.

Through apprenticeship, fluctuations in the demand for skills will automatically be reflected in comparable variations in supply, though with a time lag. If activity in a particular area is high, employers will be keen to take on extra workers and help them to obtain the skills necessary to be fully useful. The first effect of an increase in the number of apprentices is to reduce the stock of skilled workers available for production, since skilled worker time must be diverted to increase the volume of training. But as the apprentices advance to the stage of being reasonably skilled, even if not yet fully trained, the net stock of skilled workers begins to increase. Should there be a move to increase the role of apprenticeship, aid agencies could be very helpful in bridging the gap until the net stock of skills begins to rise. If the demand for a particular skill is in decline, employers will cease to take on more apprentices, and with a short lag the supply of that skill will also fall. This automatic adjustment of supply to demand is in contrast to the outcomes of the formal education sector, where there may be little connection between the number of people completing specific courses and the demand for those skills.

Several requirements must be met before an extensive programme of skill formation on the job (such as an apprenticeship scheme) is likely to be successful. One is that the pay structure must be graded in a way which both encourages firms to train workers, and rewards workers for the skills they acquire. Pay should be low for trainees and significantly higher for skilled workers. Indenture contracts (such as apprenticeship), in combination with such pay ladders, also have advantages. It normally takes several years for a worker to acquire substantial skills on the job. It is thus necessary for there to be adequate security of employment for the employer and for the apprentice not to have to fear that the apprenticeship will be broken in mid-term.

A particular training problem frequently mentioned is in the area of management. The question of training and acquisition of skills applies just as much to managers as it does to operative workers. Management and marketing skills do not come naturally, and shortages of these can seriously hinder development: indeed, they appear to be doing so in many of the Pacific Island countries.

Entrepreneurial training for self-employment is a much more difficult area in which to design appropriate institutional structures. Since most people do not become managers or self-employed entrepreneurs immediately on entering the workforce, we do not judge formal apprenticeship to be suitable in this area. Nonetheless, the ideas underlying apprenticeship remain relevant. Management skills are largely learned on the job, are costly to acquire and require already skilled people to teach them. Where a shortage of management and entrepreneurial skills already exists, diversion of skilled people's time to training and being trained is particularly difficult. It is here that schemes such as the AESOP scheme can be particularly valuable. Under this arrangement, experienced managers from other countries, such as Australia and New Zealand, work for a period with participating firms for rates of pay well below normal. They may either provide training directly, or stand in for existing managers who are involved in training. The commitment and effectiveness of AESOP experts has been widely acknowledged.

Two observations are worth making. One is that it is likely to suffer somewhat from the free-riding problem found with apprenticeships. That is, a firm which takes advantage of the scheme to upgrade its management may well find that they then become attractive as potential employees in other firms or as self-employed entrepreneurs. Such post-training mobility reduces the incentives to train in the first place (for the firm but not for the employee). This problem may be diminished by participation by trade associations and national training authorities, where these exist. They can also be diminished by the trained manager undertaking not to accept employment in a competing firm for a period of time after leaving a firm providing training. The second comment is that the scheme should not be confined to managerial and professional staff. It is equally applicable to the development of technical and trade skills, and could be a very useful complement to an extension of apprenticeship training for self-employment.

Entrepreneurship is an ability which must be nurtured in a different way. It involves imagination, foresight, originality, ability to overcome risk-aversion and other attributes which cannot be learned in the classroom. Nonetheless, many entrepreneurs have failed because they lack management, marketing and other skills which could be learned. The Pacific Island countries each have development banks and programmes which are designed to assist entrepreneurs. Entrepreneurs may be assisted in a number of ways. First, entrepreneurial activities are risky. Unless the initiator is already quite wealthy, it is not appropriate to assist such ventures solely with loan finance. If the enterprise were to fail, the entrepreneur is left to pay the debt, with little or no means of doing so. This can be very destructive of risk taking. Instead, the financing institution should consider providing at least part of the finance as equity. While this is legally more complicated, it enables the development bank to spread the risk somewhat, and in return, participate in the benefits of success.

