Citation
Survival strategies for a rapidly changing mixed economy

Material Information

Title:
Survival strategies for a rapidly changing mixed economy the resilience of Managua's informal sector.
Creator:
Dellino, Domenick J., 1953-
Publication Date:
Language:
English
Physical Description:
xiv, 273 leaves : ill. ; 29 cm.

Subjects

Subjects / Keywords:
Bytes ( jstor )
Corporations ( jstor )
Data processing ( jstor )
Transfer rates ( jstor )
Informal sector (Economics) -- Nicaragua ( lcsh )
Genre:
bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

Notes

Thesis:
Thesis (Ph. D.)--University of Florida, 1995.
Bibliography:
Includes bibliographical references (leaves 247-262).
General Note:
Typescript.
General Note:
Vita.
Statement of Responsibility:
By Domenick J. Dellino.

Record Information

Source Institution:
University of Florida
Holding Location:
University of Florida
Rights Management:
Copyright [name of dissertation author]. Permission granted to the University of Florida to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
Resource Identifier:
021984810 ( ALEPH )
AKP5873 ( NOTIS )
33838931 ( OCLC )

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SURVIVAL STRATEGIES FOR A RAPIDLY CHANGING
MIXED ECONOMY:
THE RESILIENCE OF MANAGUA’S INFORMAL SECTOR
By
DOMENICKJ. DELLINO
A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
1995

Copyright 1995
by
DomenickJ. Dellino

Dedicated to the ingenuity of my many hardworking friends in
Managua’s Informal Sector,
and chief among them, to my colleague,
Roger Aburto Garcia.

ACKNOWLEDGMENTS
For their encouragement, support, and critical reading of early drafts of this book, I
would like to thank H. Russell Bernard, Paul L. Doughty, An Hansen, Terry McCoy, John
Moore, and Tony Oliver-Smith. The scholarly challenges they provided substantially enhanced
the quality of everything I lay before them. Very special thanks is due Paul L. Doughty whose
practical, academic, and intellectual inspiration—added to his incredible generosity of spirit—
helped me visualize how to fit together all the pieces of this project. But even this was nothing
extraordinary for him and his way of making each of his students feel uniquely special will be
sadly lost to future generations after his retirement this year. To H. Russell Bernard is owed my
fondest debt. From my first introduction to the 16k Apple ] [ in the basement of the Anthropology
building to eleventh-hour advice over e-mail from Germany, his continuous guidance over the
years as a caring mentor, tireless tutor, and trusted counsel inspired me not only to think like a
scientist, but also to believe that, irrespective of the obstacles I created for myself, I could and
would complete this. His classic reminders that, “if you can’t measure it, it doesn’t exist,” “if
you want to know what people do—don’t ask them,” “say it three times and it’s yours,” and “if
you can’t measure it it doesn’t exist,” all served to inspire spirited discussion while making my
training as an anthropologist thought provoking as well as fun.
1 was also blessed to find Emily Arfin who contributed many hours of valuable advice and
clarity of expression to her thorough editorial reviews during the final stages of the writing. Her
IV

ability to turn my best intentions into coherent English greatly expedited the process of getting
this work to completion. I also wish to thank my partner, Marcy Bloom, for her loving patience
and spiritual support, especially during the final months of pulling this together when I was
more of a lunatic than usual.
This book is based on conversations held and observations made during several stints of
fieldwork in Managua, Esteli, Bluefields, and Rivas in June and July 1985, May 1987 to January
1989, and November and December 1994. For the first of these visits, I wish to thank Thomas
Walker and Nola Reinhardt who allowed me to participate in a special Latin American Studies
Association (LASA) Delegation comprised of a dozen of the most respected Latin American
scholars in the United States. During my return in 19871 am grateful to have been a friend and
colleague of those at the Instituto Nicaragüese de Investigaciones Económicas y Sociales (INIES),
who contributed substantially to helping me overcome the challenges and legalities of an extended
research stay in Nicaragua. It was here I met Róger Aburto Garcia, a brilliant Nicaraguan social
scientist with a keen interest in the urban informal sector and a zest for life to complement it.
During this principal field stay and my subsequent reconnaissance in 1994, Roger never
failed to be my most valuable colleague and trusted friend. His insight into the urban informal
sector as well as his energy for and love of “doing fieldwork” was contagious. With an intimate
knowledge of his own city, a keen sense of obseration, and a social network that stretched from
Honduras to Costa Rica, Róger not only ever-sharpened my instincts, but also provided me
with introductions to people and places I would likely never have discovered on my own. As
such, he served not only as an invaluable collaborator but also as a sagacious informant.
Of course, I owe the greatest debt to my informants themselves. The opening of their
homes and hearts to me came at a time when such confidences were not offered easily, and I am
most grateful for the opportunity to have earned their trust. Most significandy, I am proud to
say, I count many of them among my most valued and lasting friends. If I have attempted to
tell their stories with more of a friendly tone than might seem properly professional, it is because
I felt that this was the best way to let their hearts—that so deserve to be heard—sing to the
world.
v

TABLE OF CONTENTS
ACKNOWLEDGMENTS iv
LIST OF FIGURES AND TABLES xi
ABSTRACT xiii
CHAPTERS
1 THE ECONOMIC CONUNDRUM
OF THE LATE 1980s 1
What This Book is About and Why 2
Original Objectives and the 20/20 of Hindsight 5
Identifying the Informal Sector in Society 6
Beginning Hypotheses and the Honing Process 6
Marginalized People or A New Economic Power? 9
Summary 10
Note 12
2 A BRIEF HISTORY AND ECONOMIC OVERVIEW 13
A Quick Overview of Managua 14
Long History of Intervention Begins Early 19
Independence Breaks Out 19
Two Generals Face Off—
Augusto César Sandino vs. the First of the Somozas 21
Formation of the FSLN and Early Years of the Triumph 24
The U.S. Covert War of Aggression 26
Paramilitary Operations 27
Economic Destabilization 27
Military Operations 28
vi

The Propaganda War 29
The Conundrum of Hyperinflation and Other Economic Ills 30
The Early Years and Economic Decision Making 30
Factors Leading to the 1988-89 Adjustment 33
The 60,000 Person Secret 34
The Blackness of “Being in the Red” 33
Inflation in Nicaragua 36
Controlling Currency in Circulation 37
Stimulating Production 39
Incentives to Work 41
Reorganizing Output 43
Altering a Speculative Psychology 44
Was This an “IMF Package?” 43
A Firm Hand In the Mercado Oriental 46
Medium-Run Objective: A More Productive “Mixed Economy”... 48
Violeta Chamorro Takes the Reins 49
Political and Economic Life Under Chamorro 51
Facing the Economic Reality 51
ESAF—Sell-Out or Last Hope for Economic Reactivation? 53
Medium-Term Growth: What More Needs to Be Done? 55
Climate as Enemy 56
Nicaragua Today 57
Summary 58
Notes 59
3 WHO ARE THE INFORMAL POOR?
OR ARE THE INFORMAL POOR? 61
Defining the Elusive 62
Origins and Nature of the Informal Sector 64
The Era of Exclusionary Definitions 65
Movement Between Sectors as a Conscious Economic Strategy 67
The Informal Sector as Reserve Labor Force 69
The Informal Sector vis-a-vis the Concept of Marginality 72
Early View of the Informal Sector as the Downtrodden 72
Informal Sector Definitions Before 1990 74
Migration and the Process of Urbanization 75
Migration as Household Strategy 75
Which Came First? 76
Migration in Nicaragua 78
Do All Migratory Tributaries Lead to the Mouth of Informality? ... 80
Class and Culture Change vis-a-vis the Informal Sector 81
Social Costs of the Informal Sector 82
Recent Trends in Informal Sector Research and Literature 85
Education 85
vii

Informal Finance 86
Regulation 88
Growing Corpus of Case Study Evidence 90
Conclusions 90
3 SURVIVAL STRATEGIES FOR THE
ECONOMIC JUNGLES OF MANAGUA 93
Life in the Informal Sector 93
Multifaceted Survival Strategies 96
Access to Low Cost, Subsidized, Rationed Goods 98
Rationing Rules and Product Availability 101
Cost of Living Raises and Government Raids 102
Psycho-Economic Factors as Strategy 103
The Inflationary Mentality and its Many Manifestations 103
Speculation as a Way of Life 108
Predicting Quality of Life From Household Sector Mix 109
Household Earnings and Quality of Life 109
Material Quality of Life 111
Perceived Quality of Life 111
Individual Earnings Hypothesis 113
Case Studies of Informal Sector Families 115
Doña Ercillia and the Tortilla Business 115
Doña Ligias Struggle from the Bottom 118
Pulperia in Crisis 122
Urban Professional Turned Informal Entrepreneur 123
The Popular Informal Sector in Bankruptcy 125
Doña Sylvia Alicia Hernandez
and the Trouble with Reported Income 126
Conclusions 128
Notes 129
4 A VIEW FROM THE BARRIO 131
Methodological Concerns 132
Sampling 132
Quality of Life Indicators 133
Barrio Descriptions 136
Barrio Enrique Schmidt 136
Barrio Luiz Alfonzo Velázques 139
Potosí, Rivas 141
Barrio Altagracia 144
Comparison of Formal and Informal Sector Earnings by Barrio 145
Conclusions 146
Notes 147
viii

6 THEORIES OF DEVELOPMENT AND
ECONOMIC TRANSFORMATION:
DRAWING CONCLUSIONS FROM THE DISARRAY 149
Why the Disarray? 150
Reviewing the Dependency Debate 154
Roots of Dependency Theory 155
Dependency Theory: Origins and Criticisms 156
The Capitalist World Economy and Immanuel Wallerstein 162
The Articulation of the Modes of Production Approach 163
New Trends, Currents, and Syntheses in Development Thinking 166
Late Articulation Refinements 166
The New International Division of Labor 167
International Political Economy Approach 168
International Political Economy and the Nicaraguan Case 168
The Call for an Actor-Oriented Paradigm 170
Where To Take Further Analysis 172
Summary and Conclusions 173
7 SUMMARY AND CONCLUSIONS 175
The Economic Crisis Continues to Worsen 177
Who Benefits from Informal Activity? 178
The Nature of the Informal Sector 178
Hypotheses Examined 181
What Will the Future Bring? 183
Summary 184
Epilogue Conclusions 185
EPILOGUE: MANAGUA IN 1994 187
Vignette I: Escape from the Cathedral 188
Reactions to the Tale 190
Vignette II: Street-wise in the Mercado Oriental 191
.. Like the Back of my Hand(?)” 191
The Money Change 192
Buying a Mattress 193
Vignette III: The Boys of the Mercado Montenegro 194
Getting the Market Kids Off Glue 194
Si, A La Vida 194
Masters of Manipulation 196
Triki-Trakas and the Virgin 196
Informal Credit and the Work Ethic 198
Vignette IV: El Supermercado “La Colonia” Revisited 199
That was Then, This is Now 200
And the Bad News Is 200
IX

Vignette V: A Conversation with Our New Empleada 201
Vignette VI: Informal Activity at the Corner of Ferretería Lang 202
Queen of the Ferretería Lang Corner 203
“These talking parrots are silent today.” 204
End of An Era 205
Notes 206
APPENDICES
A SURVEY INSTRUMENT 207
B DATA DEFINITION AND TRANSFORMATIONS 237
Part 1: Data Definition 238
Part 2: Data Transformations 240
C TECHNICAL NOTES 245
Material Quality of Life Calculation and Recodes 245
Perceived Quality of Life Calculation 245
Technical Credits 246
BIBLIOGRAPHY 247
INDEX 263
BIOGRAPHICAL SKETCH 273

LIST OF FIGURES AND TABLES
Figure 1.1: Breakdown of Workers by Sector 6
Figure 2.1: Map of Nicaragua 14
Figure 3.1: Reasons for Migration to Managua 78
Figure 3.2: Origin of Migration 79
Figure 3.3: Year of Migration 79
Figure 4.1: Number of Households in Each Strategy 97
Figure 4.2: Average Monthly Expenses by Household Job Sector Mix .. 99
Figure 4.3: Food Expenses by Household Job Sector
Controlling for Household Size 100
Figure 4.4: Workers with One or Two Jobs 108
Figure 4.3: Earnings by Household Job Sector Mix 110
Figure 4.6: High/Low Earnings by Household Sector Strategy 110
Figure 4.7: Material Quality of Life by Type of Household Strategy... 112
Figure 4.8: Perceived Quality of Life by Household Sector Strategy ... 113
Individual Earnings by Job Type:
Figure 4.9: First Person, First Job 114
Figure 4.10: First Person, Second Job 114
Figure 4.11: Second Person, First Job 114
xi

Figure 4.12: Earnings Minus Expenses 127
Figure 5.1: Reason for Moving to Barrio Enrique Schmidt 137
Figure 5.2: Type of Job Preference By Barrio 139
Figure 5.3: Household Strategy by Barrio 140
Figure 5.4: Perceived Quality of Life by Barrio 143
Figure 5.5: Material Quality of Life By Barrio 143
Earnings of Interviewee by Barrio:
Figure 5.6: Barrio Luiz Alf. Velázques 145
Figure 5.7: Barrio Enrique Schmidt 145
Figure 5.8: Barrio Altagracia 145
Table 7.1: Nicaraguan Economic Indicators. 1978-1992 179
Xll

Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy
SURVIVAL STRATEGIES FOR A RAPIDLY CHANGING
MIXED ECONOMY:
THE RESILIENCE OF MANAGUA’S INFORMAL SECTOR
By
DomenickJ. Dellino
August 1995
Chairman: Dr. H. Russell Bernard
Major Department: Anthropology
Largely consisting of market women, street vendors, and home-based shop keepers—the
informal sector of Managua, Nicaragua during the late 1980s failed to fit the commonly described
profile of informáis as marginal poor. Although how we conceptualize the informal sector has
evolved gready in recent years, the quest for a universally acceptable definition remains elusive.
Once characterized as poised against state efforts to formalize them, and as operating on the
fringes of economic and social activity, these informal actors enjoyed not only occasional support
from the Sandinistas, but also often demonstrated considerably greater economic mobility than
their formal sector counterparts. Managuan informáis enjoyed what I call a “hyperinflation
honeymoon.”
Xlll

Given the confusion about the nature and role of the informal sector, the first purpose of
this dissertation was to capture the Nicaraguan experience from the unique perspective of those
engaged in informal commerce at the turbulent peak of the war-weary Sandinista regime. The
household survival strategies of these informal actors and their formal sector counterparts provide
the primary research question guiding this book: were those engaged in informal sector activities
better off than those in the formal sector? Using three measures of quality of life—household
income, material possessions, and perceived quality of life—households with only informal
sector workers, only formal sector workers, and workers from both sectors were compared.
Owing, in part, to the unique economic conditions of the time—hyperinflation, formal sector
food subsidies, and the Sandinista’s experiment with a mixed economy, as well as the dispursed
nature of Managua’s market infrastructure—those households that were able to employ members
in both sectors faired better than those households composed of workers from either sector
along.
Five years later, staggering hyperinflation has been replaced with 70% unemployment. A
once clearly defined, political pluralism has been supplanted with a scramble for power from
various sectors—none with a clear agenda. A land of once extremely scarce resources has been
transformed into an arena where virtually anything is readily available—albeit for a price few of
the majority poor can afford. Now once-prosperous informal sector traders long for scarce
formal sector jobs.
XIV

CHAPTER 1
THE ECONOMIC CONUNDRUM
OF THE LATE 1980s
The informal economy—a parallel and in many ways a more
authentic, hardworking, and creative society than the one that
hypocritically calls itself legitimate—appears... as an escape hatch
from underdevelopment.
—Mario Vargas Llosa, from the forward to The Other Path
It is a bright sunny morning in May 1987 as I emerge squint-eyed from my prison-like
room at the once-infamous Los Chepitos guest house.1 Outside the cement walls and beyond
the zinc roofs, Managuans begin to struggle through another humid summer day, seemingly
undaunted by the 95 degree heat that has me wiping my brow at 7:30 AM. The long-antici¬
pated wet season is late in coming. Seven months of nearly no rain has left a thick layer of dust
on just about everything—including one’s throat—making the strong, sweet Nicaraguan coffee
beckoning from doña Luisas comedor across the way even more enticing.
Doña Luisa is in her usual jovial mood—laughing and teasing the varied assortment of
neighbors and “internationalists” as she simultaneously prepares breakfasts and pats-out the
tortillas toasting over the charcoal and wood-fired metal drums. A few feet away, under the
same zinc awning skirting their one-room house, her husband, don José, pounds the door of a
1972 Toyota taxi back to the point of recognition. Before he is finished the shine will rival
factory-fresh paint.
1

2
Over the din of the banging body work, one of the guests enjoying the speciality of the
house—rice and beans and a deep-fried egg—asks doña Luisa if she has always worked and
lived in this spot. “No, no,” comes the smiling, but matter-of-fact reply, “I used to work as a
domestic in the house of a rich man. In those days 1 couldn’t eat until he had eaten and then all
I would get is a bird’s ass. Now 1 make more than an Aereo Nica pilot!”
This was the first evidence that what I suspected about the informal sector in Managua
might be true—that informal sector workers were better off than their formal sector counter¬
parts.
Although somewhat more comical than most, doña Luisa’s characterization of her life
proved to be true for much of the flowering informal sector in the new “Nicaragua Libre.” It
was from this beginning that I set out to illuminate the nature of the urban informal sector, the
survival strategies of its actors, and the conundrum these forces presented to the Sandinistas
engaged in their Nicaraguan experiment with a rapidly changing, mixed economy.
What This Book is About and Why
This book is about life in Managua during the mid-to-late 1980s. At that time, the
revolutionary Sandinista government was in a war with the contras, human and material resources
were stretched thin, and the economy was failing. Relations with the U.S. were as low as they
had been since 1855, when William Walker, the Tennessee soldier of fortune, declared himself
president of Nicaragua.
The lessons portrayed here are about how people in Managua managed to survive during
these intensely difficult and unique times. While there are, finally, some works that explore the
informal sector in a favorable light—most notably, Hernando de Soto’s The Other Path (1989)—
few have previously examined an informal economy under conditions of hyperinflation pre¬
cipitated by scarce supply and the inorganic emission of capital (the printing of money). What
caused those—either due to desperate unemployment, dislocation by the war, conscious

3
strategizing, or just plain hunger—to seek informal sector activity, is the rice and beans around
which this modest banquet has been planned.
On the one hand, there has been increasing demand for a reevaluation of the develop¬
ment thinking of the previous decade (Kincaid and Portes 1994, Black 1991, Long and Long
1992, Roseberry 1989). On the other, fresh attempts to look at the Nicaraguan experience
during this tumultuous time has underscored its importance. Rose Spalding’s new book, Capi¬
talists and Revolution in Nicaragua: Opposition and Accommodation, (1994) provides a brilliant
analysis of the Nicaraguan experiment with a mixed economy by focusing principally on the
role of the oligarchy and elites. Roger N. Lancasters third book on Nicaragua, Life is Hard
(1992), explores the daily lives of the urban poor through the intimate relationships that made
up the fabric of this period of Sandinista revolutionary society. Carlos M. Vilas’ latest work,
Between Earthquakes and Volcanoes: Market, State, and Revolution in Central America, (1995)
points out that it was not the failure of capitalist development in Central America that provided
the economic impetus for revolution as it was its success. What I hope to offer here, is to build
on these works by augmenting the scant ethnographic record with an understanding of the
urban poor and the struggling-to-be-middle-class informal sector in the context of their eco¬
nomic rationalizing. The Sandinista attempt to achieve a society based on political pluralism,
nonalignment, and a mixed economy provides the unique backdrop for this setting. The con¬
fusion suggested by the inconsistent policy toward the Managuan informal sector—sometimes
favored and sometimes fought by the State—further suggests that examinations of this type are
not only timely but needed.
Moreover, this book strives to contribute to the body of development literature con¬
cerned with the informal sector—about which relatively little is known with certainty at the
grass roots level, and about which much less is understood in the context of a mixed economy.
Here too, current informal sector writers have both provided us with and expressed a need for
more case study evidence (Tokman 1992, Portes et al. 1989, de Soto 1989, Long and Long

4
1992). Hence, this work also strives to chronicle human factors in one of the most celebrated
experiments performed on an economy in recent decades.
Lastly, besides the extremely important ethnographic opportunity to examine the Nicara¬
guan experience at the peak of the war-weary Sandinista regime, another compelling reason to
write about its informal sector actors is that their economic mobility largely contradicted the
characteristics commonly assigned the informal sector at the time. And now—five years later—
with the benefit of a fresh series of snapshots (included herein as an Epilogue), we are able to
triangulate in on some of the unique economic conditions of the time. Staggering hyperinfla¬
tion has been replaced with 70% unemployment. A once clearly defined, political pluralism
has been supplanted with a scramble for power from a variety of political arenas—none with a
clear agenda. Liberal Sandinista land reform measures of the 1980s are being reversed. Recent
capitulations to the IMF and the pending privatization of the national communications com¬
pany, Telcór, point to ever more desperate attempts from the right to bring runaway debt under
control. A land of once extremely scarce resources has been transformed into a teaming mar¬
ketplace where virtually anything is readily available—albeit for a price few of the majority
poor can afford. These new data provide a basis for suggesting some specific possible connec¬
tions between the success of the informal sector and the singular economic climate of the time.
Which of the unique economic conditions of the late 1980s contributed to fostering a
robust informal sector? Why is it true that many of those who once sought economic refuge in
the informal sector, now wish for formal sector employment? Did the thriving informal sector
activity of the time help or hurt the Nicaraguan economy? Was there another plan of action
that might have better served national and individual interests? These are the questions I have
attempted to craft into a story that will not only whet the appetites, but also satisfy the palates
of development planners, economists, ethnographers, and revolutionaries alike.

5
Original Objectives and the 2Q/2Q of Hindsight
I originally set out to discover if one’s degree of economic articulation with the informal
or formal sector could be used as an indicator for predicting one’s quality of life. This was based
in the notion that those more articulated with the informal sector might be less exploited—in
the Marxist sense—by capitalist forces, than those whose social network consisted mosdy of
formal sector individuals. 1 set out to use ethnographic and quantitative data to assess the social
and economic well-being, the survival strategies, and the nature of the social networks from a
random sample of informal sector workers in three barrios in Managua and in Potosí, a small
town in southern Nicaragua. The hope was to understand how well-articulated workers in the
informal sector were with the formal sector of the economy. Further, I hoped to better under¬
stand the degree of interdependence the two sectors shared.
In the course of laying the ground work for this research, however, it became evident that
the question was slighdy off the mark. Although the research instrument was designed to
collect the social network data (from which “articulation” was to be operationalized), in the
course of asking those questions, a shift in emphasis was suggested. It became apparent that
there existed clear advantages to working in each sector and that it was not so much how indi¬
viduals articulated with each other, but rather how the benefits of working in each sector were
combined that proved the more interesting and appropriate focus. Further, given the nature of
the Nicaraguan family, the more appropriate unit of analysis for this research became the house¬
hold, although a good bit of data was still collected on the individual interviewee that spoke as
the representative for each family.
Due partially to the unique advantages formal sector workers enjoyed by virtue of the
Sandinista’s economic liberalism, on the one hand; and also due to the underlying current of
hyperinflation—which gready advantaged informal traders, on the other—the household com¬
position of jobs in each sector became the economic strategy chosen against which to measure
the degree of economic success. “Articulation” was replaced with “household strategy.” Thus,
where initially I had hoped to measure articulation between the formal and informal sectors,

6
the primary focus changed to a comparison of quality of life across households of varying
strategies. And since economic strategies were much more relevant at a household unit of
analysis than an individual one, the focus for hypothesis building also shifted.
Identifying the Informal Sector in Society
The first step was to define the informal sector. While I engage in a fuller discussion of
how the informal sector has been defined in the literature in Chapter Three, the definition used
for this work was whether the individual was working for a fixed wage or had their own busi¬
ness. Thus, although casting a broader net than some researchers, most self-employed indi¬
viduals and those working in cooperatives (of which there were two) were included in the
sample of ninety-eight households in which there were 173 workers. The breakdown of work¬
ers by job sector is shown in Figure 1.1.
WORKERS BY JOB SECTOR
Figure 1.1: Breakdown of Workers by Sector
Beginning Hypotheses and the Honing Process
One of the primary hypotheses to be tested was whether the informal sector—contrary to
a number of case studies in other countries—served as a positive force in the economy (Weeks
1975. Kincaid and Pones 1994, de Soto 1989). While the evidence will show that those engaged
in informal sector jobs not only provided themselves with employment, they also made available

7
some goods and services that could not be provided by the government. Thus, stricdy speak¬
ing, whether or not they were “a positive force” depends on from whose point of view one is
speaking. Indeed, the argument hinges on whether one considers the net result to individuals
or to the national economy—a difficult calculus to reconcile as we shall see.
On the one hand, there was no doubt that the government suffered loss of revenues from
taxes not collected on goods sold in the informal sector. Worse still, countless quantities of
goods—especially subsidized basic grains—were being diverted from government channels to
informal avenues where they invariably commanded higher prices. These basic grains were
thus placed further out of reach of those who most needed the help to buy them. At the same
time, however, the informal sector provided a valuable service for the state and formal sectors—
by selling otherwise unavailable goods such as used spare parts for everything from tractors to
toilets. Informáis also served society by providing smaller, readily affordable, “bulk-broken”
portions of everything from cookies and cigarettes to cement. So while the informal sector—at
various stages in the process of national economic reform—had been a force the Sandinistas
had wanted to discourage or at least control, it remained the one place to buy certain goods
when government stores offered little but rows and rows of nearly empty shelves. Thereby, the
informal sector was also seen as a resource that freed the government from the need to provide
specific goods and services, not to mention jobs.
On the other hand, there is no question that informal sector traders participated substan¬
tially in driving up prices and, in some cases, provided fierce competition to those engaged in
similar businesses in the formal sector. Further, while it is certain that the majority of informal
sector activities were not stricdy productive, i.e., they did not add value to, but often simply
redistributed goods, there exists no data to calculate this loss of GNR Thus, this conundrum
presented by the informal sector is difficult to characterize. For those engaged in informal
activity, it is the chosen form of survival and, most often, a welcome source of income favorably
affecting their quality of life. From the perspective of the national economy, it is perhaps best
characterized not so much as a positive or a negative force, as a necessary nuisance or—surely

8
for some government officials—an essential evil of the Nicaraguan economy. In any event, the
informal sector is as much a reality of Nicaraguan life as the tropical climate: ever present,
sometimes excessively hot, other times warm and welcoming, never something to be ignored.
Another goal of this work was to demonstrate whether one’s degree of articulation with
the informal or formal sector could serve as an indicator for quality of life. To this end I began
fieldwork with two assumptions. Both came from a reading of the literature about informal
economies. First, as mentioned, I thought that formal sector workers would be more exploited
by the capitalist system in the classic Marxist sense (their labor would contribute to the surplus
value that their employers realized as profit). Second, with these laborers tied to a fixed wage,
they would find it more difficult to raise, or even maintain their standard of living, since they
were at the mercy of rampant hyperinflation. On the other hand, those engaged in their own
petty commerce and informal trade would earn a living not subject to the same extraction of
surplus value. Similarly, as they participate in the informal arena, it was expected that they
would not only benefit from the savings otherwise extracted by capitalists employers (the profit
from their labor they could pocket a part of for themselves), they also benefited from their
degree of proximity to informal sector activity which presented them with greater opportunity
to barter among other informal traders.
Although generalizing is problematic due to the extremely dynamic nature of the Nicara¬
guan economy, and articulation was ultimately measured simply as having a job in one sector or
another, these assumptions proved safe since informal sector workers tended to enjoy a slightly
higher quality of life. The real advantage many informal sector traders had, however, was that
they were free to adjust their prices on a daily basis. This gave them the jump they needed to
stay ahead of inflation and, at least partially, offset the advantage those in the formal sector
received through subsidies.
At the same time, those who worked for the state—a large portion of the formal sector—
were not fully at the mercy of a cold and cruel capitalist system. At various times and to varying
degrees, state workers participated—more than anyone else—in a socialist economy where they

9
received benefits such as ration cards, extra allotments of rice, beans, and sugar, and periodic
salary raises tied (albeit loosely) to the rate of inflation. Furthermore, due to the pervasiveness
of the informal sector, formal sector workers were able to benefit from access to scarce goods
offered by their informal sector counterparts. Still, informal sector workers came out on top for
two principle reasons: first, they controlled goods and prices and, second, they were mosdy self
employed in a society where demand for their goods and services was high and a great deal of
currency remained in circulation waiting to be spent before prices rose the next day.
Thus, the primary hypotheses to be tested within the present research are: 1) households
with mixed sector strategies (i.e., workers in both informal and formal sector jobs) are better off
than households with a single sector strategy; and 2) informal sector workers earn more than
their formal sector counterparts.
Consequendy, with this new direction, it became reasonable to place more emphasis on
the difference in the diversity of strategies within households, rather than on the social net¬
works of individual actors. Therefore, the majority of the statistical analyses focus on the
differences between those households whose workers were engaged in either: a) strictly formal
sector jobs, b) stricdy informal sector jobs, or c) a combination of workers in both sectors. In
other analyses, households are divided into “single sector strategies,” that is, those households
containing either only formal or only informal sector workers, and “mixed sector strategies”—
those households with workers from both sectors.
Quality of life was measured in three ways—using: a) total reported household income,
b) a weighted list of material possessions and property, and c) a perceived QOL indicator taken
from Bubolz et al. (1980), which I had used in previous research (Dellino 1984).
Marginalized People or A New Economic Power?
Since 1973—with the introduction of Keith Hart’s article entitled “Informal Income
Opportunities and Urban Employment in Ghana,” the informal sector literature has mosdy
characterized those making a living outside of the mainstream, formal economy as the poor,

10
unenumerated, and largely marginalized minority. While Managua is certainly not without
more than its share of poor, those trading in informal goods seemed to be at the helm of the
runaway economy and serve to place the Nicaraguan case in sharp contradistinction to the
notion that the informal sector is generally synonymous with the urban poor. It was largely
informáis that fueled the all-pervasive inflationary mentality with their ever-higher prices spurred
on by nearly any economic, political, and sometimes even, social event. Rumors of dwindling
gasoline shipments caused tortillas to double in price. Elimination of the subsidy on plastic
bags of milk sent market fruits and vegetables soaring. Periodic adjustments in rum and ciga¬
rette costs or even rumors of a change in the international exchange rate caused prices across the
board to skyrocket. Nicaraguans had grown accustomed to, if not complacent with, a regular
erosion of their buying power. 1 never ceased to be amazed how many Nicaraguans would pay
unflinchingly for products that were 50% cheaper the day before.
Further exacerbating the situation for the consumer was the near absence of any sort of
competitive pricing. In the frenzy of hyperinflation, competition had given way to raising
prices to the greatest common denominator in the marketplace. Such pricing practices thereby
kept many of the necessities—like milk for the children and charcoal for that night’s dinner—
just beyond the grasp of those whose incomes were «pitied to the four and five digit inflation
the beleaguered Nicaraguan economy was suffering. Indeed, it seemed that generally it was
service industry workers or government bureaucrats (along with the truly poor) who fell into
the greatest economic despair.
Summary
Although how we conceptualize the informal sector has evolved gready in recent years,
early notions of the concept seem contradicted by the Managuan informáis. Mostly consisting
of industrious market women, tenacious street vendors, and enterprising home-based shop
keepers, the informal sector of Managua during the late 1980s failed to fit the commonly
described profile of informáis as marginal poor. Once largely characterized as poised against

11
State efforts to formalize them and as operating on the fringes of economic and social activity
from the formal economy, these informal actors enjoyed not only occasional support from the
Sandinistas, but also demonstrated considerably greater socioeconomic mobility than their for¬
mal sector counterparts. Indeed, informal sector actors commanded center stage.
Not only did they occupy all realms of economic life, but like a new breed of drought-
resistant bromeliad that thrived in the hot sun, their economic survival was particularly well
adapted to periods of extended hyperinflation. Thus, Managuan informáis enjoyed what might
be called a “hyperinflation honeymoon” of informal infusion into society, during which time
they found informal enterprise plentiful and profitable. Still, the most successful households
employed the combined strategy of some formal and some informal workers. While formal
sector jobs—particularly those of the State—provided otherwise unobtainable access to scarce,
highly subsidized staples through exclusive employer outlets, informal sector workers typically
commanded enough buying power to purchase other consumables that rose in price on a daily
basis.
None of this can really be understood clearly without the historical background that not
only so forged the Sandinista climb to power, but also guided the principles and policies with
which they directed their experiment with a mixed economy. Largely due to the recent revolu¬
tion, Nicaraguans are keenly aware of their rich history of exploitation, political oppression,
and economic domination by a series of a papa and two baby Somozas, all backed by opportun¬
ists from the north. In the following chapter, we examine the historical precedents for this
fledgling attempt at democratic self rule.
In Chapter Three, I return to the literature to discuss the traditional notion of the infor¬
mal sector and its origins vis-a-vis migration and the process of urbanization. In Chapter Four
we delve deeply into the Nicaraguan informal sector reality. Through a discussion of the rich
case study evidence and data from ninety-eight household interviews the research hypotheses
are illuminated. Chapter Five continues in a similar vein with a description of the barrios in
which the formal interviews were conducted. A discussion of the methodological concerns

12
highlights some of the problems with doing research in such a rapidly changing economy. In
Chapter Six, beginning with the early DifFusionists and Dependency Theory, the evolution of
development theory is investigated through some current theoretical trends. Here we seek to
answer the question, “how much of this is simply old wine in new casks—or merely a change in
emphasis?” The direction in which the Nicaraguan economy has moved since 1990 is exam¬
ined in light of these recent trends. In Chapter Seven I summarize the principal findings and
conclusions of this work.
Finally, through a series of six vignettes, an Epilogue highlights the current situation in
Nicaragua based on a brief reconnaissance by the author in November and December 1994.
Note
1 The hospidaje Los Chepitos has had a long and checkered history. Before its many years
as a guest house, Los Chepitos was known as a house of prostitution until it was closed by
the Sandinistas. In the mid 1980s it reopened and became a favorite spot—famous for its
low cost and central location in Barrio Altagracia—for internationalist travelers and Sandin-
ista “cooperantes” who shared a strong sense of community. I stayed there for a long three
months in the early part of the research for this book (for 50<£ a night). In the early
1990s, however, with the advent of the Chamorro regime and the subsequent fall of the
tourist boon of “Sandelistas” (as the birkenstock-wearing cooperantes came to be known)—
half of the original structure was replaced with a new office building and now houses a
center for infants who are hearing or learning impaired.

CHAPTER 2
A BRIEF HISTORY AND ECONOMIC OVERVIEW
The informal market expanded dramatically, and while the
government was working on the formal sector, the informal economy
set its oum rules.
—Alejandro Martínez Cuenca, 1992
Nearly every writer on Nicaragua begins with a comparison of this largest of all Central
American countries and a U.S. State (Norsworthy 1990, Miller 1985, LaFeber 1984, Walker
1991, 1982). I shall dispense with this comparison except to say that Nicaragua occupies
roughly the same two and a half square inches of space as does Iowa and is approximately the
same hue on census maps as the state of Massachusetts—argued to have a population between
about 2.5 million in 1982 and 3.5 million by 1990.
Nicaragua is a land of relatively high quality soil, and has great potential for geothermal
and hydroelectric power, significant lumber and mineral resources, and rivers and lakes posi¬
tioned in such a way to make it a strategic site for an interoceanic waterway. The Nicaraguans
are a proud and relatively homogeneous and culturally integrated people. Nicaraguan nation¬
alism is a phenomenon that rivals any of its neighbors in intensity. From the distinctive cook¬
ery, music, dialea, literary heritage to their marked sense of humor, Nicaraguans consider
themselves quite distina (Lancaster 1992, Norsworthy 1990, West 1989, Walker 1985).
13

14
Puerto
Cabezas
CORDILLERA
ISABELLA —*<—
♦ Estelí\_ x-—_ y' "\ 1
Matagaipa^ Nicaragua ik
L«Kr'"®<;rand‘í J|
eQLA.Manaqua
¿tgtiafK j E sjQn
IkMasaua* JÍlÉk ~ ” Bluefields«g§m
WlCranada^^Mfe, Lake ^xm
lllm. Nicaragua â– 
Figure 2.1 Map of Nicaragua
A Quick Overview of Managua
To the casual observer, Managua is a sprawling collection of inconsistent housing juxta¬
posed with 70s-looking commercial centers and, decidedly Third World-looking vendor stands.
Against this backdrop, by some estimates, nearly 2 million Nicaraguans go about their business
amid the roar of fuming, overcrowded buses, “Mad-Max style” taxis, and every manner of ox-
drawn cart. As elsewhere in Nicaragua, the profusion of wheelchair-propelled young men
seems the only reminder that this was once a country profoundly enmeshed in war. Even the
soldiers seem to emote an air of calm and one soon finds they are among the easiest people in
the world to talk to.

15
Unlike most other Latin American major cities, Managua is conspicuous for its lack of a
“downtown,” which was flattened by a devastating earthquake in 1972. As most Nicaraguans
know, the many millions of aid dollars that flooded into their country from all parts of the
world mysteriously (ailed to find their way to the earthquake rebuilding effort. Instead Somoza
and his cronies seemed consistendy better off under the ever harshening conditions. Conse-
quendy, major areas of what was the central city-scape are still devoid of anything but a few
lone trees surrounded by narrowly-defined garbage dumps or are site to two, four, and six story
skeletons of buildings too well-built to have collapsed completely. Only now are a few of these
reminders of the Somoza days of opulence being refurbished. At the same time, many of these
looming ghosts—deemed beyond any architectural definition of safe—have become the homes
and haunts of hundreds of urban poor. This is only one symptom of the housing crisis partially
precipitated by the fact that, between 1979 and 1984 alone, 44,471 families moved to Managua
while housing development during that same period was able to meet only 36.8% of the demand
(Spalding 1994).
As one takes a closer look, it becomes apparent that, besides this Latin American anomaly
of a capital city with no downtown, Managua also possesses no central plaza around which
commerce emanates. The Plaza of the Revolution—the pre-earthquake center of downtown,
flanked by the old cathedral and National Palace, and once the hub of infrastructural
development—is now far from any of the commercial centers of the city. Although recendy
built nearly parks and the current remodeling of the National Palace may serve to renovate this
area, “downtown” development is proceeding in the southern pan of town known as Metrocentro.
Although the Mercado Oriental, in the nonhern middle pan of town is by for the largest
informal and formal sector market in the country, it is by no means either essential for everyone’s
economic survival or the only significant urban market. Numerous other large markets—the
Montenegro in the east, the Lewites in the southwest, and the Huembes in the south central
pan of the city each serve as their own hub of economic life for thousands of Managuans. This
dispersion of commercial centers has unquestionably helped foster the growth of the urban

ILá
Figure 2.2: Map of Managua

17
informal sector. The multiple germination of independent markets serves informáis by elimi¬
nating the need for vendors to travel as far from home as they would have to, were there only a
single central market place, by providing multiple venues from which to compete for custom¬
ers, and by obviating the infrastructural constraints for expansion from a single central hub in
the middle of a highly populated area. Indeed, each of the markets—and particularly the
Orientál and the Huembes—have expanded gready in the last five years, further underscoring
the incredible organic nature of the informal sector in Managua. Also, in the absence of a single
economic center to act as migratory lure that Latin American primate cities typically posses,
newcomers to Managua from rural areas either have more choices to settle in geographically
or—depending on the degree of existing familial ties in the city—arrive bewildered and over¬
whelmed by the lack of a single clear option for settlement.
Managua is also somewhat distinct among Latin American capitals because of its many
urban open spaces. These are due, in part, to large expanses leveled by the earthquake in 1972
and never rebuilt and has led to the diffusion of squatter settlements that have proliferated
proximate to the burgeoning market centers mentioned above. Even the formal sector business
centers vying for primacy, add to the potential for informal activity. Indeed, nearly anywhere a
traffic light stops cars street vendors can be found. This too, has generated spirited debate as
the mayor of Managua has eliminated some key stop lights in favor of traffic circles in a
controversial attempt to modernize the city. Thus, although there appear to be some forces to
limit its growth, from Managuan’s unique history of disaster and development, its urban infor¬
mal sector has found an especially nutrient-rich culture in which to propagate.
At the same time, all over town, vestiges of a once-grand city and of better times lead one
to wonder what convergence of circumstances has caused this citywide “downward mobility.”
Once beautifully tiled sidewalks now show signs of neglect and indifference; once spacious
government office buildings are now rustically divided into dozens of workstations with the
barest of essentials; many elegant chandeliers of the National Palace have been replaced by a
single bare bulb or low-hanging florescent tube; the paint is peeling and the mahogany and

18
brass paddle-fans are either missing or don’t work. Even people’s “Sunday best”—though clean
and well pressed—shows signs of careful repair. What is significant, though, is that even amidst
the undeniable hardships, the most pervasive attitude during my field stay from May 1987 to
January 1989 was one of pride in a new-found liberty, and the genuine belief that, if only they
could be left in peace, their experiment with a mixed economy just might work.
To understand how it is that those faced with such adversity remained at all optimistic
one must understand how adversity had become such an integral pan of the collective
consciousness. A major portion of that consciousness has been formed by a long history of
resistance to U.S. domination. Perhaps because of that history, Nicaraguan pride and nation¬
alism is evident in all corners of popular culture as expressed by dance, theater, and painting.
But it is prose and poetry that are most prevalent and pervasive. Many Nicaraguans insist that
their country has the highest per capita concentration of poets in the world. Indeed, many of
the principal cultural heroes are poets—Rubén Darío is on the face of the C$20 note; Tomas
Borge, former Minister of the Interior and the one remaining founder of the Sandinistas, has
written extensively, as has former Minister of Culture, Ernesto Cardinal—Catholic priest and
world-renowned poet-philosopher. Even Rigoberto López Pérez, the assassin of Anastasio Somoza
Garcia, was a poet.
Yet for all these natural resources and this richness of culture, when Sandinistas took
power in 1979, most of the populace was living in abject poverty. The incidence of malnutri¬
tion had doubled in the ten years before 1975, crippling the lives of almost 60% of the children
under four years of age. By the time of the insurrection 60% of rural people had been deprived
of the land they needed to feed themselves. Just 1% of landowners—a mere 1,600 people—
had usurped almost half the land (Collins et al. 1982). No wonder the revolution had such
popular support. I shall return to this theme below; first, let’s briefly examine the threads of this
tapestry that date back to the sixteenth century.

