Mexico Runs on Sidewalk Economy

When authorities decided to clean up this town, they didn’t take any chances. Police swooped in just before midnight, armed with riot gear and backhoes. The invaders were repelled, the streets reduced to rubble.

A sneak attack to eradicate drug dealers? Gang members? Armed insurgents?

No, municipal leaders were uprooting sidewalk vendors, mostly women and senior citizens, whose makeshift taco stands and clothing stalls were clogging the city center. Ordered to relocate to make way for an urban renewal project, most wouldn’t budge, leading authorities to eject nearly 1,900 of them by force.

“The mayor wants to create a tidy First World city in this place where people have nothing,” said Jose Luis Vargas, the leader of a group of vendors protesting their ouster in late March. “Better to die fighting than to die of hunger.”

The dust-up in this gritty municipality northeast of the capital underscores a turf battle being waged throughout Mexico.

More than a decade after the landmark North American Free Trade Agreement transformed Mexico into an exporting powerhouse, the nation’s formal economy of on-the-books businesses and workers who pay taxes is dramatically losing ground to the underground sector.

From 2000 to 2004, the underground economy was Mexico’s sole source of employment growth, and it’s getting bigger all the time. Some economists estimate that as many as half the nation’s workers eke out a living in subsistence jobs such as street hawkers and day laborers because there is nothing for them in the legitimate economy and no safety net for the jobless.

For Mexico, this swelling legion of shadow entrepreneurs is both a blessing and a curse.

The underground sector provides cheap goods and services for millions of low-income people, while giving Mexico an official jobless rate lower than that of the United States. Andres Manuel Lopez Obrador, mayor of Mexico City and a 2006 presidential hopeful, credits that entrepreneurial grit for easing tensions in a nation whose formal sector is creating far fewer than the 1 million jobs a year needed just to keep pace with population growth.

“Why hasn’t there been a social explosion in Mexico?” he wrote in his recent book outlining his vision for fixing Mexico’s employment and development woes. “The escape valve has been the informal economy, migration and drug trafficking. It’s painful to admit it, but that’s the reality.”

But business leaders complain that entire industries are being lost to pirates and off-the-books entrepreneurs. It’s costing Mexico big-time in terms of lost tax revenue and formal-sector jobs. Mexico’s urban areas are also feeling the heat from the explosion of ambulant vendors, pitting residents’ quality of life against peddlers’ need to scratch out a living.

The friction is most evident in Mexico City, where an estimated 500,000 itinerant vendors ply their trade, hawking phone cards at traffic lights, bootleg CDs in the subway and snacks from kitchens set up on the sidewalks.

The area surrounding the sprawling central square, the Zocalo, the symbolic heart of Mexico, resembles a giant swap meet. Parts of stately Chapultepec Park looked like a county fair until last fall, when management closed a popular section for maintenance. Officials in swanky Polanco, Mexico City’s Beverly Hills, are trying to relocate nearly 500 itinerant merchants who sell food and trinkets not far from high-end shops like Louis Vuitton.

“It’s out of control,” said Fernando Aboitiz, a Mexico City legislator whose district includes Polanco. He said the government had been forced to negotiate with ambulant vendors rather than simply evict them.

That’s because Mexico’s underground economy is so mammoth that informal-sector workers such as street vendors and gypsy cab drivers have formed unions to protect their territory. Although Mexican cities have zoning ordinances, the reality is that possession is nine-tenths of law. Once established, open-air merchants are extremely difficult to dislodge, alternately paying off authorities or taking them on with marches, sit-ins and blockades.

What looks chaotic to the casual observer is actually a highly organized industry. Most vendors in the capital pay dues of a few dollars a day to their leaders, who divvy up territories and keep the peace with government officials and competitors. They don’t always succeed. Alejandra Barrios, leader of one of Mexico City’s biggest peddlers’ groups, is in prison awaiting trial after a rumble with another union over turf. The 64-year-old is accused of masterminding the 2003 shooting death of the husband of a rival leader with whom she had been feuding.

Business groups say ambulant vendors amount to foot soldiers in a network of organized crime that is toppling legitimate sectors of the economy.