Second, entrepreneurs often need more than just money. In addition, they need skills and advice to complement their own talents. Thus the development bank should be prepared to work in partnership, especially in the early stages. This may involve providing direct advice, or directing the principal to where advice may be found. It should also involve financial supervision and the requirement for planning, both for their own sakes and as valuable disciplines. In these matters it is important that the advisers are themselves experienced in business, and are not solely public servants. Again it may be possible for voluntary organizations, NGOs and aid agencies to assist in the early stages of the establishment of such advisory services.

Third, it must be acceptable to let failures fail, as the former republics of the ex-Soviet Union are learning the hard way in their endeavours to privatize state-owned enterprises. Unless this is the case, the financial and personnel resources of the development banks will be devoted, increasingly, to trying to shore up ventures which do not have a future. Failures are a normal part of business life, and judging when to pull out and when to press on is an important business skill. Public servants are unlikely to have the opportunity to develop this skill, which is one reason why it is so important to employ experienced business people in such a scheme.

The ILO's Start/Improve Your Business is an interesting project which has operated in many locations around the world. The Start Your Business (SYB) package is designed to assist aspiring entrepreneurs organize ideas, resources and to formulate business planning strategies that facilitate consideration by financial institutions. The Improve Your Business (IYB) materials are intended to enhance existing entrepreneurs and strengthen their performance. Both SYB and IYB training packages include a workbook, a handbook, a video and audio tape and are available commercially in bookstores throughout Fiji. A manual focusing on the specific needs of women in the local business community is being edited for publication later in the future.

The SYB/IYB Unit will conduct twelve Start Your Business and Improve Your Business participant workshops in addition to two SYB/IYB Training of Trainers workshops and two consultants workshops over the next two years. The effectiveness of this programme will be closely monitored and the materials modified, as necessary.

Funding for the first phase of the SYB/IYB project - the design and development of the SYB/IYB materials - came from the Australian International Development Assistance Bureau (AIDAB) in late 1989. The implementation of these materials, the second phase, is being funded by the United Nations Development Programme.

The Small Advisory Unit has premises in downtown Suva which is accessible to the general public. The Unit is staffed by one United Nations Volunteer Specialist, two Business Advisers, a secretary and a driver.

The Unit maintains a high public profile in the local print, radio and television media. A national and regional newsletter focusing on enterprise development is also planned for publication 1993.

Another fundamental objective of the Small Business Advisory Unit is to complement and co-ordinate the business development efforts of other projects currently used by other Government and non-governmental organizations by setting up a resource library and arranging for referrals so that those requesting assistance receive the most appropriate service available. The long-term goal of the Fiji SYB/IYB project is to establish a network and to maintain a cadre of qualified management trainers who are capable of conducting enterprise development workshops, hence sustaining this programme and eventually reducing dependence upon donor organizations.

5. Unresolved Training Issues for the Informal Sector⁷

A Typology of Work in the Informal Sector

Entrepreneurs

Establishment Workers

Independent Workers

Workers in this category cannot easily be trained. Although many work from fixed locations, they are generally unorganized and difficult to count or keep track of. They have few resources and little time that they can give to training, and their working hours may be irregular. Many are so poor that they may be unable to afford even minimal extra expenses.

Better tools and equipment, and technologically more advanced ways of working, are desirable, but low-paid, labour-intensive work gives a competitive advantage in low-demand markets (Lim, 1978, pp. 75-81). The independent worker can compete, to a certain extent, because his physical labour is less costly than machinery or equipment. Independent workers are generally less educated than entrepreneurs or establishment workers in the informal economy or similar workers in the formal sector (Ettema, 1984, pp. 487-510; Waldorf and Waldorf, 1983, pp. 587-607; Papola, 1981). many are in fact illiterate, which greatly restricts potential retraining and upgrading.