19
Long History of Intervention Begins Early
When the Spaniards, under the command of Gil Gonzales, first arrived in western Nica¬
ragua in 1522, the nearly one million inhabitants—mosdy descendants of Mayan and Aztec
peoples—had already developed a fairly advanced agrarian society. As at other points of con¬
quest, it did not take long for their numbers to be rapidly decimated, and by 1540 mere tens of
thousands had survived the capture for slavery and the ravages of European disease (Walker
1982). After the early colonial period that followed the initial gold and slave “booms” of the
sixteenth and seventeenth centuries, Nicaragua became a sleepy backwater of Spains colonial
empire and was regularly pillaged by pirates from northern Europe, especially England.
During this time a few Spanish elites accrued great wealth through shipbuilding, intermittent
gold-mining and the export of agricultural and cattle products. It was from these early begin¬
nings of exploitation that bitter rivalry developed between the self-named, Conservatives of
Granada and the Liberals of León. The Liberals—who advocated reducing restrictions on trade
and commerce, increasing basic infrastructure development, and ending exemption from taxes
for the church—were mostly innovative producers, exporters, and related entrepreneurs that
stood to benefit from increased economic activity. The Conservatives, on the other hand, had
amassed great wealth under earlier crown-controlled production and export arrangements. They
opposed the competition generated by new trade and external markets and advocated retention
of the very traditional institutions that the Liberals opposed (J. Booth 1985, Woodward 1985).
Perhaps it is with a modicum of irony that, since the Sandinistas were ousted in the elections of
1990, political posturing has proceeded along much of the same Liberal/Conservative lines.
Independence Breaks Out
After over a century of fighting, during which time much of the formerly cultivated land
had been reclaimed by jungle, Nicaragua finally achieved its independence in three stages. The
first stage of independence came for Nicaragua in 1821, when the captaincy general was sepa¬
rated from Spain and became pan of the Mexican Empire of Agustín de Iturbide. It was then
that, after decades of fighting, the Liberals finally began to realize the upper hand throughout

20
Central America. They broke with the Conservative-dominated Mexican Empire and on July
1, 1823, the United Provinces of Central America seceded from Mexico. Of course, the new
federation erupted almost immediately into civil war and the long-standing Liberal-Conserva¬
tive sectarian clash began to intensify once no strong central authority restrained it (J. Booth
1985). Finally, in 1838, the five Central American provinces (Guatemala, Honduras, Nicara¬
gua, El Salvador, and Costa Rica) achieved independence without war with Spain or Mexico.
Meanwhile, the discovery of gold in California in 1848 renewed British and U.S. interest
in Nicaragua as a site for an interoceanic waterway and the two nations competed for a foothold
(Walker 1982). Eventually, the Liberals enlisted the help of an American soldier-of-fortune,
William Walker, to help them defeat the Conservatives. With his arrival in Nicaragua the
United States began a century and a half of direct intervention in the country’s affairs.
Ironically, it was this intervention that finally brought both parties together. Not long
after bringing the Liberals to power, Walker commenced actions that seemed overly brazen
even to the American politicians and railroad barons that had bank-rolled him. “The result was
the unlikely marriage of the Liberals and Conservatives and a virtual holy war against the Yan¬
kee egomaniac. Walkers actions also so discredited the Liberals that the Conservatives were
eventually able to rule Nicaragua with little opposition for the next third century” (Walker 1985).
Although Walker and his fifty-seven men were initially defeated in July 1855, he regrouped
with the Liberals and, with reinforcements from California, was able to capture Granada, the
Conservative stronghold. After the United States government recognized Walker’s puppet Lib¬
eral regime, Conservatives throughout Central America quickly responded, and by early 1856,
the Conservative governments of the four Central American countries agreed to send troops to
oust Walker and help liberate Nicaragua. By then Walker had reversed his antislavery demo¬
cratic idealism and, as the war grew more intense, Walker declared himself president, declared
English the official language, and offered land grants to attract American troops. Even these
inducements proved ineffective in gaining the manpower he needed and—under the
encouragement of the British (who had their own designs on a Nicaraguan interoceanic waterway)

21
following a major encounter from the Guatemalan army—Walker was forced to accept surren¬
der in April 1857. After a brief escape to the United States later that same year, Walker returned
three more times in the next three years until he was finally captured by British marines in
Honduras who turned him over to the Hondurans. They quickly tried and executed him in
1860 (Walker 1985, J. Booth 1985).'
A new constitution was adopted in 1858, a coffee boom began, and a prospering Managua
became the compromise capital. From then until the last decade of the century, Nicaragua
enjoyed a period of relative political calm under a series of “elected” Conservative presidents.
It was not until 1883 that the Liberals were again able to assert themselves. Under the
modernizing and nationalist presidency of José Santos Zelaya, the military and government
were reorganized and a campaign to foster public education was begun. However, due to his
negotiations with other nations for a Nicaraguan canal that would cómprete with the U.S.
efforts in Panama, the Conservatives were encouraged to again rebel. When they did so in
1909, Washington sent a military force to Bluefields to their aid (Walker 1982) and Zelaya was
forced to resign. The Conservatives took power in 1910.
What followed was a long series of U.S. interventions designed to “keep order.” In 1912,
the U.S. Marines helped Conservatives defeat and execute Benjamin Zeledón. During most of
the period from 1912 to 1933, U.S. troops occupied Nicaragua in an effort to protea U.S.
interests in the region.
Two Generals Face Off—Augusto César Sandino vs. the First of the Somozas
The U.S. occupation that began again in 1927 was marked by two important historical
features. First, the establishment of the U.S.-trained Nicaraguan National Guard, and second,
a prolonged and mosdy successful guerrilla war waged by Augusto César Sandino. As the only
Liberal officer who refused to sign a U.S.-sponsored peace treaty of 1927, Sandino had stated,
“The sovereignty and liberty of a people are not to be discussed but rather to be defended with
weapons in hand” (Walker 1982). It wasn’t until six years later, however, that Sandino and his

22
small army of peasants and workers were able to encourage the foreign force—along with con¬
siderable domestic and political pressure from various U.S. Senators and Congressmen—to
relinquish its occupying hold.
It is curious that Sandino and Anastasio Somoza Garcia both came from the same ranks
of insurgents at the end of the Liberal-Conservative civil war. Both had become generals by
virtue of the fact that each had assembled a force against the Conservatives. While Somoza had
been a glib, former used-car salesman with fluent, eloquent English, Sandino had come by his
decision to serve his country from a very different past. There are many accounts of his early
political, military, and family life, but I heartily recommend the rich account in John A. Booths
The End and the Beginning (1985) and the first hand account in Fire From the Mountain, by
Omar Cabezas—former guerrilla fighter, commandante, and Chief at the MINT (Ministry of
the Interior).
These colorful accounts are difficult to reduce to a few paragraphs, but suffice it to say
that when virtually everyone else had sold out to the imperialist hegemonic powers, Sandino
remained the renegade. When General Moneada—who had been “bought” by then U.S. nego¬
tiator, Henry Stimson with the promise of the Nicaraguan presidency—urged the rebel to
accept the peace for “the honor of Liberalism,” Sandino replied:
I do not know why you wish to command me now. 1 remember that you always
regarded me badly when you were General-in-Chief of the Liberal armies. You
never accepted my requests for troops to fight the enemy with. . . . You
undoubtedly know my temperament and that 1 am unbreakable. Now I want
you to come disarm me; I await you at my post. You will not make me cede by
any other means. Iam notfor sale; I do not give up: you will have to defeat me. I
believe that I am thus doing my duty, and for posterity I will write my protest in
blood. (Walker 1985)
Sandino returned to the mountains of Segovia and from there he and his army would
continue to battle the invaders from 1927 to 1932. Although he remained undaunted in his
stand against the Yankee imperialists, he saved his most scathing attacks for the Nicaraguan
politicians who had betrayed Nicaraguan sovereignty to the Americans. In 1932, Sandino fired
the following salvo:

23
We have declared that Nicaragua will be free by bullets and the cost of our own
blood. That pack of political mongrels who fight to grovel under the invader’s
whip will, by their own fault, be wiped out in the not too distant future and the
people will take the reins of national power. (J. Booth 1983)
It seems only the timing of his prediction that was off, for it would be fifty years before
the revolution that brandished his name would actually win freedom for the Nicaraguan people.
Sandino would, however, accomplish his mission of seeing the foreign invaders repulsed. Indeed,
the very day the marines left the shores in 1932, Sandino entered peace negotiations. In the
end, after two previous meetings with President Juan Bautista Sacasa to work out the particu¬
lars of the peace, Sandino would come to dine with his father and others in the Presidential
Palace in Managua on February 23, 1934. The productive meeting ended at 10 PM and
afterward, Sandino and his companions set out to his brother’s house where they were to spend
the night. A few blocks away, however, the party was swarmed by armed men and arrested
under the direct orders of Anastasio Somoza Garcia. Sandino’s request for an audience with
Somoza was refused. Sandino and two of his rebel generals were driven to the north of town
and unceremoniously shot (J. Booth 1985). Somoza had orchestrated the assassinations in an
attempt to gain the respect of the National Guard who mostly distrusted him.
A succession of three Somozas followed as Anastasio, who was already in control of the
military, was able to wresde power from his uncle, President Sacasa in 1936. During the period
from 1934 to 1979, the Somozas largely controlled Nicaraguan politics with the clever
manipulation of the National Guard. Under this first Somoza the National Guard assumed
control over an incredibly broad range of public functions—from customs and the national
radio to collecting taxes and operating the railroad. The National Guard became an oppressive
and omnipresent part of Nicaraguan life. All the while, although at times relations cooled, the
various Somozas were mosdy successful in endearing themselves to the United States. First,
Anastasio Somoza Garcia, who was assassinated in 1957 by the poet, Rigoberto López Pérez,
then his two sons—Luis, who died of a heart attack in 1967, and later Anastasio (“Tachito”)
Somoza Debayle—all, in turn, exercised ultimate power in Nicaragua (whether they happened

24
to be president at the time or not). Each of the Somozas, through corruption at every turn,
lined their pockets with everything from real estate scams to outright theft of the national
treasury (Conroy 1985).
Of course, many enemies were made along the way (not the least of which was Pedro
Joaquin Chamorro Cardenal—editor of the Conservative opposition newspaper La Prensa—
whose assassination further outraged the Nicaraguan people. In the end, it was no surprise that
those who adopted the name of Sandino for their movement against the hated tyrant, were able
to garner sufficient popular support to realize the first sustained revolutionary government in
Central America.
Formation of the FSLN and Early Years of the Triumph
The years leading up to the Triumph of the Revolution make for a colorful and inspiring
history. As with any revolution, the power elite attempted to crush the rebels whenever they
were discovered (or suspected). The National Guard, under the last of the Somoza brothers—
the one especially known for his ruthlessness—was no exception.
The FSLN (Frente Sandinista Liberación Nationál) was founded in July 1961 by Tomás
Borge, Carlos Fonseca, and Silvio Mayorga after they had broken with the Nicaraguan Socialist
Party (PSN) because of its reformist approaches. Heavily influenced by Fonseca’s travels in the
Soviet Union, and by the success of the revolution in Cuba, the triumvirate sought to craft a
movement based on the methodology of armed struggle. By the mid-1960s—having learned
from their mistakes and the mistakes of other subversive groups—the FSLN was conducting
significant political work in urban areas and building a base of support.
But political or miliary victories were difficult to come by. After a stinging defeat of the
organizations guerrilla units at Pancasán in 1967, there was little movement until a resurgence
of activity inspired by the excesses, the siphoning off of relief funds, and further treachery by
Somoza following the 1972 earthquake. A band of thirteen Sandinista commandos invaded an
elite Christmas party of Somoza’s closest friends. By capturing hostages, they were able to

25
secure the release of numerous political prisoners, including future president Daniel Ortega.
When the National Guard struck back leading to Fonseca’s death in 1976—the resulting wave
of repression gready eroded what little support remained for Somoza, both at home and abroad
(Prevost 1991).
Nevertheless, between 1976 and 1979, Somoza’s counterattacks succeeded in dividing
the beleaguered FSLN. It was not until March of 1979 that the three factions would again
unite for the final offensive that would lead to the complete ouster of Somoza and the collapse
of the National Guard later in July.
On June 20, 1979, a North American witnessed the event that would start the inevitable
end of the Somocista fiefdom that had lasted for over 40 years. National Guard soldiers took an
ABC-TV newsman, Bill Stewart, out of his car, made him kneel in the middle of a street, and
shot him through the head. Unknown to the killers, Stewarts camera crew captured every
moment of the murder on film. Within hours after Stewart s death, North American television
viewers saw for themselves, the type of brutality that Nicaraguans had suffered under Somoza
(LaFeber 1984). Twenty-eight days later Somoza fled with his mistress to Paraguay. In 1980,
bazooka shells ripped through his armor-plated Mercedes. Several suspects were arrested, but
the actual killers were never identified.
When the Sandinistas seized control, the country’s economic situation was abysmal. In
the eighteen months immediately proceeding the overthrow, Somoza (and other of his cronies
who had seen the writing on the wall) had managed to decapitalize the National Treasury,
reducing its resources by $220 million in 1978 and $315 million in the first six months of
1979. By July there was only $3.5 million in the banks (Dijkstra 1992). Saddled with this
economic base, and given the ambitious reforms hoped for by the Sandinistas, it should have
been clear that incredible economic hardship was ahead.
Before proceeding with a more detailed account of what it was the Sandinistas set out to
accomplish during their decade in power, what follows is a brief account of the impact the low-
intensity-warfare conducted by the U.S.

26
The U.S, Covert War of Aggression
If anything depicts the attitudes of Nicaraguans—especially of those on the Adantic coast
during this time—it was what Benjamin Ruiz, a Bluefields fisherman, said to me in his Carib¬
bean English in March of 1988:
Nicaraguans like Corn Flakes. When Somoza was in power we had all manner
of goods from the U.S., now we don’t get no Corn Flakes.
Although don Benjamin was speaking metaphorically, he knew well the larger point he
wished me to understand: the Sandinistas were responsible for alienating the country from the
United States and making life harder for everyone. Of course, there was another agenda run¬
ning in the background. During this time, negotiations were being conducted to discuss -
autonomy for the Adantic coast—something the Adantic coasters felt very strongly about.
Some concessions were finally made and, although tensions are heating up one again (Buder
1994), relations with the Sandinistas had improved by 1990.
Besides the extensive, well-documented manipulation of the American media (Valdivia
1991, Nanda 1988, Bennett 1990, Nichols 1985) U.S. intervention in Nicaragua during the
decade following 1979 took many forms. Now that once-classified documents have become
available, some classified ones have leaked, and we have the shameless congressional testimony
of Oliver North and others, a wealth of incriminating evidence is readily available. There can
be little doubt that the Reagan Administration (and to some degree the Carter and Bush
administrations) conducted a four-pronged attack aimed at destroying the Sandinistas. At
times, this covert war was conducted even against explicit congressional amendments banning
such activity.
Many of Reagan’s close advisors have stated that he seemed particularly keen on destroy¬
ing the Sandinistas and running them out of power. His low-intensity-warfare strategy called
for attacks on four fronts and was conducted out of the offices of the National Security Council
(NSC), the Central Intelligence Agency (between which much infighting arose), and the
Pentagon.

27
Paramilitary Operations
The centerpiece of the Reagan strategy in Central America was a program of direct para¬
military attacks conducted by a proxy force of exiles supplemented by specially trained U.S.
operatives. These activities, which U.S. officials depicted as a campaign to pressure the Sandinistas
into halting their alleged export of revolution into El Salvador, were actually vicious attacks
on small villages, state-owned agricultural cooperatives, rural health clinics, economic
infrastructure, and finally, on civilian noncombatants. As then CIA director, William
Casey, repeatedly urged his operatives of the covert war, “Let’s make those bastards sweat”
(Kornbluh 1991:326). The CIA, and later, the National Security Council, directed opera¬
tions aimed at Nicaraguan installations designed to cripple the already staggering economy.
Economic sabotage focused on oil storage tanks (one blown up in Corinto), pipelines, port
facilities, communication centers, power grids, and military depots. When the CIA placed
six mines in the shipping channel coming into the Corinto harbor, one British tanker, one
Japanese freighter, and four Nicaraguan Patrol boats were all damaged; two of the Nicaraguan
ships were sunk (Kornbluh 1991:336).
Economic Destabilization
The second front on which the war was waged, was to cut off the small trickle of interna¬
tional funds that was still seeping into the country. First bilateral aid, then economic trade was
terminated—corn flakes and all. The result—especially in terms of trade, was felt immediately.
Loans were blocked from the World Bank and Inter-American Development Bank—often by a
simple veto—and by 1983, these sources of aid had dried up completely for Nicaragua. Other
donor nations helped fill part of the gap, but they then became the targets of U.S. negotiating
pressure. Mexico, for example, suffered considerable economic retaliation because of its role in
the Contadora Peace process and its substantial oil exports to Nicaragua (Kornbluh 1991).
Under U.S. pressure, as Western economic support all but evaporated, the Soviet Union
and its allies furnished Nicaragua with an estimated $500-600 million worth of goods annually,

28
not counting military support. This support manifested itself mainly in the form of oil, agri¬
cultural and construction equipment, grains, and consumer items such as light bulbs and
children’s books (set in the icy tundra) (Colburn 1991).
Although generally on quite a different scale than that which Richard Secord, the infa¬
mous arms dealer, was able to mount, various private international organizations in the United
States carried suitcases and sometimes filled cargo containers with material aid. Medical sup¬
plies, wheelchair parts, a container of bicycles, even toys were all ceremoniously presented by
these ambassadors of good will. 1 was fortunate to be present when such a dedicated sister-
organization from Wisconsin—dressed in full baseball regalia—presented Daniel Ortega with
one of the many “Louisville Sluggers” that had made its way past the ever-tightening clutches of
those vehemendy enforcing the U.S. embargo stateside.
Military Operations
Although now there is evidence that considerable tension existed during these times between
the CIA and the Pentagon, the two agencies, along with various U.S. monetary agencies, col¬
laborated in working to destabilize the Sandinistas by means of military operations based in
Honduras and Costa Rica. These efforts ranged from securing arms from Israeli partners (that
Israel had captured from the PLO) to supplying “surplus” Department of Defense planes to the
contras. In 1986 the Pentagon began training commanders in tactical insurgency warfare at
military bases in the United States. Ironically, Oliver North would later admit the abject surrogacy
of the Contra, because the CIA was unable to train them sufficiently. All the while the Contra
took credit for the destruction, the attacks against infrastructure were consistently the sole work
of U.S. special operations forces (Congressional Review 1987, as cited by Kombluh 1991).
A chief objective of the buildup of troops near its borders, the highly visible military
maneuvers, and the many hit-and-run tactics was to engage in psychological warfare. By doing
so, it was reasoned, the Sandinistas would be forced to expend inordinate amounts of their
dwindling coffers and divert personnel and resources from social programs into preparing fora
worse-case war scenario (Kornbluh 1991), a strategy some felt ill-advised (Cuenca 1992).

29
The Propaganda War
In many ways, this was the war the Sandinistas lost. It was mostly conducted on U.S. soil
against the North American public. Here actor-president Reagan was most effective in using
the years of talent he brought to the office. Using nearly the same lines, and adopting much the
same character from his 1950s movies, Reagan portrayed the Sandinistas as the evil Marxist-
Leninist devils seeking to undermine democracy in the entire hemisphere. At the same time,
coached carefully by psy-ops specialist, he painted a picture for the American people of the
“Nicaraguan Freedom Fighters” (the Contras) as the moral equivalents of our founding fathers.
The campaign, which resembled the type of covert propaganda operations the CIA would
typically conduct against foreign nations— but would be prohibited from undertaking at home—
included shepherding smiling contra leaders around the country in an effort to galvanize sup¬
port for continued contra aid in Congress (Walker 1985).
In retrospect, it is not surprising, with the resources of the U.S. covert machine and
hundreds of millions of destabilizing dollars from U.S. and foreign sources (including an esti¬
mated 1.2 billion dollars from Saudi Arabia), that the Sandinistas lost the elections in 1990.
What is surprising is that the entire country was not brought to its knees and destroyed even
earlier. This speaks to the tenacity not only of the Nicaraguan people, but also of their Sandin-
ista leaders who remained true to their revolutionary ideals. In order to maintain popular
support, the programs of the revolutionary government were crafted, first, to benefit the larger,
poorer portion of the population—providing the revolution its underlying strength. Naturally,
such moves often further alienated the more powerful wealthy class, thereby making every
córdoba spent on social programs seem to “cost double.”
Many of the components of the covert war can be seen to be taken directly from the
“lessons” the U.S. had learned in Nicaragua a half century earlier. The traditional dilemma of
how to inject force to stop revolutions without having a long-term commitment of U.S. troops
was solved by employing the same tactic Roosevelt had used in the 1930s. The solution lay in
using native, U.S. trained forces that could both pacify and “protea” the country—much as
the Guardia Nacional had done during the renegade Sandino years (LaFeber 1984:67).

30
The Conundrum of Hyperinflation and Other Economic Ills
At this point I will switch tacks slightly and offer an analysis that focuses more generally
on the economic situation in Nicaragua during the field stay. This backdrop will help us
understand how it was that those controlling goods and prices—mostly informal sector trad¬
ers—contributed essential elements to the most secure household survival strategies.2
The Early Years and Economic Decision Making
The first years of Sandinista rule were marked by significant shifts away from previous
monetary policies. There was an explicit move to follow a philosophy of nonalignment, politi¬
cal pluralism, and a mixed economy. But these high ideals were laid on a very poor financial
base. At the First International Conference in Solidarity with Nicaragua, held in Managua on
January 26-31, 1981, Jamie Wheelock, Minister of Agricultural Development summed up
Nicaragua’s economic situation this way:
Economic doctrines and romantic ideals are no good if the people are hungry.
And on July 19, [1979] in addition to terrible material destruction, we found:
. . . backwardness, underdevelopment, and poverty. We found a country that
was totally bankrupt, with no foreign currency, no foreign savings, with a debt
of $1.6 billion, and destruction amounting to more than $800 million, which
affected more than 35 percent of the industrial production and more than 25
percent of agriculture.
The war coincided with the harvest of basic crops and, some time later,
the cotton harvest. So in 1979 and part of 1980, those basic crops were lack¬
ing. The basic diet of Nicaraguans consists of com, rice, and beans, and it so
happened that in that year there were no beans, rice, or corn.
And worst of all, we would not be able to export cotton, the prime crop
for Nicaragua’s survival. Of the 320,000 manzanas traditionally sown, it was
only possible to sow 50,000. (Wheelock 1982:116)
Wheelock also elaborated on the destruction inflicted by the National Guard and the
Somocistas on their way out of the country, as well as the nearly $600 million they expropriated
in the eighteen months before their expulsion. Needless to say, the plea for foreign assistance
was not only an impassioned one, it was well founded. But how well were Nicaragua’s new
leaders able to utilize the scant remaining resources and the foreign aid that resulted?3

31
By some accounts (Cuenca 1992), the level of production in 1980-81 happened by a
miracle, not by virtue of the wisdom of the new leaders. (Alejandro Martinez Cuenca himself,
was one of the leading members of the Sandinista governments economic team.) Indeed, these
years are now considered to be marked with serious errors regarding economic matters. Still, it
was that first year and half during which Nicaragua was still receiving aid from the Carter
administration. Although the early years were a time of a great deal of enthusiasm and a certain
amount of paternalism toward the masses, the hard lesson seemed to be that the economy and
society could not be developed with paternalistic attitudes.
The Sandinistas had trouble integrating the ideological political agenda with the need to
make certain hard economic decisions. For example, Cuenca recalls how there was much divi¬
sion among the early planners about how much to spend on military buildup. There were
those that felt that Nicaragua could not withstand a full scale invasion waged by the United
States, so there was no need to arm for one. Cuenca had argued that it was thanks to the
mobilization of the people and the promotion of social programs that a solid social base was
created to prevent a U.S. invasion. He believed that, given the economic limitations, the social
base of support should be considered largely sufficient to deter an invasion (Cuenca 1992). But
this notion, as well as discussions that the military also produce, fell outside the prevailing
military doctrine that prioritized preparedness for the situation of aggression.
According to Cuenca, the fundamental problems at the beginning of the revolution were
false optimism, a great deal of inexperience, and very little appreciation of the limits imposed
by an economic process which, when faced with international reality, was going to have to
demand efficiency and productivity. In retrospect, Cuenca reflects, “I sincerely believe that
throughout the period 1980-87, policy makers maintained an erroneous position of separating
the political front from the economic front. The economy was seen as technical; political issues
were seen as distinct. It took a long time for the National Directorate to challenge this view”
(Cuenca 1992:49).

32
It was also early economic policies that could be said to have encouraged the creation of
black markets that never before existed. When the official price paid by the state to agricultural
producers for basic grains was so much lower than the price the market would bear, the infor¬
mal sector capitalized on the opportunity and producers sold directly to emerging black
marketeers rather than through designated channels. This undermined the experiment with a
mixed economy and—for as long as this was tolerated—it served as an example of where politi¬
cal ideology held sway over economic pragmatism. In such cases, the experiment may have
been carried too far and eventually became counterproductive.
Up until 1983 the Nicaraguan economy was doing reasonably well. There had been a
good rate of growth compared to the rest of Central America, even though Nicaragua became
heavily indebted to its neighbors during that period. A number of social programs had been
successfully carried out—most notably an immunization and literacy campaign. However, in
1984 and 1985, severe strains caused by the expansion of credit, the increase in investments,
and government expenses for the development of social programs and, later for military defense,
became unmanageable. This first real economic crunch lead to the adjustment of 1985, and
the first real acknowledgment of the domestic resource limitations of the country. This adjust¬
ment manifested itself in terms of changes in credit and exchange policies but does not appear
to have been deep enough (a trend repeated at least three more times before the decade is out).
The fact that the credit policy did not just favor landowners was commendable, but what
should have been designed was some instrument that rewarded efficiency and production.
Instead, it led to a work ethic that, in some sectors, saw the work day drop to three or four hours
(Cuenca 1992). At the same time, the Patriotic Military Service was implemented and with it,
another increase in defense spending. The U.S. economic embargo was also starting to take its
toll, as the lack of spare parts became a major crisis.
By the time of my second visit to Nicaragua in 1985 with the Latin American Studies
Association (I had visited as a pack-backing tourist in 1976), the country was beginning to be
faced with the realities that would later cause it to take much more radical economic measures.

33
Particularly after 1985, the governments attitude toward the informal sector would undergo a
number of contradictions. Along with the black market for agricultural products mentioned
above, this time saw an intense growth in the black market for dollars. To combat this the
government required each U.S. citizen entering the country to exchange $60 at the official rate
of exchange. With the prevailing black market rate many times higher, the resulting amount of
córdobas was just about enough to pay for taxi fare from the airport into the city. It was no
wonder that few people exchanged dollars at the official casa de cambio. Naturally, for informal
sector traders and speculators, the dollar was the best hedge against inflation.
Still, it was during these times that the government took on an attitude of much greater
acceptance of the informal sector. The informal sector was seen as having an important role to
fill in this time of extreme resource shortages. But even the Sandinista’s patience waned from
time to time, and in 1988, repressive measures caused the informal sector (especially those
trading in pirated grains) to remove their products from circulation. A few black market ware¬
houses were raided, their contents of rice and beans—originally intended for state subsidized
stores—were confiscated, and hundreds of vendors were driven from the streets of the Mercado
Orientál—the largest central market in the city. But it was the government that eventually had
to cry “uncle;” under the pressure of extremely scarce supply and a highly vocal demand, within
a week the MINT police had disappeared from the markets and the vendors returned.
One unfortunate although predictable outcome of these measures, was that the buhoneros
(street hawkers) and merchants involved in informal activity adopted a very negative attitude
about the revolution and the Sandinistas in particular.
Factors Leading to the 1988-89 Adjustment
Beginning in the mid-80s, Nicaragua became the classic breeding ground for inflation—
too much capital chasing too few goods. One attempt to shift the balance of that equation was
the monetary reform of 1988 which began with the introduction of a new currency that essentially
knocked off three zeros and effectively devalued the córdoba by 500%. Still, this measure—

34
although it eliminated an estimated 20% of the córdobas in circulation (mosdy left in the
hands of the contras and illegal speculators)—proved only a temporary solution.
The 60.000 Person Secret
The announcement Sunday afternoon, February 14th, 1988 that their government would
introduce a new currency the next day, took Nicaraguans by complete surprise. Dubbed
“Operation Martyrs of Quilali,” the currency swap of 1,000 old córdobas for one new córdoba
had been the best-kept secret since the revolution. In the Final stages, although a total of
60,000 people had participated in preparing to implement the money change, both ordinary
citizens and normally alert currency speculators were unaware that the momentous decision
had been made.4
This portion of the “Monetary Reform” was the most dramatic but perhaps the least
significant element in a series of economic policy changes introduced on February 13. In sum,
the measures—which became known as a “shock adjustment package”—were designed to reor¬
ganize the ailing Nicaraguan economy and put it on a more productive footing. The package
was the most radical departure in macroeconomic policy yet witnessed by the Nicaraguan revo¬
lution—in effect, a bucket of cold water for the raging fires of inflation, expansive price inequi¬
ties, and other cataclysmic economic ills—like excessive economic controls and runaway
government expenditures. It was intended, in the medium run, to make a major improvement
in the economy’s performance. At the time, it was felt that the economic history of the revolu¬
tion might have to be divided into pre- and post-reform epochs, but in hindsight, it seemed the
reforms did not strike at a fundamental enough level.
Nevertheless, the new package was long overdue. The alarming maladjustment of prices—
where a gallon of gasoline was cheaper than a dozen mangos—had to be corrected (Cuenca
1992). The attempt was also made at this time to be more flexible with wages, allowing free
negotiations between companies and employees and overcoming the rigidity of the National
System of Organization of Labor and Salaries which distorted prices and wages greatly (ibid:71).

35
As the government had subsequendy revealed, some such package of measures had been under
consideration in Nicaragua for a long time. One indication of this was that the new córdoba
bills introduced into circulation had been printed in 1985. In the intervening years, however,
the country’s economic problems had grown considerably worse, necessitating drastic remedies
and making success in achieving a correction of economic imbalances all the more difficult.
The Blackness of “Being in the Red"
The extent of Nicaragua’s economic distress can be glimpsed in a series of striking statis¬
tics. While earlier figures appeared more promising for the future, the recent downturn had
bred a new pessimism among some and had provided the opposition with even more fuel for
their Sandinista pyres. Real domestic product per capita fell by approximately 20%, and the
consumption of basic goods by about 40% between 1980 and 1987. In 1986, the country’s
exports bottomed out at the meager figure of $253 million, roughly a third of their pre-revolu-
tionary peak in 1977. In the latter 1980s, Nicaragua had experienced a balance-of-trade gap on
the order of $4-500 million annually, which has had to be made good by loans, mosdy from
friendly foreign governments. The deficit in the public budget had also been extremely large,
averaging about 20% of GDP over the last four years (Dye 1988). These figures were indicative
both of gross economic disequilibrium and of the decline in the economy brought about by
seven years of war, the U.S. embargo, four years of drought, Hurricane Joan in 1988, and by the
broader economic crisis afflicting the entire Central American region.5
The measures announced by the Nicaraguan government on February 14 represented a
far-reaching attempt to stabilize this situation. The new policies were complex in nature and
organized around a series of interwoven objectives, making them difficult to explain simply.
Perhaps the easiest way to understand them is to examine the ways in which they bore on the
economy’s most dramatic imbalance—the very high rate of inflation.
Nicaragua had been experiencing triple-digit inflation since 1985 when prices rose more
than 300%. According to preliminary data from the Economic Commission for Latin America
of the U.N., the price level at the end of 1987 was 1220% higher than at the end of 1986,

36
indicating that the inflationary spiral was careening out of control (Dye 1988). This trend was
having serious distorting effects on the economy. It was time for the government to intervene
with a series of strong corrective measures.
Inflation in Nicaragua
Viewed simply, inflation in Nicaragua resulted from a combination of three factors. One
was declining production, particularly of basic goods for civilian consumption. This was fun¬
damentally due to the manifold effects of the war on the economy, but was aggravated by the
country’s declining international terms of trade, by mistakes in economic policy, and other
difficult-to-escape realities. The second factor fueling inflation was expanded demand, reflected
in the very rapid increase in the supply of money in circulation (in 1986 alone, the money
supply in Nicaragua rose by almost 400%). One of the two basic underlying causes of this
problem was again the war, which required the government to devote 50% or more of its
annual budget to defense. Also significant was the government’s attempt to continue to finance
large, often times inappropriate development projects introduced by otherwise well-meaning
donor nations. Both these factors contributed to a very high deficit which the government
covered by printing money in large quantities and injecting it into the economy.
The third variable affecting the inflationary equation in Nicaragua was speculation,
resulting from people buying up scarce goods (aggravating shortages) and then reselling them
at higher prices, making the overall price of goods rise even more. In many ways this was the
basis for many informal sector activities. Much of this activity in Nicaragua was of a small-scale
nature and resulted from an “inflationary psychology” which led many ordinary people to
engage in speculative practices in order to compensate for the erosion in their standard of living
caused by inflation itself. In this sense, speculation became a necessary survival strategy and
replaced maintaining a savings account—even with the banks offering 45% interest.
The new package of measures was designed to combat inflation on all these fronts at
once. That is, it was intended to attack inflation from the side of supply by increasing production,

37
from the side of demand by reducing the rate of growth in the money supply, and directly by
intervening to curb inflationary expectations.
Controlling Currency in Circulation
There were three major ways in which the government in Nicaragua had been pumping
excess currency into the economy, two of which were significantly affected by the new measures.
The budget deficit. Because Nicaragua’s budget deficit was produced, in large part, by
critical defense expenditures, as long as the present war continued it persisted in being a source
of inflationary stimulus. In 1988, President Daniel Ortega announced an across-the-board
10% cut in government spending as well as a major streamlining of the bureaucracy in an
attempt to bring the budget deficit down to 7-8% of GDP. Under the circumstances at the
time, this was an ambitious target. Even if it could have been achieved, it would only have
brought inflation under a certain degree of control. As the government made clear at the time,
in the short run, inflation could not be eliminated.
Exchange Losses. After the budget deficit, the major source of excess monetary emission
in Nicaragua was known as “exchange losses.” Exchange losses occurred in a number of ways.
Since the revolution, the marketing of Nicaragua’s traditional agricultural exports (coffee, cotton,
sugar, bananas, beef) had been controlled and conducted by a number of government export
agencies. These agencies received the foreign exchange—in dollars—that had been paid for
these products on the world market. The government then typically paid the producers of
these goods purchase prices in córdobas, the national currency. In so doing, it implicidy estab¬
lished a “rate of exchange” for the foreign currency earned by exports, which in 1986 was
approximately C$160 to each U.S. dollar.
What the government had done in past years had been to turn around and sell dollars to
priority users inside the country at very low rates. An example of a priority user might be one
of Managua’s textile factories which imported synthetic fibers to produce cheap clothing. This
policy was implemented as part ofan effort to contain inflation. Since most things produced in
Nicaragua had a relatively high “import content,” i.e., they require some imported raw material,

38
component, piece of machinery, etc., for their production (particularly true of manufacturing),
by making the dollars needed to impon these things available to producers at a low rate of
exchange, it was thought that their costs in Nicaragua could be kept down.
The problem with this was that by selling dollars to high-priority users at low rates, the
government (more precisely the Central Bank) took a “loss” on each dollar transaction. In
1986, every time the government sold a dollar to someone at C$70 which the Central Bank
had acquired at C$160, it lost a total of C$90 (Dye 1988). The sum of these “exchange losses”
represented a net mass of new currency which the government was pumping into the economy
to chase a stable or declining quantity of goods, thus aggravating inflation. Between 1985 and
1988, such losses had swollen enormously to the point where they constituted a serious prob¬
lem and a significant part of the inflationary dynamic. In 1986, exchange losses equalled 8% of
GDP—expensive, especially considering that this loss was mostly policy generated
(Cuenca 1992).
One of the most important measures in the new monetary package was designed to elimi¬
nate this problem in one fell swoop. It was called the unification of the exchange rate. From
then on, there was to be one official rate of exchange—10 new córdobas to $1—both for the
buying up of export products by the government and in the government’s subsequent import
sales to producers who used dollars internally. With this unification, exchange losses disap¬
peared and ceased to be a factor fueling inflation. It was not until 1992, however, that inflation
dropped to 2.2% (Spalding 1994).
Credit. The operations of Nicaragua’s banking system contributed a third source of infla¬
tion. For one thing, the country had both a very liberal credit policy (for example, agricultural
producers were provided with 80-100% of their working capital by the bank) and inadequate
rates of loan repayment. In addition, by holding to interest rates of 30-45% during a period of
triple-digit price rises, the government was effectively granting credit at sharply negative real
rates of interest. Practices such as these led to the decapitalization of the banks, which were not

39
able to recover the full value of the money loaned out, requiring them to resort, once again, to
“inorganic” currency emission—printing money—to cover their losses.
By this point in 1988, a new credit policy in Nicaragua had not yet been fully defined.
Nevertheless, the reigning expectation in entrepreneurial circles was of a major revision in past
policies, including much higher rates of interest for short- and long-term credit. The reduction
of credit subsidies to producers was another part of the attack on inflation from the side of
demand. As part of the same effort, the government increased the value of long-term debts
owed to the banking system.
In a related move, the monetary authorities decided that short-term credit would be cut
by 10%, and long-term credit by 30%, over the course of 1988. The latter reduction was
especially important as it further crimped a swollen program of state investments—already
substantially scaled down in prior years—which had proved another inflationary stimulus.
Stimulating Production
The Monetary Reform package included a variety of measures designed in the medium-
to-long-run to increase the production of goods and services in Nicaragua, thus attacking the
inflationary problem from the side of supply. These may be grouped under two main headings:
(1) measures designed to improve the efficiency with which resources would be used, and (2) mea¬
sures designed to give people greater incentives to work and produce.
Greater resource efficiency. One of the problems accompanying the former practice of
selling dollars at very low prices was that the individuals or firms using those dollars to import
things tended not to use the imported goods wisely because they seemed to be so cheap. The
classic example is the state agricultural enterprise that used imported machinery such as trac¬
tors. In prior years, when a tractor broke down, the manager of such an enterprise often found
it more profitable to ask the government for cheap dollars to import a new tractor from abroad
rather than have the old one repaired in Nicaragua, because the price of the repair in córdobas—
reflecting the country’s inflationary trend—was very high. From the point of view of the enter¬
prise balance sheet, this practice was perfectly “rational,” i.e., the company’s profit position

40
improved. But for the country as a whole, the practice was wasteful and irrational, as it was
paying out scarce resources—dollars—to acquire new equipment when the old tractors could
have been repaired.
In order to deal with this problem, the new policy package included as another major
element a massive devaluation of the córdoba. Whereas before, internal dollar users could
acquire foreign currency at 70,200, or sometimes 300 córdobas to each dollar, they would now
have to pay the equivalent of 10,000, i.e., 10 new córdobas (1000 old córdobas had been
swapped for each new one). In theory, the much higher price for the dollars needed to bring in
foreign inputs would force producers to yield to the same economic logic the government was
tied to when acquiring foreign goods. One example of those affected by this measure were
cotton farmers, who grossly overused pesticides made from imported chemicals. The measure,
in other words, was designed to improve the efficiency with which scarce imported resources
were utilized. For example, the government encouraged cotton farmers to make only fifteen
pesticide applications per crop year instead of the customary thirty. This in turn, was designed
to lead to some increment in overall productivity, helping to curb inflation.
The drop in the official value of the córdoba vis-á-vis the dollar, however, had a highly
negative side effect. As the prices of all the imported inputs used to produce things in Nicara¬
gua rose very sharply, the prices charged to the consumer were also gready increased. This
result illustrated a standard process well-known in conventional economics: although in the
medium-run currency devaluations may tend to hold prices down by stimulating greater sup¬
ply, their short-run effect is to intensify inflation.
There was another element in the package which made prices rise in the short-run but
which was similarly intended to promote greater long-run efficiency. This was the wholesale
withdrawal of government subsidies to the consumer. In past years, the Nicaraguan govern¬
ment had attempted to heavily subsidize the prime necessities of life to the poorer strata of the
population, imposing official prices for goods and services which, in many cases, were much
lower than the real costs of production. Though it slowly moved away from this practice after
1985, prior to the monetary reform the economy was still riddled by subsidies of diverse kinds.