For example, an estimated two-thirds of all music CDs sold in Mexico are bootlegs sold openly on the streets for as little as 50 cents apiece. The vendors are the ready-made distribution chain for that trade, which has stunted Mexico’s recording industry, forcing music retailers to close and costing Mexico’s treasury $100 million annually in lost taxes, according to the Mexican Assn. of Phonogram and Videogram Producers.

“It is a cause, not a solution, to unemployment,” Manuel Tron, president of the Mexico City National Chamber of Commerce, said of the nation’s informal economy.

But vendors scoff at the notion that they are criminals or the nexus of Mexico’s employment troubles.

Single mother Elizabeth Tapia Alonso supports three children selling men’s clothing on the streets of Tlalnepantla. She can’t count on the government, a boss or family to bail her out when the kids are sick or the light bill is due.

“It’s all up to me,” she said. “There aren’t any jobs, and even if there were, no one would hire someone like me with no education.”

In the first four years of President Vicente Fox’s term that began in 2000, Mexico did not create a single net new position in its formal economy. That’s the universe of legally registered businesses that pay employment taxes and enroll their workers in the social security system.

In contrast, off-the-books employment surged, fueled largely by street vendors, whose ranks ballooned by 40% from 2000 to 2003 to more than 1.6 million. In all, the Mexican government estimates that slightly more than 11 million Mexicans, or about one-quarter of the workforce, toil in the underground economy. Some academics and economists here say half of Mexico’s workforce is informal.

That shadow activity is weighing heavily on Mexico’s development. Few in the informal sector pay business or income taxes. It’s one of the reasons that Mexico, with one of the world’s 15 largest economies, ranks with the likes of Sri Lanka when it comes to collecting revenue to pay for education, infrastructure and basic public services. That in turn is hurting its global competitiveness.

Mexico isn’t alone. Informal employment is rising in much of the developing world, including Latin America, where 47% of all workers labored in the underground economy in 2003, compared with 43% in 1990, according to the International Labor Organization.

Analysts are split on what’s driving the trend. Advocates of free-market economics say countries such as Mexico haven’t gone far enough in opening and reforming their economies despite the falling of trade barriers throughout the hemisphere. Critics of globalization, however, decry trade pacts that have walloped farming regions in poor countries, sending millions of rural dwellers streaming to the cities to work as day laborers and peddlers.

All Maria de los Angeles Vanegas knows is that there are too many vendors crowding the streets of Chalco, a working-class community of about 250,000 residents about 30 miles southeast of Mexico City.

The head of a neighborhood group called Let’s Save Chalco, she is pushing municipal officials to rein in the Friday market that attracts 5,000 vendors to a 10-square-block area of the city center. She said what started decades, perhaps centuries, ago as a weekly ritual for indigenous farmers to sell their produce had become a free-for-all of cheap Chinese imports and stolen merchandise sold by vendors who don’t live in the community.

Wending her way through the stalls of faux Nike sneakers and sizzling pork tacos on a recent Friday, she pointed to dozens of electrical cords known as little devils that street merchants use to swipe electricity from nearby poles. Traffic crawled. Drivers cursed and honked. Vendors’ boom boxes blared. The resulting garbage is so thick that locals claim that wild dogs come in from the countryside every Friday night to feast on the leavings.

“We are prisoners in our own community,” an exasperated Vanegas said.

But it is the vendors who are feeling helpless in Tlalnepantla, where authorities forcibly ejected sidewalk merchants who refused to leave their spaces in the city center. Peddlers said they received no advance warning of the raid, an allegation that authorities dispute. What’s clear is that hundreds of police secured the area while heavy-equipment operators destroyed the metal stalls that some vendors had anchored to the sidewalks. They then tore up the pavement.

“All we want is a city that is cleaner, more secure, more attractive and a better place to live,” Tlalnepantla’s mayor, Ulises Ramirez Nunez, said of the redevelopment project.

But some of the vendors, many of them elderly women, wept openly amid the rubble that had been their workplace for decades.

Patrocinea Santiago, 73, earned a few dollars a day selling fruits and vegetables.

“At this age, where else can I go?” she said, her eyes brimming with tears.

But just beyond the perimeter of destruction, other street entrepreneurs were already throwing down tarps loaded with merchandise onto the sidewalks, keeping their eyes peeled for the cops.

“We have to work,” said a wary young man selling socks. “We have to eat.”

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Times researcher Cecilia Sanchez contributed to this report.