Casual workers are the most disadvantaged category. Their jobs rely heavily on manual labour. Often little training is needed, and earnings are usually low, although some may earn more than their counterparts in the formal sector (Waldorf and Waldorf, 1983, pp. 587-607). Household workers make up the largest group, with gardeners, cleaners and sweepers also accounting for significant numbers. Construction labourers, watchmen, spinners and weavers fill other typical casual jobs. Casual workers are the least educated category. Most of them are illiterate and few have completed more than two or three years of school. Work skills can usually be learned incidentally on the job. This fact, along with low pay and the lack of prospects associated with casual employment, suggests that if training is made available to casual workers, it probably should be directed to more skilled jobs that provide greater social and private returns.

Although these categories are useful for purposes of analysis and discussion, they are not exact or fixed. There is considerable movement of individuals between categories, as well as into and out of the informal sector.

(i) The craft subsector

In the craft subsector, production units are usually small, with work completed in home workshops by self-employed individuals, including a high proportion of women. Skills are basically learned on the job through an older worker teaching the novice over a relatively long period of time (King, 1977; Peil, 1979, pp. 3-22,; Allen, 1982, pp. 123-137). The manipulative skills mainly taught usually take a long time to learn well. The greatest training need of the craft subsector appears to be the acquisition of marketing and accounting skills since the owner-artisan has usually advanced on the basis of technical, rather than business skills. Enterprises that produce quality products are also limited by their inability to expand their markets (Steel, 1979, pp. 271-284). In rural areas, it may be particularly beneficial to facilitate the establishment of marketing co-operatives.

The workshop subsector produces a variety of products in addition to its services and repair activities. Its output may directly feed the modern sector through intermediate products. Papola (1981, p.65) observes that "the only segment of the informal sector that can be expected to contribute significantly to income and employment growth is that of manufacturing units". Relatively large amounts of income are generated in the workshop sector; an increase in output generates considerably more employment than in other activities, and growth is more "autonomous" than in trade and commercial activities. Furthermore, there is some evidence to show that the major contribution to the urban economy and its growth has been made by units which are small but have technological and market characteristics of the formal sector units. Small manufacturing units are found to be the key segments of the "informal" sector in this context, but in terms of technology, productivity and marketing characteristics they compare reasonably well with units in the formal sector. In fact, most of them are technologically and marketwise integrated with units in the organised sector (Papola, 1981, p.124).

Any training scheme to address the workshop subsector should probably be structured around on-the-job activities, should co-ordinate learning with existing production processes and should introduce technologies and production processes that have a reasonable chance of being absorbed into the prevailing work mode. The World Bank (1980, p.49) suggests that trainers "should be recruited from among the best local workers; and the community should be responsible for organising and running these training programmes".

The commercial and services subsector is usually large in developing countries. It is often integrated with other subsectors or with formal sector enterprise. For example, supporting services may be purchased from another establishment, or consumer goods may be purchased from a large, local supplier for resale (Sethuraman, 1981). The World Bank (1980, p.99) observes that "for the literate rural dweller, the transition from daily marketing to the permanent status of an urban trader is the first step into the wider field of commerce and services". The overall growth rate of this subsector and its ability to absorb labour, however, are limited, since "trade and commerce activities have an induced rather than autonomous growth and, therefore, cannot be made to grow faster than warranted by the growth of other sectors" (Papola, 1981, p.65). And even when these activities expand, the employment potential of commercial and service firms remains limited. Fewer workers are added for a given increase in output than in other economic activities. As previously suggested, lack of capital and credit restrictions remain major obstacles to the extension of activities. Training needs generally are in respect of marketing and management.

In the less developed sectors of the economy, particularly in traditional societies, the greatest part of occupational training is acquired through informal means. The novice learns by observing and assisting other workers. The largely incidental and unorganized character of informal training distinguishes it from formal and non-formal programmes such as those offered through ministries of education or labour, or out-of-school by those individual firms and public and private agencies. To be sure, non-formal training may take place at the work site, but it is nevertheless a planned and organised form of training.