41
Two examples were gasoline and bus feres, whose real prices to the consumer had been
ridiculously low for years. Both these items were raised tremendously—gasoline from 3,000 to
15,000 old córdobas a gallon (15 new córdobas or $1.50 U.S.) and bus feres from 10 old
córdobas to 500 (or 0.5 new córdoba—5 service are normally considered to be “inelastic,” so that their consumption does not go down
even though the price rises. Casual inquiries at Managua gasoline stations revealed, however,
that sales immediately after the reform turned slack, indicating that customers were cutting
back, at least somewhat, on gasoline use. The demand for bus transport—indispensable to the
survival of the urban poor—was never likely to decline much. What was significant was the
fact that bus companies and cooperatives, for the first time in years, had cash flows adequate to
cover their expenses. These were the sorts of effects that the withdrawal of subsidies were
designed to promote and, for a time, the design was mosdy a success.
These changes did not mean that subsidies disappeared entirely from the Nicaraguan
economy. Indications were that they would be limited, however, to a small number of politically
sensitive items, particularly basic grains such as rice and beans, whose new official prices appeared
to be greatly below current costs of production.6
Incentives to Work
Due to the impact of the changes just mentioned, the official prices for most goods in
Nicaragua rose sharply after February 15, 1988. For example, the price of milk rose 275%,
while things such as eggs, meat, and other food products approximately doubled in cost. Left
to their own devices in the fece of these increases, wage-earners in the formally-employed sector
of the economy would see the real value of their wages plummet.
In order to protea the worker against this trend, the new monetary package included a
series of hefty wage increases. Although wage scales differ across Nicaragua’s complicated wage
and salary system—those at the high end of the scale receiving greater increases—on the aver¬
age, workers’ base salaries shot up 384% under the reform (Dye 1988). Theoretically, such

42
increases should have more than compensated for the rise in the official prices for goods, pro¬
viding most formal workers with some increment in real purchasing power for the first time in
years. Unfortunately, compared to the earning potential of those in the informal sector, this
economic upper hand for salaried workers lasted only about two months.
The apparent logic of this move was a simple one. One of Nicaragua’s chief economic
phenomena in recent years had been the flight of people out of wage employment (i.e., those in
factories and manufacturing) into the informal sector. In particular, many had moved into
speculative commerce in response to an official policy of keeping wages low (in most years,
wage increases did not begin to keep pace with inflation). Such policies also drove many pro¬
fessionals out of the country (Cuenca 1992). Because of this trend, the economy was experi¬
encing unnecessary labor shortages which inhibited production. The idea behind the wage
hikes was that by raising real remuneration for the formally employed, people could be induced
to remain in, and in some cases to return to, wage employment. If this redistribution of the
labor force away from unproductive activities, such as buying and reselling, into settings where
they would produce things had worked, greater total output should have resulted. As we have
seen, however, the benefits of the informal sector—particularly its ability to react more quickly
to inflationary pressure—far outweighed the short-lived raises realized by formal workers.
Not only were wage hikes designed to promote a resurgence of the masses back into
formal wage labor and to appease growing labor unrest, the hope was also to stem the tide of
professionals emigrating to Miami. At the same time that real wages rose, wage differentials
had become substantially sharper with the new policies. Before 1988, the ratio between the
highest and the lowest-paid categories in the salary system was about 8:1. With the reform, this
differential rose to 15:1. The objective of this measure was to build greater incentives into the
system for technical and professional training, thus helping to upgrade and stabilize the labor
force and make it more productive in the medium and long runs.

43
Reorganizing Output
The premise underlying these measures was that, at current low levels of production,
Nicaragua’s economy contained a certain amount of slack, so that reorganizing it should gener¬
ate greater total output. In addition to achieving a larger output, the new policies were designed
to induce changes in the mix of goods and services that the economy produced. It was hoped
that this process would occur as people who produced things in Nicaragua—facing massive
changes in the relative prices of their inputs (in particular, the much greater cost of imported
machinery, raw materials, and spare pans)—would be forced to rethink whether it was profit¬
able to produce the things they had been producing. If not, they would have to shift to some¬
thing else, or even close.
As a general rule, adjustment programs cause a great deal of short-term disruption in
production—particularly in a highly import-dependent industrial sector. One immediate effect
in Nicaragua was that many industrial firms, facing a liquidity crisis after February 15, 1988,
started laying off personnel. The sector hardest hit may well have been industrial exporters,
whose products were not competitive on Central American markets at the preexisting rate of
exchange. At the same time, although with slow beginnings, Nicaragua began to domestically
produce certain products (plastic dishes, for example) that were previously imponed.
Unfortunately, this reorganization of industrial production had the tendency to reduce
the demand for factory labor. The most desirable thing would have been for unemployed
urban workers to be reassigned to other productive activities and, to this end, leaders of the
Sandinista Workers Central (CST) had spoken of the need to relocate workers from urban areas
to the countryside. In an effort to spur this very difficult movement, several national leaders of
the CST volunteered to integrate themselves into rural cooperatives which were short of members.
The composition of output was also effected in the agro-export sector, which included
the main dollar earners. A major policy departure with respect to these goods linked the prices
which the government paid for them in córdobas to the dollar prices encountered on world
markets. As the dollar fluctuated in response to supply and demand, the hope was that the

44
internal prices would vary as well. For products such as coffee, in which Nicaragua possessed a
comparative advantage, this change had the effect of rewarding existing producers with higher
incomes, encouraging them to plant more trees. For others like cotton, however, whose real
cost of production in recent years had been substantially higher than the world price (necessi¬
tating government subsidies), the move to link remuneration to world market trends forced
marginal producers to shift over to food crops consumed inside the country (e.g., experimental
planting of soybeans on cotton land). As in the case of industry, this reorganization in the mix
of agricultural output served to increase the rationality with which real productive resources
were used.
Altering a Speculative Psychology
At the same time that measures were taken to stimulate output and reduce growth of the
money in circulation, other steps were initiated in the new policy package to curb the deeply
rooted tendency among Nicaraguans to engage in speculation to protea themselves against
rising prices.
The faa of issuing a new currency—lopping off three zeros—provided a modest psycho¬
logical boost to morale, but once again, the enthusiasm was short-lived. Nevertheless, at the
new levels, prices in Nicaragua looked more or less “normal” for the first time in five years. The
governments aggressive TV campaign slogan proclaiming that "these córdobas are worth something!”
was designed to help overcome the widespread conviaion among Nicaraguans that, because of
the tremendous inflation of the last few years, their currency was practically worthless. Also for
the first time in years, coins returned to circulation, and customers actually insisted on change
after making purchases.
Furthermore, the monetary package included elements designed to penalize speculative
aaivity and encourage saving. When Nicaraguans went to change their money on the morning
of February 15, they found that they could immediately change a maximum of only 10 million
old córdobas. Any currency in excess of this amount had to be deposited in a bank for later
conversion. Meanwhile, the monetary authorities made clear that, in certain cases, people

45
making large deposits of this kind would be required to justify where the money came from. If
the government suspected that the surplus derived from illicit practices, i.e., black marketeering,
it would not be converted. In a subsequent move, the banks froze the money in these deposits
for a length of time varying from one to two years, establishing interest rates which the deposits
would earn. The signal thus sent to the public was that speculation does not pay.
The extent to which these moves succeeded in confiscating the surpluses of currency and
other speculators is not entirely clear. Nonetheless, the government estimated that in all,
approximately 20% of the total amount of money in circulation had been “withdrawn” (left
unconverted), with half of this total in frozen bank accounts. Those hardest hit were probably
the contras, who were believed to have immense quantities of old córdobas in their Honduran
and Costa Rican hoards. During the first two days of the currency reform, the country’s land
borders were sealed in order to impede the contras from bringing their money back to Nicara¬
gua to be changed.
The government also took steps to give people incentives to keep their money in banks.
Those individuals who expressed confidence in the banking system by maintaining funds in
savings accounts found themselves rewarded by the reform, as the amounts of their deposits
were multiplied (by a factor of as much as 89) before being converted to new córdobas. As
mentioned earlier, interest rates on savings ran as high as 45%.
Was This an “IMF Package?”
To many, the words “adjustment package” and “stabilization policy” conjure up the image
of the International Monetary Fund, leading them to ask: in adopting this package, did Nicara¬
gua give in to IMF pressure?
To be sure, some of the new measures—eliminating artificial exchange rates, devaluing
the currency, abolishing consumer subsidies—were features normally contained in the “stabili¬
zation” packages which the IMF imposes on Third World countries that ask for loans. These
departures, along with rhetoric about “returning things to their true value,” indicate that the
new policies contained a strong dose of conventional economic wisdom.

46
By contrast, the Nicaraguan attempt to raise real wages as part of a stabilization effort
(and one undertaken in wartime) was gready at variance with standard IMF procedure, which
typically leaves workers to fend for themselves in the face of rising prices. Another unorthodox
element in the package was the currency reform itself, especially its effective tax on those hold¬
ing large amounts of cash. In addition, not only was the IMF’s imprimatur for the package not
requested, but the Nicaraguan bourgeoisie—in particular, that sector represented by COSEP
(Supreme Council of Private Enterprise)—was not consulted about the new policies. Although
the policy package bore some similarity to moves adopted in recent years in Brazil and Argen¬
tina, it primarily represented a national effort to find solutions to Nicaragua’s economic dilem¬
mas and was not a knuckling under to IMF orthodoxy (Cuenca 1992)—at least, not yet.
A Firm Hand In the Mercado Orientál
In the first two weeks after the monetary reform was decreed, the government moved to
defend its new wage levels by vigorously enforcing a set of modified official prices for basic
consumer goods. In this effort, “popular mobilization” played a key role; members of Sandin-
ista Defense Committees (CDS) and workers from the Sandinista Workers’ Central (CST)
accompanied police into Managua’s infamous Mercado Orientál to confiscate the goods of
merchants caught selling at higher-than-permitted prices. Behind this government move lay a
simple distributive logic: by curbing commercial profit margins, income would be transferred
out of the hands of merchants and speculators and into the hands of the workers.
Not unexpectedly, the result was an ambiguous one. Market vendors, not allowed to
charge what they wanted for staples such as rice and beans, withdrew them temporarily from
circulation and waited for the forces of order to go away. Meanwhile, a hue and cry went up
among the populace of the capital over the unavailability of food (for most Nicaraguans, the
concept of food is inseparably associated with rice and beans). When the goods finally reap¬
peared, they were selling at five to seven times the new official prices. The low official prices
continued to hold at neighborhood distribution points and workers’ commissaries for about
three weeks; shortly thereafter, supply available through these channels disappeared.

47
The example illustrates the tremendous difficulty the Sandinista government faced—
under conditions of scarcity and with its swollen sector of commercial intermediaries—in try¬
ing to make this distributive logic stick. Past experience in Nicaragua had shown that the
revolutionary government did not have the capacity to impose its will on merchants for any
length of time. This meant it was almost certain that official price ceilings would continue to
be violated, calling into question the real income gains that working people were supposed to
receive from the new policies. A bit down the line, then, the government would be faced with
a decision about whether to raise wages again to compensate, since to do so would set off
another wage-price spiral—that is, even more inflation.
Although the initial reaction of many formally-employed Nicaraguans to the new mon¬
etary package was euphoric (this was especially true among professional people, who benefited
most from the salary hikes), a more cautious attitude quickly set in. Moreover, a number of
working-class people, (including auto mechanics, construction workers, and waiters in hotels
and restaurants) who found themselves disadvantaged by the salary adjustments, prompdy went
on strike in protest. Determined to have its new policies accepted, the Sandinista government
dealt harshly with this labor dissidence, declaring the strikes illegal and firing workers who
refused to go back to work. Complicating the picture was the fact that some of the striking
workers were represented by trade unions which had had political differences with the revolu¬
tionary government. The powerful construction workers’ union, for example, was affiliated
with the Nicaraguan Socialist Party, from which the FSLN was borne.
The full consequences of these new policies and subsequent ones which were designed to
redistribute income in Nicaragua would only be seen over time (in particular, as the govern¬
ment decreed further wage increases and devaluations of the córdoba). Nevertheless, the effort
to raise workers’ real incomes in the short run must be judged as problematic. Reinforcing
skepticism in this regard was the continuing reality of the war, with its stimulus to inflation,
and the absence of any new external funds, such as an IMF bridge loan that might have allowed
the government to import scarce consumer goods and use them to hold down prices. Nicaragua’s

48
efforts to secure such loans from the European Economic Community met with limited success.
In addition, a severe drought in 1987 left the country with grossly inadequate stocks of food.
One group in Nicaragua definitely hurt by the new policies was foreigners. Accustomed
in recent years to benefiting from a special, “parallel” exchange rate which had then been elimi¬
nated, foreign individuals and organizations working in Nicaragua saw their costs increase four¬
fold or more under the reform. Those willing to do so could sell dollars on the black market at
rates ranging from CS70-80 to $ 1. Nevertheless, with the official and unofficial price hikes,
the purchasing power of a dollar traded on the black market was down significandy from the
pre-reform period.
Medium-Run Objective: A More Productive “Mixed Economy"
It quickly became clear that the promise of the new package would be unfulfilled in the
short run. Indeed, immediately after the reform, the economic situation worsened for many
people. But in the medium-run, the adjustments were somewhat successful in shifting produc¬
tion patterns and increasing the efficiency of resource management as initially intended. Perhaps
most significantly, the adjustments represented major corrections in past policies which had
allowed irrationalities to take root in the economy.
However, it should be observed that the policies announced February 14, 1988 did not
alter in any significant way the institutional framework of the “mixed economy” created by the
revolution. Although the government now charged higher rates of interest for bank loans, it
was not willing to hand the banks back to the private sector. Similarly, although it paid some
agro-export producers more money than before, it would not abandon the system of official
export companies or other devices which allowed the state to control the use of foreign cur¬
rency. Neither would it forego controls over wages and prices as instruments of economic
policy, nor permit the remaining capitalist sector in Nicaragua to dictate that policy to the
government.
All of the mechanisms created to achieve the developmental and distributive objectives of
Nicaragua’s mixed economy were, therefore, still in place. What had begun was an effort—

49
difficult and problematic as it was—to make the revolutionary economic framework operate
more efficiendy and productively than it had in the past.
The monetary reforms of 1989 took the 1988 adjustment even further. The first order of
business was to fight hyperinflation which had grown to 33,000% in 1988. Considerable
success was recognized and applauded internationally as the rate plunged to 1,700%. Second,
by adjusting the exchange rate policy, the level of export earnings rose by 30% in real terms
(Spalding 1994). In addition, the program protected the purchasing power of Nicaraguan
wage earners from further erosion. Given this tripartite success, it was unfortunate that the
necessary aid failed to materialize from international sources. After the deficit was lowered in
1988 from 25% of Gross Domestic Product to 5% in 1989, the ground work was laid for
further reactivation of the economy in 1990 (Cuenca 1992). But the insufficiency of outside
help caused the economy—and especially, the perception of the economy—to continue its down¬
ward plunge. Thus, the stage was set for the unexpected—a Sandinista defeat in the polls.
Violeta Chamorro Takes the Reins
The elections of February 1990 promised a potential “final resolution” of the debate over
the legitimacy of the government of the Frente Sandinista de Liberación Nacional (Conroy
1990). Nearly 450 delegates from forty U.S. Sister Cities and state groups, as well as one led by
former U.S. President, Jimmy Carter, declared the elections fair and legal and generally absent
of any observable coercion or fraud. Although in the countryside there were rumors of voters
being offered $ 10 to $20 for UNO votes (Chamorro was the UNO candidate), these could not
be substantiated (Doughty et al. 1990). Carter described the mood at the polls by saying, “It’s
very solemn, like a mass” (Colburn 1991).
On the eve of the elections, the Sandinistas felt confident—having won a military victory
over the Contra and a diplomatic victory over the U.S.—that an electoral victory would next be
theirs. But even before the final votes could be counted, it was apparent that the deterioration
of the economy had extracted a larger toll than expected. It had bled Nicaraguans of their spirit

50
to follow those that had long proclaimed themselves their revolutionary vanguard. The severe
monetary policy adopted in February 1988, adjusted in June 1988, and redoubled in strict
orthodox fashion after February 1989 had so eroded quality of life, that few Nicaraguans found
themselves better off than they had been five years ago. By 1990, the remembrance of the early
triumphs over illiteracy, nation-building vaccination campaigns, and land for the poor had
paled in comparison to the hardship now felt by the long-protracted U.S. embargo, continued
devaluation of the currency, and the loss of sons and daughters—and among those that sur¬
vived—lost arms and legs, as attested to by the many, highly-visible young men in wheelchairs.
Chamorro and the UNO had struck at a time when the Sandinistas were at their most vulnerable
position in a decade. The FSLN plea to the Nicaraguan people to rise up “one more time” and
defy U.S. political, economic, and military pressure proved to be a plea for which no pity could
be found. It was as if the Nicaraguan people had taken the famous quote of Franklin Roosevelt
about Somoza: “He’s a son of a bitch, but at least he’s our son of a bitch,” and turned it on its
head. Clearly, Nicaraguans had grown weary of being out of favor with the U.S. and the
economic hardship that ensued.
It was common knowledge throughout the country that the U.S. had heavily financed
and openly favored the candidacy of Violeta Chamorro. Her well-publicized reception in Wash¬
ington by the U.S. government, combined with complete unwillingness on the part of the Bush
administration to state that it would accept a Sandinista victory, certainly contributed to the
demise. Indeed, in a study commissioned by Hemisphere Initiatives just before the election,
48% of those surveyed said that the most important presidential task was to bring an end to the
war. Sixty-one percent of the people agreed that Violeta Chamorro and the UNO would be
able to reconcile differences between Nicaragua and the U.S. (Conroy 1990). It was time to try
something new.
The one encouraging note that rang loud and clear after the defeat of the Sandinistas was
their commitment to the democratic process. They have accepted the role of democratic oppo¬
sition and have turned to the defense of the many achievements made in the 1980s. I agree

51
with Michael Conroy that perhaps the one solace shared by the FSLN at the time was that their
departure from power appeared the only way in which continued attacks against them and,
subsequently, the Nicaraguan people, could definitely be ended. Unfortunately, the war of
aggression only changed in tenor and overt intensity—not direction.
Political and Economic Life Under Chamorro
In the ensuing years it should not be surprising that much of what the Sandinistas had
built up over the preceding decade was not only changed, but reversed. These changes are
exemplified by the even worsening economic climate, the debate over real property and the
Sandinista “piñata,"the new political order, and more recent capitulations to the IMF and the
World Bank.
If the changes—and even the things that have remained the same—have one unifying
theme, it seems to be that each political sector is attempting to push forward its own policies at
the expense of the opposition whenever possible. On the political front, what has emerged are
further divisions in all sectors of political life. Chamorro and the UNO are beginning to be
recognized as “the center,” various factions vie for power to the right, and an increasingly split
FSLN struggles for the left—one group led by Daniel Ortega and the other by chief rival and
former vice-president, Sergio Ramirez, who recently declared his official split with the party. In
the spirit of political realignment, even Chamorro and the Sandinistas occasionally ally them¬
selves against the attacks from the right.
At the same time, the Sandinistas continue to be attacked at their weakest point: the so-
called “piñata—urban and rural properties distributed by the outgoing Sandinista government
during its two-month lame-duck period after the February 1990 elections.7 It was disagree¬
ments about how this was handled that first led to the fissure within the party.
Facing the Economic Reality
By the end of 1993, Nicaragua was, proportionate to her population, the most indebted
country on earth. According to official data, at the end of last year, the debt had grown to just

52
short of $11 billion—about $2,575 for every man, woman, and child. The total debt repre¬
sents about $6 billion in the current loan portfolio and an additional $5 billion of principle and
interest in arrears. This deepening hole can be attributed largely to the increasingly disfávorable
trade deficit. Even with the $2 billion received by the Chamorro government in 1991 and
1992, the much called-for “reactivation” of the economy has not materialized. The govern¬
ment itself and all the country’s political and social sectors agree that poverty and unemploy¬
ment continued to worsen during those same two years. But given the conditions of heavy
indebtedness, over $500 million of the $1.2 billion received in international aid in 1991 went
to pay pending debts.8
At the same time, in order to obtain new loans from multilateral banks, the government
has had to swallow the economic medicine—known as monetary stabilization and structural
adjustment programs—that these organizations impose on developing nations (Larson 1993).
But the combination of increasing imports (not goods to stimulate production, but mosdy
luxury items for higher-income sectors) and declining exports have led to even greater debt.
Falling exports, due largely to the drop in international prices for Nicaragua’s principal exports—
coffee, cotton, and beef—led to a disparity which exists between the amount of aid promised
and that actually disbursed. For example, only about 80% of the international aid approved in
1993 was disbursed by the end of the year. At the same time, the amount of aid that went to
servicing and paying principal on debt amounted to 66% compared to 34% for development
projects. This equation leads to little in the way of maintaining quality of life, much less
improving it. Indeed, Nicaragua’s economic situation, when compared to its global partners, is
worse than ever. For example:
• Nicaragua’s per-capita GDP was lower in 1991 than in 1960. It is the only country in
the world that registered a decrease in absolute terms. Per-capita income has fallen
every year since 1978, with the exception of 1980-81 and 1983. In 1992, annual per-
capita income was $350.

53
• The Human Development Index for Nicaragua, which combines life expectancy, lit¬
eracy, and gross domestic product, dropped between 1970 and 1990. Nicaragua holds
third place in the world for countries with the worst economic results.
• According to the UN Human Development Report for 1992, 61% of the population
lives in housing made of used and substandard materials and lack adequate sanitary
facilities.
• At least 69% of Nicaraguans suffer from acute nutritional deficiency.
• UN studies also show that vaccination coverage of children under 5 years old, which was
20% in 1980 and had reached 80% by 1990, fell in 1991 to between 54% and 71%;
only with 80% coverage can a country guarantee the eradication of epidemics. In 1988
the government invested $57.10/person/year in health; by 1993 that investment had
dropped 71% to $16.92.9
When the Chamorro government won the elections in 1990, it did so with the full sup¬
port of the United States, but even today, particularly in areas tied to aid, that support has not
been categorical. The far right has pressured the U.S. officials to continue to call for the ouster
of General Humberto Onega. His presence remains a sore point for the government and there
is some evidence that he may step down.
ESAF—Sell-Out or Last Hope for Economic Reactivation?
On April 2, 1993, the U.S. government informed President Chamorro that the $54 mil¬
lion in economic aid approved for 1992—withheld since May of that year for political reasons
by the Bush administration—would be released to Nicaragua later in the month. At the same
time, it announced it would continue to support the Chamorro government economically in
1993, if her government takes more steps “to consolidate democracy.” Implicidy, this meant
the removal of General Ortega as head of the army and police, constitutional reforms, and the
return of even more confiscated property. The day before, the government of Spain had

54
authorized $90 million in credits to Nicaragua on very favorable terms, and seems to have
precipitated the decision to unfreeze the U.S. aid.
In 1992, consumer goods imports grew more than 30%, causing the trade deficit to
almost double the $323 million originally projected by the IMF. This brought the actual
deficit to over $600 million for 1992. As mentioned, by the end of 1993 the total debt was
nearer $11 billion—over six times Nicaragua’s GDR The interest alone—both current and
that charged on renegotiated debt—equals 124% of Nicaragua’s yearly exports. Thus, the
annual service just on debts coming due in the next seven years will average $622 million.
These bald statistics led Violeta Chamorro, on April 16, 1994, to sign the ESAF agreement
(Extended Structural Adjustment Facility) with the IMF in a desperate attempt to gain relief
from this mounting debt. But capitulating to the IMF to gain favor with it and other multilateral
lending agencies has not been without its political costs. The accord strictly conditions the
entire national economy until mid-1997, and “in fact, hands the country’s economic sover¬
eignty over to the key multilateral financial institutions.”10
Among the elements imposed by the ESAF, the most controversial are the firing of 13,500
state workers between 1994 and 1996, the elimination of the constitutional mandate that 6%
of the national budget be earmarked for the universities, and the executive branch commitment
to the IMF and World Bank that it will veto or substantially modify certain legislation.
Both the FSLN and former FSLN currents oppose the accord’s contents and denounce its
future consequences. “We will never accept a national budget drawn up in the World Bank’s
offices,” declared Sergio Ramirez, in response to the ESAF clause insisting that the World Bank
review Nicaragua’s public investment program. FSLN general secretary, Daniel Ortega, said
that the contents of ESAF “would make Nicaragua socially and economically nonviable.” 11
No one disagrees that there is pressing need for structural change. The evidence is every¬
where: Nicaragua imports more than it exports; It consumes more than it produces; The
dependence on foreign aid has all but reached the point of no return; The debt is unpayable;
Nicaragua suffers from unequal exchange terms. In addition, Nicaragua has suffered numerous

55
natural catastrophes, cyclical destructions, and wars. On top of all this, the country’s infra¬
structure has deteriorated significantly due to a lack of maintenance and the fact that a large
part of the revolutions investment effort incorrectly concentrated on inappropriate large-scale
projects,12 often initially sponsored by well-meaning donor nations.
Medium-Term Growth; What More Needs to Be Done?
Under the banner of a mixed economy the Sandinistas had developed a sound philosophy
for how the state could direct industry for the mutual benefit of producer (the microeconomic
level) and the country as a whole (the macroeconomic level). These noble goals could have
been achieved, some would argue, had it not been for the intense opposition operating against
it both politically and economically. Now, with the signing of the ESAF agreement, Nicaragua
has, perhaps for the first time since 1979, the potential financial wherewithal andxht benefit of
hindsight to create a decided move toward reactivation of the economy and stabilization at the
not too expensive price of some structural changes. What this will require, however, is for all
forces to hammer out a consensus. If that consensus includes the major political forces—
pro-Chamorro government leaders, the army, the various FSLN currents, and even the Conser¬
vative parties—and if mechanisms are employed that favored medium-term strategies vs. short¬
term profit taking, there would be little or no political cost to the leadership of the current
government higher-ups or the opposition parties.
Considerations that need to be made—especially ecological ones—have been carefully
summarized by Envío staff writers:
Fishing, for example, is now only extractive, even though shrimp farming could
be a reproductive activity. The problem is that it is cheaper to capture shrimp
larvae from Nicaragua’s mangrove swamps—thus destroying this habitat—than
to raise them. Lumbering could also be a cultivation project instead of a simple
extraction if there was enough interest in it and a favorable legal framework.
Cattle ranching, which has traditionally been extensive and very destructive,
will go on being so until the entire agricultural frontier and swamps are gone,
unless programs are created to stabilize rural property and . . . stimulate private
reforestation efforts on the Caribbean side of the country.

56
Coffee will continue to be an interesting and employment-generating crop,
unlike peanuts, which will become totally mechanized and ruin soil fertility
unless managed within a crop-rotation scheme that forces growers to sacrifice
some of their short-term profits to protea possible future income. All this is
put in doubt by the speculative and short-term strategy of many large capital¬
ists.13
In addition, although they leave relatively little income in the country, maquilladoraplants
represent another possibility on the industry side of the equation that could at least be employ¬
ment-generating. Traditionally, though, they only come in numbers if norms for repatriated
profits are favorable and there exists a sufficient surplus labor pool to replace itself in the event
of strikes.
Climate as Enemy
In the wake of these possibilities for real economic reactivation lurk a number of potential
disruptions that suggest future waters will be more rippled with problems than clear or flowing
in any one direaion. In June 1994, politicians and business leaders demonstrated once again
that jockeying for media space for the upcoming eleaions in 1996 was more important than
seeking any sort of accord. Bitter fights over the Military Code devolved into personal charac¬
ter assassinations around old issues thought to have been put to rest, and even triggered death
threats.14 Meanwhile, a drought during two critical months of the rainy season have precipi¬
tated extensive crop losses and the nation’s worst ever rationing of electrical energy.
In the already dry northern zones, farmers have watched helplessly as their tender shoots
of corn and beans wither and die. The poorest are left not only without this essential source of
subsistence but also without the means to buy seeds for a second planting. Lest Nature deal a
blow to the countryside only, the drought also caused the Nicaraguan Energy Institute (INE) to
initiate stria energy rationing across the country. Even in Managua, there was suddenly two
four-hour outages a day to cope with. To make matters even more chaotic, the cutoffs seldom
conformed to INE’s published schedule (which was no different than the outages I experienced
in 1988. One quickly gets into the habit of “saving” frequently.)

57
Speculation ran wild on whether it was corruption or incompetence that caught INE so
ill-prepared for the disaster. But what is significant is the fact that a couple months of this mini¬
disaster could bring “economic activity to a halt and personal tempers to a boil”15 illustrating
the tenuous nature of current social sentiment and its economic underpinnings.
Added to this is the renewed military conflict in the north of the country. The recontra as
they are called—mosdy reformulations of the demobilized contras—torched twelve vehicles in
June 1994; some of them privately-owned passenger and cargo trucks, and some belonging to
foreign institutions and businesses.
Nicaragua Today
On other fronts, the debate rages about what to do with confiscated properties and the
foreign debt. At the urging of former U.S. President, Jimmy Carter, some move has been made
to revalue the bonds that have been paid to those whose properties were confiscated by the
Sandinistas. Although a cosdy measure, it is hoped that this 3% rise in the value of compensation
bonds will serve to satisfy opposition to the Sandinistas and lead to some sense of political
stability. If it fails to do so, not only will the measure have been a costly one for the nation, it
will have been largely in vain.16
As regards the foreign debt, the privatization ofTelcór, Nicaragua’s state-owned commu¬
nications infrastructure, to raise revenue seems almost inevitable. Selling off 40% ofTelcór for
$30 million is argued to be a bad deal for the nation. In just the last seven years, the Nicaraguan
people’s investment in their telecommunications company has been nearly $100 million. Fur¬
ther, it has returned $7 million in the last three years. There is no evidence to suggest that
replacing this public monopoly with a private one will benefit anyone but the new monopoly
owners. What we are left with is, at best, the prospect of short-term economic gain, at worst,
mere capitulations to neoliberal political ideology.
Is there any silver lining to this dark and looming cloud of unrest? Ironically, the best
hope might be found in the declining economy itself. The debt’s magnitude threatens the

58
country’s very viability by pushing it into a vicious cycle: the more it grows the more it reduces
the possibility of national and foreign investment that would permit it to be serviced and even¬
tually shrunk. Perhaps only this fear would be enough to push the warring factions to seek
domestic consensus on a healthy solution. Only a coherent and realistic economic develop¬
ment plan would be worth presenting to the international community—a community which is
increasingly unwilling and unable to lend the necessary assistance.
Unfortunately, not only bickering among the various political currents, but also within
them will likely obviate the possibility of any such “coming together.” In its latest attempt to
shoot itself squarely in the foot, the Sandinista leadership of the far left have ousted Carlos
Fernando Chamorro, longtime editor of the party-owned newspaper La Barricada. The action
was apparendy designed to promote Daniel Ortega for the 1996 presidential election and install
cadres who back the party line. Chamorro, often critical of the FSLN, was seen to represent
more moderate party reformers—led by Sergio Ramirez. Chamorro responded by blaming his
ouster on an “extreme dose of political intolerance.” His interim replacement, Lumberto
Campbell, said the shake-up was necessary due to Chamorro’s failure to present readers with an
image of a party in renewal (The Seattle Times, October 27, 1994; p.C4).
In related events that are sure to further divide the party, renowned poet Ernesto Cardinal
quit the paper’s staff earlier in the same week, declaring that hard-liners had “kidnapped” the
party from moderates. At the same time, Sergio Ramirez praised Chamorro when he wrote that
Chamorro and his reporters had succeeded since 1991 in creating an “independent, truthful
and creative newspaper” (ibid).
Summary
This chapter provides the historical context that has led to and, in some ways, precipi¬
tated the current economic hardship and political unrest. From this backdrop we should better
understand the humble lives of those who ultimately feel the brunt of the decisions made by the
actors portrayed above. Some discussion has also been devoted to the how the earthquake and

59
subsequent infrastructural development in Managua has led to a dispersion of market centers
that has served to foster the growth of the informal sector. In Chapter Four we explore the grass
root’s effects of these policies and programs and describe how those most disadvantaged by the
various economic reforms adopted new strategies to bolster their own economic security. But
before turning to the present investigation of this “mixed economy” at the household and indi¬
vidual units of analysis, we will examine the nature of the informal sector. In the next chapter
we see how the attempt to define it has sparked a long history of controversy and where that
controversy has led.
Notes
1 It may be the height of irony that, ten days after arriving in Managua in 1987, I was
recruited as a movie extra for the film “Walker” in which I serve as a cigar-smoking juror
that acquits Walker. Alex Cox’s film, “Walker” was shot largely on the shores of Lake
Nicaragua in Granada and served to bring a short economic boom to that city as well as
raise the hopes of many that Nicaragua might become a low-cost, Hollywood-friendly
movie-making mecca. Unfortunately, despite Cox’s earlier successes with “Repo Man”
and “Sid and Nancy,” “Walker” failed to generate much interest in Hollywood board
rooms or among the American movie-going public. Still, it was quite interesting to see
what goes into making a scene, and working on the set with Marley Matlin and Ed Harris
made waiting around all day in wool suits and 90 degree heat a little more bearable.
2 Portions of this and the following section (Factors Leading to the 1988-89 Adjustment)
are adapted from various articles others and I wrote for CUSCLIN’s “NicaraguaThrough
Our Eyes” newsletter during my editorship in 1988. In particular, special credit is due
staff writer, David R. Dye, for his economic analyses. CUSCLIN, the Committee of
U.S. Citizens Living in Nicaragua—part of whose mission it was to educate our readers
around the world of “the process of the revolution”—is no longer active in Managua.
3 Those wishing further statistical information as well as an account of prior attempts at
economic stabilization in Nicaragua may consult Mario Arana, Richard Stahler-Sholk,
Gerardo Timossi and Carmen López, “Deuda, estabilización y ajuste: La transformación
en Nicaragua, 1979-86,” Cuadernos de Pensamiento Propio, Nov. 1987 (also see Stahler-
Sholk 1985).
4 Recognizing that its new exchange rate was still unrealistic, the government was planning
a further series of changes in the value of the currency, prices and wages, all of which
would likely spur inflation. Officials indicated that an inflation rate of 600% should be

5
6
7
8
9
10
11
12
13
14
13
16
60
expected in 1988. Of course, as we now know, that rate rose to an all time high of
33,000%.
An IMF measure which Nicaragua would not accept was the forced sale of public enter¬
prises to the private sector. Such sales were occurring in Costa Rica, which has just
negotiated an IMF stabilization loan.
At the same time, the new official prices for corn and beans were a blow to growers, who
had just seen the prices they must paid for manufactured items rise sharply.
Nicaragua’s “New”Economic Measures: Reactivation Solidarity? Envío 12:138 1993.
The Economic Curtain Is Up: What’s the Political Play? Envío 13:155 1994.
Nicaragua’s “New”Economic Measures: Reactivation Solidarity? Envío 12:138 1993.
The Economic Curtain Is Up: What’s the Political Play? Envío 13:155 1994.
ibid p. 4.
Negotiating the Crisis: A Modest Proposal Envío 13:154 1994
Worker-Owned Coffee Farms: The Bitter and the Sweet Envío 13:154 1994
The Future Beckons From the Whirlwind’s Eye Envío 13:157 1994.
ibid p. 4.
ibid.