The amount of training obtained through informal means far exceeds that offered through formal or non-formal programmes. Blaug (1979, p.396), for one, suggests "that the vast majority of the labour force throughout the Third World learn the skills they need for their livelihood not in the systems of formal and non-formal education, but informally ...".

Probably to a greater extent than realised, formal education has a direct effect on the occupational success and mobility of individuals within the informal sector. Evidence suggests that those with basic literacy and numeracy fare better in the informal sector than those who lack these skills (House 1984, 1987). Moreover, the lack of such skills often prevents the individual from taking advantage of the training opportunities available locally (Philips, 1978), and may constitute the single most tenacious barrier to occupational progress. Access to advanced skill training appears highly important to occupational mobility in the informal sector.

Although relatively few individuals may have access to formal or non-formal training, the skills learned through organised training programmes are often transferred to the informal sector. As McLaughlin (1979, p.37) observes, "technical practice in the informal sector continues to be influenced profoundly by the infusion of skills and technology from the formal sector". And it is through this inflow of skills, often from formal sector workers who opt to move into the informal sector, that technical upgrading is achieved (ILO, 1979).

From a training policy point of view, it is not so clear how formal training should address informal sector training needs. Blaug (1979, p.397) cautions that "at present, the best thing that could happen to informal education is that it be left alone, not the least because it appears to achieve a wide range of educational objectives more successfully than the formal system". One of the strengths of informal training is its unstructured and improvised character, which makes it flexible and adaptable to immediate employer needs. Hunter (1973, p.282) suggests that "since informal education is more specifically related to real needs and to locally felt demands, it may well be one of the most flexible and efficient forms of education there is ...".

It is also difficult to formulate a training policy for the informal sector because there are no clear alternatives for financing the training. The cost of informal sector training is largely borne by the trainee and his family, notably through the payment of fees. In this sense, informal sector training is self-supporting. Direct, organised training interventions on a large scale would involve considerable resources that are not now being supplied by governments. Furthermore, direct intervention may disrupt a system that now provides training at lower personal and social costs than can be achieved through other means.

Another problem is to provide training that is accessible to informal sector workers and that directly addresses their skill needs. Training may be inaccessible simply because of entry requirements. Workers in the informal sector are usually characterised by low levels of formal education and limited literacy and numeracy, and they may for that reason not be capable of successful participation in conventional training programmes.

Training may also be inaccessible because it cannot be afforded. Even token registration fees, when combined with transportation cost and expenses for instructional supplies, can be a real barrier to informal sector workers. In addition, the trainee is likely to be faced with high indirect (opportunity) costs. Work hours are usually long, often spent in piece work, and any time lost through training constitutes a real loss of earned income. And it is highly unlikely that employers will provide time off to pursue training. Although the employer in the modern sector may view additional training as a net gain because it leads to a better-qualified worker, the small entrepreneur will probably feel threatened: there is little guarantee that newly acquired skills will not result in demands for higher wages, the loss of the worker to a competitor, or the establishment of an independent business by the former employee (ILO, 1979a). Lacking the most rudimentary educational skills and faced with real economic and time constraints, informal sector employees may not enroll in training programmes organised for them. The ILO (1977, pp. 217-229), for example, found that in Chile programmes tended to have a high concentration of more prosperous workers; poorer candidates simply did not apply.

Courses for informal sector workers may offer instruction more suited to modern sector employment because this is what those who design the programme are most familiar with. In rural areas, in particular, the mismatch between organised skill training and indigenous production techniques may be marked. But even if training is relevant, employment may still be blocked. Entry into certain occupations may be tightly controlled through a small, well-knit network of social and personal relationships, and access to jobs may be jealously guarded. Training that is not conducted within this network may, in effect, place potential new entrants outside the power structure, and they may find it extremely difficult to gain access to jobs.

The following is a brief review of three approaches to training. Individually, they may not overcome the problems associated with training for work in the informal sector. Collectively, however, they do point to promising practices, or ways to link training more closely to needs. Participants may wish to consider their relevance for training in the Pacific Island countries.

It is not surprising that apprenticeship constitutes a major way in which the young enter the informal sector. Few initial skills and little experience are needed. The apprentice merely has to locate a willing master, often a relative, pay the fees usually associated with such training, and be willing to undergo an extended period of training. At the start, Allen (1982, p.128) observes, such apprentices act "as little more than errand boys or menial labour: going to the market, taking care of the shop, sweeping the floors, and being generally available". In time, the apprentice will pick up skills by observing, be given simple tasks to perform, and eventually be expected to complete complex tasks, returning value to the master in the form of labour. If time permits, some formal instruction will be given, but basically the apprentice learns by observing and doing (Peil, 1979, pp. 3-22). The quality of training is only as good as the skills of the master and his willingness to teach the apprentice all he knows. Apprenticeship is a "relationship of exploitation", Allen (1982, p.127) cautions, "in which the component of 'cheap labour' - as opposed to 'excellent training' - comes to dominate".

Nevertheless, because of its extensive use, and because of strong tradition, particularly in the craft and workshop sectors, skills probably can be best enhanced by working within the context of the indigenous apprenticeship system.

McLaughlin (1979, p.222) suggests that informal sector apprenticeship can be directly improved by providing more opportunity for technical upgrading. He observes, for example, that "those artisans who had received specific trade training in an institution were more productive (i.e. had a higher output) and had higher earnings than artisans with only the usual apprenticeship training". One approach is to make technical assistance directly available to the employing establishment. This is an idea based on the agricultural extension model, in which assistance is provided to individual farmers either at the workplace or through a supporting centre. In an example reported by McLaughlin (1979, pp. 224-225), a truck was equipped with a complete mobile workshop used as an instructional centre. Through a schedule of regular visits, team members assisted small-scale mechanics who has particularly difficult repair problems. Instruction focused on the problem at hand.

A variation of the extension model is the service centre. Working from a fixed location, a full range of services is provided. These may include: supplying or locating training; providing credit and financial services; assisting entrepreneurs with marketing and distribution; providing information on technical developments. Instead of being given in isolation, training is integrated with other services, thus providing co-ordinated support.

Applying the service centre concept exclusively to training, Thornton (1984) advocates a workforce productivity centre. A technical assistance unit of the centre helps entrepreneurs to assess their training needs and develop plans for training. A clearing house unit maintains a comprehensive, computerized catalogue of training materials, including those developed within the country and those available from outside sources. A training resource bank maintains a comprehensive list of individuals, firms, and public and private agencies prepared to conduct training within the country. In addition, a revolving, low-interest loan fund is available for financing training activities.

The extension model in effect provides training specific to immediate work needs and assists individuals or small groups. Its effectiveness is largely based on the extent to which the individual problems of trainees are successfully addressed. A premium is thus placed on high versatile and qualified staff capable of dealing with a range of complex problems. They may be hard to find, but they are crucial to the effectiveness of this approach to training.

In the case of the service centre, it may be preferable for staff to make referrals rather than supply direct technical assistance that can be provided better elsewhere. This can reduce the complexity of the assistance given. The staff's role is to facilitate the identification and use of existing resources by bringing them to the attention of firms.

The release approach is a combination of regular on-the-job apprenticeship training and classroom instruction, with the week divided between work on the job and instruction at a vocational centre. The programme in Kumasi, Ghana, for example, has three stages. The first lasts about three months. The apprentice then returns to work full time. The second stage starts about nine months later and also lasts three months. The third stage consists of three months of training in the last year of apprenticeship. Formal instruction takes place two days a week and is roughly divided into 75 percent practical and 25 percent theoretical work. Each stage is more intensive than the one before. At the completion of training, the participant is eligible to take a trade examination.

The key to the programme is collaboration with the local vocational centre, whose staff and facilities are used. Members of the local Artisan's Co-operative Society also fully participate in instructional planning, helping to realize the "goal of delivering specially tailored supplementary training to an occupational group previously ignored by the educational establishment" (McLaughlin, 1979, p.231).