CHAPTER 3
WHO ARE THE INFORMAL POOR?
OR
ARE THE INFORMAL POOR?
It is now clear that the central problem is not whether formal
institutions should or should not incorporate the informáis for
humanitarian reasons, but whether they will manage to do so in time
to avoid the violent destruction of representative democracy.
—Hernando de Soto, The Other Path
In his book, The Other Path, Hernando de Soto (1989) moves us well beyond the ideo¬
logical confrontations that have characterized so much of the discussion about the informal
sector. Even praised by Richard Nixon in his book 1999, de Soto has taken the case of the
Peruvian “underground economy” and explained it for what it really is—the main arena of
economic activity in Lima upon which not only do thousands depend for their daily livelihood,
but that also serves to provide goods and services far beyond what state coffers can allot. Simi¬
larities abound in Managua. While commerce, and particularly commerce as regulated by the
state, is not nearly so fraught with bureaucracy as in Peru, the struggles of the informal sector of
Nicaragua—to be either recognized or left in peace—remain a cross-cultural constant. As in
Lima, privately owned minibuses have augmented formal bus routes where the municipality
cannot afford to operate, much less compete. The same is true of markets. In Managua as in
Lima, not only have informal vendors grown in numbers faster than the formal marketers, but
they also dwarfed the formal markets in size. A third similarity lies in the fact that Managuan
informáis, albeit to a lesser degree than the street vendors in Lima, have struggled for the right
61

62
to exist. At times tolerated, at times aided, and at times evicted by the government, survival in
the urban informal economy seems characterized by the need to keep looking over one’s shoul¬
der at the law that, like a domesticated wolf, could turn on you at any moment.
De Soto argues that informáis are forced to accept a way of life that pushes them into
extralegal relationships to survive, basing his theory on the cost of time and money it takes to
become formal. In contrast, the present work adopts a more bottom-up approach. While
much of the material discussed here is descriptive and based on months of living, working, and
lurking with many informal sector workers, various hypotheses are tested with the survey data
from in-depth interviews of ninety-eight households. Where The Other Path contains analyses
often derived from a bureaucratic, legalistic perspective, this one focuses on the household level
of economic rationalizing. And since it is not the case that Managuan informáis avoid becom¬
ing formal because it takes better than two years of bureaucratic hoops to jump through and
costs many times the monthly minimum to survive, as it does in Lima, 1 have focused more on
why they have made the economic choice to stay in the informal arena. But before setting out
on a journey through the informal Managuan marketplace, I offer an armchair exploration of
those whom have tread these waters before. This relatively short review of the literature—
which began with Keith Hart’s now famous work on the informal sector in Ghana in 1973—
looks at the currents of thought that have ebbed and flowed in the quest for greater understand¬
ing of the phenomenon.
Defining the Elusive
The informal sector literature has been the stage for a decades-long dialogue that has
often focused around the question “Who are the casual poor?” (Bromley and Gerry 1979). As
time has passed, however, more and more case studies have been brought to bear on the issues
of informality. The point of departure has now evolved beyond simply one of identification to
one that examines more closely the role of the informal sector in society and especially its

63
relationship to the rest of the economy. Indeed, there is considerable, albeit not universal,
evidence to suggest that the question might more appropriately be “Are the informal poor?”
This chapter examines this evolution in three parts: first, a discussion of the origin and
nature of the term “informal sector” along with an exploration of its role in the economy as a
source of surplus labor; second, an examination of the relevance of the concept vis-á-vis migra¬
tion and the processes of urbanization and proletarianization of the labor force; and third, a
brief review of current trends in the informal sector literature. The attempt will be to arrive at
a useful understanding of the informal sector that does not derive solely from our common-
sense notion, nor as an amalgam of the literature, but that questions the purpose of “defining.”
I argue that an understanding of the informal sector at the societal level is what we should strive
to achieve—not to be mired in finding a stria definition that fits all cases, for to do so would
leave us with such a broad definition it would be useless. We must also realize that, since the
nature of the informal seaor is different in every ethnographic case—it defies specific demarca¬
tion. Once we accept that, what remains is the need to identify the realm of politico-economic
aaivity that comprises the formal to informal continuum. These aaivities and relationships—
the winks and nods—are the real stuff of the informal sector. As de Soto puts it, “[t]here is
nothing [here] that needs to be confirmed by complex laboratory experiments. You have only
to open the window or step into the street” (1989:14).
Everyone now seems to acknowledge that the informal seaor should be seen as an insepa¬
rable part of the larger political, social, and economic milieu. To treat it as a list of charaaeris-
tics, aaivities, attributes—or even as a process in itself—misses the point. Like the markets
that are the most tangible loci of informal seaor activity, the informal seaor is organic. As in
the central nervous system, the informal seaor is synergistically linked with other seaors of
society through the political, economic, and social networks of its actors. This understanding
of the informal sector has evolved from earlier notions of the traditional/modern dichotomy
and, to some degree, from the traditional notion of marginality. As Castells and Portes suggest,
the informal economy should be considered “a common-sense notion whose moving social

64
boundaries could not be captured by a stria definition, without closing the debate prematurely.
This is why we need, first, to refer to the historical realities connoted by the theme, and to
understand it as a process, rather than as an objea” (1989).
To that end, I spend some time here examining the evolution of the question “Who are
the casual poor?” Still, I believe that any Holy Grail-like quest for an all-encompassing defini¬
tion of the informal seaor will always be vulnerable to the incredibly boundless innovation of
those attempting to improve their quality of life outside of formal wage labor.
Origins and Nature of the Informal Sector
Even Keith Hart, who is credited with first coining the term “informal seaor,” presented
a system of typologies that refers to “aaivities or roles, nor persons” (1973 emphasis in original).
In doing so, he recognized that individual actors could be found contributing to economic life
in both formal and informal capacities. For Hart, the key was the degree of rationalization of
work—that is, “whether or not labor is recruited on a permanent and regular basis for fixed
rewards, and whether such aaivity was amenable to enumeration by surveys” (Hart 1973:68).
Even with the hindsight of decades of debate illuminated by the ethnographic context, it is
surprising that so many of Hart’s charaaerizations of the informal sector have withstood the
test of time as well as they have. At the very least, Hart did well to steer the debate in the
direaion of typologies and a continuum rather than polarize the activity on one side of a
dichotomy.
Nevertheless, it did not take long for Hart’s typologies to be referred to as “this informal-
formal dichotomy” (Weeks 1975:2). Besides this minor misunderstanding of Hart’s work,
Weeks contributed to advancing the discourse by recognizing the articulation of these two
seaors. For Weeks, the distinaion between the formal and informal seaors was based on the
organizational charaaeristics of exchange relationships and the position of economic aaivity
vis-a-vis the State. While the present Nicaraguan and the Japanese (Hill 1989) cases might fall

65
outside his notion of the formal sector, Weeks was one of the first to elaborate on the nature of
“formality” in such specific terms.
It is here we begin to see the informal sector defined as what the formal sector is not. For
Weeks, the formal sector included government activity itself and those enterprises in the private
sector which are officially recognized, fostered, nurtured, and regulated by the State. The State
is seen to foster formal activity in a variety of ways—each distina from its relationship to the
informal seaor. The State offers tariffs and quota proteaion for import substitution industries,
tax holidays, low interest rates, seleaive monetary controls, and licensing of operations. These
formal seaor benefits either directly improve profits or limit foreign competition and demon¬
strate how dependent the formal sector is on the favor of the State. In return, formal seaor
enterprise offers access to credit, adds value to imported inputs unobtainable except through
the capitalist seaor, and provides a stable wage labor force to consume these goods.
In contrast, operations in the informal seaor are characterized as having none of these
benefits. Informal enterprises and individuals operating outside of the system of benefits and
regulations of government are ultimately limited, lacking access to the formal credit institu¬
tions and to imported resources available only through official channels.
The Era of Exclusionary Definitions
Indeed, in the many discussions of who or what is the informal seaor, those that remain
standing after the years generally seem to include such indefinite phrases as, “not confined to,”
“may or may not be part of,” “includes,” “can be tentatively defined as,” and “are charaaerized
by an absence of,” (Uzzell 1980, Portes and Sassen-Koob 1987, Weeks 1975). Nevertheless,
what is really important is how these charaaerizations of the informal seaor have advanced our
understanding over the years. Definitions of the informal sector range from earlier notions of
the urban, marginalized poor engaged in low level and/or illegal aaivity, to a more contempo¬
rary description of an arena wherein individuals are rationally economizing their behavior. In
the early 1970s the World Bank developed an approach to the informal/formal concept based

66
on a dichotomy within the urban labor market. The Bank considered that, while wages and
conditions of work in the formal sector were protected by trade unions or governments or both,
informáis were exposed to unmitigated market forces. Alternatively, the International Labor
Organization (ILO) tended to focus on the characteristics of the two sectors, seeing informal
activities as identified by ease of entry, small scale, and labor-intensive (House 1984:279). On
still a somewhat different tack, the overall consensus of economists of the time representing a
broad range of perspectives (Nun 1969, Casanueva and Fernandez 1973, Bairoch 1973) came
to be that the principal function of informality was to offer a means of survival at the margins
of the modern economy.
Yet although direct subsistence production is, by definition, aimed at survival, the view of
informal employment as a refuge from destitution is questionable when other informal activi¬
ties are considered (Portes and Sassen-Koob 1987). If informal activity were exclusively a ref¬
uge from destitution two facts would logically follow: first, average income levels would be
significantly lower among the informáis and, second, little migration from formal sector to
informal sector employment would exist. Recent evidence does not show this to be true. Both
in the present Nicaraguan case, and in data collected by various South American governments
and U.N. agencies from 1930 to 1980, one sees a rise in informal sector activity when taken as
a percentage of GNR In Nicaragua, especially during times of hyperinflation (1987-1989),
informáis commanded significantly greater buying power and few households were able to
survive without some form of informal sector trade. Elsewhere, studies in Argentina (Lopez
Castaño, Henao, and Sierra 1982), the major cities in Brazil (Souza 1984), and Peru (Carbonato,
Hoyle, and Tueros 1985) indicated significant disparity in incomes in favor of informal sector
workers (as cited in Portes and Sassen-Koob 1987).
Further, the key characteristic of the informal seaor—whether described collectively as
the sum of its aaivities or individually as what a single aaor does—seems to be that it refers to
aaivities that occur outside of the arena of the normal, regulated economy, and at least partially
escapes official record keeping.

67
This begs the question: does informality refer to a segment of the economy or to the
labor force employed in it? According to Castells and Portes, and perhaps even to the casual
observer, much of the controversy is really over semantics and can be resolved simply by including
in the definition “all relationships of production and exchange outside of the modern and state-
regulated economy” (1989). Others recognize the utility of a broad distinction between the
“formal” and the “informal,” defined with reference to degree of public, typically state, monitoring
and regulation, but reject emphatically the notion that the economy of an industrialized capi¬
talist nation can be divided into discrete “economies,” “subeconomies,” or “spheres” (of either
production or exchange) (Harding and Jenkins 1989). The strength of these approaches is that
they underscore the importance of the articulation between the formal and informal sectors.
Movement Between Sectors as a Conscious Economic Strategy
At the same time, Uzzell cautioned that “it is unsound, on empirical grounds, to identify
a person strictly in terms of an activity in which the person happens to be engaged at a particu¬
lar time” (1980). The strategy of jumping from one sector to another on a daily or seasonal
basis, can serve as a means of economic optimizing at the household unit of analysis. Common
Nicaraguan examples of this are state employees who sell bread out of their homes, high school
and university professors who moonlight by tutoring everything from Spanish to computers,
and migrant farm workers who send their children to sell some of their “surplus” harvest on the
city streets.
Still, a number of things about the Nicaraguan experience appear to contradict the early
notion of bidirectional migration between sectors. For one, the lure of urban informality was
so profitable during the late 1980s, that any reverse migration (from informal to formal sector)
was extremely rare. Few people ever gave up life toiling on the soil, moved to Managua to
engage in informal market activity, and then returned to the countryside—even on a seasonal
basis. The profits in the city were much too great and, with living expenses even higher outside
of Managua, it would scarcely ever make economic sense to return to the land. Besides

68
contributing disastrously to the flight of the landless from agrarian production, this made it
very difficult for those who left their own land in the countryside. Sometimes, in these cases, at
least one member of the family—usually of the older generation—would remain behind the
plow (unless the land was too deep in Contra-controlled territory, in which case, campesinos
were moved, often forcefully, by the Sandinista government).
On one occasion I visited the rural town of Nargarote on the road between Managua and
León where the extended family of some of my urban informal friends lived. Besides their
modest home in the city, the family owned about thirty manzanas of land that was still used to
graze a few catde. In addition, a small plot was used for growing food for family use and for the
urban family dwellers to sell at their vegetable stand at the Mercado Oriental in Managua. The
dust covered, rock-hard land was plowed by the grandfather behind an emaciated-looking steer
harnessed to a primitive wooden plow. They encouraged me to give it a try. Fortunately, it was
only their laughter that brought down the house after I nearly missed knocking down the
outhouse as my plow ran amuck behind the beast’s steady pace.
There are a number of ways in which these relationships between sectors are significant.
Modern labor economists have identified nonmarket work as one point of articulation.
Nonmarket work includes all work not performed for wages, profits, or rents. Although much
of this activity anthropologists would typically refer to as straightforward bartering, its relation¬
ship with the informal sector is interesting since it is the point at which informáis can employ
either other informáis or formal enterprise. An example is the house built outside of the formal
sector housing industry. Informáis either build their own houses (or parts of them), or hire
other informal sector craftsmen and contractors to build them. In the three cases cited by
Uzzell (Lima, Oaxaca, and Texas), the amount of nonmarket construction work conducted by
the informal sector home-owner on his or her own home varies by some calculus of economic
rationality. The point is that, regardless of the degree of self-exploitation (determined by a
particular equilibrium between family demand satisfaction and the drudgery of the labor itself)»

69
nonmarket work often involves the use of manufactured goods and serves as a supplement to
wages for those mosdy operating in the formal sector. This is one way of the many ways in
which informal income is captured by the formal economy.
The Informal Sector as Reserve Labor Force
Many have discussed whether or not the informal sector provides the capitalist sector
with a reserve labor pool. Marxist writers, in particular, have generally characterized those
engaged in informal activity as pan of the reserve army of labor that both keeps wages in the
formal sector down and that will eventually be absorbed by the capitalist center. Although not
definitive, examination of some case study evidence illuminates this phenomenon. On the one
hand, it has been true that the informal sector has often served as a ready arena from which the
capitalist sector can outsource small scale manufactured goods and services on a piecework or
subcontracted basis. It is not as clear, however, that the adjacent presence of informal activity
always serves as a reserve labor pool ready to offer its labor power to the factories towering
overhead.
A number of factors color the situation. In Peattie’s (1982) study of the footwear indus¬
try in Bogota, Columbia, the migration from one sector to the other was overwhelmingly in the
direction of formal sector to informal sector employment. Once factory workers had the nec¬
essary skills, they quit their formal jobs and used savings and severance pay to start their own
informal shoe-making businesses. Similarly, in Managua, a variety of factors pulled workers
out of even middle and upper level formal jobs into the more lucrative informal sector. Primary
among these “pull” factors was the climate of hyperinflation—between 1,700 and 33,000%—
between 1987 and 1989. Under such economic conditions, the dramatic rise in prices of food
and basic commodities quickly outpaced formal sector salaries. Formerly well-paid bureaucrats
found that they could no longer afford to feed their families without the second income of their
spouse or children who were tapped into the informal sector. Even when their salaries were
augmented by a highly subsidized, albeit irregularly available allotment of rice and beans, other

70
necessities became unaffordable without the informal sector contribution. This also points to
another strength of the informal sector: the ability to react to price changes on a daily—
sometimes hourly—basis (the prices of some goods were known to rise more than once a day
on the news of rising gasoline or transportation costs).
On the other hand, studies by others (de Soto 1989, Arias and Roberts 1985, Lomnitz
1978, Roberts et al. 1985) suggest a ready movement from one sector to the other. This tradi¬
tional understanding is one with deep roots. W. Arthur Lewis, in his classic essay “Economic
Development with Unlimited Supplies of Labour,” premises the existence of an unlimited sur¬
plus labor force partially on his notion of wage levels. “The wage which the expanding capital¬
ist sector has to pay is determined by what people can earn outside that sector” (W. A. Lewis
1954). Lewis reasons that whether we consider earnings as determined objectively by peasant
productivity or subjectively in terms of the conventional standard of living, the result is an
unlimited supply of labor for which that measure is the minimum level of earnings. But this, I
would argue, is true only if we consider wage levels in the formal sector to be excessively elastic.
Without that elasticity, a labor pool bottled up or otherwise disguised in informal activity
ceases to be surplus. It seems reasonable to suggest that if the informal sector can be seen to be
efficiendy productive in its own right, then it is not necessarily true that the capitalist sector can
infinitely expand to compete with it. If informal productivity is high, that is, informáis can
increasingly make a significandy better-than-subsistence living, then there will be some point
at which employers cannot pay high enough wages to draw workers from the informal sector
and still make the desired profit.
Still, there are a variety of ways in which the capitalist sector strives to hold informal
earnings at or below subsistence level. Imperial powers in Africa, for instance, have done this by
either taking away people’s land, by demanding forced labor in the capitalist sector, or by imposing
taxes to drive people to work for capitalist employers (Nicolas 1992). Obviously, in the Sandin-
ista experiment with a mixed economy, where the objective was to regulate the capitalist sector
in such a way as to minimize economic pressure on the underclass, these driving factors were

71
not present and the Sandinistas left themselves vulnerable to a flight of workers from produc¬
tive agricultural and urban professional and manufacturing sectors. This flight lead to lowering
GNP and put greater pressure on the government to raise wages to compete with the informal
sector. But due to exchange losses, the increasing cost of the war, the U.S. embargo, and
limited help from friendly donor nations, the Sandinistas ability to keep even state sector wages
in step with informal sector earnings proved to be less elastic than would have been hoped.
Early models of rural-urban migration have been criticized for failing to take into account
the highly diversified set of informal activities being undertaken in the cities of the developing
world—what I have referred to earlier as “the incredibly boundless innovation of those attemp¬
ting to improve their quality of life outside of formal wage labor.” As House puts it, “do
migrants respond simply to income and employment opportunities in the relatively high-wage
modern sector or are they migrating with the intention of seeking informal sector income and
employment?” (House 1984). Empirical evidence can be presented for both sides. The chal¬
lenge should be to illuminate under which conditions each possibility is predicated. In the
Nicaraguan case, 1 will argue that three of those conditions were the situation of hyperinflation,
the growing state control of agricultural production, and benefits offered to formal sector workers.
Are informal sector workers generally recent migrants engaged in unproductive tertiary
activities? Are the informal sector participants “pushed” out of the rural economy because of
their general landlessness or are they “pulled” into the urban arena attracted by the ease of
access and seduction of a higher standard of living in the informal sector? Furthermore, do they
have little chance of formal sector employment because of their low level of educational attain¬
ment (as in Despres’ 1985 Brazilian case) or does their willingness to accept low wages make
them desirable employees? Of course, government policies and programs and their effect on
informal activity will be a significant factor in determining whether or not the informal sector
draws workers not only from the countryside but also from other urban formal sector enter¬
prises. Again, this would not be so if informal employment was merely a “refuge from
destitution.”

72
The Informal Sector vis-á-vis the Concept of Marginalitv
Many of the early notions of the informal sector grew out of our understanding (or mis¬
understanding) of those groups deemed “marginal” by a number of researchers and develop¬
ment agencies of the 50s and 60s. Janice Perlman (1974) provides us with an excellent history
of the term. As Perlman states, “the concept of marginality is especially critical for study because
the ideologies and stereotypes associated with it affect the lives of millions of poor urban resi¬
dents and shantytown dwellers” (1974:91). This perspective is critical not only for helping to
lead us to a clearer understanding of the nature of the lives of the people who become the
objects of such studies, but also in terms of development strategies and policies which they
most commonly fall victim to.
Early View of the Informal Sector as the Downtrodden
Traditionally, and to some degree still today, the term “marginals” carries with it pejora¬
tive connotations with deep historical roots especially in Latin America where the term has
meant “shiftless” “dangerous” “ne’er-do-well.” Thus, as Perlman is often quoted as saying:
with the first invasion of migrants from the countryside, and the first appear¬
ance of squatter settlements on the urban landscape, the policy of the urban
elite has often been to treat these communities as a blight. A contradiction
inherent in this treatment is evidenced by the fact that the same system that
produced the problem also professed a desire to integrate them into the very
situation that was perpetuating their existence. (1974:92)
Nevertheless, until recendy Latin American policy-makers equated the problem of mar¬
ginality with that of substandard housing, high density, lack of urban services and hygiene,
peripheral placement within the urban area, and illegal land occupation. Marginality came to
be seen as something to be physically eradicated, a manifestation that had a simple cure (Portes
1983, Vilas 1986). In Brazil for example, the task became to remove favela dwellings and
provide construction of adequate low-cost housing for the public. “Although conceptually
simple, the solution was politically unfeasible. The existing needs of the urban middle and

73
upper classes for better transportation and public services took precedence over the allocation
of scarce public funds for programs of direct subsidy for the poor” (Perlman 1974:103).
It is easy to see how, at least the roots of the notion of the informal sector were deeply
ensconced in a classist foundation. While this trend has not disappeared completely, significant
efforts have been made to reverse it. Even though the Sandinistas did not always react favorably
to the menaces of the informal sector, there is considerable evidence to show that they seemed
guided by an enlightened understanding of those migrating into informal sector activities. For
example, between 1983 and 1988, the Nicaraguan economy had become increasingly laden
with war expenditure, yet income redistribution remained a high priority. It was realized that
simply raising wages would not only be inflationary, it would not really benefit those without
formal sector jobs—many of whom, but not all, were the urban poor of the informal sector.
Instead the government undertook measures to provide basic needs by attempting to remove
them from market forces. The goal was to make access to housing, food, clothing, health,
education, and public transportation independent of actual family income—perhaps the ulti¬
mate “single payer plan.”
With development failures occurring around the world (realized by ILO and AID projeas),
squatter settlements—which served as loci for much informal sector aaivity—eventually lost
the stigma of the past since they did not represent problems, but solutions to the problem.
Thus, early formulations defined the informal sector economy “as the way the marginal poor
took care of themselves in the city” (Portes 1978:35).
A number of early studies (Peattie 1968, Hart 1973, Lomnitz 1977, Mangin 1967) lend
increasing evidence that attempted to dispel the neo-Keynesian economic notion that the informal
seaor was “‘the sickness which seems to affea not only the economies of the entire developed
world, but also, the economic profession itself” (Feige cited in Connolly 1985:58). These
studies observed that the informal sector was more than an exercise in self-preservation: those
deemed “maiginal” turned out to be profoundly integrated into production, distribution, and
consumption structures in the city. Thus, the formerly fashionable concept of “marginality,”

74
long employed to refer to those outside of the modern capitalist sector, gave way to the more
accurate (albeit still inadequate) notion of the informal sector and with that advent rose also the
notion of the “myth of marginality.” With the inception of the term “informal sector” popular¬
ized by Hart in 1973, the past failure to grasp the distinctive articulation between what writers
of the time referred to as “dominant and subordinate centers,” began to fade. As Pones put it,
“I suggest that the concept of the ‘informal economy’ is fundamental to understanding the
operations of capitalism as a world phenomenon and constitutes a missing element in contem¬
porary ‘world-system’ formulations of relationships between core and periphery” (1978:35).
Harding and Jenkins further advance our understanding of informal economic activity
by attempting to dispel what they call “the myth of the hidden economy.” For them, there is no
such thing as a “black” economy, but a range of types of economic activity which should be
categorized according to multiple criteria, arguing that both the formal/informal and economic/
noneconomic dichotomies need to be reconceptualized as continua (1989). In doing so they
critique the work of Gershuny, Pahl, and Henry (as cited in Harding and Jenkins 1989) and
ally themselves to some extent with the theoretical position associated with substantive eco¬
nomic anthropology (alia Sahlins 1972).
Informal Sector Definitions Before 1990
Before we leave the subject of myths, it might be useful to summarize briefly what the
informal sector is and is not. Although a number of the early writers on the topic have since
updated their views, confusion still lingers—if not in some of the contemporary literature—in
the common use of the related terms.
1) The informal economy is not a set of survival strategies performed by destitute people
on the margins of society. While some activities of the informal sector may derive from
the desperate need of a worker to obtain the means of subsistence for his/her family, a
similar situation could cause him to accept a low paying job in the formal sector. There¬
fore, we should recognize that “the informal economy is not a euphemism for poverty.

75
It is a specific form of relations of production, while poverty is an attribute linked to the
process of distribution” (Castells and Portes 1989). Indeed, in the Managua case, it can
be demonstrated that informáis often have greater access to distribution channels—
both in legitimate straight and narrow avenues as well as in black market labyrinths.
2) There is a tendency in the literature to consider the informal sector as exclusively an
urban phenomenon. It is not. Work by Collins (1982), Conroy (1984), Vilas (1986),
Weeks (1985), and others stress that informal activity in rural settings represents a
significant source of labor absorption.
3) Further it should be noted that although some of the early characterizations of the
informal sector portrayed by Hart and the ILO have withstood the test of time, others
have not. Not only are all informal sector enterprises not small-scale ventures (Peattie
(1982) reports that informal sector shoe shops in Colombia can employ 50-100 people),
they also do not always rely on indigenous resources (leather is imported from Ger¬
many). Other studies report that there are significant “barriers to entry” in many infor¬
mal enterprises, either in terms of skill requirements or substantial capital investments
(Bromley and Gerry 1979). Similar to what I attempt to show with the Nicaraguan
case, Portes’ study in Colombia found that when earnings of blue-collar workers in
formal industries are compared to average ones in the informal sector, there is a signifi¬
cant difference in favor of the latter (Portes 1983).
Migration and the Process of Urbanization
Migration as Household Strategy
Migration is viewed as involving the physical movement of individuals with
different portfolios of legal and social assets in search of superior earning oppor¬
tunities. The ultimate decision to migrate or not to migrate is postulated to be
a microeconomic one made by each person after weighing the costs and benefits
of changing a portfolio of assets. (Jagannathan 1987:91)

76
In other words, people carefully consider their options, take what skills they have, pack
their bags, and move from place to place for their economic benefit. Migration can thus be
considered a key part of the larger survival strategies employed at the household level. But, as
Schmink points out, migration varies for different income groups, a fact obscured by studies of
individual-level patterns. In much the same way that households employ a strategy of placing
family members in formal and informal sector jobs, migration can be viewed as part of the
overall strategy. While the demographic structure of the household is an important intervening
variable in the migratory behavior of its individuals, it is the combined family resources that
determine both the ability and the motivation to migrate (Schmink 1982). Schmink further
distinguishes between long-term migration and short-term “mobility strategies”—the decision
to send family members to the city during the growing season, for example.
These issues are inextricably linked to a variety of impacts on actors in the informal
economy and represent a wide body of “push-pull” factors discussed in much of the migration
literature (Jagannathan 1987, Toth 1992, Marcouiller 1991, Arizpe 1982, Cole and Sanders
1985, Leeds and Leeds 1969, Lomnitz 1977, Hansen and Oliver-Smith 1982, Schmink and
Wood 1984). One of the challenges that remains is to discover which is the chicken and which
the egg.
Which Came First?
Clearly the push and pull phenomena are related, but there is still disagreement about
whether the lure of informal sector jobs can be seen as an impetus to migrate. On the one
hand, various discussions of the informal sector in the literature link it to migratory patterns
stimulated by urban-industrial growth and to the ability of new industries to absorb more than
a privileged minority of the labor force (Spalding 1994, Gerry 1978, Mingione 1983, Conroy
1984). Others suggest that the growth of the informal sector is the result of survival strategies
that are made necessary by the dominant mode of capitalist development and by a lack of any
logical relationship between the rate of profits and the level of wages capitalists are willing to
pay in the formal sector (Adams and Fitchett 1992, de Soto 1989, Despres 1985).

77
In the case of Peru, the process of migration—often culminating in invasion of state and
private land—is not something necessarily done by informáis per se. It is the fact that migrants
to the city rarely have other alternatives but to engage in informal sector activities that links the
two (de Soto 1989). The connections of the informal sector with migration and the urbaniza¬
tion process stems not only from the feet that the vast majority of informal sector workers have
traditionally come largely from rural areas and often reside in squatter settlements of the urban
fringe, but also from the fact that they generally come with few skills that prepare them for
formal sector jobs. They must, therefore, take advantage of the relative ease of entry informal
sector activity provides. Although their reasons for migration may include escape from political
persecution, natural disaster, or war, the principle driving factor is almost exclusively for a
better economic life.
Based on data collected in Manaus, Brazil, Despres contends that, while both push and
pull factors seem to be operating, we cannot conclude a causal relationship between migration
and urban industrial development. His study shows that between 1967, when a Free Trade
Zone was established in Manaus, and 1980, the population increased from 254,000 to 634,756—
a relative increase of 150%. But the number of industrially-employed workers has expanded
four times faster than the number of autonomous workers and, despite this 346% increase in
the informal sector and a 1400% increase in the formal sector, the present situation has simply
underscored the imbalance which existed in favor of the informal sector back in I960. Still,
almost 30,000 new workers have been added to the informal sector since the creation of the
Free Trade Zone (Despres 1985:53).
Explicitly, migration should not simply be considered strictly the result of industrial
expansion in the cities. Other factors each contribute mass to the gravitational pull of urban
centers. In the Manaus case for instance, Despres cites three alternative explanations for the
migratory influx: 1) the breakdown of the aviamento system by which forest products were
extracted and traded through a patron-client network of brokers: 2) the lack of attention paid
by the state and federal governments to agricultural development in the interior relative to

78
industrial development in Manaus; and 3) the attractiveness of the urban infrastructure in
respect to social amenities—primarily medical care and education.
Migration in Nicaragua
While I will argue below that it was indeed, in the Nicaraguan case, the lure of the rapidly
expanding informal sector that drew many campesinos to the city, a number of other factors
were significant in contributing to this rural-to-urban migration. Many campesino families
feared the increasing dangers of Contra killings in formerly peaceful remote parts of the coun¬
tryside. In some cases, the Sandinistas moved them closer to population centers to be able to
provide them with social services as well as to keep their young men from being pressed into
service of the Contra. Still others were driven from their land by the harsh drought between
1983 and 1987. At the same time, however, the Sandinistas had freed many acres of rural land
formerly held by the Somocistas and National Guard. This land, made available to many
formerly landless rural and urban dwellers alike, was intended to keep people producing on the
land and to stem the expected rural flight. Unfortunately, it met with only partially success and
ultimately slowed only temporarily rural-urban migration.
40
30
c
0
U 20
N
T
10'
0
REASONS FOR MIGRATION TO MANAGUA
Figure 3.1: Reasons for Migration to Managua

79
While it is clear that migrants to Managua moved primarily to have a place of their own
(see Figure 3.1), it should also be noted that, of those interviewed, most came from other parts
of the city (Figure 3.2) and migrated within eight years of the revolution (Figure 3.3), most
commonly in 1984.
Figure 3.2: Origin of Migration
70
IM0THRU1960 1961 THRU 1979 1980 TO 1988
Year of Migration to Present Location
Figure 3.3: Year of Migration
In Managua, the lure of the urban informal sector was a significant, even causal, migra¬
tory force. It was not uncommon to hear accounts from street vendors selling Cokes across the
street from the ball field or an office building, that claim to make more selling gaseosas for an

80
afternoon than they could in weeks of labor on the field. Since rural to urban migrants had
numerous possibilities of finding inner-urban squatter housing fairly close to market and busi¬
ness centers, and since the cost of goods in the countryside was generally higher than in the city,
it is easy to see why the population of Managua was growing so rapidly.
Dfl.All Migratory Tributaries Lead to the Mouth of Informality?
The natural rate of population growth, aggravated by migration of large numbers of
farmers from rural areas, has generally meant that the rate of urbanization has far outpaced the
rate of industrialization under the prevailing conditions of capitalist economic development in
the Third World. Further, it is argued that the inability of the industrialization process to
absorb the large numbers of unskilled illiterate workers—rural and urban born—has resulted
in immense poverty, underemployment, and unemployment for the urban population (Moser
1977, 1978). To handle these problems, the accelerated growth model—designed to increase
overall economic growth through a policy of accelerated industrial development—became the
dominant development model in the decades afterWorld War II and became the basis for the
now infamous “trickle-down” theory. “By the mid-1960s it was beginning to be realized that
accelerated growth strategies based on maximizing GNP were neither leading to the desired
level of income redistribution nor solving the problems of poverty and unemployment in devel¬
oping countries” (Moser 1978:1043).
To address these failures the ILO missions launched an ambitious series of studies in Sri
Lanka, Kenya, and Colombia. Some of these studies produced insightful findings regarding
the creation of the informal sector. The Kenya Mission, for instance, found that problems of
unemployment in rural areas were caused by lack of access to land, and that this resulted in
migration of young people to towns, especially Nairobi, in hopes of entering the urban labor
force. But since an accelerated growth import-substitution policy had generated a mostly capi¬
tal-intensive manufacturing industry, the only jobs available were those requiring relatively
skilled labor. The result was easily anticipated. Most migrants found jobs in the informal

81
sector: “economic activities largely escaping recognition, enumeration, regulation and protec¬
tion by the government” (Moser 1978, cf. de Soto 1989). The implications for future policy
makers was obvious: attempts at gradual “Redistribution with Growth” strategies would foil
and the disparity between dominant and subordinate sectors would likely continue to rise.
New ways of conceptualizing the problems of migration and the process of urbanization and
their consequences began to take shape.
Class and Culture Change vis-á-vis the Informal Sector
No doubt, at least some of the confusion, contradictions, and concerns about the infor¬
mal sector stems from our limited understanding of the dynamics of class conflict. Perhaps due
to the way in which we have variously defined class over the years, or perhaps because of our
inability to operationalize the way it has most commonly been defined, there exists little or no
quantitative data that can be applied to Latin American class structure (Portes 1985a). Though
they comprise the largest and most widely gathered corpus of data, occupational categories still
seem inadequate for the task of defining class. A review of the published figures shows, for
example, that the proportion of the EAP (Economically Active Population) included under the
label “employer” varies widely among countries—from less than 1 percent to over 20 percent.
This becomes even more obfuscated when occupations are classified according to the indi¬
vidual characteristics of the job rather than to the relational characteristics of domination and
wealth appropriation that are defining features of social class (Portes 1985a). Similarly, in
studies conducted at the household level of analysis, households are often assigned to class
categories based on the primary earner s relation to production (Schmink 1982:143). Unfortu¬
nately, this has meant limited consideration given to the contribution of women (Moser 1993,
Collins andGimenez 1990, Fernández-Kelly and Garcia 1989, McGuire and Woodsong 1990).
Perhaps the best defining criteria for class comes from within the Marxist tradition.
According to Eric Olin Wright, “it is possible to identify three central processes underly¬
ing the basic capital-labour relationship: control over the physical means of production; control

82
over labour power; control over investments and resource allocation” (Wright 1978). These
three familiar processes form the “real stuff of class relations in capitalist society” the polariza¬
tion of which serves as the fundamental basis of class antagonism between workers and capital¬
ist. This established, we can begin to understand the difficulty in determining class relations in
the informal sector. Since informáis are often both workers and petty capitalists, where do they
fit in?
Using the above dynamics, the formal economy can be seen to comprise three classes:
a) a bureaucratic-technical class, whose members control the physical means of production, the
labor power of others, and investments and resource allocation; b) a managerial class, whose
members control both the physical means of production and the labor power of a third class;
and c) the formal proletariat, whose members control only their own labor power. Following
this same scheme the informal sector must then be divided into two classes—an informal petty
bourgeoisie and an informal proletariat—since some workers hire laborers on an informal basis,
may own their own tools and modest machinery, and have access to limited capital, while
others are self-employed, (itinerant proletarians that hire themselves out for odd jobs and do
not employ others). Thus, after Portes, five classes of individuals are required to fully appreciate
the Latin American reality. This is a useful conceptualization because it places emphasis on the
patterns of interaction and conflict between classes, “the cleavages of which are important,” he
claims, because “they identify material interests that determine long-term political orientations
of large social aggregates” (1985a). The fundamental point is that traditional theoretical cat¬
egories used to understand advanced countries are inadequate since they fail to reflea the “dis-
tina articulation between capitalist and backward modes of produaion” that charaaerizes
peripheral countries (Portes 1985a:34).
Social Costs of the Informal Seaor
The benefits of the informal seaor—both as a source of income for the urban poor, and
as a source of often cheap labor and goods for the formal seaor—is not without its flip side. As

83
the processes of commoditization and proletarianization march forward, artisans and craftspersons
who once practiced their skills with relative leisure are typically forced to put them aside for
more “practical” jobs. In terms of these changes in cultural behavior Banerjees work in Calcutta
is especially illustrative. She describes how, earlier
Calcutta had a fine tradition for its command over many sophisticated and
delicate skills. The best handmade shoes were to be got there ... spare parts,
however sophisticated, could be reproduced ... The craftsmanship in gold,
embroidery, or tailoring was of the finest order. Now, because no craft can earn
an adequate living in the city, the craftsmen are either moving out or not being
replaced. (1982:182)
In contrast, due in part to the U.S. embargo, Nicaraguan artisans and small-time manu¬
facturers filled the large import gap by producing everything from automobile parts to rocking
chairs, thus stimulating a renaissance of self-reliant production that had faded in the Somoza
years.
It is not only such romantic notions of native culture that are affected by the increasing
informalization of the labor force. More significantly, the informal economy effects a variety of
important social, economic, and political spheres. Castells and Portes argue that the informal
economy undermines the power of organized labor in the areas of economic bargaining, social
organization, and political influence. In their view, the large numbers of individuals either
unemployed or underemployed in the informal sector provide a vast surplus labor supply that
both effectively keeps wages in the formal sector low and weakens the collective bargaining
power of trade unions. But such notions cannot be taken from their political context. While it
was true in Nicaragua that the informal economy certainly generated pressures on the govern¬
ment that affect organized labor, these pressures were not always negative. For instance, the
evidence indicated that as prices rose, so did formal wages (although rarely keeping pace with
the informal economy). The Sandinistas had to succumb to inflationary pressure, due in part,
to the informal sectors ability to control the flow of basic goods.

84
Castells and Portes argue that due to the synergy between sectors, a number of related
factors have contributed to the further erosion of labor relations. Social networks replacing
socialized labor processes, multiple intermediaries between workers and capital, and unstable
production relationships are all elements that move us closer to the “de-collectivization of the
labor process and to the reversal of the material conditions that historically allowed the emer¬
gence of the labor movement as an organized force” (Castells and Portes 1989:25). But, again,
in Nicaragua—because of the informal sectors upward pressure on prices—the Sandinistas
were under great political pressure to appease UNAG, the agricultural workers’ union. Conces¬
sions had to be made to raise the price of goods paid to producers even though such measures
meant deepening debt, increased subsidization, and thus the printing of more currency, further
fueling inflation. Still, these events ultimately led to fairer treatment of agricultural workers,
better prices for their products, and more political clout.
Additionally, the disruption of traditional gender roles, due to the segmentation of the
labor force along new lines, occurred at a rapid rate. No longer was the male head of household
necessarily the primary wage earner. This phenomenon was exacerbated by the drought in
1987 which encouraged hundreds of Nicaraguan campesinos to flee once-productive agricul¬
tural sector work to pursue infinitely more prosperous urban informal sector enterprises in
Managua. These new market positions—largely controlled by women—represented a lessen¬
ing dependency on males, the dominant breadwinner in the countryside.
Similarly, the works of June Nash (1986) and Scott Cook (1990) have shown how tradi¬
tional family relations have changed in the wake of jobs created for women (generally young
girls) in factories introduced by multinational corporations. But this trend is not just limited to
“formal” factory jobs. Women, ethnic minorities, and youth—categories of individuals whose
options were once largely limited—now become attractive candidates for working at home
(“putting-out” work), part-time work, and as temporary replacements for manufacturers seek¬
ing clandestine or informal sector assistance. The result has been the rise in popularity of “the
house husband,” the undermining of the authority of the traditional breadwinner, and the

85
subsequent breakdown of traditional forms of family structure, especially residence and mar¬
riage patterns.
Ironically, the crisis of the welfare state has been dealt an indirect blow by the informal
sector. As more state managers consent to the informalization of the economy for the sake of
political expediency and short-term growth, the more the social institutions, originally designed
to protea “marginal” peoples, are left to deteriorate (Safa 1982). This was the all-but-official
strategy in Sandinista Nicaragua for much of the 1980s. Citizens who could care for them¬
selves, albeit informally, represented a lightening burden on the socialist state that had the will,
but simply not the means to care for them.
Recent Trends in Informal Sector Research and Literature
Recent trends in the informal sector literature are perhaps most interesting not only for
the rich qualitative description they provide, but also for the many and varied theoretical and
scholarly places they have taken writers contributing to it. From discussions of the distinaions
between work, employment, and bonded labor (Harding and Jenkins 1989, Tokman 1992) to
the analysis of informal finance (see essays in Adams and Fitchett 1992), to the rich description
of “getting legal” in Peru (de Soto 1989), nearly any topic within the realm of economic
attivity has found a link to the discussions relating to the informal sector.
Education
A number of studies have recently examined the role of education and the informal
economy (Hill 1989, La Belle and Ward 1990). Some have argued that educating indigenous
peoples in their own language, for instance, has helped smooth difficult political interaaions
(Docherty 1988), but that when that has not lead to integrating them into the economy—
formal or informal, tensions still remain. The Miskitu of Nicaragua were not forgotten in the
Sandinista literacy campaign, but, even though emerging bilingual, few were employed in eco¬
nomic planning or other government agencies (Moore 1986). Still, other studies have shown

86
that a better educated workforce—even when the education itself is a product of informal
structures—will serve not only informal sector workers but also the larger economy. For example,
Nigeria’s Third National Development Plan (intended for the period 1975-80) concluded that
“small scale enterprises and the informal sector may provide the main opportunity for expan¬
sion of employment” (Federal Government of Nigeria, 1975:385; as cited by Allen 1982:124).
From this starting point and the acknowledgment that growth in the informal sector relative to
the formal sector would mean a shift over time toward a more labor-using form of industrializa¬
tion (see Weeks 1975, Bromley 1978, Sethuraman 1977, Portes and Sassen-Koob 1987, Uzzell
1980), the role of apprenticeships in West Africa are examined. Allen finds that by utilizing the
formal educational system and the apprenticeship program in Nigeria—an already well-estab¬
lished mechanism through which economic benefits can be distributed—the poor can fairly
hope to improve their social and economic position (Allen 1982:136).
Similarly, in Ghana 90% of workers reported receiving their apprenticeship training within
the informal sector. Typically, the master of an informal sector enterprise recruits youngsters
who have had some schooling and trains them on the job for two to five years for a small fee
payable at the end of the period. In return for their work, besides the training, the youth
typically receive a token sum to cover food and transportation. Of course, such an arrangement
suits the master who receives labor for much less than the cost of the going wage. A major
advantage of this system is that it prepares the trainee to become self-employed rather than
encouraging him or her to seek uncertain wage employment in the formal sector (Sethuraman
1977). Sethuraman argues that providing training to informal workers is a good social investment.
Informal Finance
Of course, once workers have the training and are starting their own businesses, the need
for credit arises, especially since it is these more highly skilled enterprises that also often require
expensive materials to be transformed. Adams and Fitchett have compiled a volume of case
studies from around the globe by thirty-one authors looking both at how informáis take advantage

87
of formal and semiformal credit arrangements as well as informal financial markets. Speaking
from his experience as a consultant on many such projects, when asked to identify sustainable
agricultural credit programs in low-income countries Adams characterizes the situation by stating:
Unlike formal finance, transactions in informal finance usually occur at the
doorstep of the clients, at their place of work, or in popular markets. I am
amazed that informal finance can provide these services to the people it does
without choking on expenses and drowning in defaults. Like the aeronautical
engineers who have analyzed bees and concluded they should not be able to fly,
I am convinced that informal finance defies the laws of financial gravity. (Adams
and Fitchett 1992:6)
Chief among the findings in their edited volume are the following:
1) Informal financial markets often include a collage of dynamic, innovative, and flexible
arrangements that are adapted to the local economic and social environment. These
arrangements are resilient and many of them are sustained efforts. Although some
forms of informal finance are contracting or disappearing, other forms are emerging or
evolving into semiformal or formal institutional forms. Clearly, informal finance does
not simply wither away as formal financial markets expand.
2) Informal finance provides other important services to participants besides loans. The
most important of these are deposit opportunities: someone must save to provide each
unit of money circulating in informal finance. Large amounts of informal loans mirror
an equally large amount of informal financial savings and many people who participate
in these activities do so because of the opportunity it offers to save.
3) Contrary to popular opinion, there is surprisingly little evidence of exploitation or mono¬
poly profits in recent studies of informal financial markets. High opportunity cost of
funds, important transaction costs, substantial lending risks, and lack of creditworthi¬
ness among borrowers appear to explain the high interest rates associated with a small
proportion of informal lending.
4) Traditionally, informal finance has been viewed as a plague on poor people. In contrast,
most of the authors of the volume argue that large numbers of poor people benefit from

88
their participation in informal financial markets. Although a few borrowers of infor¬
mal loans may encounter problems in repaying their debts, a much larger number real¬
izes a net benefit from borrowing and are able to repay their loans without difficulty.
Besides, for many of the poor, informal arrangements are a major saving technique,
while others earn a major part of their income from lending (Adams and Fitchett
1992:3-4).
Regulation
Of course, many of these informal financial market transactions operate outside the realm
of regulation—another vast area on which more and more is being written. In another edited
work compiled by one of the more prolific writers on the Latin American informal sector—
Victor Tokman—a broad analysis of the barriers to regulation and “getting legal” is compared
across eight Latin American countries. In Mexico (Elizondo 1992), Equador (Placencia 1990),
Venezuela (Cartaya 1992), and Guatemala (Sáenz 1990) the amount of time and the number
of steps required to comply with regulations regarding the registering of one’s business is near
the upper limit—from about six months to two years. In Bolivia (Casanovas 1992), Brazil
(Looye 1992), Chile (Veláquez 1990), and Uruguay (Quijano and Antia 1990), on the other
hand, the time spent in processing varies from one to three months. Typically, the amount of
time and the number of steps required is greater for industry than for commerce with Equador
topping the list at sixty administrative steps, of which thirty-four are due to a cumbersome
process of classification and skill recognition related to the promotion law. Bolivian regulations
offer the swiftest path to registration at five steps.
Naturally, standing in line is not the only barrier to complying with regulations, there is
also the issue of costs. Tokman identifies three major areas of costs significant for the informal
sector entrepreneur. First, for larger businesses costs associated with hired workers represent a
sizable barrier to compliance. This, of course, does not affect the self-employed or those using
only unpaid family labor (usually women) because they are not subject to most of the legal

89
obligations associated with benefits and contributions to social security. Second—as in the case
of entry costs—the situation varies according to country, with the costs of remaining legal
ranging from 17 to 70% of annual profits. Third, although much less burdensome than the
costs associated with labor, are income and value-added taxes. The latter affects mostly those in
the manufacturing sector with neither tax typically large due to the prevailing level of profits in
these units (Tokman 1992).
But what if such regulations and costs did not exist? To examine this question, the situ¬
ation facing taxis in Chile (Schkolnik 1992) and Peru (Chávez 1992) were considered. In each
case the aim was to assess the impact of regulation on fares, entry into and withdrawal from the
market, taxi operators’ incomes, working conditions, and the quality of service. Schkolnik
employed both neoclassical and proregulation theoretical approaches to test the hypothesis that
favorable conditions prevail when the industry is deregulated. Chávez, using more of a liberal¬
ization approach, focuses on the hypothesis that, in the case of Lima, the free market, at least as
far as taxis are concerned, does not guarantee satisfactory service, and therefore, control mea¬
sures are essential to provide a minimum of security, for both the driver and the user (1992:247).
The neoclassical theory predicts that, in any market, an increase in supply will lead to a
reduction in price and consequently an increase in the consumption of the goods or services
supplied. In this way, the increase in supply will benefit consumers as a result of the lowering of
prices and will not prejudice the suppliers because their overall income (price x quantity) will
remain the same. But this does not hold true for the taxi industry for two reasons: 1) drivers
lowering their prices have no effective way of informing the public of their lower feres, and 2)
the elasticity of demand remains high irrespective of price. Further, even when the state does
not regulate the cost of the initial fare, the unions typically do, and price competition ceases to
be pan of the equation. Thus, both authors conclude that regulation, in the case of the taxi
industry, helps not only protea the income and employment of drivers, but also serves to
ensure prompt service and safety for their passengers.

90
Growing Corpus of Case Study Evidence
Lastly, besides a broad cross section of case studies from around the world upon which to
draw—Peru (de Soto 1989), Nairobi (House 1984), Zaria, Nigeria (Remy 1982, and Allen
1982), Bogata, Columbia (Peattie 1982), the United States (Portes and Walton 1981b), Accra,
Ghana (Sethuiaman 1977), New York City (Sassen-Koob 1989), Miami (Stepick 1989), the
Soviet Union (Meyendorff 1991) and Mexico City (Beneria 1989) to name a few—a number
of studies have focused particularly on women. In Brazil (Schmink 1982), Japan (Hill 1989),
Honduras (Danes, Winter, and Whiteford 1987), Mexico (Cook 1990, 1985, 1984), and
Catalonia, Spain (Narotzky 1990) the majority contributors to informal activity—women—
have been examined for their often times unique and unpaid contribution to social reproduction.
While not all of these studies focus primarily on the unpaid wages of women, most have
considered this often unseen, often underestimated element as an important part of the contri¬
bution women are charged. Thus, besides being actors in every capacity from owners of large
scale businesses to producers of petty commodities to street vendors, the activities of women—
much more so than men—also includes a variety of work without wages. Principal among
these types of work are domestic labor and housework. Women also tend to perform much
more of what has been termed “shadow work,” that is, the unpaid work involved in selecting
and purchasing consumer goods, time spend commuting to work, the labor involved in com¬
plying with bureaucratic regulations, volunteer work, etc. (Collins 1990). Perhaps most sig¬
nificantly, “self-provisioning” or “subsistence production”—labels applied to labor invested in
the production of food or other items for direct consumption—have allowed much of the work
conducted by women to escape formal recognition.
Conclusions
While the early conceptualizations of the informal sector—rooted in the “marginality”
tradition—were highly ethnocentric, advances in our understanding of the dynamics and inter¬
relatedness of the informal with the formal economy have moved us beyond this naive approach.

91
It also appears that much of our earlier understandings were fomented from the murky waters
of class discrimination. But as case studies better illuminated the truly diverse nature of infor¬
mal life and our understanding of class composition grew increasingly refined, our research of
this growing phenomena has been gready facilitated.
I make the argument that the informal sector does not necessarily stand by as a reserve
labor pool for the formal sector since—due to the ever-present resourcefulness and occasional
prosperity of the informal sector—formal sector wages will not always be elastic enough to
draw them in.
I argue that it is this resourcefulness that renders foolish any attempt at an all-encompass¬
ing definition of the informal sector since any such attempt will always be vulnerable to the
incredibly boundless innovation of those seeking to improve their quality of life outside of
formal sector wage labor. Indeed, any attempt to “capture” the essence of the informal sector
reality will ultimately serve to foster new forms of its manifestation.
What remains to be seen is how much longer writers on the subject will continue to
attempt cross-cultural definitions of the informal economy in light of the uniqueness of their
ethnographic accounts. This inviting trap is made more treacherous by the fact that our lan¬
guage does not readily lend itself to expressing opposing concepts in other than dichotomous
terms. Indeed, even those who acknowledge the informal sector is part of a continuum of
economic activity, have difficulty consistently phrasing their conceptualizations in other than
dichotomous terms. Perhaps it is time to recognize that the informal economy defies descrip¬
tion beyond seeing it as a part of the complex process of economic articulation and that what
we should strive for is an understanding of how it fits into the political, economic, and social
milieu.
In the next chapter we move from this broader discussion of the informal sector to the
specifics of the Nicaraguan case. Here the hypotheses introduced in the first chapter are exam¬
ined and tested with data from ninety-eight household surveys. As the principal ethnographic

92
chapter, I fill in a bit of the foreground with the accounts of a number of informal friends and
families whose survival strategies provide testimony to the extremely trying economic times at
the end of the pre-Chamorro Sandinista reign.

CHAPTER 4
SURVIVAL STRATEGIES FOR THE
ECONOMIC JUNGLES OF MANAGUA
Unlike in Peru, where the informal sector is subordinate to the formal
sector, in Nicaragua, the formal sector is subordinate to the informal
sector.
—Peter Marchetti, Jesuit researcher in Nicaragua
Life in ihe Informal Scaor
Every morning between 7 o’clock and 7:10 AM doña Olga clanks the padlock hanging
from our gate to hand deliver two newspapers from the mountain she carries on her head.
Since I am a regular customer, papers are left even if there is no one to answer the call. Appar-
endy, my credit is good. On her daily route, la doña stops to chat with friends along the way
and catch up on neighborhood happenings. She, thereby, delivers not only the freshest printed
news, but also the latest by word of mouth. News travels fast in Barrio Altagracia.
Olga Montero Hernandez is 55 years old and lives in nearby Barrio Berta Calderón in a
two-room wooden house with her daughter and seven grandchildren. The youngest is three
months old and sleeps in the front room in a small, rough-hewn crib. When I visited it was
nearly Christmas and numerous religious artifacts from previous (apparendy more prosperous)
Christmases, adorned the walls along with many cleverly constructed classroom works of art.
The site is on a dirt road just a few yards from a large drainage canal that becomes torrential in
the wet season but, in mid-December 1988, was good and dusty.
93

94
Although quite modest, the 180-square-foot house supports a roof with several shiny,
new sheets of zinc—a gift from Miguel, the agent from whom she buys her copies of El Nuevo
Diario. She says that Miguel felt badly it was so wet in the house and that he wanted the new
baby to have a better environment to live in. There is an old black and white television in the
front room that was a gift from one of her sons who was away in the Sandinista army fighting
the contras. “There are only four beds, so,” she says, “at night we roll out the mats and sleep
like sardines. During the day we close the beds, but as you can see, there isn’t much room for us
to move around.”
Doña Olga has lived in this same house for thirty-six years. The rent is C$1000 a month
(about 40 cents in December 1988). All the kids in the house (there are six between the ages of
10 and 16) help with selling the newspapers. “Everyone sells papers in the mornings and
studies in the afternoon,” says la doña proudly in her steady, clear Spanish. “I want them to get
a good education so that when they get older, God willing, they can find a good job. Hopefully,
by then there will be peace.” Doña Olga participates in the local CDS (Sandinista Defense
Committee)—a neighborhood block organization1—and tells me, “We go to mass. This is a
very close, religious community and most of the people here attend church regularly.” When
asked how her life compares to that of her neighbors, she replies that “there are some that are
poor like us and others different, some earn a lot and have trucks and the like—they receive
money from their families in the States.”
When asked about the advantages of living in this barrio doña Olga replied, “there isn’t
anyone here who collects taxes. Everyone leaves us alone. This is a marginal barrio.” Indeed,
its name does not even appear on the only map of the city, where it is shown as part of adjacent
Altagracia. “In your barrio,” she tells me, “you live near the president and everyone pays atten¬
tion to what goes on there, but here they leave us in peace. As for advantages, there really aren’t
any. What we discuss at the CDS meetings are the things that we need and what we need most
of all is a CDI (day care center). Other barrios have them but here we have nothing, and here
there are many single mothers who work. A CDI would be a great help.”

95
When I asked about the best number of children to have she said, “two is the best number
nowadays because you can’t afford to have more. It costs a month’s salary for a birth and that
doesn’t include taking care and feeding.” As for birth control, doña Olga believes that a woman
should be able to take birth control pills but that an operation (for sterilization) is better. “And
both the man and the woman should share the household tasks because both generally have
jobs.” Given that she sells the three major newspapers every day, doña Olga could easily be
considered the local authority on public sentiment and the press. Her perception? “Well, La
Prensa [the opposition newspaper] is the bestselling, but El Nuevo Diario is the most instruc¬
tive. I am not a Contra nor am I a loyal Sandinista, but there are lies in La Prensa." La
Barricada, the official newspaper of the Sandinistas, fared somewhere in between. Despite not
being a loyal Sandinista, when asked her party preference she said, “the four letters.” “What?”
I asked, not understanding, at first. “El FSLN,” she replied (Frente Sandinista Liberación Nacional).
If doña Olga sells all the newspapers she buys every day she makes about C$120,000 or
48 dollars a month. That is 200 papers a day—El Nuevo Diario, La Prensa, and La Barricada
combined, and takes her about nine hours to sell. Her daughter, Carina, makes only about
C$25,000 a month working as a secretary in the offices of ENABAS—a state agricultural insti¬
tution. Of course, as a state worker, she has benefited from small quantities of rice and beans
distributed at work, but even with the CAT (the food subsidy for formal sector workers explained
below), while these benefits help, they are scarcely enough to keep the children suitably fed.
As far as her expenses are concerned, like most Nicaraguans with whom I spoke, doña
Olga claimed to have little idea what she spends (with prices raising every day, it is little won¬
der). With a little prompting, however, she was able to give me what seemed to be a fairly
accurate accounting. After careful consideration, her expenses amounted to just a bit more
than her income—a difference that could easily have been made up with Carina’s salary. The
items she could think of were: C$400 a day on tortillas; C$3000 for two pounds of meat once
a week; two pounds of rice (C$400) and about a half pound of beans (C$175) each day; she
spends C$8000 on oil a month; soap costs C$2600 a week; plus about C$2000 in incidentals

96
each day. La doña also pays a young woman named Marta to help her with the clothes washing.
Marta gets C$200 twice a week. This comes to about C$121,250 each month ($48.50 at the
current exchange rate—within 50 cents of her reported income). As far as her access to credit—
“¡No hay nadar (an often-used Nicaraguan phrase for “there isn’t any!”). “If you don’t own your
house, the bank won’t lend you any money. It used to be that you could buy things on easy
credit. People would let you pay by the month for a clothes chest or a chair, or something like
that. You could pay maybe 10 pesos2 a month. Nobody sells this way anymore.”
About her job she says, “Se vende, se gana, no se vende no se gana, no hay dinero fijo.” (“If
one sells then one earns, if one doesn’t sell, one earns nothing, I don’t have a fixed income.”) I
heard this saying often enough to consider it a central tenant of the informal sector work ethic.
Without complaining, doña Olga confessed that she really did not get enough sleep because she
has to get up at 3:00 AM to sign papers when they deliver the newspapers to her door. Con¬
cerning the government, however, she was somewhat less stoic, “they raise prices and raise
prices and raise prices. I don’t agree with this. Now, I can’t pocket anything.”
Although fairly pessimistic about the future for her children, her old age, and better
economic conditions for the future, she was one of the few I had spoken to that had hope for
the future of peace: “I hope God gives us peace so that these little chavalos3 you see here don’t
have to go to war. 1 have to be hopeful.”
Multifaceted Survival Strategies
While doña Olga’s situation was not a unique one, neither did it represent the majority of
households sampled. (Since her daughter was a government employee and Olga does not
receive a fixed wage, her household strategy is a mixed one—formal and informal sector jobs.)
Figure 4.1 shows the distribution of households in the study that had workers in the formal
sector only, the informal sector only, and those that employed a “mixed strategy”—combining
incomes from both formal and informal jobs. Although the advantages of this strategy are
difficult to demonstrate quantitatively (for a variety of reasons I discuss in the following chapter),

97
there were a number of ways in which cases like doña Olga’s lent support to the hypotheses that:
1) households with workers in both formal and informal sectors were better off than those
households whose workers were restricted to only one sector of employment; and 2) individuals
employed in informal sector jobs were generally better paid than those in formal sector jobs.
While the specific advantages for such a mixed strategy varied from time to time during my
field stay, the advantages continued to complement each other as conditions changed.
Figure 4.1: Number of Households in Each Strategy
The first goal of this chapter is to identify some of those conditions that caused families to
seek incomes from both sectors, to speculate in goods and currency, and to continuously reevaluate
their position vis-a-vis the rapidly changing economic conditions. The intent here is to exam¬
ine—stitch by stitch—some of the patches of the intricate quilt of Nicaraguan life. Thus
examples of the benefits of working in each sector are examined from an ethnographic context.
The second goal is to explore a variety of case study experiences that provide a fairly representa¬
tive sample of the types of lives that make up some of the backing and heft of this patchwork.
I begin with a discussion of the food subsidy system in place during the mid-to-late
1980s. While not necessarily the centerpiece of the economic reforms, this system does represent
the Sandinista’s desire to redistribute wealth to the working class—one of the central tenants of
the mixed economy.

98
Access to Low Cost. Subsidized, Rationed Goods
In May 1984—for the first time since 1980 when production and control of prices for
basic grains first fell under state domain—MICOIN (Ministry of Internal Commerce)
announced a 50% reduction in subsidies to the products in the basic shopping basket. This
subsidized collection of goods make up most of the canasta básica,4 as it is called, and ultimately
also included various articles of clothing and sundries. In June, the distribution channels for
rice, soap, sorghum, cooking oil, and salt were added to the eleven original commodities that
had been nationalized shortly after the triumph of the revolution. Later, in August, MICOIN
announced it would further attempt to influence production and keep prices affordable by
expanding price controls to twenty-one basic products. In an effort to keep production high
and debt at a minimum, all increase in prices paid to the producers were passed on to consumers.
At the same time, the supply of eight products were guaranteed by means of a workers ration
card or “Tarjeta de Abastaciemiento del Trabajador. ”
A month later, on September 24, 1984, products which were in short supply in the assured
channels began to be sold in supermarkets. These products were sold with no limit on quantity
and at prices higher than the official ones, but lower than those of the black market (Cuenca
1992). On February 8, 1985, the subsidy on basic goods was reduced by another 50%, while,
by June 1987, the list of controlled goods had risen to fifty-four.
Two days after I arrived in Managua—on May 5, 1987—the government took special
measures to guarantee minimal supplies of basic goods to salaried workers. Even though short¬
ages of cooking oil, sugar, rice, and powdered milk were more severe than ever, salaried workers
found that they could obtain these goods from time to time directly through their place of
work. Although rarely obtainable in sufficient quantities at the official outlets, these subsidized
goods helped supplement wages that had been steadily eroded by inflation that would rise
33,000% by the end of 1988.
At the center of this system of subsidies was the worker’s ration card—commonly known
as the CAT—which served as one of the primary incentives to stay with one’s formal sector job.

99
The card allowed those formally employed to purchase essential items from supermarkets and
expendios at greatly reduced prices. For example, in February 1988, toilet paper could be
purchased for C$1,000, or about five cents a roll at the official rate. Unfortunately, one was
limited to only two rolls per month at the subsidized price. In the open market—at the Mercado
Oriental, for instance—where quantities were unlimited, the cost was C$10,000. Similar sav¬
ings and quantity restrictions were available with the CAT for a variety of other products:
powdered milk, rice, beans, sugar, bath soap, tooth paste, sanitary pads, shaving cream, deodor¬
ant, shoe polish, matches, batteries, light bulbs, etc. These items were available on a monthly
basis—at least, theoretically. The maximum number of items was generally listed on the card
but, the reality of the situation was that items were always limited by availability and rarely were
all the items obtainable. The main problem was that when certain items—particularly rice and
beans—garnered a much higher price on the black market, the commodities were often diverted
and rarely found their way to state outlets for distribution. So, while the government attempted
to regulate all grain production and distribution, it was still possible for goods to find their way
to informal markets where Nicaraguans were willing to pay as much as 10 times the official
price. In effect, the Nicaraguan safety net was being short circuited.
Figure 4.2: Average Monthly Expenses by Household Job Sector Mix

100
Given this elaborately conceived system of subsidy designed to benefit formal sector work¬
ers, one might expea that households with formal workers would have a smaller monthly
grocery bill. Figure 4.2 demonstrates that this was not necessarily the case.
Contrary to my expectation, formal-seaor-only households reported the highest expenses
for food, while informal-seaor-only households reported the lowest. There are several possible
explanations for these findings: 1) Formal and mixed seaor households spend more because
they have a more regular income, and hence eat better; 2) Informal seaor households either
under-reported or underestimated their expenses; 3) Informáis live more simply; 4) The number
of persons in the household is an intervening fáaor coloring the outcome (see Figure 4.3); 5)
Informal seaor households spend less because they are able to barter more readily for goods
they need on a daily basis. These trades are not considered part of the monthly household expenses.
Expenses by Sector of Employment
6000n
to
K
5
fi
t
z
o
type of HH Strategy
HEformal Sector Only
E2informal Sector Only
E3formal/informal Jobs
Small
medium
LARGE
Size of household
Figure 4.3: Food Expenses by Household Job Seaor Controlling for Household Size
The chart in Figure 4.3 shows that medium (3-9 member) and large (10+ member) fami¬
lies tend to spend more if their members are employed in both informal and formal seaor jobs
than do families of similar size whose members are employed in either the formal or informal

101
sector (but not both). This relationship reverses itself in smaller sized families (1-4 members)
and could be explained, in part, as an anomaly of the small sample size (n=7) since, by definition,
smaller families have fewer members to spread between sectors. The weak partial correlation
score (Pearson r= -.0143 with p= .909) further suggests that even when family size is controlled
for, formal sector households spend neither more or less on groceries than do informal or mixed
sector households.
More importandy, these data suggest that the rationing system—reserved as it was for
formal sector employees—cannot be seen to represent a significant cost savings. This partially
reinforces the thinking that formal sector households were not any better off because of this
benefit, and indeed, in most cases, needed (or chose) to spend more to support their families.
Rationing Rules and Product Availability
Besides the food items, another group of goods available with the CAT on a semiannual
basis consisted of clothes—pants, skirts, underwear, blouses, socks, etc. On the front of the
card, the holder’s official outlet was stamped—either their local supermarket, expendio, or com¬
missary at their place of work. Typically, factories and hospitals had their own commissaries
from which workers would emerge with armloads of goods not available elsewhere. The card
also indicated whether the sector in which one worked was classified as productive or not
productive.
Of course, there were a number of rules associated with the use of the card. First, the card
needed to be officially stamped every other month to insure that the person was still working.
Only one card was issued per person, regardless of the number of formal sector jobs. Thus,
even though my colleague, Róger, had two formal sector jobs: one at IN IES, a research insti¬
tute, and one teaching at a high school, his unique employee number—like a social security
number—insured that he would be issued only one card. The rules stated the usual list of
conditions: the card was only for the benefit of the worker and can only be used by him/her;
it was not valid with erasures or changes; it could not be used to buy items for speculation;
MICOIN reserved the right to revoke the privileges, etc. As it turned out, even when goods

102
were available, sometimes the savings would simply not be worth the extra trip required to the
supermarket when all of one’s other shopping needed to be done at the mercado. This is not to
mention the hours spent in line waiting to check out at the supermarket cash register.5 Ulti¬
mately, the CAT became so unreliable for obtaining goods that it was mosdy abandoned by the
people even before the program officially came to an end.
Cost c>f living Raises and Government Raids
At about the same time the rationing system was being phased out, the monetary reforms
of 1988 offered the formal wage laborer the first real wage hike in years. For a short time at
least, formal workers realized an economic advantage over their informal sector counterparts.
With the absence of the grain subsidy in the formal workforce, the Sandinistas turned their
attention and resources to providing guaranteed, low-cost basic grains to all workers. One
mechanism of this broadened altruism was a high-profile, blitzkrieg, albeit short-lived, war
waged against grain speculators and informal market vendors during February 1988. Ware¬
houses of rice and beans that had been purchased at much higher prices, now had to be sold at
what seemed ridiculously low, government-controlled prices. As the Sandinista interior police
swept through the Mercado Oriental, the result was short-term hardship for some and a quick
gain for others.
The “Iron Fist” revisited. What happened in the Mercado Orientál that week was—by
anyone’s account—mind-boggling. Where normally hundreds of vendors had crowded together
hawking their goods from tripod tables, baskets, and blankets—leaving only the narrowest of
passageways—now not a single vendor stood in the broad, littered streets. The MINT (Minis¬
try of Interior) police had routed them out or barred their entry in the early morning hours
citing their activities as illegal and no longer tolerable. The police also emptied several ware¬
houses and, in some cases, sold the goods at the newly established official prices (well below
their real market value) and returned the money to the owners. Many of these raids occurred at
4:00 AM, so there was little opposition from the speculators. In the wake were left long lines
for rice and maize—now available from far fewer vendors. As usual, La Prensa, the opposition

103
press, portrayed this as a direct attack against the informal sector by the Sandinistas, though, in
fea, most of the confiscations were made against well-established, formal markets vendors who
had made substantial investments in grain speculation.6 The move was not unlike the “Iron
Fist” operation carried out against speculators and profiteers in February 1983.
On the day of the first closures, a new currency was also being introduced along with a
full slate of pricing and macroeconomic policy changes. Even many “legal” stalls—normally
open on Sunday—were locked shut, partially owing to the confusion and uncertainty about
the value of the Córdobas Nuevas, the new currency.
Reaaions to police crackdown. I asked several of my favorite vendors what they felt
about the changes and, as was typical, completely different responses were received from each.
The first two women were formal, officially-licensed vendors: Lita sold plants and Marta owned
the ceramics shop next door. When I approached they were talking to each other about the
freshly cleared street. With hands tucked in apron pockets and shoes unlaced, they both seemed
to have mixed feelings about the changes. They were skeptical that the measures would benefit
them in the long run. Lita complained that—with so few vendors—prices were already rising.
In the past, it was possible to get food cheaper from the many informal seaor vendors that
occupied space in front of their stands. Thus, while there never seemed to be much of any
competition7 among street vendors, in their absence, prices for everything but the basic grains,
had risen more rapidly.
After years of being visibly buried by the dense-pack of informal vendors, Lita and Marta
now enjoyed the luxury of a store front that could be seen from the street. Both said the
greatest benefit would be that now they would be able to expand. As a formal vendor, Lita paid
only C$110 for her license and had to pay taxes at four different places, which amounted to
roughly C$48 (about $5.00) a month.
The second group of women I spoke to were selling gaseosas (Coca-Colas, etc.) out of a
large, hand-drawn, rough-cut wooden cart. The two wooden wheels were wrapped with a strip
of bald tire. Each wheel was held onto the iron rod axle by a broken screwdriver. They seemed

104
to be very conscious of the large numbers of police wandering around and kept looking over
their shoulders as they spoke. They would not come right out and criticize the ouster of their
former vendor-colleagues but implied the steps were useless. They said that what was being
attempted had about as many disadvantages as advantages, but that it didn’t really matter because,
in the end, things would soon return to normal.
The last woman I spoke to approached me as I was raising my camera to record the newly
abandoned avenues of the inner Mercado Orientál. Her stance was clearly pro-government
and she was anxious to offer her opinion. She believed that the merchants operating freely in
the streets of the Orientál last week were the economic manifestation of the counterrevolution.
She felt that they had kept the prices inflated and that, although prices rose with the new
economic reforms, things would now begin to stabilize. She said that, “no doubt about it, this
is a very exciting time for the economy.” She also felt that the problem was obviously going to
be one of supply. Still, she acknowledged, “we shall see how long the MINT police and the
Sandinistas can keep up their vigilance in keeping the black marketeers away.” Another man
said, “they are now at home—but wait.”
The major disadvantage to the consumer was that it was no longer possible to find many
items that were once available on the street—particularly ferreteria-xype items. These floating
hardware stores of new and used items had become one of my favorite places to look for things
to keep my bike, car, and household running. Their disappearance meant that, to find such
items, one would have to shift to the more expensive formal stores located around town. Also,
of course, hundreds of people lost—if not their jobs—their job sites overnight. Where would
they go? When would they reappear? Was the Sandinista will and popular sentiment against
them strong enough to keep them away for very long?
As it turned out many stores were closed for weeks simply because the vendors did not
know what to charge. This was true even for a number of government stores. Others refused to
sell their goods at the government-controlled prices or to be put out of business by the MINT
police. Many temporarily closed their stalls or moved to another market until the police presence

105
dissipated. As my market friends anticipated, that took about a week. In the meantime, many
warehouses stockpiled with hoarded, controlled goods—mosdy rice, beans, and maize—were
uncovered and the police continued to supervise the sale of the goods at artificially low, official
prices—much to the simultaneous glee of consumers and dismay of speculators.
Psvcho-Economic Factors as Strategy
As Peter Marchetti, a Jesuit researcher who had studied the informal sector extensively
once said, “unlike in Peru, where the informal sector is subordinate to the formal sector, in
Nicaragua, the formal sector is subordinate to the informal sector.” While not as institutional¬
ized as the formal sector advantages, a number of psychological factors pervaded the Nicara¬
guan reality that served to keep the informal sector in control. Among these was a prevailing
speculative and inflationary mentality. Those working in the informal sector managed never to
miss an opportunity to turn the high rate of inflation—and the fears around it—to their eco¬
nomic advantage. The mechanism for this was a simple one that I saw demonstrated one
morning during a visit with doña Luisa.
The Inflationary Mentality and its Many Manifestations
Doña Luisa was standing over her charcoal-fired metal drum, making her widely coveted
tortillas, when I came to see how she was doing and to catch up on her perception of the price
of things. Her tortillas were larger, thicker, and tastier than any I had ever found and they rarely
lasted past 10 AM. As I enjoyed one with coffee, our conversation eventually wound around to
the black market exchange rate, as it usually did. We were both surprised to discover that she
had not yet heard that the official exchange rate for dollars had risen to C$342 to one the week
before. She still thought the rate was at C$250 and that the black market rate was still around
C$300. With this news she turned to Wilma—her hired assistant—and announced that they
would now be charging C$40 for three tortillas instead of C$20 as they had earlier in the
morning. The first woman that came by was a little shaken by the sudden increase in price but

106
listened forbearingly to the usual litany of excuses. “Oh, how the cost of corn is going up!
Then there’s the grinding, transport, firewood....” Nevertheless, the poor woman left her tortilla
cloth in the pile with the others, although she was forced to halve her order.
This pervasive inflationary mentality served to fuel the ongoing spiral of price increases.
No one wanted to be the last to raise prices—regardless at which price goods were purchased.
Thus, few informal vendors felt any incentive to offer competitive prices and most Nicaraguans
accepted that the price “is what it is”—no matter how out of line with relative prices it might
be. Very rarely was any attempt made to negotiate the price for basic goods.
On another occasion, almost as if governed by an unseen collective consciousness, the
price of many goods rose abrupdy by 100% and more. The Coca-Colas that were C$350 the
day before suddenly rose to C$800 at my favorite street-side stop, and were said to be C$1000
elsewhere. Frescoes (fruit drinks) at the hospedaje Chepitos climbed from 500 to 700 overnight.
Meals at doña Luisas comedor Aso jumped from 2000 to 3000. All of this inflation was precipi¬
tated by the mere mention in the morning papers that wages for government officials would
soon be raised by 30%.8 This seemed to have given carte blanche to everyone to raise prices.
Again, everyone claimed that the cost of things was going up.
The ever-balanced wage hike/price rise equation. Don Manuel was one of the short-term
beneficiaries of the rise in state wages mentioned above. I met Manuel on a quiet Sunday
afternoon in the old Cathedral, which had been largely destroyed in the 1972 earthquake. We
both seemed to have come to enjoy the peacefulness of the sun shining through the iron lattice
that remained where the tile roof used to be. Manuel had lost both hands in an industrial
accident a few years ago and seemed to have adjusted quite well to his two metal prosthetics.
His accident occurred when he was working as an electrical engineer and was hit with 30,000
volts. Now he worked in the Palacio Nationál in the Ministry of Finance. He told me that as
a government functionary he made C$55,000 a month, but when his wage hike comes into
effect, he will retroactively receive C$96,000 (about $16).9 Unfortunately, even with the wage
hikes, government jobs did not have the drawing power to attract many qualified engineers or
lawyers, who could easily make as much as C$ 180,000 a month in the private sector.

107
When 1 asked him how much a person who sells Cokes on the street might make, he said,
“they are millionaires.” Although optimistic, don Manuel realized that, by the time everyone
raised their prices based on news of this latest round of salary increases, it would be virtually
meaningless. In his own words, “the equation is always balanced.” When asked about the
degree of unemployment, Manuel told me “there are plenty of jobs, but people don’t want to
work because they can make more money in the mercado negro."
Although he identified himself as a supporter of the Sandinistas, Manuel believed that
there were a number of problems that contribute to the chaos in the country. He felt strongly
that: a) the government should be controlling prices; b) many people were unqualified for the
jobs they held because they were given the jobs as political favors in the wake of the qualified
people leaving when Somoza fled; c) there were too many bureaucrats; d) many of the prob¬
lems of the economy could be solved if it were not for the Contra war. He qualified this last
item by stating that “all the problems would be different without the war.” Manuel thought the
Sandinistas were not very good administrators. “But,” he said, “I like their political ideology—
if only they could pull it off.”
Other inflationary fire starters. Not only does a rise in the official rate of exchange or
government salaries send out inflationary shock waves; but an increase in the price of transpor¬
tation—be it a rise in bus fares or gasoline—also causes informal sector traders to fire off another
round from their pricing gun. In September 1987—on news that the country had likely received
its last shipment of petroleum for the year and that the price of gasoline was going up from
C$180 to C$500 a gallon—vendors everywhere at least doubled the price of their goods.
These examples of the inflationary mentality demonstrate exactly what the Sandinista
government was attempting to combat in the Monetary Reform of February 1988. With the
campaign slogan: “These córdobas are worth something!” they sought to educate the people
about the reasons for the new currency. The hope was to overcome one of the key factors
fueling inflation—lack of confidence in the national currency and its stability. But, as we shall
see with another new currency—the córdoba oro of President Chamorros reform, this lack of
confidence in the córdoba persists with a vengeance.

108
Of course, besides the psychological, macroeconomic factors also contributed to infla¬
tion. One of these was the problem of supply. Goods in Nicaragua, especially during the time
of the U.S. embargo, were in very short supply. Even domestic production had faced some hard
years of drought, the devastation left by Hurricane Joan,10 crops burnt by the contras, and
campesinos relocated by the Sandinistas. If one adds the problem of the inorganic emission of
capital (printing money) to the elasticity of a broad array of goods, one can see why this classic
formula for hyperinflation reached its zenith at 33,000% by the end of 1988.
Speculation as a Wav of Life
But not only could informáis rapidly respond to price and exchange rate fluctuations in
the formal economy, they also often had the financial wherewithal to speculate on goods that
were likely to rise in price in the short term. Whether it was a small case of cookies that one
buys at the supermercado, along with an investment in some plastic bags that turns a one hun¬
dred percent profit in a day, or a quintal of beans that will be worth three times as much in a
month, the speculator takes on very little risk. This was true especially in an economy strapped
with such hyperinflation.
PERCENTAGE OF ONE VS. TWO JOB HOLDERS
Two Job Holders
18.0/10.8%
One Job Holders
148.0/89.2%
Figure 4.4: Workers with One or Two Jobs
Indeed, in one form or another, nearly everyone who could afford to, speculated. But
only those already established as merchants with oudets of one form or another could readily

109
speculate for profit. Few wage earners could devote enough extra cash to speculation to make
it worthwhile. Besides, the work day was already long enough such that the vast majority of
people interviewed did not have time or energy for second jobs (see Figure 4.4).
Predicting Quality of Life From Household Sector Mix
Household Earnings and Quality of Life
Given the benefits associated with working in each sector, it became reasonable to test
whether or not a household does best when its members hold a combination of both formal
and informal sector jobs. Besides the evidence suggested by the qualitative data, support for
this hypothesis was also found among the quantitative data.
To conduct this analysis households were divided in two ways. First, simply into two
groups: 1) those whose members all held job in only one sector—either informal sector only or
formal sector only, and 2) those households comprised of members in both sectors. I refer to
this division of households as the “Household Job Sector Mix.” It has been represented by the
variable STRAT2. A second way households were divided was into three groups—separating
out the single sector strategy mentioned in the “Household Job Sector Mix” into informal
sector-only and formal sector-only households. This grouping is referred to as the “Household
Sector Strategy” and thus, consists of: 1) formal sector only households, 2) informal sector only
households, and, 3) mixed sector households (with both informal and formal sector workers).
STRAT3 is the variable used to represent “Household Sector Strategy.”
The relationship between this Household Job Sector Mix (STRAT2) and household earn¬
ings—when kept in its original ratio form (HH_EARNS)—displays a tendency that offers
strong support for the notion that mixed sector households are better off than single sector
households (Figure 4.5). As we shall see, among the three ways of measuring whether or not a
household was better off—earnings, material quality of life, and perceived quality of life—
household earnings provided the strongest evidence to supports this hypothesis.