In Jordan, the vocational Training corporation (VTC) conducts an apprenticeship Training Programme, combining formal instruction with on-the-job training. Trainees are placed with a variety of employers, including substantial numbers of small, informal sector enterprises. In the case of small employers, the trainee is assigned to a supervised work group at the job site, returning to a VTC centre from one to three times a week for formal instruction. In addition, the instructor or training officer makes regular visits to the workplace, monitoring the progress of trainees and providing technical assistance to employers. Not only are employers helped through direct assistance but it is also possible to maintain a functional link between instruction in the centre and work. Two years of formal instruction in the centre, combined with practical on-the-job training, are followed by one full year of work experience. A Trade Training Certificate is awarded upon completion of training (Herschbach et al., 1985).

Both of these programmes combine elements of formal instruction with informal sector employment. This is an advantage to the extent that technical skills are transferred to the informal sector. Trainees, moreover, can move between the informal and formal sectors. On the other hand, the more disadvantaged elements of the population may avoid these programmes, because of educational, social or economic barriers.

Capable training officers and instructors are essential for successful training. They must supervise instruction, provide liaison with employers, negotiate agreements and monitor the progress of trainees. Members of the permanent instructional staff must have a variety of skills, because they will need to address a variety of skill requirements at the workplace.

Van Steenwyk (1985) advocates the use of production activities in structured vocational training programmes. Instruction is fully integrated with the production of items for sale in local markets, using indigenous or "waste" materials and appropriate technology. Trainees are involved in all stages, including design and development, production, marketing, sales and accounting. In this way, they gain experience appropriate to the establishment of their own small shops or businesses. At the same time, training is more affordable, since trainees "earn while they learn", thus offsetting the cost of training.

The major advantage of production activities is that they use adapted technology and local materials in the creation of products that prove competitive on the local market. The trainee is thus learning skills that will enable him to succeed in the context of the informal sector, not to mention the fact that the cost barrier to training is partially removed. These programmes are probably best run through volunteer and local agencies, because considerable flexibility is needed to adapt them to prevailing circumstances, and such flexibility cannot usually be achieved through government-run programmes.

As products are designed, produced and marketed, the necessary technical skills for each step are identified and can be built into the instruction. This mechanism allows instruction to be adjusted to an on-going basis. Moreover, instruction is directly tied to its application. Because production centres have more control over the design of instruction and have wide arrays of practical activities to offer trainees, they can achieve a more satisfactory combination of theoretical and practical instruction than conventional on-the-job training.

Strong day-to-day, routine working relationships must be established between those who run the production centre, those who plan the instruction and work, those who market products and those who buy the products. Production centres should not compete with local businesses. Instead, they should produce goods or services not readily available in their communities. In addition to minimizing outside criticism, this approach offers greater potential for opening up new employment opportunities locally.

Again, instructors need a wide range of skills, because production often draws from different technical specialties and involves many different materials. It may be difficult to find instructors who have both broad practical experience and production management experience and skills. Although trainees can perform many of the management tasks of production, supervising instructors have greater responsibilities for management than those in programmes that do not involve production.

Lastly, working capital in the form of a revolving fund is needed to start a production centre. A loan gives greater assurance of proper management than an outright donation of capital.

6. Conclusions

Given the demographically-induced current and prospective employment problem in the Pacific, largely attributable to past and on-going rapid population and labour force growth and the kind of economic structure which has evolved, policies and programmes which promote above-subsistence-level income and employment opportunities require the utmost priority. Despite past policy statements of good intentions towards small-scale, self-employed businessmen, at the practical level not much has been accomplished in the way of establishing positive incentives.

The most common constraints faced by small enterprises in the Pacific and elsewhere include a lack of access to working capital and credit, poor infrastructure and inadequate tools and equipment, inferior managerial and technical know-how, and the high cost of becoming registered and licensed. Once operational they face shortages of raw materials and skilled labour, limited markets because of intense competition in easy-to-enter lines of business, and insecurity of tenure because of the often negative attitude of the authorities, particularly those at the local level.