110
»
z
z
X
<
tu
o
J
o
3
to
D
O
I
EARNINGS BY HOUSEHOLD SECTOR STRATEGY
MN
IM#
MM
IIM
ItM
«IM
WM
Single vs. Mixed Sector Strategy
Figure 4.5: Earnings by Household Job Sector Mix
Stria statistical significance was not attained using the ratio variable for household earn¬
ings (HH_EARNS), however, and a new variable was created dichotomizing earnings into two
groups—high and low income earning households divided at the median (HH_EARN3). The
two-tailed results of the association with this new earnings variable and STRAT2 (households
as grouped in Figure 4.5) provides evidence that supports the hypothesis (Pearsons r= .2575,
p= .020). When the STRAT3 variable—“Household Sector Strategy” is used, although the
strength of the relationship is weaker, it is still significant (Pearsons r= .1981, p= .074). This
relationship is depiaed in Figure 4.6.
Hi/Low Earnings by Household Strategy
1.8
Formal Sector Only Formal & Informal
Informal Sector Only
Type of Household strategy
Figure 4.6: High/Low Earnings by Household Sector Strategy

Ill
Thus, in both cases (using the dichotomous Household Job Sector Mix as shown in
Figure 4.5 and the Household Sector Strategy groupings as shown in Figure 4.6), when com¬
pared with the dichotomous variable for earnings (high/low), the results do support rejection of
the null hypothesis. This offers statistically significant quantitative evidence that households
employing a mixed sector strategy were better off than households with a single sector strategy
(hereafter, the Household QoL Hypothesis)—at least as far as household income was concerned
Material Quality of Life
Household income was, of course, not the only indicator used to measure quality of life
(QoL). A Material QoL index and a Perceived QoL index were also employed to test the null
“Household QoL Hypothesis.” Material QoL is an index created from a weighted list of house¬
hold and personal possessions, house materials, property, and livestock owned by a household
(defined in greater detail in the following chapter). Data for this variable are available for 87 of
the 98 cases. In Figure 4.7, we see the Material QoL score broken down by each of the three
types of household strategies for the 87 households. Although not truly ordinal and the Pearson
correlation coefficient is low (r= . 1898), this association should be considered weak, even though
significant at the p= .088 level. The graph suggest that mixed-sector households have a higher
Material QoL than informal sector-only households and that informal only households score
higher than formal sector-only households. This relationship lends mild support for the House¬
hold QoL Hypothesis. When, however, a similar analysis was conducted by comparing the
Material QoL index score with the dichotomous STRAT2, the correlation was not significant.
Perceived Quality of Life
Similarly, we find that when formal sector-only and informal sector-only households are
compared with households containing workers from both sectors (as with the Material QoL
Index analysis in Figure 4.7), the Perceived Quality of Life Index also favors the muted house¬
holds. The charts (Figures 4.7 and 4.8, respectively) show that while mixed sector households
score highest with both indicators, formal sector-only households have a lower score on the

112
Material QoL scale and a higher score on the Perceived QoL scale than do informal sector-only
households.
Expenses by Household Strategy
Formal Sector Only Formal&Informal Jobs
Informal Sector Only
Type of Household Strategy
Figure 4.7: Material Quality of Life by Type of Household Strategy
Thus, both types of “single sector” households are worse off than mixed sector house¬
holds on both the Material and Perceived Quality of Life Indices. Why then, do the formal
sector-only and informal sector-only households vary inversely (although, not significandy)
when compared with each other? Put another way, why do formáis score lower on material
quality of life, yet they claim to be more satisfied with their quality of life than informáis?
There are several potential reasons for this. First of all, the indicators were not designed to
mimic each other. Having more material goods does not necessarily mean that one is more
satisfied with their religious and political freedoms, the amount of sleep they get, nor their hope
for the future. This phenomenon could also partially be due to the fact that shortly before the
bulk of the interviews were conducted, state workers were given pay raises and had more to be
optimistic about than in several years. Informáis, on the other hand, had been treated harshly
by the government, often had to work long hours for their “economic advantage” and, by the
nature of their day-to-day income, may not have felt as financially secure. Then again, the
difference was not statistically significant.

113
Figure 4.8: Perceived Quality of Life by Household Sector Strategy
Individual Earning? Hypothesis
Having examined the “Household QoL Hypothesis” and found enough statistical evi¬
dence to reject the null hypothesis, we turn to the other primary hypothesis. Formally stated:
there exists no significant difference between the fixed wages of individuals employed in formal
sector jobs and the earnings of individuals in informal sector jobs. Since state jobs and private
jobs were both formal sector employment, these “Job Type” values, depicted separately in the
x-axis of Figures 4.9-4.11, were recoded to fit into the “formal” category of a new, dichotomous
formal/informal variable for statistical purposes. The following charts show the relative earn¬
ings of the first and second jobs of the interviewee and the first job of the second person in each
household. Although Figures 4.10 and 4.11 appear to be dramatic, only in the case of the
second person’s job (Figure 4.11) is the association statistically significant (r= .2647; p= .063).
Hence, while some evidence supports it, at this stage of the analysis, we are not able to reject the
null “Individual Earnings Hypothesis” with much confidence.
This suggests that, except when households are divided into categories of single versus
mixed sector strategies and there is a significant difference in their combined household earn¬
ings (as shown in Figure 4.3), the same does not hold true for individual wage earners.

114
Individual Earnings By Job Type
Individual Earnings by Job Type
Person 1; Job 2
1600
Own business State Sector Private Business
Figure 4.9: First Person, First Job Figure 4.10: First Person, Second Job
Figure 4.11: Second Person, First Job
One confound, of course, is that the earnings were reported over a period of seven months
of dramatic hyperinflation. Thus only when the time frame for the interviews is controlled for,
would a true comparison be able to be made. Since each barrio was interviewed in turn (over a
period of weeks instead of months), the analyses were conducted again controlling for barrio.
But, even when controlling for time using barrio as a proxy, the analysis failed to achieve statis¬
tically significant results using the raw, ratio variable for earnings. Further, even when the
analyses were conducted again using a dichotomous variable (dividing earnings into High/Low
categories), the null “Individual Earnings Hypothesis” was significant only for one of the four
barrios. I elaborate further on this in the next chapter from the context of the four barrios in
which interviews were conducted.

115
The second half of this chapter explores the informal sector workers from a more per¬
sonal, ethnographic perspective. Do we get the same feel for the well-being of the informal
sector and, moreover, for those households with both formal and informal jobs? Were these
“strategies” elected, or did they occur by chance, or “bad luck?” In what follows, I hope to
complete a picture of what life was like for those dedicated to surviving by their wits in the final
years of the pre-Chamorro, Sandinista Nicaragua Libre.
Case Studies of Informal Sector Families
Doña Ercillia and the Tortilla Business
Doña Ercillia Anastacia Espinosa Reyes is the seventy-year-old matriarch of a large, extended
family and the focal point of an economic strategy that bridges formal state sector, urban infor¬
mal, and countryside activities. Among her twelve children, one lives in the campo with her
husband, four brothers are carpenters, two brothers are gardeners, three daughters have salaried
jobs, one daughter lives in nearby Barrio San Judas, and one son has died. Of these, two sons
and two daughters live in the nuclear residence which, including the grandchildren, comes to
sixteen in the small, four-room, wood and cement block house. With no internal plumbing,
water must be carried from the spigot about 70 feet away. A latrine stands some comfortable
yards downwind.
With the help of the grandchildren and Teresa, her daughter, doña Ercillia supports her¬
self and contributes the lion’s share of the household income by making tortillas. To best
understand this process she permitted me to accompany her through her dawn-till-dusk work¬
day in Barrio Esperanza in the southwest part of Managua. When I arrived at 5:00 AM she and
Teresa were already busy lighting the stove to cook the maize. Once the large pots are on to
boil, coffee and breakfast are hastily prepared before the men and school children begin to
wake. The young mothers attend to the babies—feeding and changing. The maize must cook
for two hours and, during this time, various chores need attention. The ancient tile floor and

116
outdoor kitchen are swept clean of leaves and debris which are burned by the curb—a practice
which contributes significandy to the urban air pollution. For comfort and convenience, breakfast
is made in shifts for each group as they rise and subsequent tasks seem to fall into place with
assembly line clockwork. Finally, the maize is drained and a tedious hour at the grinders begins.
A little lime and salt is added and, as we grind the maize into the dough for tortillas, the fire is
adjusted to accommodate the cook stone. Charcoal is added and two of the boys lift a large flat
stone into place over the coals. By the time we are done with the grinding, the stone is just the
perfect temperature and I discover how patting out the tortillas takes more than a little gening
used to. Nevertheless, with Teresas help, I avoid slowing production too much. They are
mildly amused at my attempts to toss one like a pizza and decide to put me on roasting duty
instead. It takes about two and a half hours to finish the 100 or so tortillas. These are then sold
for C$150 each—about 8 cents—by the grandchildren living in the house.
In the time it takes them to return with the day’s income, la doña and I make the journey
to market to buy the supplies for the next day. Although she sometimes goes alone, today we
are accompanied by Castula, her twelve-year-old granddaughter. We board the bus at the
nearby street headed for the Mercado Israel Lewites. The round trip costs us 12 pesos and takes
us three hours from start to finish. She buys maize for tomorrows tortillas, salt, bananas,
mangos for a quick snack, rice, beans, yucca, a dozen eggs, a block of the popular salty Nicara¬
guan cheese, and a bit of beef. She spends close to C$24,000, perhaps a bit more than usual
since we have another person to help carry the groceries back home.
When we return about 2:00 PM, the children are just beginning to return in their teams
of two. They each have their regular customers, but for the most part they must hawk the
tortillas along a selected route and at one of a number of busy intersections. Helen, Ercillia’s
youngest daughter, has just hung the wash and is sitting down nursing her youngest one. Some
coffee is reheated and we all rest and chat for a bit.
It does not take long for Ercillia to become impatient from the inactivity and she declares
that it is time to find wood for the fire. I cringe at the thought of contributing to Managua’s

117
greatest cause of urban deforestation, but la doña leads me to a small hidden spot a couple of
kilometers away. Here we find enough fallen branches for several small bundles that will help
augment the charcoal and tropigas (propane) bills. But, doña Ercillia says she can’t resist several
more delicious looking live branches and, with a couple of quick whacks of her well-sharpened
machete, they are sacrificed in the name of leña (firewood).
In many ways doña Ercillia’s house is typical of that of many of Managua’s urban poor.
Barrio Esperanza—a less formal section of housing adjacent to Barrio San Judas—consists of a
collection of homes arranged along deeply rutted, narrow, dirt streets. Most of the homes are of
wood construction and are set on a concrete and tile floor. Some have, as does doña Ercillia’s,
half-walls of cement block. The four-room arrangement is modestly furnished. In the front
room are two old iron rocking chairs in need of a spot weld or two. Against the front wall, a
three-tier plastic bookcase supports an eleven inch black and white television and some old
magazines. A single bare light bulb hangs from its frayed cord in the middle of the room. Its
exposed wires are strung over the rough-hewn wooden ceiling joists from light switch to fixture.
A once-grand mahogany wardrobe stands to one side with a mirror just low enough that eleven-
year-old Irena can see to brush her hair. The tiny lock suggests this faded antique contains the
family’s guarded possessions. The neady kept room is divided by a full-length plastic curtain
which hides the storehouse of tortilla-making supplies. The third chair in the room is a five
gallon bucket turned upside down with a small cloth on it. When Roger and I first arrived
unannounced, the house was extremely dusty (the norm for all houses this time of year). But
when I returned the next day for our scheduled interview, the floor was freshly mopped, book¬
cases were dusted, and the few pieces of furniture were arranged in deliberate style.
After collecting the wood, it is time to start preparing the evening meal. Today this will
consist of beans, yucca, fried bananas, and beef cut in strips. After dinner, the children do their
homework on the kitchen table while the adults talk and relax in the cool evening air. Much of
the discussion is about the political and economic situation in the country. Jorge, one of the
thirty-something sons, is not a supporter of the Sandinistas like most of the rest of the family.

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He claims that all they are trying to do is to make themselves like the Somocistas they over¬
threw. Helen argues the pro-Sandinista side by enumerating some of good they have accom¬
plished. The serious differences of opinion are shared in good humor and respect.
The Reyes family, a classic example of the “mixed strategy” household, seems to live very
similarly to their neighbors. The large family size, although a tight fit around the dinner table,
has many hands contributing to making a working whole. But, in the end, it seems the overrid¬
ing factor that makes the Reyes household score a high 72 on the Perceived QoL scale (the
mean = 65), is how hard everyone works and how much they all seem to care for each other.
Doña Ligias Struggle from the Bottom
When I first met María Ligia Vásquez Velásquez she worked as a domestic in an upper-
middle class home in Barrio Bolognia. Her job was among the lowest paid of any profession—
generally consisting of cleaning floors, washing clothes, and some cooking. Ligia—very hap¬
pily separated from her husband—is the proud, thirty-five-year-old mother of seven children,
whose ages range from two to sixteen. In 1988 they all lived in a small, five-room house with
Ligias mother and brother. But when Ligias father died in 1993, she and her two sons moved
into his small, earthen-floor house a few yards away. Inside, a small television, a radio, and
lights defy the cardboard and sheet metal walls which seem incapable of keeping at bay the
fierce Managuan afternoon thundershowers. Both houses are in an extended family compound
of four other households and more kin—four of Ligias nine brothers and sisters. In all there are
forty grandchildren.
Immediately inside the front door of the main house, one enters the largest room—the
kitchen. A single light bulb illuminates walls and ceiling blackened by decades of homemade
charcoal and wood cook fires. A few modest pots and utensils hang decoratively from nails on
the wall. Smoke pours softly from a small opening just below the crest of the once-red, clay tile
roof as the coffee comes to a gentle boil. A short, dark hallway—lined with worn tapestries
concealing cubicle-sized bedrooms—leads to the family’s living room. A half dozen mercedoras

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(unique Nicaraguan rocking chairs) face a small “homework” table that sits under a dim lamp
on the wall. An old, nine-inch black and white television is almost always on, in front of which
the youngest children are transfixed despite the horrible reception. The walls are patched together
with every manner of material—flattened cardboard boxes, thin branches, plastic tarps, rough-
cut lumber, and a short section of cement block. Nevertheless, the structure seems to have a
unity that harmonizes well under the surrounding alder, palm, and banana trees.
On the grounds, doña Jaqueline, Ligias mother, deftly cultivates a healthy assortment of
nursery plants in tin cans, ceramic pots, and plastic bags. These the family sells on Sundays.
Hector, the brother, is a carpenter with a small irregular income and Patricia, Ligias oldest
daughter is studying to be a teacher. When I first met Ligias father he was too old to work and
was mosdy cared for by his wife and grandchildren. During my visit in 1994, Ligia spoke of his
loss with intense emotion. He was greatly loved.
Ligias own salary is very small, generally about twenty dollars a month. Occasionally she
is paid a little extra by the individual boarders in the homes she cares for, but usually her only
other source of income comes from accepting laundry and ironing. Although their expenses
are relatively few, it takes everything the family can earn to feed and clothe the kids. Their
education is state-sponsored but the cost of a few books and note pads is enough to create a
financial strain as the school term begins. Of course, everyone is well-mannered, polite, and
generous to a fault. Whenever we visit, chairs are brought outside under the cool shade and the
best ones are offered to us. Doña Jaqueline prepares frescos—fresh mango, in this case—for
which great pains are taken to find some ice at a neighbors. They are always extremely delicious
and loaded with sugar. A second glassful is poured before we can politely refuse and whatever
bread might be around the house is passed to all.
Ligia, who gets no financial help from her ex-husband, assured me that she is not at all
sad he left. “He was more trouble than he was worth—always drinking and carrying on with
other women. I think he is in Guatemala now. Good riddance.”

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After Ligia had Oscar, her youngest, she had a tubal ligation, but she has no desire to date
other men, saying “Nicaraguan men are all the same—lazy—except, of course, my brother.
He’s a hard working man who loves his family. Besides, I have found that I can make out better
on my own. I like the independence I have discovered by working for myself and now I don’t
have to answer to anyone.”
Ligia is not a supporter of the revolution. She criticizes the Sandinistas for the war and
the draft, but mosdy she blames them for the shambles the economy is in. Like so many
Managuans, who have realized relatively few of the direct benefits of the triumph, Ligia asks,
“What have they done for me?”
Since Ligia works for a fixed wage and is paid a regular salary she would be considered a
formal worker by our definition. Ligia, too, considers her work “formal” sector labor, but for a
very different reason. One afternoon we discussed what constitutes someone working in the
informal versus formal sector. Her categories for compartmentalizing these activities were not
only totally different than mine, they also raised distinctions 1 had scarcely considered. I began
wondering if everyone’s definition of formal and informal activities would not be different—
indeed, as it turns out, there seems to be as little consensus among informal workers as there is
among social scientists. Ligias principal distinction runs along the lines of whether or not a
person conducts their business in a formal place. Although she does not try to pretend to have
a well-informed opinion on the matter, and there are various points on which she is somewhat
inconsistent, she feels quite strongly about this criterion. Ligia claims that her job as a domestic
would be formal because she works in a “regular” place—the same one everyday—even though
she works for someone who does not deduct taxes or social security out of her pay. She also says
that a man working as a shop-owner would be formal because he has a fixed site from which to
conduct his business. Even if he had various employees, they too would be formal.
Thus, for Ligia the only informal sector actors would be those who sell goods in the street
or who are vendors in the markets who do not have regular stalls from which to operate. Under
this scheme, it is irrelevant whether or not one pays taxes, or is registered with MICOIN (which

121
even many itinerant vendors are), or retails products purchased from a formal source like the
Coca-Cola bottling company. Similarly, if one sold tortillas, for example, out of their own
house they would be considered formal since it was their own place. In the final analysis, it was
lota propia—their own lot—that defines in which sector the activity should fall. This proved to
be, if not the prevailing perception, one shared by many other informants as well. As I asked
other vendors, it became apparent that the stigma to be avoided was working in the mercatlo
negro. Since much informal activity was considered black market, many defined their work as
formal and found various ways of justifying it.
When asked about her feelings on the causes of inflation Ligia was a little less explicit, but
no less emphatic. I expected that she would tell me that hearing about wages going up or even
the rising cost of food was what caused inflation. Instead, she said that it was the government’s
fault for botching the economy. She said that the córdoba used to be worth something but that
now you can’t buy anything with it. She gives the example of bread. “One córdoba used to buy
14 pieces of bread; now the same amount costs ten times that much.” When I asked her why
she thought this was so she said, “even though now, people make more, the problem is really
one of supply. You used to be able to buy a gallon of cooking oil for C$45 at the supermarket,
now you can scarcely find one. Indeed, a pint would probably cost that much now.” Recendy,
she reminded me, several vendors were arrested for mixing motor oil in with the cooking oil to
stretch it. Amazing what times of scarcity will bring people to do!
Ligias political analysis was not an uncommon one. There is no doubt that, for many, the
fervor for revolutionary ideology (if they ever had any) had worn thin in the face of years of a
worsening economic climate and an eroding standard of living. Nicaraguans, and especially
Managuans, more than ever started asking themselves, “Am I better off now than during the
years of Somoza?” Unfortunately, the answer was very often “No!”—an economic negativity
had begun to turn more and more political sentiment against the Sandinistas.

122
Pulpería in Crisis
A pulpería is a small store often found attached to one’s home from which nearly any
manner of goods are sold—from sewing notions and candies to homemade bread and used
auto parts. This particular pulpería is the sole source of income of the Zelaya Mayorga family.
The household consists of the husband Miguel, his wife Margante,11 and their five young chil¬
dren, whose ages range from five to twelve. According to Margante, their ages and school work
keeps them from participating much in the work of the family business.
Before dedicating themselves to their present venture Miguel was a carpenter but, because
of health problems, he had to give it up. Ini 986, he and Margarite opened the store and, in the
first year, their earnings were equivalent to 200% of the estimated cost of the canasta básica. In
January 1988, their acquisitive power rose to 1,029%. This partially refleas the high cost of
some of the goods they sold compared to the low cost for food. If, however, we compare their
situation in January 1988 with May 1988—after the economic reforms—a very different pic¬
ture begins to emerge. Miguel and Margantes family realized a 74% decrease in their buying
power and the inflation and price adjustments later in June dropped it a further 85%. Overall,
their buying power was diminished by 147% in 6 months.
For Miguel and Margarite the problem has been a lack of liquid capital after the reforms
(which Miguel calls robbery). Because of a rise in wholesale cost of sodas their prices climbed
and sales have dropped off sharply. Compared to the 100 cases of Coca-Cola they sold before
the reform, they now sell ten a week. Similarly with milk, while they once sold thirty cases,
now only six turn over. Clearly the problem is not only one of Miguel’s family but of the entire
neighborhood—as Miguel puts it, “what does it serve me that ENABAS offers rice, oil, soap,
sugar, and other produas at the neighborhood outlets if 1 am not able to buy them for the
store? The people of this barrio are not able to afford them either.”
Miguel and Margantes family has been affected by the monetary reform in two ways.
On the one hand, they have been beset by a shortage of cash making it impossible to restock
former levels of inventory, as well as limiting their flexibility in changing produa lines. On the

123
other hand, the reduction of the volume and value of sales and the rise in prices, particularly of
food stuffs, refleas not only their own, but also the lowered acquisitive capacity of their tradi¬
tional customers. The reduction in sales forced them to change the type of produas they sold.
Cokes, for example, because they were a relative luxury item, gave way to basic produas such as
milk or vegetables which were considered a much faster and more secure sell. Only by diversi¬
fying and shifting their emphasis were they able to continue with their business.
So, while Miguel and Margarite found themselves upwardly mobile in January, the prob¬
lems that struck the pulpería were closely tied to the problems of the other families in the barrio.
It is noteworthy that, at least in some small measure, the process of economic upward mobility
that seemed most exaggerated between 1986 and 1987—particularly in the urban informal
seaor—seemed to slow after the economic measures of February 1988. This trend was even
more pronounced with the introduaion of the June economic reforms, which precipitated
both formal wage and price increases.
Although their situation was difficult, their case illustrates a leveling of the disparity in
incomes in the popular informal sector. They were, nevertheless, fortunate enough to be able
to continue with their aaivities even though severely disadvantaged by the reforms. Other
informal seaor families were not so fortunate and were unable to recover from the impaa of
these reforms. As their level of earnings fell below that sufficient to cover basic necessities, they
were forced to seek still other sources of income (Aburto and Dellino 1988).
It was not only the incomes of informal seaor workers that fell under the weight of the
reforms. Many of those whose salaries were raised only slightly—notably teachers—felt the
brunt of the reforms with very few alternatives but to tighten the belt and/or find a second job.
The following case exemplifies how the economic reforms also hurt some formal seaor workers
more than it helped.
Urban Professional Turned Informal Entrepreneur
When I first met Connie in June 1987, we were both attending a fund-raiser headlining
Billy Brag (a left-leaning rock star) at a theatre in one of Managua’s upper-middle class barrios—

124
Altamira. At that time, Connie was associate director of CA1S (Center for the Study of Infor¬
mation Systems), a small computer training institute in Linda Vista, a barrio in the northwest
corner of the city. That night, with the help ofTecNica, Connie was looking for a native
English speaker to teach technical English to a few members of the CA1S staff—including
herself—who were preparing to qualify for a scholarship to study in Argentina. Feeling that it
would be a way, not only to contribute to the “process of the Revolution” (as it was often
cautiously referred to), but also to widen my social network, I was successfully recruited and
paid a typical Nicaraguan salary—C$96,000, about 36 U.S. dollars—for the three month course.
Connie, 33, was an extremely hard-working, dedicated individual in an increasingly stressful
position. She was responsible for coordinating the many volunteer instructors (mosdy interna¬
tionalists) that came to CAIS and for offering her own classes in dBase IIIâ„¢. Unfortunately,
due to the escalating erosion of her real salary, Connie found herself forced to seek other sources
of income. The bottom line was that she was no longer making enough to support herself and
her two brothers, Hector, age 20, and Saturnino, age 22 (who were looking for work).12
Having an amazing gift for language teaching, Connie easily found several students,
including myself, who wished to improve their Spanish. Besides this supplement to her
increasingly meager income at CAIS, she was also able to find a part-time teaching position at
a school in Granada—requiring a one and a half hour bus trip each way. She made this trip
twice a week in addition to her full time job but ultimately gave it up as her Spanish tutoring
took off. Helados (frozen popsicles sold for C$13 at the front door) also supplemented the
household income. Unfortunately, since Hector and Saturnino had not been able to find jobs
since getting out of the military, even her four sources of income were not enough for the three
of them and Connie resorted to renting a room in her house. To do this the boys had to move
to the patio and sleep in hammocks under an awning, but the amount she could charge (about
$50 a month) nearly doubled what she was making with her three jobs and helado sales.
Connie remained a somber personality, always seeming a bit tired from her many hours
of work. She felt strongly about the revolution and was a Sandinista supporter. Still, she felt

125
that the main political problem was die lack of experience of the various political functionaries.
Nevertheless, she assigned responsibility for the economic crisis to the war. Locally, she wanted
to see some attention to the roads in her barrio. The ones near her house became rivers of mud
during the heavy rains. The main problem with her life, personally? Falta amor.
Unfortunately, although Connie was my star student, her chances of being able to travel
to Argentina steadily vanished as her health deteriorated due to sickle-cell anemia—very rare
for Nicaraguans. Eventually, Connie stopped coming to my English class as she needed to
devoted more time to her job and tutoring Spanish. She was the best (of many) Spanish tutors
I had in Nicaragua. 1 regret that I have not able to locate her on subsequent trips to Managua.
The Popular Informal Sector in Bankruptcy
Doña Margine lives with her four children and sixteen grandchildren. As a single mother
she bears the major responsibility for their financial support. In 1986, she produced 66% of
the family’s earnings by making and selling tortillas. The 34% balance was generated by those
in the household with a salary.
Doña Margine tells us that in her barrio alone there are fifteen tortilleras so competition is
fairly strong. She fears that she may have to give it up and look for another way to support the
family. In 1986, doña Margine earned C$200,000 a month (córdobas viejos—the currency
before the change in 1988). With that she was able to purchase 97% of the canasta básica. In
January 1988 she made C$4,250,000, but was producing 84% of the canasta básica; in May
1988 (after the currency exchange) her earning power dropped to 64%. In June 1988, she
suffered the effects of the liberalization of prices and the elimination of the subsidy on maize.
June had been, she says, “the worst month ever; sales have been down, the tortilla isn’t worth
anything; even helados sell for more. And the prices of firewood and maize is in the clouds.”
Given the rise in price of materials and increased competition she is only able to generate
C$10,100—14% of the canasta básica calculated for June for a family of 21 persons. On the
other hand, the four salaries earned by her four children amount to C$13,000, but even this
brings the total family income to only 71% of what is needed. Salaries, at the time, were at a

126
crisis low, the average wage only being able to cover about 7% of the canasta básica. “How do
you make it now?” I asked “We have less to eat, we buy meat about once every two weeks, I get
help wherever I can.” The one saving grace, as it turns out, is that the family receives some
money in dollars from a son in the United States. Without this, they are not able to make
enough to survive (Aburto and Dellino 1988).
So even the mixed sector strategy was no guarantee of economic well-being. With relative
income changing so rapidly, doña Margines case is a perfect example of why it was so difficult
to obtain statistical significance for the various quality of life measures.
Doña Sylvia Alicia Hernandez and the Trouble with Reported Income
Doña Sylvia is 49 years old, an attractive woman, the mother of six, and the proprietor of
a small store she runs from her converted garage. Like many others with little in them, her
pulpería contains the usual array of gallon jugs—tilted in the crude metal rack—each holding a
different type of seemingly inedible rock candy (variously referred to as dulces, Carmelos, etc.).
There exists a generous stock of nine or ten jars of salsa ingles—Worchestershire sauce, mustard,
and vinegar (all of which doña Sylvia says she buys directly from a factory distributor that
comes by in a vehicle). She carries a few candles, miscellaneous clothes, two sizes of envelopes,
and a few packs of Alas (Nicaraguan cigarettes said to be made of the tobacco swept from the
factory floor). But the real money makers are soft drinks like Coca-Cola and Pepsi, eggs, and
bread. At least these are the items in greatest demand.
Even though doña Sylvia has ten hens, they do not produce enough for her to sell, so she
buys eggs at C$1600 a flat (2 1/2 dozen) and sells them for C$1850 (a profit of about 12 cents).
She buys her bread from a nearby producer at C$60 per loaf and sells them for C$70. Cokes
cost C$7000 for a case of 24, which she sells for C$400 each. The recent near doubling in the
price of Cokes has caused the number she sells to drop from a high of about five cases a day to
around one. Nevertheless, even if she sold only one case of gaseosas a day for a month, her
profit would be around C$78,000. That was almost twice what she reported making each

127
month (C$40,000). Of course, if one added up what she claimed to make from the eggs and
bread that she sold (clearly another low estimate) then her profits were closer to C$85,000, or
more than she thought her husband made at his job working as a state mechanic.
Of course, this does not include a thousand córdobas here and there. Indeed, in the hour
and 15 minutes it took to conduct our interview, one item was sold for C$ 1500 and another for
C$800. Neither of these were on the list of items already mentioned. Of course, this further
begs the question of the validity of the income data. Is anyone able to accurately report their
income? To say the least, it seems clear that estimates of income—particularly among informal
sector workers were generally under-reported. A factor of two should be consider a minimum
and, generally speaking, based on expenditure data, three to four times the amount reported
appears to be closer to the truth. One thing that seems to be a problem in this sort of data
collection is that most spouses claim not to know what their partners make—particularly when
it is women reporting on their husband’s income. Doña Sylvia said she simply never asked him.
Beyond that, without any record keeping, most estimates must surely be a raw guess.
Earnings Minus Expenses
Earnings < expenses
41 / 58%
Figure 4.12: Earnings Minus Expenses
As a means of checking on the accuracy of reporting earnings and expenses, total house¬
hold expenses were subtracted from total earnings for each household. Obviously, when the

128
product was negative, reported expenses were greater than reported earnings; when positive,
earnings exceeded expenses as would be expected. Figure 4.12 demonstrates the results. Although
there are certainly confounds, if we assume that earnings were under-reported when they were
less than what was reportedly spent (on food alone!), then there is evidence to suggest that
under-reporting of income relative to expenses occurred in 58% of the cases.
A year before I interviewed doña Sylvia I was told that she changed dollars for the discreet
Chepitos guest. Reportedly she explained that she needed the dollars to buy medicines that
could only be purchased with dollars (which I later verified to be true). It was reasonable,
therefore, to assume that anyone changing money with strangers—albeit a rarely punished
offense—would run the risk of being discovered and would be in the habit of concealing the
amount of money spent or made. One might therefore hypothesize that those engaged in illicit
activities of any kind would tend to under-report even their legitimate earnings. It should be
noted that, except once when an infamous group of speculators were entrapped in an elaborate
scheme on the eve of the currency exchange of 1988,1 was never aware of anyone harassed for
selling córdobas for dollars.
Conclusion?
The primary hypothesis examined in this chapter is that households with workers in both
formal and informal sectors have a higher quality of life than households with workers from
just one sector. Both the quantitative and ethnographic data tend to support this belief. Of the
three measures of quality of life, household earnings provided the strongest statistical support
for the hypothesis; material quality of life and perceived quality of life followed with positive,
but weaker support for the “Household QoL Hypothesis.” In other words, the strongest statis¬
tical evidence to support rejection of the null hypothesis was found when earnings were exam¬
ined for each household sector strategy. Mixed sector households also scored higher on the
Material QoL and Perceived QoL indices than did single sector households (although these
trends were less conclusive statistically).

129
On the other hand, although there is some evidence to support the hypothesis that infor¬
mal sector individuals earned more than their formal sector counterparts, the data are not
strong enough to support rejection of the null “Individual QoL Hypothesis.”
We also saw how various economic conditions favored households with workers in both
the formal and informal sectors. The failure of the rationing system, escalating hyperinflation,
and economic policy shifts of the Sandinistas contributed to fostering a broad diversity of
household strategies. Some of these proved to be more robust than others in the rapidly chang¬
ing economic and political climate. By most accounts, nearly everyone engaged in some sort of
speculative or “black market” activity, even if it was simply buying enough rice for two months
or changing dollars for their gringo friends. As we have seen, while those who could attach
their cart to the runaway economy held some hedge against inflation, it was no guarantee they
could finish the race ahead of where they started.
In the next chapter I continue with a description of the barrios in which formal inter¬
views were conducted. Some of the methodological problems encountered are discussed in
light of this field experience.
Notes
1 An acronym for Comité Defensa Sandinista or Sandinista Defense Committee—a con¬
troversial grass roots organization originally formed to provide nighttime protection in
the barrio. These “block watch committees” became the hotbed of neighborhood politics
and are largely why it is often said that “Nicaraguans know how to organize.”
2 The term pesos is more common than córdobas, and is used synonymously when speaking
about the national currency.
3 Chavalos is a Nicaraguan term of endearment for children.
4 The canasta básica is a commonly-used calculation of the current cost of a variety of
mosdy essential foodstuffs. This measure is considered to be an accurate benchmark of
the present cost of goods across the board.
5On my first visit to the La Colonia Supermarket in Plaza de España, I found the shelves
lined with relatively few items. Some aisles were stocked one-deep with rolls of toilet

130
paper or cheap tin kerosene lamps from the Soviet Union. There was a whole aisle of
nothing but sugar, rice and beans. Others were completely empty. One entire section of
the store was devoted to books and magazines—mostly Marxist-Leninist publications
from Cuba, China, and the USSR. I discovered why 1 had seen the line around the block
to get in at 9:00 AM—everyone wanted to be first in the checkout line. For C$7210 I
purchased two rolls of toilet paper, one small botde of Flor de Caña (the exquisite Nica¬
raguan rum), a double bar of laundry soap, and a small box of peanuts. Never have I had
to wait nearly three hours to spend a $ 1.75. To my amazement and incredulity, the Nica¬
raguans I was in line with demonstrated incredible patience and acceptance of the situa¬
tion—of course, they all had shopping carts teaming with goods.
6 Previous I have defined the informal sector to include all those who were self employed
and the formal sector to include those who worked for a fixed wage. While strictly
speaking, market vendors with formally established stall were certainly self-employed,
they were considered by the Sandinista to be formally established businesses and there¬
fore, are classified here, in the formal arena.
7 Consider the following field note taken from August 27, 1987 regrading price competi¬
tion. “Competition in the Mercado Orientál is practically nonexistent. Today I asked
the price of eggs from vendor to vendor—C$4000 a dozen, C$4000 a dozen, on and on
even though the price in the Supermercado is C$1700 a dozen. The same is true of fruits
and vegetables—apparently no one feels compelled to compete with their neighbors.
There certainly seemed to be a great deal of peer pressure not to undercut ones neighbor.
I suspect the motives were akin to Fosters “Image of Limited Good” (1967) where one
does not want to be seen to be getting ahead of their neighbor.
8 This pay raise affected a significant portion of the population since it was estimated at the
time that state workers comprised from 31 to 35% of the EAP (Economically Active
Population). This was largely due to heavy bureaucratization after the Revolution in
1979.
9 On June 16, 1987 the minimum wage was C$36,000—about $6 a month. The exchange
rate at the time was approximately C$6000 to one U.S. dollar.
10 The Economic Commission for Latin America (CEPAL) calculated damages from the
hurricane at $848 million, more than three times Nicaragua's average annual exports
during this period. Despite the magnitude of the disaster, Nicaragua received almost no
international relief assistance (Norsworthy 1990).
11 Miguel and Margante are pseudonyms by their request. Portions of this account were
originally published by Roger Aburto and myself in Spanish in Boletín Socioeconómico
September-October 1988.
12 So it was with fixed salaries. For example, when I was contracted to teach the course my
total salary was equivalent to 36 dollars but by the time I was paid, just 6 weeks later at
midterm, the amount in córdobas was worth 24 dollars. Connie’s salary was dropping
just as fast. At the same time, of course, prices were going up.

CHAPTER 5
A VIEW FROM THE BARRIO
[During 1985-87,] the informal market expanded dramatically, and
while the government was working on the formal sector, the informal
economy set its own game rules.
—Alejandro Martinez Cuenca, Nicaraguan Minister of Foreign Trade 1979-88
Thus for, most of the discussion of the data and findings lias centered around either
individuals or the households they occupy. This chapter provides a brief background of life in
each of the four barrios in which formal interviews were conducted. I begin with a brief discus¬
sion of some of the methodological concerns of sampling and the quality of life indicators and
move to a description of the barrios where I report selected cross-barrio findings from the
questionnaire data. A version of the questionnaire which also served as the codebook used to
decipher its meaning, is found in Appendix A. The data definition statements and data trans¬
formations can be found in Appendix B. These data were initially analyzed with SPSS/PC+â„¢
in Nicaragua, moved to the mainframe version when I returned to the States, and finally analy¬
ses with SPSS for the Macintoshâ„¢, version 6.1.
Although a number of methodological difficulties appeared along the way, none of them
proved to be insurmountable and creative ways around those problems were often inspired by
the ethnographic experience.
131

132
Methodological Concerns
Sampling
Questionnaire data for this project were collected during a seven-month period between
June 1988 and January 1989 on ninety-eight households representing four barrios—three in
Managua and one outside the town of Rivas in southeastern Nicaragua.
Since the hypotheses dealt mainly with a comparison of formal and informal sector work¬
ers, barrios were chosen that were felt to represent a good mix of workers in both sectors.
Although, the choice of barrios was not scientifically made, those for which sampling frames
were readily available became prime candidates. Further, when census data was also available
for a poorer barrio, the choice became the best informed, albeit biased, one we could make.
In two of the four barrios ultimately chosen to be in the study, sampling in Barrios Enrique
Schmidt and Luis Alfonso Velasquez was conducted on a stricdy scientific basis, drawing upon
complete lists of families and which homes they occupied. From these population lists supplied
by the local CDS (Sandinista Defense Committee), every forth and tenth person, respectively,
starting with a randomly chosen beginning number, formed the stratified random sample. In
Potosí and Altagracia, however, sampling was conducted somewhat less rigorously. Not only
were listings for these barrios unavailable, but the time frame in which interviews had to be
conducted in Potosí necessitated that we take advantage of the few resources at hand. Since
Potosí is spread out mosdy along a single road, every seventh house was selected to be inter¬
viewed; for the most part, this strategy was successful in securing interviews.
In Altagracia, on the other hand, I felt that it might be beneficial to choose people I had
had face to free contact with before and to set up appointments with them. This was the barrio
I knew best in Managua, having lived in the guest house, Chepitos, for the first three months,
in a slightly more middle class Nicaraguan household for another few months, and finally, in
the heart of the poorest, popular section for my last four months. I liad made a fair number of
friends among the local shopkeepers, many of whom I had kept in touch with even while living
in other parts of the city. (I lived in ten different residences in Managua, Esteli, and Bluefields,

133
during the field stay from May 1987 to January 1989.) These friends agreed to be interviewed
and helped by introducing me to friends who might also be willing to tell their stories. This
snowball or network approach proved highly successful in terms of securing interviews with
people who either knew me or had been recommended to me by a trusted friend. In some
cases, that degree of familiarity provided me with confidences and insights that might other¬
wise not have surfaced.
Quality of Life, Indicatprs
Four quality of life indicators were developed for this research. Generally speaking these
indicators were calculated as follows: (1) the Perceived Quality of Life Index is a sum of the
responses to questions in Part IV of the questionnaire. This sum produces an overall perceived
quality of life index on twenty-one different life concerns; (2) the Material Quality of Life
Index is calculated from transformations made on answers to questions regarding the quantity
and quality of material possessions from Part III of the questionnaire (see Appendix A);
(3) Household Earnings (HH_EARNS) is the sum of all earning reported in each household.
(4) Household Expenditure (GAST_TOT) is calculated from reported expenses for food biweekly
from four types of markets.
Perceived Quality of Life. This indicator is a simplification of one originally taken from
Bubolz et al. (1979). Informants are asked to report how they feel about twenty-one life con¬
cerns. They were instructed to respond using the five-point scale: 1 = Very Bad; 2 = Bad;
3 = More or Less OK; 4 = Happy; 5 = Very Happy.
Each interviewee was asked, “How do you feel about:”
a) Your family life
b) The condition of your environment or surroundings
c) Your job or what you do
d) Your home
e) Your religious life
f) The money you have
g) Your health
h) The quality and quantity of your leisure time
i) The quality and quantity of the food you have

134
j) The transportation you have available
k) The amount of sleep you are able to get
l) Your financial security
m) The security of your barrio
n) Your access to health care
o) Your personal liberty or independence
p) The beauty of your world
q) What the national government is doing
r) Your childrens future
s) The future for your old age
t) The future for better economic conditions
u) Your hope and the future for peace
Perceived Quality of Life is calculated simply by summing the numbered answers. In the
original design, informants are also asked how importante ach of these selected life concerns are
to them. This was deemed too confusing and time-consuming for the target audience.
Material Quality of Life. Material QoL was computed from recoded and weighted answers
to questions in Part III of the interview. The formula used to make the calculation1 was devised
with the help of my Nicaraguan colleagues at 1NIES. They helped assign the weights to the
variables and suggest potential confounds. In the end, although our indicator tended to favor
those with domestic animals, we were reasonably certain of its internal validity when the analy¬
sis was broken down by barrio. Four strategies were used in the calculation. A score of one (1)
was added to the Material QoL index for each of the following items owned: irons, radios, tape
players, record players, wardrobe closets, fans, blenders, toasters, electric coffee makers, hand
carts, ox carts. A second group of items was considered to be of greater or lesser value and
received the following weights: televisions (2), refrigerators (3), bicycles (2), vehicles (5), tele¬
phone (4), burros (2), horses (2), cows (4), ducks (.3), chickens (.5). For example, one televi¬
sion, two horses, and four chickens would contribute a total of eight points to the Material
QoL score (two for the television, two for each of the two horses, and two for the four half-a-
point chickens). A third group of items were calculated by virtue of their quality rather than
quantity. Here different building materials used for walls and roofs were recoded to form an
ordinal scale and counted as their raw value. The types of sanitary facilities, cook stove, access
to water and electricity were handled in a similar fashion. The size of the lot and the size of the

135
house were calculated and scaled to fit into the equation. A lot size of less than 100 square
meters was worth one (1), 101 to 200 square meters was worth two (2), etc. (see Appendix B for
a complete list of specific variable transformations). Lasdy, the ratio of beds per person was
added to the index score. Since most of these items were directly observable, this was, in many
ways, the most reliable of the quality of life indicators.
Household earnings. The interviewee was also asked to report her or his own earnings
and the earnings of other members of the household.2 This measure was used irrespective of
whether the other members contributed any or all of their earnings to the household. As
discussed elsewhere, this was not expected to be a necessarily accurate measure of household
income. Although, for statistical purposes, it was assumed that under-reporting would prob¬
ably be roughly the same across the board, it is probably more likely that those engaged in
informal activity had a greater reason to under-report: First, they had reason to be less sure
about their earnings since few vendors kept good records of sales and second, they would have
an incentive to under-report their earnings to me if they had also under-reported to the tax
collector.
Total expenses. This was unquestionably the least useful measure of quality of life.
Although some of those interviewed were able to remember fairly accurately everything they
had spent in the last two weeks, few really had much better than a guess to offer. Informants
were asked to report separately on how much they had spent in the last two weeks at their
neighborhood expendio—the state subsidized store, how much they spent using their ration
card (the CAT), how much they spent at the supermarket, and at the market. These four
amounts were added to create the total food expenditures for the household (GAST_TOT).
Originally thought to be a less obtrusive means of determining earnings, measuring expenses
proved to be troublesome for a variety of reasons. Besides poor recall, the other major draw¬
back with using this measure over the seven month period of interviewing was that prices
changed so rapidly, not to mention the currency, that it was difficult to get reliable comparative
data. Although a calendar was kept showing the official exchange rate fluctuations, even those

136
data would have been inadequate to calculate all of the nuances of real price differences across
seven months of interviews. In retrospect, it might have been better to record prices in dollars,
but even that would not have circumvented the recall problem.
Barrio Descriptions
Barrio Enrique Schmidt
Barrio Enrique Schmidt is an asentiamiento—an informal housing arrangement for which
the government has provided land and some services. It is located in the northwest corner of
Managua, north of the Pista de la Resistencia between the Mercado Israel Lewites to the east and
the immigration complex to the west. Most of the houses are arranged in a fairly helter-skelter
fashion along unpaved streets that are virtually life-threatening during the rains. Public potable
water is available and most everyone must walk to a spigot at least some distance from their
home. The barrio is electrified but, as in most of Managua, people complain that the system is
unreliable. The residents are grateful that, at least for this utility, they do not pay. Everyone
owns and, in many cases, has built their own home. Most consist of only one or two rooms and
are made principally of wood with zinc roofs. The typical kitchen is found outdoors and might
consist simply of a black plastic tarp draped over a couple of crossed branches, a slightly raised
fire pit, and a rustic table at which handfuls of children are fed on plastic plates half full of rice
and beans.
In the entire barrio there are 652 people in 108 houses and 123 families from which
thirty-one families were sampled. Our sample was obtained using the CDS census of all the
families and their respective houses. The sampling frame was divided into three groups: female,
male, and unidentified head of households. A representative sample was drawn from each
stratification, choosing every fourth family in each group. There were a total of 31 female and
83 male headed households. In nine cases the gender of the head of household was undecipher¬
able from the name or had no name listed. Each of these three groups respectively comprised

137
25.2%, 67.5%, and 7.3% of the total sample. By choosing every fourth family in each group,
the real numbers in each group are eight, twenty-one, and two for a total of thirty-one cases.
Thereby, 25% of the entire barrio was interviewed using a stratified random sample. All of the
original families chosen in the sample were interviewed, with the exception of two cases where
the census drawn earlier in the year was out of date; the new families in the designated homes
were chosen by default to substitute. No one refused to grant us an interview although, ulti¬
mately, two could not be completed.
Figure 5.1: Reason for Moving to Barrio Enrique Schmidt
In Figure 5.1 we see the main impetus for residents to have moved to Barrio Enrique
Schmidt. Enrique Schmidt is outstanding first of all because it was the only asentiamiento we
sampled. This is reflected in the data by the fact that many (27.6%) reported that the govern¬
ment was responsible for moving them to this location—an act for which they are generally
grateful even if they are not in favor of the Sandinistas. Most of the relocated residents were
families rescued from other barrios where flooding destroyed or endangered their homes.
Hence, the barrio is a relatively young one, the majority of our informants (72.5%) moved
to Enrique Schmidt between 1983 and 1985, and more than half of these came in 1984. The

138
vast majority (82.8%) came from other parts of Managua—some to take advantage of the offer
of free land and basic services, others for a variety of specific reasons, the most common of
which was that they were moved by MINVAH (Ministry of Housing and Human Settlements).
The principal health concerns in Enrique Schmidt are not any different from the other
barrios. Diarrhea is the most common infirmity in the barrio even though the most recent
sickness in the household is said to be something else—like the flu or fevers. There is no sewer
system in the barrio and latrines are used—sometimes by several families.
Although the majority of those interviewed declare that their neighbors are “about the
same as them” (61.5%), the majority in our sample reply that they are worried about the possi¬
bility of their houses being robbed (53.8%). It is noteworthy that there is no significant differ¬
ence between the responses of men and women regarding attitudes of abortion, the use of
contraceptives, and how household chores should be divided—perhaps a tribute to the effort of
the revolution to raise men’s consciousness. In answer to the question: “What do you think is
the principal cause of inflation?”—a topic that inspires all to vent their political beliefs—44.8%
said it was the U.S.-sponsored Contra war, while 31.0% said that it was due to bad administration
by the Sandinista government. Of the four major barrios in our study, this was the most pro-
Sandinista.
With respect to perceived quality of life, the majority felt “happy” or “very happy” about
their family life, their job or what they do, their house, their religious life, their health, what
they do in their leisure time, with the transportation available to them, with the amount of
sleep they are able to get, with the available health services and with their personal liberty. On
the other hand, 54.2% said they felt “bad” or “very bad” about what the national government
was doing, 60.7% felt the same about the money they have, as did 48.3% with their financial
security. With respect to how people felt about the future for their children, 28.6% felt “bad”
or “very bad;” 35.7% felt mas o menos, and 34.4% felt “happy” or “very happy.” Finally, the
majority held little hope for the future of peace in the country (56.1 % felt “bad” or “very bad).
Even though it is a rather crude measure, derived by rounding the quotient and dividing
the number of people in the house by the number of beds, 50.0% of the families in our sample

139
have one bed for every two people, 11.5% would need to put three persons in each bed and
19.2% of the families have only one bed for every four people. Of course, many of these sleep
in hammocks and on mats. Contrary to my early feelings about how opinions are formed,
there is no significant association between which newspaper people read and their responses to
what they feel is the principal cause of inflation or how they feel about the government. Almost
twice as many people report that they would prefer to work for themselves instead of having a
job with a fixed salary. This was also true for the other barrios in which this question was asked.
Type of Job Preference
By Barrio
30
Z
5
o
O
FIXED SALARY WORK FOR ONESELF
BARRIO
^Enrique Schmidt
EUluiz Alf. Velazquez
QQIIAltagracia
What Type of job is preferred?
Figure 5.2: Type of Job Preference By Barrio
Barrio. Luiz Alfonzo Yglfeques
On the outskirts of Barrio San Judas in the southwestern corner of Managua, Luis Alfonzo
Velázques is the most informal of all the barrios we sampled. In many ways it represents the
type of barrio from which many of those now living in Enrique Schmidt moved. The people
here were generally very accessible and friendly. Perched precariously on the edges of one of the
most treacherous drainage canals that run north to Lake Managua, residents of Barrio Velázques
must traverse thirty foot chasms in winter (the dry season) and roaring rapids in summer. Two
little girls have drowned here in the last year and the newspapers are constantly warning parents
not to let their children play in the water because of high bacteria counts.

140
The houses are assembled from a hodgepodge of lumber, concrete riprap, scraps of sheet
metal, cardboard, and tree limbs, although fairly generously spaced and often quite creatively
composed. In one case, an entire wall has been built of old automobile license plates. There are
too few trees for much respite from the hot sun.
Although household are fairly unevenly distributed among the three household strategies
(see Figure 5.3), close inspection of interviewees’ earnings by barrio reveals that, in Barrio Luiz
Alfonzo Velázques, informal sector workers out-earn formal sector workers six to one (a com¬
parison I elaborate on later in this chapter; see Figure 5.6). When the primary wage-earner is
not engaged in informal sector activity, he or she is most commonly working for the state. The
majority of other members of the household worked either in low paying state jobs or as employees
of small repair or manufacturing businesses. Informal sector workers mainly sold goods in the
nearby Mercado Israel Lewites. Because of the relatively small household size in this barrio,
only six families had enough adults to have workers in both sectors, but those six households
were generally the most prosperous.
Single & Mixed Sector Households
BARRIO
^ENRIQUE SCHMIDT
E2LUIZ Alf. Velazquez
E3 potosí, Rivas
DUIaltagracia
formal Sector Only formal&informal jobs
Informal Sector Only
For All Barrios
14i
Figure 5.3: Household Strategy by Barrio

141
Potosí, Rivas
Although the entire survey was not administered in Potosí, the interview experience was
a valuable one for gaining a bit of insight into what was primarily an agricultural community
outside of Managua. Located about ten kilometers outside Rivas—the last major city on the
PanAmerican highway before one reaches Costa Rica—Potosí consists of a string of houses
along a quiet dirt road in the middle of the nation’s largest state-owned sugar cane plantation.
Most of the folks here either work in the cane fields, in the factory, or doing small jobs to service
the community. All of the households we interviewed, however, contained informal sector
workers only. This eliminated Potosí from the comparison of earnings by job sector.
At this distance from Managua, many of the amenities of city life are noticeably absent.
Clearly, life is much simpler here. Small incomes are earned cutting cane, small garden plots
provide many of the staples, and ox-carts are often used to make the short trip to the market in
Rivas for anything else. The first family we visited were friends of Rogers—my colleague with
whom interviews here were conducted. By local standards theirs would be considered a typical
household. The extended family compound consisted of three small homes, a shared latrine
and shower house, and small plots for the ten cows and fourteen bulls—also used for hauling
cane to the factory for processing. In no time at all they overwhelmed us with their friendliness
and generosity; before we could continue with the other interviews, we were all sharing a deli¬
cious meal.
In the poorer households the hospitality was no less generous. The Fernandez family of
five (case #64) lives in a house consisting simply of two rooms and a partly covered attached
kitchen. Stark evidence that this was the rainy season was confirmed by deep ruts in the dirt
floor and the water stains on the walls at “mark eight inches.” An old sheet separates the
bedroom from the main living room (where three cots are stacked against the wall). The kitchen
consists of a small table and sink from which water (carried to the house in buckets) empties
into a small pool out back. There seems to be little effort taken to divert the water in any special
direction. Cardboard covers the gap where the roof pitches above the walls. It is in tatters

142
where it had not been reinforced with plastic. In the living room, the two chairs are offered to
Roger and myself while our hosts sit on stools. All the while, the quiet children are sucking on
sugar cane and spitting the fiber to the floor. The naked baby is playing on the floor and the
two children are without shoes or shirts. Their pants—long since outgrown—have been repaired
numerous times. On the walls hangs a faded picture of John Travolta, a small mirror, and a few
school pictures of the children. The religious calendar—so common in the country—still
displays the month of January even though it is November.
Throughout the barrio any mention of birth control seems to elicit the same answer:
“¿quién sabeT—one clue to how little was known about health, hygiene, and disease. This was
reinforced by numerous observations of poor hygienic habits. For example, in playing with
their sugar cane, the children commonly dropped it on the dirt floor and put it back in their
mouths without ever a word from an adult. Not surprisingly, diarrhea was reported to be the
most common infirmity in the area.
One woman in Potosí (case #65), complained that “there is no liberty because one needs
to obtain permission even to kill one of your own pigs—on which one must also pay a tax.”
This woman also felt it outrageous that she now has to pay C$100 a month (less than the cost
of a lunch) to Inturismo3 to run her restaurant and C$500 a month in other taxes. This woman
was easily the most well-off person we interviewed. We regularly found that, those who were
better off complained the most about the most trivial costs, usually stating that in the days of
Somoza they never had to pay anything and the government left them alone. Many also did
not believe that the campesinos are better off than they once were, claiming that owning land
had not really made a significant improvement in their quality of life. Admittedly, Potosí was
by no means a showplace of the revolution, and although no one who received land through the
land reform appeared in our sample of Potosí, our impressions from talking to those in Rivas
and elsewhere who had obtained land on cooperatives, was that they were very grateful and
strongly supported the revolutionary process. Those outside of this process—as clearly most
Potosian workers were—tended to be the most dissatisfied. The true anti-Sandinista zealots

143
though, were those from the middle class who now found life more of a sacrifice than in the
“good old days.” In spite of this, the data demonstrated no statistically significant difference for
“Perceived Quality of Life” for the four barrios. The maximum possible score attainable 103
would mean that the respondent felt “very happy” about all twenty-one items in the Perceived
QoL Index. The mean score is 65.05; minimum is 40; maximum is 79.
Perceived Quality of Life
By Barrio
Figure 5.4: Perceived Quality of Life by Barrio
Material Quality of Life
By Barrio
Luiz Alf. Velazquez Altagracia
Figure 5.5: Material Quality of Life By Barrio
Many of the Potosians we interviewed had small plots of sugar cane some distance from
their homes. They had not received this land from the Sandinistas, nor did they necessarily
have tide to it, but they had worked these small cane plots for generations. These informal
sector growers would sell the majority of their harvest to the local state-owned sugar refinery,

144
while smaller portions would be taken to the market in Rivas. Few had formal arrangements at
the refinery. When they know the refinery is buying, they cut the cane, hitch the oxen, and get
it to the factory gate as quickly as they can. Throughout the year, they grow a good deal of their
food on adjacent subsistence plots. The Potosians are also mavens at raising domestic ani¬
mals—a practice that provides a buffer against hunger and poverty in the off-season and when
sugar prices are low. All things considered, although many lived in the most primitive of
conditions, the Potosians actually had the greatest material wealth due to their many animals
and various plots of land.
Barrio Al agracia
Perhaps because it was my first landfall in Nicaragua, or perhaps simply because it is
home to the largest concentration of my Nicaraguan friends—whatever the reason—Altagracia
remains my favorite part of town. Although mostly a lower-middle class barrio, old, traditional
Altagracia is characterized by the full range of class diversity—from the very wealthy to the very
poor. Indeed, in the shadow of one of the most expensive hotels in town—the Hotel D’Lido—
sits a number of well-kept, one-room homes. A stone’s throw away one finds doña Luisa’s
popular comedor, and around the corner—the infamous Hospedaje Chepitos.4
Hawkers of everything from homemade charcoal to fresh lobster, vegetables, and newspa¬
pers keep the streets alive with a cacophony of song that speaks to the barrio’s inviting nature.
News that the bread is finally ready at doña Anita’s travels fast and the line forms quickly along
the heavenly aroma. Donkey, oxen, and hand-drawn carts all vie with automobiles for the
mosdy paved roads leading in and out of this western central piece of Managuan life. Here
most streets even have sidewalks—some with inlaid tile reminiscent of days when opulence and
artistry flourished outside of wartime. The streets are fairly well lit at night and the many
household comedors and pulperías attest to the strong informal sector entrepreneurial spirit.
Indeed, Altagracia showed the second highest “Material Quality of Life” of the four barrios
owing to the fact that its residents had fewer animals than those of Potosí, and generally greater
wealth than those of Enrique Schmidt and Luiz Alfonzo Velázques.

145
Comparison of Formal and Informal Sector Earnings bv Barrio
Since interviews were conducted over a seven month period, and since Altagracia was the
last barrio interviewed, we should expea residents there to have the highest reported income
due to inflation. Indeed, even though Altagracia was a close second on the Material QoL scale,
the data show earnings there to be nearly twice that of those in the three other barrios (after
adjusting for the new currency). As discussed in the last chapter, due to hyperinflation, draw¬
ing conclusions based on a comparison of earnings over time is risky since, if one’s earnings
were C$600 a month in February 1988 it might have been C$3500 in December and have
even less purchasing power. To control for most of the effect time and inflation had on the
value of the córdoba, separate analyses were conduaed comparing the earnings of formal and
informal seaor workers by barrio. Figures 5.6 through 5.8 demonstrate that informal seaor
workers consistendy out-earned formal seaor workers. Except for Barrio Altagracia, however,
the relationship is not statistically significant and we still cannot reject the null hypothesis.5
Earnings of Interviewee by Barrio
EARNINGS BY JOB SECTOR
Barrio Lurz Alfonzo Velázoues
Formal Informal
Job Sector of Interviewee
Earnings by job Sector
Barrio Enrique Schmidt
5
or
a
Job Sector of interviewee
Figure 5.6: Barrio Luiz Alf. Velázques
Figure 5.7: Barrio Enrique Schmidt
120
too
•0
60'
40'
20'
Earnings by Sector
Barrio altagracia
JJ
Formal Informal
JOB SECTOR OF INTERVIEWEE
Figure 5.8: Barrio Altagracia

146
Conclusions
In many ways, investigating the Nicaraguan economy from May 1987 through January
1989 was a lot like trying to hit a moving target. One would just get a handle on the structure
of relative prices, the availability of goods in various venues, or the government economic strat¬
egy, when the entire apple can would be overturned, a new strategy would be implemented,
and an entirely new set of informant responses would become appropriate. Similarly, the changing
relationship between wages and the cost of living made even minor temporal comparisons
more difficult to understand than simply knowing the exchange rate from one week to the next.
Such conditions made it all but inevitable that certain statistical assumptions would be stretched,
if not overtly violated. Still, qualitative evidence continues to confirm the direction and ten¬
dencies suggested by the hard data—that informal activity was flourishing in all parts of the
country, not just Managua.
The diversity of the four barrios studied ensured a broad range of economic activity was
represented. Nearly every imaginable profession appeared in the sample—from the poorer
domestics and street vendors of Enrique Schmidt to the better off shop keepers of Altagracia,
and from the state workers of Luis Alfonzo Velázques to the cane growers of Potosí. With the
data collected from a series of ninety-eight households two primary hypothesis were tested.
Analyses for the first of these, the “Household Quality of Life Hypothesis,” sought to uncover
whether or not it was true that households with a mixed economic strategy, that is, with work¬
ers in both informal and formal sector jobs, were better off than those households with a single
sector strategy. Tests of each of three quality of life indices—reported income, Material QoL,
and Perceived QoL—indicated that there was significant statistical evidence to reject the null
hypothesis and thus, accept that mixed strategy households were indeed, better off than single
sector households.
Testing of the second hypothesis—the “Individual Quality of Life Hypothesis”—was not
as conclusive. Although it can be stated that informal sector workers generally earned more
than formal sector workers, the statistical data to back up the observed trends were significant

147
only in the case of Barrio Altagracia. Therefore, the null hypothesis cannot be rejected with any
significant degree of confidence. One possible explanation for this is that informal sector work¬
ers had more reasons—both willful and unwitting—to under-report their earnings Indeed,
findings also showed there was evidence to suspect under-reporting of income in 58% of the
cases interviewed.
Although the many changes made for an exciting time to conduct research in Nicaragua,
I constantly felt frustrated for many of my struggling Nicaraguan friends whose livelihoods
often danced along that narrow balance between modest survival and financial ruin. As Nica¬
ragua moves forward with its new, more conservative direction, will people fall through the
cracks in greater numbers? Will recent capitulations to the IMF and World Bank—so devastat¬
ing in the short term, pay off in the longer term? Is there any chance that those at the bottom
of the economic ladder will benefit? Development trends in the last few years have not sug¬
gested otherwise, but new trends in thinking have advanced us to a clearer understanding of the
issues at hand. These fresh perspectives have suggested new strategies for assessing, planning,
and implementing development projects—although, as always, much of what is presented as
new is merely a matter of shifted emphasis.
In the following chapter the evolution of development theory is traced from its early
beginnings in dependency theory. We examine some of the shortcomings of the past, why
there has been such an array of competing theories, why there have been such long periods of
stagnation, and what the fresh new outlooks have to offer to pull us from these doldrums.
Notes
1 The original SPSSâ„¢ COMPUTE statement used Spanish variable names:
COMPUTE CV.MATRL = (PLANCHA + RADIO +(2 * TV) + GRABADOR +
TOCADISC + ROPERO + (3 * REFRIG) + ABANICO + LICUADOR + (2 * BICICLET)
+ TOSTADOR + CAFE_ELE+CARRETON + CARRETA + (5 * VEHICULO) + (4 *

148
TELEFONO) +(2 * BURROS) + (4 * VACAS) + (2 * CABALLOS) + CHANCHOS
+(.5 * PAVOS) + (.5 * POLLOS) +PAREDES + TECHO + ELEC + AGUA + SANITAR
+ COCINA +TAM.LOTE + TAM.CASA + (CAMAS/NUMPERS)).
In English it reads as:
COMPUTE MQOL = (IRON + RADIO + (2 * TV)+ TAPE_PLAYER +
RECORD_PLAYER + WARDROBE + (3* REFRIG) + FAN + BLENDER + (2*
BICYCLE) + TOASTER + COFFEE_MAKER + OX_CART + TRAILER + (5*
VEHICLE) + (4* PHONE) + (2* BURROS) + (4* COWS) + (2* HORSES) + PIGS +
(.5* CHICKENS) + (.5* DUCKS) + WALLS + ROOF + ELECTRIC + WATER +
SANITARY + STOVE + LOT_SIZE + HOME_SIZE + (BEDS/ ¿PERSONS)).
2 Originally it was expected that many more women would be represented in the sample
since we conducted most of the interviews during daytime hours. This turned out to be
only marginally true. Of our ninety-eight interviewees 57.7% were female and 42.3%
were male. Of these, nearly equal numbers from each gender—about 35%—identified
themselves as the head of the household. The others were children or parents of the
household head. Also, one man and sixteen women listed themselves as spouse of the
head of household.
3 Inturismo is the Ministry of Tourism. They set policies and taxes for restaurants and
hotels.
4 The Hospedaje Chepitos, as mentioned earlier, had a long, checkered past, having once
served as a house of prostitution and later as a guest house for Internationalists. The site
now houses a clinic for infants with hearing disabilities.
5 Potosí was not analyzed in this comparison since all of those interviewed worked in the
informal sector.

CHAPTER 6
THEORIES OF DEVELOPMENT AND
ECONOMIC TRANSFORMATION:
DRAWING CONCLUSIONS FROM THE DISARRAY
“The economy is doing fine, but the people aren’t. ”
— Brazilian President Emilio G. Medici, commenting on his country’s
"economic miracle” in 1970
As with the scientific revolutions that were precipitated by the discovery of the x-ray and
the telephone, it seems to have been “something gone wrong with normal science” (to para¬
phrase Thomas Kuhn, 1970) that led us to the current epistemological upheaval regarding
theories adequate to account for the complexities of human social behavior. This growing rent
in the quilt of academic order runs in several directions at once, affecting various layers and
dimensions, and coming from several areas at once—particularly those worn most threadbare
through constant scrutiny.
What seems to have “gone wrong” is a long litany of failed development projects world¬
wide. Although the list changes depending on whose opinion one solicits (The World Bank or
left-leaning academics, for example), the central problem is that our theories of development
and the paradigms that inform them have simply not been robust enough to advance or even
sufficiendy define “development.” Neither have they been adequately consistent to inform the
methodologies to investigate people, nor have they accurately predicted human behavior itself
across even a schoolboy’s repertoire of cultural diversity.
149

150
The goal of this chapter is to review the current literature on development theory and
perspectives. While a complete analysis is beyond the scope of this work, the strategy here shall
be to assess a few key contributors to the debates (Foster-Carter 1987, Roseberry 1989, Amin
1990, Jaffee 1990, Black 1991, Long and Long 1992, Oman and Wignaraja 1992, D. Booth
1994) over the principal schools of thought that have colored most development thinking for
the last forty years—from dependency theory and the articulation of modes of production
approach—to the more recent phenomena: the new international political economy perspec¬
tive and the actor-oriented paradigm. I begin first with a brief discussion of how it is that
development theory in general has undergone such a well-articulated series of scientific revolu¬
tions and paradigm shifts. I then offer, in some depth, a review of dependency theory, its
origins, and the various factions within, since it is largely from these roots that current thought
has been formulated. An analysis of the articulation of modes of production approach and
international political economy thinking follows. I point to how various components are
applicable to an investigation of life in the informal sector and why it is that I favor an analysis
based in the international political economy perspective informed by Norman Longs actor-
oriented approach. Lastly, 1 suggest directions future research might take.
Why the Disarray?
Criticism has always accompanied scientific thought, revolutions, and counterrevolu¬
tions. And while the social sciences have probably not been especially distinguished in either
the frequency or ferocity with which these debates have raged, they have been nearly as critical
to understanding the human condition as have the most recent findings for disease prevention.
Why? Because in the balance often lie the lives of millions of unwitting subjects of develop¬
ment schemes which may or may not have achieved the success anticipated by even well-mean¬
ing development architects.
Today, for example, after forty-five years of planned economic development, India’s per
capita income remains around $300. Almost 40% of Indians live below the poverty line, and

151
the absolute number of Indians in that category increased sharply between the late-1950s and
the mid-1980s. India lags behind the majority of nations on most indicators of the quality of
life such as literacy, life expectancy, nourishment, access to safe drinking water and sanitation,
and so forth (Kamath 1994). In Africa, one need look at almost any country to see where states
and development planners have failed miserably to engineer development. From 1965 to 1986,
Africa’s annual rate of growth of gross national product averaged a deplorable 0.9% (Mazur 1990).
Real income per capita dropped by 14.6% for all of black Africa from its level in 1965. Agricul¬
tural growth has been negligible. Cereal production, for example, fell by 9.2% in 1987 according
to FAO, necessitating food aid to stave off starvation. Industrial output has also been declin¬
ing, with some regions experiencing ¿¿’industrialization (Ayittey 1994). The situation has been
so pronounced that even multilateral lending institutions have occasionally admitted failure:
There are countless examples of badly chosen and poorly designed public
investments, including some in which the World Bank has participated. A
1987 evaluation revealed that half of the completed rural development projects
financed by the World Bank in Africa had failed. (World Bank 1989, cited by
Ayittey 1994)
With every development failure, the cost in human terms far outweighs even the many
millions of misdirected, albeit well-intended, dollars. And with each failure, new waves of
thought carry their boatloads of disciples from once-popular disembarkation points to exciting
new islands or distant exotic shores: With each new idea introduced into the literature, groups
of disciples and antagonists coalesce—each elaborating, refining, and adapting what came before
in the fertile waters that generate still other new ideas. Then the cycle typically repeats itself, in
which case, the process is a dialectic one. What seems to be happening now is that we are
casting off old ideas (or at least, theories) faster than we are replacing them. It is much harder
now. No longer is it sufficient to posit a theory that hopes merely to account for the relations
of exchange between one set of actors and another on the stage of capitalism. The actions of
each group must be reasoned even when gift-giving or volunteerism, for example, are involved.
Neither is it sufficient to understand a calculus of rationalization implied by gift-giving in

152
strictly positivist terms, for to do so suggests that it may be the cognitive constructs of the
researcher that we are illuminating.
Recent thinking also suggests that we, as anthropologists, have not considered thoroughly
enough how history affects what we think about culture. We are being challenged to place
culture and history in relation to each other in the context of reflecting on the political economy
of uneven development (Roseberry 1989). We have always sought to consider carefully how it
is that our chosen theoretical orientation was appropriate for guiding our methodology. In the
words of Norman Long:
The central challenge is to develop a sound theoretical grasp of problems of
intervention and knowledge construction. This holds for interventions in the
field of development policy as well as for interventions that form part of a
research endeavor .... We must struggle to achieve a better integration of
theoretical understanding and practical concerns. But in order to do this, we
must first stand back from certain sociological orthodoxies as well as from exist¬
ing interventionist models. We must also avoid the dangers of jumping in too
fast with half-baked theoretical principles and research methods, upon which
new ‘recipes’ for organized action can be devised. (1992:3-4, emphasis mine)
We must also assess why our methodologies have often failed to account for what I call
the “Heisenberg uncertainty principle of social research”—where, in the act of conducting
fieldwork, categories are created that reflea the cognitive constata of the investigator into
which informants’ responses must fit. In a sense, what we perceive has been altered by the very
manner in which we observe it. Long’s aaor-oriented paradigm moves us in the right direaion
by suggesting that we develop components of our research design in concea with our subjeas.
Other new schools of thought are emerging as we speak. Peter Boettke has assembled an
excellent collection of essays that elucidate Neo-Institutionalism or Austrian Economía. Boettke
presents a rich historical analysis beginning with Adam Smith and weaving together the formal¬
ist and positivist revolution in economía, the Bolshevik Revolution and the rise of socialism,
and the Keynesian revolution in macroeconomia. Each of which, he claims, “shifted attention
away from governance to government activism” (1994, emphasis in original). Boettke attempts
to forge a new agenda for development economia that will focus scholarly attention once again

153
on the institutional infrastructure of economic development (harking back to the Polanyi
Group—see Dalton and Kócke, 1983). Austrian development economics emphasizes the
successful coordination of each actor’s “institutional matrix.” This focus on coordination draws
attention to a wide variety of formal and informal social, legal, and economic institutions within
which people act. The Austrian approach favors a broader approach to development—a “com¬
parative institutions approach” and thus differs from the present attempt which assigns pri¬
macy to the individuals economic rationalizing behavior. Boettke s approach provides a unique
way to evaluate the role of money and capital in economic development (Shah 1994:19) although,
to the present writer, it seems better suited to analysis focused on the higher macroeconomic or
national level than for research at the individual unit of analysis.
Similarly, fresh reexaminations of modernization theory have caused others to reassert its
utility, even if only to use it to underscore the source of discontent among the most needy of the
LDCs (Billet 1993). Whereas development and modernization theorists elaborated what they
viewed as the promises of the diffusion ofWestern culture, technology, and money, dependency
theorists have seen such diffusion as an impediment to development (Black 1991). While
modernization theory developed out of liberal thought and the positivist tradition, dependency
theory developed out of Marxist thought and the historicist tradition. According to Billet, the
key difference between these two theories is how economic growth and development in the
LDCs is seen to occur. Broadly speaking, modernization theorists have placed the emphasis for
the lack of economic development in the LDCs on the relatively low level of capital available.
Therefore, since scarce capital is seen as the principal inhibitor to economic growth, it is not
surprising to find that modernization theorists propose to remedy this situation by generating
sufficient capital for domestic investment (Billet 1993). Unfortunately, the modernization
approach suffers from a failure to suggest a realistic way to overcome this problem of scarce
capital. Such capitalization is most often expected to come initially from loans from donor
countries or oligarchs willing to lend for a price which invariably leads—directly or indirectly—
to some form of dependency.

154
Reviewing the Dependency Debate
As many contemporary writers seem to argue (Amin 1990, Long and Long 1992, Black
1991, Cardoso 1977, Weeks 1985, Portes 1985b, Foster-Carter 1978, D. Booth 1985), there
seems to be no theoretical framework adequate to handle the complexities and contradictions
of the problems facing Third World development in rural—let alone urban—settings. Although
somewhat less so today, as for illustrating the utility of our theories of development in the
specific ethnographic context, there is still truth in Clammer’s statement:
It is possible to read almost the entire literature of the neo-Marxist revival with¬
out suspecting that, somewhere behind the “classes,” the “modes of produc¬
tion,” the “articulations,” and the “reifications,” there are actually some people,
who furthermore possess cultures, social systems, complex systems of belief, all
of which, to the anthropologist at least, have some material bearing on the
problems under discussion. But where are they in the main debate? Nowhere
to be seen. (1978:252)
In the 1960s and 1970s, dependency theory arose largely as a response to the ECLA
(Economic Commission for Latin America) school of thought—known as the Desarrollista
Diffusion Model—whose proponents held that problems of development and underdevelop¬
ment in Latin America and other parts of the Third World could best be overcome through a
policy of import-substitution industrialization. The dependency perspective, in contrast, focused
on the problems of the penetration of foreign capital into the political economies of Latin
America by seeking to explain underdevelopment as a consequence of external (and second¬
arily, internal) economic and political relations.
This section is presented in two parts:
1) a brief discussion of the distinction between two versions of the diffusion model and
between import-substitution industrialization and dependency models; and
2) a presentation of the main elements of dependency theory primarily from the point of
view of two of its latter and foremost proponents—Cardoso and Faletto, and the sig¬
nificant critiques generated within and toward the dependency school of thought.