A general review of projects to overcome these constraints has concluded that the most effective programme design is one which targets very poor entrepreneurial clients, emphasizes credit rather than programme staff for assessing credit worthiness, and initially extends very small loans with the proviso that larger sums will be forthcoming if repayment is full and prompt. Such a programme lands itself to institutionalization and helps to empower the poor via community-level organizations (Stearns, 1985).Other experiences have shown that loans administered by banks, with an emphasis on group solidarity and loan pay back, have many positive features including a low default rate and the creation of a revolving fund of reloanable credit.

However, the availability of resources is not the only problem. Financial and trade policies at the macro level can significantly influence the evolution of opportunities in the urban small-scale sector. Subsidization of investment and other incentives offered to the formal sector can dampen opportunities in the urban small-scale sector. The promotion of linkages between the two sectors can be an important way to widen the market for informal sector goods and services. Tariff and exchange rate policies can influence the extent to which the small-scale self-employed can acquire strategic imported raw materials and tools and equipment.

Most of the surveys of the urban informal sector stress the heterogeneity of enterprises, as reflected in a wider dispersion of income, employment structure and technology. However, a significant number of entrepreneurs and their employees are able to realise incomes at least as high as could be received in the lower eschelons of the formal sector, particularly where certain barriers to entry restrict competition. The findings confirm that not only does the informal sector provide employment at a much lower cost than similar activities in the formal sector, but that it provides incomes, basic needs and practical skills to a growing proportion of the urban labour force.

Evidence suggests that management may be a major obstacle to the expansion of small Pacific island business apart from problems relating to capital scarcity, raw material supplies, skilled labour bottlenecks and limitations of market size. Legal barriers to self-employment have long been recognised as important and seven broad areas which constrain entry relate to licensing and registration, regulation of premises, labour laws, taxes, debt collection, lack of legal protection for product innovations, and foreign trade restrictions.

In the arena of non-financial promotional programmes many public and private institutions and agencies are involved. the major emphasis in some systems of education is on self-reliance and practical training, with the aim of ensuring that graduates at each level are capable of entering self-employment. However, the formal training system is criticized for contributing little in practice towards preparing students for self-employment. Unequal access to vocational and technical opportunities greatly hinders the chances of women starting their own businesses.

Meanwhile, most NGOs tend to be very target-specific in their promotional efforts and are able to reach only a limited number of potential beneficiaries. Training and extension services are frequently manned by inexperienced personnel with little exposure to the needs of small business. More emphasis must be given, therefore, to the preparation of appropriate curricula and materials in the training of small-scale enterprise trainers, as well as exposing students to practical problems. Co-ordination of various programmes is frequently lacking so that duplication is common. To transform policies into appropriate action, competent and committed personnel are needed but are believed to be not currently in place, especially in the public sector.

Very often, the general policy framework currently prevailing inhibits the expansion of self-employment. Governments need to divest themselves of direct involvement in promoting smaller enterprises and restrict interventions to creating essential infrastructure and to providing networks of information in which small entrepreneurs can prosper. For example, lending operations should be left to private financial institutions; industrial protection should be curtailed in order to promote a more competitive environment where the small business can thrive; all price controls on non-essential commodities should be removed and a flexible exchange rate should reflect a currency's value. Such reforms will facilitate the competitiveness of small-scale production in both in domestic and foreign markets and allow greater access to imported raw materials and spare parts and perhaps to export markets. Furthermore, preferential treatment in gaining government contracts might be considered for those large businesses which are able to show that they extensively subcontract to smaller enterprises. A comprehensive review of all pertinent laws affecting small enterprises might be undertaken in order that those having negative consequences will be removed or revised.

Implementation of this comprehensive package of policy reform will create far-reaching new opportunities for self-employment and small-scale business expansion. In the foreseeable future the small-scale sector, in both rural and urban areas, must be relied upon to absorb into employment the greatest share of the rapidly growing labour force. Therefore, no time must be lost before an innovative "enabling environment" is created. Any delay will have profound adverse consequences for decades to come.

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