155
Roots of Dependency Theory
Traditional versus Desarrollista Diffusion models. Dependency theory grew, as men¬
tioned, largely out of response to the diffusion model of development. Within the diffusion
model, two theoretical schools of thought arose—Traditional Diffusion and Desarrollista Dif¬
fusion (Chilcote 1978), the latter a reaction to the former. The Traditional Diffusion model—
out of which the Modernization framework was hybridized—manifested itself in such institu¬
tions as the Export-Import Bank of 1934, the World Bank and the International Monetary
Fund in 1944, and the Alliance for Progress in 1961. These foreign financial aid programs were
later portrayed by some as a thinly veiled mechanism used by the United States to insure the
penetration of its capital resources to serve its politico-economic imperialist agenda.
In the wake of these programs and their failure to stem the tide of continued underdevel¬
opment in the LDCs, followed those who sought to expose this hidden agenda. It was here that
the Development Diffusion approach emerged to challenge Traditionalist notions. Among its
leaders were Rául Prebisch (1984) and others committed to the ECLA philosophy which
emphasized a movement toward nationalist solutions to the problem. This strategy was pre¬
mised on the center-periphery paradigm, the concept of import-substitution industrialization
(ISI), a strengthening of infrastructural development essential for heavy industrialization, and a
hope that the national bourgeoisie could gain control of its economic destiny. Prebisch’s pro¬
tectionist strategy called for government intervention and the institution of exchange controls
and wage policies. These initiatives were designed to stimulate national industrialization and
thereby avoid the negative consequences of deterioration in the terms of trade and the transfer
of income from periphery (typically Third World) to core (mosdy donor and developed) coun¬
tries. It became evident by the 1950s, however, that import substitution was unable to disrupt
the growing imbalance in the terms of trade between core and periphery countries or to gener¬
ate self-sustained and equitable development. This was due, in part, to the momentum already
being generated by the power of multinational corporations, whose principals would repatriate
profits from industry they set up and financed in the periphery. In response to the failure of the

156
ISI approach, analysts sought to broaden their understanding of the circumstances of depen¬
dency. A number of criticisms were eventually launched against the “Prebisch school.” Princi¬
pally, it was argued that ECLA rejected agriculture-led development in favor of ISI on the
mistaken grounds that technical progress was necessarily greater in industry that in agriculture
(Oman and Wignaraja 1992). Thus, the policies of the Diffusionists were turned away from by
some and “mainstream” dependency thought began to coalesce.
Dependency Theory; Origins and Criticisms
The dependentistas criticized the ECLA schemes: a) for failing to account for the specific
needs of capitalism at the center (and imperialist relationships among countries), b) for mistak¬
enly attributing the backwardness in Latin America to traditional and feudal oligarchies, and
c) for wrongly assuming that development could be promoted by a progressive national bour¬
geoisie (Chilcote 1978:58). From these objections three major currents within the dependency
approach began to take form. The first, launched by Celso Furtado (1963) and Osvaldo Sunkel,
emanated from within ECLA and focused on the obstacles, particularly market restrictions,
that confront capitalist development in the periphery (Oman and Wignaraja 1992). The second
current, led (or at least, popularized) by André Gunder Frank (1969a), and continued by
Theotonio dos Santos (1970) and Ruy Mauro Marini among others, basically negated the
possibility of capitalist development in Latin America. Franks views, although further to the
left than Furtado and Sunkel, were not as radical as those of Paul Baran. Baran concluded that
the only way out of stagnation in underdeveloped countries was through political revolution
(Oman and Wignaraja 1992). Frank rejected the notion that underdevelopment was solely the
result of a country’s “own economic, political, social, and cultural characteristics and structure”
(Frank 1969b:4), and argued that one must look for explanations in the relations of dominance
and subordination between the developed metropolitan countries and their underdeveloped
satellites. His main argument was that capitalism was responsible for the “development of
underdevelopment” in the periphery. The third current, found most notably in the writings of

157
Fernando Henrique Cardoso (who reportedly coined the term “dependence” in a 1965 paper)
and Enzo Faletto, accepted the possibility of capitalist development and concentrated their
analysis on “concrete situations of dependency” in Latin America, highlighting the subservient
forms such development takes in the periphery (Oman and Wignaraja 1992).
Even though ECLA and the structuralists never accused the center of direct responsibility
for backwardness in the periphery, Frank, dos Santos, and Marini explicidy argued that the
metropole-satellite relationship was the basis for exploitation of the periphery by the center. Of
course, many within the broad dependency school were critical of Frank (Laclau 1971, Henfrey
1982, Oman and Wignaraja 1992). One of the main criticisms of his work was that his “emphasis
on external considerations diverts attention from internal class antagonisms of Latin American
society” (Chilcote 1978:58). But, it seems to me, little attention had been paid to Frank’s
original words:
Just as the colonial and national capital and its export sector become the satel¬
lite of the ... metropoles of the world economic system, this satellite immedi¬
ately becomes a colonial and then a national metropolis with respect to the
productive sector and population of the interior. . . . Thus, a whole chain of
constellations of metropoles and satellites relates all parts of the whole system
from its metropolitan center in Europe or the United States to the farthest out¬
post in the Latin American countryside. (Frank 1969b:6, emphasis mine)
I do not wish to engage in an extensive defense of Frank for he does that most eloquently
himself in stinging replies to his critics (Frank 1977, 1980). Much of the criticism, however,
seems a valid response to his radical viewpoint and dogmatic stance. For example, Laclau
points to Franks argument that the transfer of surplus from periphery to center is the cause of
underdevelopment instead of an expression of the class struggle and the nature of social rela¬
tions associated with material production in the periphery. Thus, while some claim that Frank
only partially grasped Marx’s theory of mode of production and the transition between them
(D. Booth 1985), others faulted Frank’s early studies for confusing the realms of production
and exchange. Perhaps what we have learned from these criticisms of Frank is that it is the

158
process of creating wealth and how that wealth is then transferred between nations that help us
identify at which point underdevelopment occurs.
In this light, and from his own empirical evaluation of dependency theory in its own
terms, Lall reasoned that, “When reading the literature, you often get the impression that
‘dependence’ is defined by circular reasoning: less developed countries are poor because they
are dependent, and they show all the characteristics of dependence” (1975). I believe the prob¬
lem is not that Frank “diverted attention from internal class antagonism,” as Laclau (1977)
claims, but that his view is static and does not account for other possible outcomes. Frank, for
example, implicitly ignores the possibility that “national underdevelopment” could also be pre¬
cipitated by austerity measures of the satellite aimed at achieving political autonomy. Had
Frank used a more dialectical approach, as I believe Cardoso and Faletto (1979) do, he would
have added more of a process-oriented explanation to his mostly descriptive analysis.
Dos Santos goes beyond Frank’s conceptualization by further elaborating on the forms of
dependence as conditioned by the types of economic relations existing inside the peripheral
countries. He demonstrates how these types of dependency were linked to the structure of
industrial development of the export sector and were tied to international commodity and
capital markets. For dos Santos, the problem lay in the feet that domestic industrial invest¬
ments were limited by pressures placed on their capital resources in two ways: 1) by the need to
generate resources in their export sector, and 2) by the concomitant (perhaps, inescapable) rise
of foreign investment in the industrial sector.
Since industrial development is dependent on an export sector for foreign currency to
buy the inputs necessary for its realization, the domestic economy is faced with an inevitable
conundrum. On the one hand, the desire for foreign capital to develop industry domestically
implies that there exists a need to preserve the traditional export sector. On the other hand,
such a preservation maintains the power of traditional oligarchies who are, in turn, controlled
by foreign capital which largely controls the markets for these products. What happens is that
foreign capital retains control over the most dynamic sectors of the economy and a high volume

159
of profits are repatriated. This repatriation produces a significandy troublesome deficit in the
total balance of payments limiting the possibility of importation of inputs for industrialization.
“The result is that foreign financing becomes necessary: a) to cover the existing deficit, and
b) to ‘finance’ development by means of loans for the stimulation of investments” (dos Santos
1970:113).
Further conundrum springs from the fact that “big companies do not sell machinery and
processed raw materials as simple merchandise; [since they must be paid for the utilization of
certain patented techniques] they demand either the payment of royalties, etc., for their utiliza¬
tion or, in most cases, they convert these goods into capital and introduce them in the form of
their own investments” (dos Santos 1970:114). The bottom line is that the productive process
created by dependent industrialization is characterized by a system of capital accumulation that
perpetuates the high rate of exploitation of the labor force. In other words, periphery countries
need capital to develop their own industrial infrastructure, but to do so they must shift atten¬
tion back to the export sector (which is largely controlled by foreign capital already) to generate
the necessary investment capital. This leads to a vicious cycle of increasing indebtedness which
is, not incidentally, also controlled by foreign capital.
Admittedly, the macroeconomic picture is difficult to simplify, but dos Santos’ ability to
bring this type of analysis to bear on the causes and consequences of dependency in Latin
America is what sets his approach apart from earlier dependency writers. Still, dos Santos was
criticized for not explaining how these international relations of production came about in the
first place.
Cardoso and Faletto escape much of the early criticism aimed at Frank and other depen¬
dency theorists. In opposition to the “development of underdevelopment” writers who did not
accept the possibility of capitalist development in the periphery, Cardoso and Faletto did not
see dependency and development as incompatible (Oman and Wignaraja 1992). Further, they
maintained that foreign domination alone could not explain social, economic, and political
dynamics. Early in their analysis they emphasized the importance of both internal and external

160
influences on development and capital accumulation. Employing a dialectical analysis, they
stressed the consequences of external influences on internal structures, and placed major emphasis
on the combinations and recombinations of forces of internal domination and class conflict
(Cardoso and Faletto 1979:xvi).
Cardoso and Faletto’s dialectical approach to dependence, “entails a link with the outside
in such a way that what happens ‘internally’ in a dependent country cannot be fully explained
without taking into consideration the links that internal social groups have with external ones”
(Cardoso and Faletto 1979:22). This notion of “feedback loops” is also reflected in Laclau’s
criticism of André Gunder Frank’s failure to explain why certain nations needed the underde¬
velopment of other nations for their own process of expansion (Laclau 1971:36). Also, Laclau’s
conceptualization of the “economic system”—which designates mutual relations between dif¬
ferent sectors of the economy or between different productive units (Laclau 1971:34)—appeared
to rely on dynamic, if not dialectical, mechanisms. Thus, while Cardoso and Faletto were not
the first to use a dialectic, or dynamic approach, the first printing of Dependency and Develop¬
ment in Latin America coincides with a sophistication of these and other methodological and
conceptual issues in the development literature.
Further, Cardoso and Faletto’s ability to deal with a wide range of factors in their analysis
of the development process took them beyond the traditional limitations of the historical-
structural approach. In their discussion of the structural limits on the process of national
industrialization, they incorporate an analysis of the power alliances that were formed between
classes representing the old dominant and expanding middle class. They explained how these
alliances permitted the accumulation that promoted domestic investment and expanded urban
consumption. Moreover, they demonstrate how these various alliances led to different out¬
comes in Brazil (spurred by falling price of coffee in 1934), in Argentina (due to such factors as
the fall of Perón in 1955), and in Mexico (where the integration of trade unions allowed the
workers’ popular movements greater participation). In contrast, Chase-Dunn (1975) treat
these types of considerations as “equal” and generally attributed dependence to the degree of
foreign investment and credit.

161
Similarly, Ronald Müller (1973), whose analysis I find considerably stronger than Chase-
Dunn’s, explains how the maintenance of underdevelopment was related to the rise of the
multinational corporation (MNC). Unfortunately, his brilliant expose of the contributions of
MNCs as largely myth, fails to explain how MNCs came to be such an important part ofThird
World economies in the first place. This underscores the problem of the lack of historical
analysis so important to Roseberry (1989).
Rather than search for the engines of the development process in an investigation of the
periods of mercantile, industrial, or international finance capital (as Chase-Dunn does of the
latter), Cardoso and Faletto urge us “to make clear what the relation of dependence meant in
each of these phases. Capitalism should be studied in the hope, not of finding how its history
may be repeated at a later date in the peripheral countries, but of learning how the relations
between peripheral and central were produced” (1979:23). This kind of analysis begs the detailed
historical and structural consideration of a wide array of factors covering social, economic, and
political arenas, and can be seen as similar, in many ways, to the articulation approach discussed
in the next section.
Perhaps Cardoso and Faletto’s greatest contribution is their ability to incorporate the
political arena into their historical-structural approach for understanding the transformation of
the economic process in Latin America. Bound in this approach is the assumption that there is
no a priori relation of dependence between one nation and another. This implies primary
importance be given to “the relations that are made possible through a network of interests and
coercions that bind some social groups to other, some classes to others. This being the case, it
is necessary to determine the way in which state, class, and production are related in each basic
situation of dependence” (Cardoso and Faletto 1979:173).
David Barkin’s conceptualization of the emergence of the “new international division of
labor” was, in part, a response to this call fora political economy perspective. Barkin’s approach,
which presupposes a qualitative change in the nature of the international economy, emphasizes
that this transformation is related to changes in the scale of production and the locus of decision

162
making by those empowered to direct capitalist enterprise (Barkin 1982:156). This locus of
control and hence, exploitative power, though held largely by multinational corporations, is
granted with the permission, if not the blessing, of the host country. Any analysis, then, must
necessarily include an investigation of the political agenda of the state. Furthermore, where
these two roles—multinational corporate executive and periphery politician—are embodied in
the same actor, then personal agendas also become a factor.
The Capitalist World Economy and Immanuel Wallerstein
Since world-economic theory developed by Wallerstein (1974, 1979) is often associated
with dependency theory and since no review of development theory would be complete with¬
out it, at the risk of oversimplifying his position, I mention briefly this important contribution.
Both “World Systems” and Dependency approaches reject the view that national development
can be explained by examining the internal characteristics of nation-states. Instead, nations are
seen as open systems heavily influenced by economic forces and patterns of commodity exchange
at the global level. For Wallerstein, however, the whole notion of stages of development or
contemporary socioeconomic systems is misleading since, in his view, there is only world devel¬
opment and a world system (Jaffe 1990).
Wallerstein criticized the dependentistas for what he calls a rigidly developmentalist approach
(cf. Long 1992, Roseberry 1989). That is, while dependency theorists assume that each nation¬
state must pass through the same set of stages or modes of extracting surplus, in the same order,
Wallerstein see the nation-state as having come into being as a convenience to economic elites
of an earlier era. In the World Systems approach, the essential struggle is not between rich and
poor states, but rather between rich and poor classes in a global society (Black 1991). These
notions and the constructs that Wallerstein uses to examine them form the heart of the contro¬
versy around his approach. For example, the extreme and unorthodox nature with which
Wallerstein categorizes all forms of national production as capitalist is difficult to sustain.
Wallerstein’s position on this matter leads him to characterize socialist and/or communist states

163
as capitalist because they, too, are parts of a capitalist whole that participate in world market
production and trade (Jaffe 1990). Further, Gorin (1985, as cited by Jaffee 1990) criticizes
Wallerstein for his ambiguous and inconsistent description of the actual role played by the
socialist states in the world division of labor.
These issues surrounding dependency theory have been chosen because they are represen¬
tative of the much larger body of critiques leveled against dependency and early development
thinking. In many ways, the critiques assembled here defined the “talking points” out of which
the articulation and subsequent approaches have sprung. I believe it has been this evolution of
thought—this dialectic process—that has led Long and others (notably Roseberry 1989) to call
for a return to a more historical and actor-oriented paradigm.
The Articulation of the Modes of Production Approach
First elaborated by Ernesto Laclau (1977), the articulation perspective grew largely out of
the above mentioned limitations of the dependency approach. Central to this perspective is the
concept of mode of production which Chinchilla and Dietz consider “a general theoretical
category that indicates general tendencies (not laws) of societal change; the exact form of
change and the process of their development are mediated in class struggle and, therefore, are
not wholly predictable” (1982:144). In contrast, Laclau further defines mode of production in
more classic Marxist terms as, “an integrated complex of social productive forces and relations
linked to a determinate type of ownership of the means of production (1977:34). In other
words, different modes of production are determined by: 1) forms of labor control responsible
for the production of surplus, 2) the system of capital accumulation, and 3) the ownership and
control of the productive process. Thus, for example, a capitalist mode of production is char¬
acterized by a wage labor system of control; appropriation of the surplus and ownership of the
means of production are controlled and held by the nonproductive class—capitalists (Jaffee
1990).

164
The criticisms out of which the articulation approach grew can be summarized in three
central themes. First, the scope or scale of dependency theory was too broad to be useful for
analysis. According to Foster-Carter “dependency might well suggest a macro-framework, but
it did not easily manage the shift from general statements to micro-fieldwork. Second, the
operational difficulty was interpreted ... as implying that the dependency approach was not
merely too broad in scope, but downright confused and contradictory: it lacked conceptual
rigour” (1978:212). The third criticism is often attributed to Laclau who posits against Frank’s
“iniquitous and homogeneous capitalism” not a dualistic model (capitalist and precapitalist),
but a structured and differentiated whole—an economic system under which various forms of
capitalism are subsumed.
From these neo-Marxist ruminations Rey, in the wake of preliminary work by Althusser
and Balibar, was primarily responsible for introducing four main premises by which the articu¬
lation approach attempts to understand the relations of exploitation and thus, class conflict.
The following is a summary of the key points of these premises as interpreted by Chinchilla and
Dietz (1982:143-144).
1) Even though it is necessary to analyze the functioning of capitalism at the world level,
the fundamental unit of analysis remains the national economy. The national economy,
then, is seen as the site within which two or more modes of production are operating.
2) It is necessary to consider the stages of development of the different modes of produc¬
tion to understand the process that sustains them (especially as regard the dynamics of
class relationships and conflicts). From there we must seek to discover the nature of
articulation between the modes and classes within the social formation.
3) Development is not understood in some abstract, ideal sense, but rather as the “develop¬
ment of capitalism,” as the process by which the capitalist mode and its classes come
into contact with each other and other modes of production operating within society.
Portes’ (1978, Portes and Walton 1981a) conceptualization of class into five distinction

165
groups, two of which comprise the informal sector, (discussed in Chapter Four) pro¬
vides a clear way to envision “classes coming in contact with each other.”
4) External control and influences are modified and shaped by the internal structure—the
structure of class, the level and forms of the class struggle, and the nature of the state.
Hence, the articulation approach is not without its version of a dialectical process.
Underlying this schema is the notion of process. Here Rey distinguishes three stages of
articulation: a) an initial link in the sphere of exchange, where interaction with capitalism
reinforces the precapitalist mode, b) capitalism “takes root,” subordinating the precapitalist
mode but still making use of it, and c) although not yet reached in the Third World, the total
disappearance of the precapitalist mode, even in agriculture (Foster-Carter 1978:218).
In many ways the dependency versus articulation debate seems to have evolved along
similar lines as the formalist-substantivist debate. Surely some of the neo-dependency writers
(Cardoso and Faletto 1979, Frank 1980), would argue that the articulation approach adds little
new to the understanding that has matured within the dependency school. Is this really true?
Perhaps the main difficulty comes in defining which schools’ writers identify themselves with—
“late neo-dependency” or “early articulation.” While some darker lines can be drawn between
the earlier (some would say “vulgar” forms of these approaches), those lines become fuzzy where
these views are expressed in their state of the art conceptualizations. Similarity, too, can be
found between the dependency and articulation approaches in as much as their differences are
not as substantive (in the common English usage), as much as one of emphasis. On one hand,
some would argue that dependency writers tend to emphasize the broader view of the exploit¬
ative nature of capitalist development and a desire to move toward socialism, while articulationists
tend to emphasize the relations between classes and subordinate and dominant modes of pro¬
duction, and a move toward a world capitalist system (Black 1991, Amin 1990). On the other
hand, others would not see these views as exclusive, given that, a) there are neo-Marxists in both

166
camps and, b) the notion of capitalist development has been refined by writers in both schools
(Benton 1989, Portes, Castels, and Benton 1989, Martin and Kandal 1989, Long 1992).
New Trends, Currents, and Syntheses in Development Thinking
Now that we have had an opportunity to “stand back a bit from the controversy and allow
the light of scrutiny to fall on some features which are common to all of the major contribu¬
tions” (D. Booth 1985:773), it is time to take stock in how far we have come since the
articulationist approach was posited. What seems to have occurred is that most of the play¬
ers—new and old alike—have come much closer to agreeing on the “talking points of develop¬
ment.” Thus, in the wake of modernization, dependency, international division of labor, world
systems, and articulation viewpoints have come an even less differentiated set of approaches
that have attempted to address, if not completely satisfy, critics of the preceding era (D. Booth
1994). These new approaches represent, primarily, a synthesis of our earlier ways of under¬
standing the process of development.
Late Articulation Refinements
Though Chinchilla and Dietz (1982) claim to use the articulation framework, their elabo¬
ration of this approach seems to include the salient features of Cardoso and Faletto’s historical-
structural perspective (1979) along with those espoused by Rey through the pen of Foster-
Carter (1978). Further, their analysis also seems to include some of the historical concerns later
elaborated by Roseberry (1989) as well as the practical methodological concerns raised by Long
(1992) and Black (1991). They suggest a specific methodological approach for explaining the
process of underdevelopment. For Chinchilla and Dietz this means “determining the forms
and nature of the articulation of the various modes, . . . and the reciprocal influence of the
subordinate modes of production on the dominant mode and its class relations, ideology, etc.”
(1982:144-145). Their perspective emphasizes the state as a site of both class struggle and class
dominance by the ruling class of the dominant mode of production (ibid: 145). The attractiveness

167
of this approach lies in its ability to incorporate higher levels of analysis (the state and national
economy), with lower level ones (the individual in the context ofhis/her class struggle). Although
Cardoso and Faletto address these issues, they do not systematically explain how to go about
conducting research along these lines. Similarly, although Chinchilla and Dietz provide a use¬
ful extension of the historical-structural dependency tradition, their methodological direction
is still vague. Later work addresses this deficit by engaging actors in the construction of case
studies (Seur 1992) and including them in research design (Torres 1992).
The New International Division of Labor
Although not completely distina from the International Political Economy approach,
the notion of an “International Division of Labor” is another fundamental element of interna¬
tional-level theories of development. The term implies that there is an international system of
produaion and a global system of specialization and funaional interdependence. According to
most dependency and world-economy formulations, a nation’s position in the international
division of labor determines its prospeas for socioeconomic development. The international
division of labor is viewed as an historically evolving struaure based on the legacy of imperial¬
ism, colonialism, and the investment patterns of MNCs (Jaffee 1990). This component—
although its formulations has been updated since its introduaion in the early 1970s—calls for
specific analysis of the international transfer of capital and how the resulting relations of pro¬
duaion bear on the ability of development to advance.
When analyzing the informal seaor, attention to the international division of labor should
illuminate not only the economic situation imposed from the dominant countries by the pres¬
ence or absence or degree of multinational corporate investment but also by the surplus labor
market precipitated by the charaaer and climate of that investment. Further, this suggests
attention be paid to the survival strategies of those engaged in both informal and formal seaor
employment that has “trickled-down” or spun-off from foreign investment. Needless to say,
while the political climate has not been generally stable enough for sizable multinational

168
investment in Nicaragua (making unlikely the introduction of factories to capitalize on abun¬
dant, low-cost labor), attention needs to be paid to how this politico-economic climate devel¬
ops over the coming years.
International Political Economy Approach
Among new schools for understanding development is the field of International Political
Economy (IPE), said to be a synthesis of modernization and dependency approaches (Black
1991). This new group of thinkers tend to focus—as did dependency theorists—on the moti¬
vating factors of group formation where the groups’ interests are defined in the context of social
structure rather than on aggregate data relating to individual needs. Like the modernization
theorists, they believe that where development flourishes so also will democracy. With the
world systems school they believe that development follows no preordained sequence of stages;
however, international political economy theorists fault the world systems approach for under¬
estimating the importance of the role of the state in determining economic outcomes. They
feel that both the state and market must be seen as significant players in the process of develop¬
ment and, whether they are mutually reinforcing or at odds with each other, is a significant
factor in determining the course and speed at which development will occur. Also like
dependentistas, international political economy theorists are concerned with juxtaposition of
and possible contradiction of state power and the economic interests of transnational corpora¬
tions. IPE theorists do not, however, equate the penetration of foreign capital with the contraction
of the economic role of a Third World state as did Frank and other early dependency thinkers.
The defining characteristic of the International Political Economy perspective is that it rests
primacy with the political agenda of the intervening state (Black 1991).
International Political Economy and the Nicaraguan Case
In the case of Chamorros Nicaragua, this translates into how insistent the United States
is on attaching IMF-like principles to the release of loans and other forms of financial assis¬
tance. While, as McCoy (1993) reminds us, considerable stability and continuity in economic

169
policy has been realized throughout much of Latin America through such economic reform, it
appears that here, the “political agenda” of the “intervening nation” is not only clear, it is also
overtly imperialist. Not only has the United States exercised a strategic stranglehold on Nicaragua
over the last ten to fifteen years, now it adds economic extortion to its list of assaults. Were the
U.S. to insist on obvious austerity and belt-tightening measures, that would be one thing, but
to the extent that funds are also conditioned on such things as the privatization of the state-run
communications industry, Telcór, the U.S. ensures fixture economic dependence as well.
Unfortunately, such extortion does not stop there nor is it confined to the economic arena. The
fact that Humberto Ortega’s resignation has been so long in coming is a tribute to both the
tenacity of the Sandinistas to exert any power on the new regime and the audacity of the
Chamorro regime not to want to seem a simple puppet of United States, World Bank, and
International Development Bank string holders.
Of course, at the bottom of the equation lies the “grass roots” political power in the
country. Whether that power is perceived or real, the threat of losing popular support in the
coming 1996 elections unquestionably pushes against the economic influence wielded from
the North. Although it passes through many iterations on its way up the ladder of power and
influence—particularly in the realm of Nicaragua’s business elite—the ability to affect any sort
of change for local level development sponsored by the national government, vis-a-vis extra¬
national leverage, defines the principal battlefield for the immediate future. Between now and
the 1996 elections, it is likely that party leaders will continue to jockey for center stage by
manipulating the media and crafting their rhetoric to promote their cause domestically. At the
same time, except for the brazen former heroes of the left who still openly condemn any sort of
intervention or succumbing to IMF pressure, potential candidates will try not diminish their
luminescence in the international arena.
Thus, in as much as state policies have seriously colored the character and degree of
international investment, the I PE perspective is relevant for the present analysis. Previously I
have discussed how the state—particularly the Sandinistas—had implemented policies that

170
directly affect Nicaraguans at even the lowest levels of the economic ladder. For example, not
only were those whose businesses were nationalized, but even small and medium-sized business
owners were gready affected by the Sandinista decision to adopt a nonaligned, mixed economic
stance which played heavily into the United States’ reaction to withdraw, deny, and block all
types of international loans. Besides the results of this international posture—campesinos and
the urban poor were affected by the monetary policies that governed imports and exports for
the agro-industrial sectors, as well as a host of differential exchange rates and domestic policies
that reversed direction in 1984 (Enriquez and Spalding 1985). Pricing policy prior to 1984, so
negatively affected the campesinos that many times they refused to sell their products to the state
institutions and instead, sold direcdy to the black market (Cuenca 1992). This action further
precipitated and strengthened the informal sector and further precipitated the black market for
U.S. dollars. With the strength of dollars flowing into the informal sector arena, the balance of
economic power began to shift and—although at times the Sandinistas were divided about how
to deal with this force to be reckoned with—what prevailed were often oppressive measures
that turned the buhoneros (street vendors) and merchants involved with informal sector activity
against the revolution.
The Call for an Actor-Oriented Paradigm
It is clear that as we conduct our fieldwork—or plan development projects—we cannot
always expea our target population whose behavior we observe direcdy, to inform us, deduc¬
tively, of the impaa outside forces hold over their lives. Neither should we expea that studies
of simply the struaural conditions of their lives will tell us everything we need to know about
how and why individuals make the decisions they do to survive. Thus, current trends are
emphasizing the need for a return to what Norman Long has called the aaor-oriented para¬
digm to socioeconomic analysis.
Underpinning this interest in social aaors is the belief that, although it may be true that
certain struaural changes result from the impaa of outside forces (due to encroachment by the

171
market or the state), it is theoretically unacceptable to base one’s analysis on the concept of
external determination (Long 1992). As Long puts it:
All forms of external intervention necessarily enter the existing life-worlds of
the individuals and social groups affected, and in this way are mediated and
transformed by these same actors and structures. Also, to the extent that large-
scale and “remote” social forces do alter the life-chances and behavior of indi¬
viduals, they can only do so through shaping, direcdy or indirectly, the every¬
day life experiences and perceptions of the individuals concerned. (1992:20)
An advantage of the actor-oriented approach is that one begins with an interest in explaining
different responses to similar structural circumstances, even if the conditions appear relatively
homogenous (why some Nicaraguans chose informal over formal sector employment, for
example). Thus one assumes that the different patterns observed are, in part, the creation of the
actors themselves. Although the application of such methods are not unlike the anthropology
and sociology conducted in the 1960s and early 1970s, Long cautions that we should not
repeat the shortcomings of research in those times. In the past,
in an attempt to combat simple cultural ¡stand structuralist views of social change,
many studies concentrated upon the innovative behaviour of entrepreneurs and
economic brokers, on individual decision-making processes or on the ways in
which individuals mobilized resources through the building of social networks.
Yet many such studies fell short because of a tendency to adopt a voluntaristic
view of decision-making and transactional strategies which gave insufficient
attention to examining how individual choices were shaped by larger frames of
meaning and action. (ibid:21)
The concern is that we do not attempt to develop a system of analysis whereby we com¬
partmentalize the rationality of “fundamental properties of human behavior” and thus employ
an ethnocentrism that obliterates the “specificities of culture and context” (ibid:22). Long
seeks to avoid (or at least be aware of) what I have referred to as “the Heisenberg uncertainty
principle of social research.” Furthermore, Long also attempts to avoid an analysis based on
exogenous factors that the actors themselves may or may not be responding to (and are often
completely unaware of). What this present researcher finds appealing is the emphasis on the
creativity of the actors even when seen in the light of overwhelming circumstances—what I

172
have referred to as the boundless innovation of those seeking to survive outside of wage labor.
For example, as it relates to the forces of the international division of labor, this perspective
helps us to understand that the locus of decision making remains with the individual actor and
is not simply a function of the presence or absence of the MNC’s local factory. I argue that
what is primary is the personal economic rationality which causes some actors to seek work in
the factories and others to find a way of making a living in the informal trades that services
those factory workers. It is not simply a case of “if you build it, they will come.” Actors must
find that factory work suits them better (financially, physically, and psychologically) than grow¬
ing bananas, making tortillas, or selling Cokes in front of the factory gates at noon.
In the case of Nicaragua, it is this seemingly endless innovation of individuals that allows
the informal sector to constantly redefine and establish its own parameters, leaving the state
often to react rather than act upon it and social scientists wrestling to define its actors.
Political economic analyses will benefit from employment of this methodological para¬
digm. In combination with Black’s international political economic approach, and in light of
the emphasis Roseberry places on the importance of conducting our research with concern for
the historical context, Long’s actor-oriented paradigm suggests a starting point that many will
find helpful to return to.
Where To Take Further Analysis
This synthesis of earlier approaches to understanding the process of development sug¬
gests numerous research questions previous theories of development have not been nearly so
well suited to answer: In what way does the “revolutionary spirit”—so talked about in the
Nicaraguan literature—serve to color the nature of relations between classes and modes and
within families and firms? To what extent does state policy contribute to formulating class
structure? To what extent do limitations on the import of luxury goods, price fixing, grain
subsidies, and the rationing of gasoline dismantle or solidify class boundaries? How do people
perceive status based on identification with various classes or modes? Is family structure or size

173
a cause or consequence of the existing order? In what ways do individual belief systems per¬
petuate the relations between classes, i.e., if not a “culture of poverty” or the “need to achieve”
then what is the engine of social change?
Finally, from the starting point laid down in this book, larger questions still remain.
Given the mixed success of the Sandinista experiment with a mixed economy in the decade of
the eighties, is there evidence to suggest that components of socialism could serve as a viable
solution to the extreme economic problems, or does it appear that the few remnants of the
mixed economy will continue to cave in to the might of world capitalism and IMF hegemony
over the region? Given what we know has happened since the fall of the Sandinistas, and since
no argument can be made for the tenacity of any party’s politico-economic agenda, what can be
said of the economic order to come? With regard to the Nicaraguan people it will effect, will its
blows be softened or fall harder by what has come before?
Summary and Conclusions
As I have tried to show in this chapter, the path to development is neither a straight nor
clearly marked one. In the case of Nicaragua, this is partially owing to the fact that the direc¬
tion of development has been set by many players: The Sandinistas have attempted to wrest
decades of dominance away from the “Yankee oppressor;” The United States, seeing the Sand¬
inistas as an ideological and strategic threat in the region, has sought to—and been mosdy
successful in—bringing this hemispheric destabilizing agent to its knees; The national capital¬
ist class has conspired with the North to install a government favorable to its political and
economic agenda.
With these components considered, this research, while focusing on a small piece of this
global picture, has been informed by the historical precedent and proceeds from an analysis of
internal policies—sometimes responding to and sometimes determined by international
hegemony. The analysis thus, has been largely inspired by the International Political Economy
perspective. The research conducted at the household and individual level of analysis, largely

174
designed in Nicaragua with the help of Nicaraguans, echoes the concerns of the actor-oriented
approach.
As far as development in Nicaragua is concerned—at least in the sense of development of
infrastructure, development of health programs, development of housing for the poor— "¡No
hay nada!”—“There isn’t any” or there is very litde. Although the mid-80s provided us with
some exceptions as large development projects funded by Scandinavian countries and the Sand-
inistas were able to move social programs forward in certain areas, with the Chamorro govern¬
ment those efforts have been halted and, in some cases, reversed. Even development funds are
being diverted to servicing the debt as called for by the IMF and World Bank. Thus, it is not
the development of capitalism that has had to take a back seat. Not only are ways being found
to move capital from the periphery to the core (i.e., paying the unpayable debt), but capitalism
is encouraged by such programs that takes once-expropriated land away from peasant coopera¬
tives and returns it those who left for Miami in 1979. In the Nicaraguan case, unlike in many
other parts of the world, it often seems that it is not so much how development has been
botched, as much as how it has been blocked.
This book has shown how, in spite of the many forces that placed the odds against them,
informal sector actors flourished during a time when hyperinflation ravaged the formal economy.
At the same time, given the Sandinista’s attempt to provide special “safety-net benefits” to those
in the formal economy, households that were able to adopt a strategy of placing workers in both
formal and informal sector jobs generally found themselves best equipped to survive.
Beyond that, with the new era upon us and economic times more difficult than ever
before, those at the bottom of Nicaraguan society will begin to realize some relief only to the
extent that domestic pressure can be brought to bear on the political process to resist (or at least,
temper) capitulation to the North. To win the elections in 1996, political leaders must heed
this cry for help and remain endeared to the North, at least enough to forestall a cessation of the
flow of vital development, relief, and loan funds into the country.

CHAPTER 7
SUMMARY AND CONCLUSIONS
I used to work as a domestic in the house of a rich man. In those days
I couldn’t eat until he had eaten and then all I would get is a bird’s
ass. Now I make more than an Aereo Nica pilot!
—Doña Luisa, at her comedor in Barrio Altagracia
As we have seen this work has highlighted life in the informal sector in Managua during
the mid-to-late 1980s. At that time, the revolutionary Sandinista government was in a war
with the contras, human and material resources were stretched thin, and the economy was
failing. Relations with the U.S. were as low as they had been since 1855, when William Walker,
the Tennessee soldier of fortune, declared himself president of Nicaragua.
The lessons portrayed here are about how people in Managua managed to survive during
these intensely difficult and unique times. While there are, finally, some works that explore the
informal sector in a favorable light—most notably, Hernando de Soto’s The Other Path (1989)—
few have previously examined an informal economy under conditions of hyperinflation pre¬
cipitated by scarce supply of goods and the inorganic emission of capital (the printing of money).
What caused those—either due to desperate unemployment, dislocation by the war, conscious
175

176
strategizing, or just plain hunger—to seek informal sector activity, is the theme around which
this modest banquet has been planned.
On the one hand, there has been increasing demand for a reevaluation of the develop¬
ment thinking of the previous decade (Kincaid and Portes 1994, Black 1991, Long and Long
1992, Roseberry 1989). On the other, fresh attempts to look at the Nicaraguan experience
during this tumultuous time has underscored its importance (Spalding 1994, Lancaster 1992,
Vilas 1995). I believe, as Vilas points out, that it was not the failure of capitalist development
in Central America that provided the economic impetus for revolution, but its success. What I
hope to offer here, is to build on these works by augmenting the scant ethnographic record with
an understanding of the urban poor and the struggling-to-be-middle-class informal sector in
the context of their economic rationalizing. The Sandinista attempt to achieve a society based
on political pluralism, nonalignment, and a mixed economy provides the unique backdrop for
this setting. The confusion suggested by the inconsistent policy toward the Managuan infor¬
mal sector—sometimes favored and sometimes fought by the State—further suggests that
examinations of this type are not only timely but needed.
Moreover, this book strives to contribute to the body of development literature con¬
cerned with the informal sector—about which relatively little is known with certainty at the
grass roots level, and about which much less is understood in the context of a mixed economy.
Here too, current informal sector writers have both provided us with and expressed a need for
more case study evidence (Tokman 1992, Portes et al. 1989, de Soto 1989, Long and Long
1992). Hence, this work also serves to chronicle human factors in one of the most celebrated
experiments performed on an economy in recent decades.
Lasdy, besides the extremely important ethnographic opportunity to examine the Nicara¬
guan experience at the peak of the war-weary Sandinista regime, another compelling reason to
write about its informal sector actors is that their economic mobility largely contradicted the
characteristics commonly assigned the informal sector at the time. And now—five years later—
with the benefit of a fresh series of snapshots (exposed in the following Epilogue), we are able to

177
triangulate in on some of the unique economic conditions of the time. Staggering hyperinfla¬
tion has been replaced with 70% unemployment. A once clearly defined, political pluralism
has been supplanted with a scramble for power from a variety of political arenas—none with a
clear agenda. Liberal Sandinista land reform measures of the 1980s are being reversed. Recent
capitulations to the IMF and the pending privatization of the national communications com¬
pany, Telcór, point to ever more desperate attempts from the right to bring runaway debt under
control. A land of once extremely scarce resources has been transformed into a teaming mar¬
ketplace where virtually anything is readily available—albeit for a price few of the majority
poor can afford. These new data provide a basis for suggesting some specific possible connec¬
tions between the success of the informal sector and the singular economic climate of the time.
The Economic Crisis Continues to Worsen
Among the principal economic conditions of the late 1980s that contributed to fostering
a robust informal sector are rampant hyperinflation spurred on by the printing of money and
the lack of development of the productive sector. Given the dispersed nature of Managua’s
market infrastructure—the lack of a single central downtown and numerous grand markets—
the informal sector found a rich culture in which to breed. Now, however, with the advent of
ever stricter structural reforms and the lifting of the U.S. embargo, the business climate precipi¬
tated by the policies of the Chamorro government has fostered renewed capitalist development
and eliminated much of the Sandinista’s bureaucracy and social programs for the poor. While
this othodoxy has pleased the lending agencies of the north and much needed development
funds have been released, these funds have gone primarily to help pay the increasingly unpayable
debt owed to the north, and resources have not been channelled into national productive devel¬
opment schemes thereby leaving greater masses of people unemployed. Thus, the tightening of
money and a significant reduction in formal sector jobs has resulted in increased economic
hardship which has trickled down to informal sector workers who have fewer and fewer cus¬
tomers with the money to pay for their goods and services. Even though the informal markets

178
have continued to grow, with the informal sector not nearly so profitable as it was in the 1980s,
more and more poorly trained informáis now compete for increasingly scarce formal sector jobs
further exasperating economic conditions.
Who Benefits frpm Informal Activity?
Did the thriving informal sector activity of the time help or hurt the Nicaraguan economy?
Was there another plan of action that might have better served national and individual inter¬
ests? While the informal sector certainly benefited those who engaged themselves in these
activities and the state enjoyed a hiatus during which they did not have to answer for the formal
jobs they could not find, had there economic success been even modestly taxed, and had the
Sandinistas endeavored to provide more realistic pricing and exchange policies, revenues could
have been directed to programs to develop the productive sector. This would have aided both
informáis of the time as well as future generations into the 1990s. Of course, the benefit of
hindsight here is clear, and there are those that would argue that—given the war expenditure
and the embargo, the Sandinistas—except for a few notable blunders, did most everything they
could with the scarce resources at their disposal. Most, on the other hand, are critical that too
little was done too late—especially in the arena of the many economic reforms of the 1980s (see
Table 7.1 on the following page for an overview of the economic crisis by the numbers). These
are the issues I have attempted to craft into a story that, I hope, has not only whet the appetites,
but also satisfied the palates of development planners, economists, ethnographers, and revolu¬
tionaries alike.
The Nature of the Informal Sector
Although how we conceptualize the informal sector has evolved gready in recent years,
early notions of the concept seem contradicted by the Managuan informáis. Mostly consisting
of industrious market women, tenacious street vendors, and enterprising home-based shop

Table 7.1: Nicaraguan Economic Indicators, 1978-1992
1978
1978
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
GDP Growth Rate
(%)
-73
-26.4
4.6
5.4
-0.8
4.6
-1.6
-4.1
-1.0
-0.7
-12.1
-1.9
-0.7
-0.5
03
Per Capita GDP
Growth Rate (%)
-10.0
-28.4
1.6
1.9
-4.0
13
-4.8
-6.7
-3.5
-3.0
-143
-4.5
-3.7
-4.0
-3.4
Tax Revenues / GDP
(%)
-
-
18.4
18.7
20.3
25.9
30.7
27.8
27.7
24.6
193
21.7
17.7
19.8
-
Fiscal Deficit / Govt.
Expenditures (%)
50.7
3&5
30.3
36.0
34.8
49.1
41.4
41.9
353
312
55.7
223
56.5
24.1
-
Fiscal Deficit / GDP
(%)
-
13.5
9 2
12.4
13.6
30.0
24.8
23.4
18.0
16.4
26.6
6.7
19.7
8.0
73
Inflation Rate (%)
4.3
70.3
24.8
m
222
32.9
47.3
334.3
747.4
1,347.2
33,547.6
1,689.1
13,4903
775.4
23
Exports (goods FOB)
(millions $)
646
616
451
500
408
429
386
301
243
295
236
290
332
268
235
Imports (goods FOB)
(millions $)
553
389
803
922
723
819
826
830
836
734
718
615
570
688
730
Trade Balance
(millions $)
+93
+227
-352
-422
-315
-390
-440
-529
-593
-439
-482
-325
-238
-420
-495
Foregin Debt
(public) (millions $)
961
1,131
1,579
2,163
3,139
3,789
4,362
4,936
5,760
6,270
7,220
9,741
10,616
10,454
11,200
Interest due /
exports (%)
14.3
8.9
24.3
37.4
41.8
43.5
57.9
783
88.5
75.6
96.7
62.1
583
110.4
122.4
Source: Spalding (1994: 224-225)
vo

180
keepers, the informal sector of Managua during the late 1980s failed to fit the commonly
described profile of informáis as marginal poor. Once largely characterized as poised against
state efforts to formalize them and as operating on the fringes of economic and social activity
from the formal economy, these informal actors enjoyed not only occasional support from the
Sandinistas, but also demonstrated considerably greater socioeconomic mobility than their for¬
mal sector counterparts. Indeed, informal sector actors commanded center stage.
Not only did they occupy all realms of economic life, but like a new breed of drought-
resistant bromeliad that thrived in the hot sun, their economic survival was particularly well
adapted to periods of extended hyperinflation. Thus, Managuan informáis enjoyed what I have
called a “hyperinflation honeymoon” of informal infusion into society, during which time they
found informal enterprise plentiful and profitable. Still, the most successful households employed
the combined strategy of some formal and some informal workers. While formal sector jobs—
particularly those of the State—provided otherwise unobtainable access to scarce, highly subsi¬
dized staples through exclusive employer outlets, informal sector workers typically commanded
enough buying power to purchase other consumables that rose in price on a daily basis.
None of this can really be understood clearly without the historical background that not
only so forged the Sandinista climb to power, but also guided the principles and policies with
which they directed their experiment with a mixed economy. Largely due to the recent revolu¬
tion, Nicaraguans are keenly aware of their rich history of exploitation, political oppression,
and economic domination by a series of a papa and two baby Somozas, all backed by opportun¬
ists from the north. From this historical context that has led to and, in some ways, precipitated
the current economic hardship and political unrest, we should better understand the humble
lives of those who ultimately feel the brunt of the decisions made by the actors portrayed in this
work.
While the early conceptualizations of the informal sector—rooted in the “marginality”
tradition—were highly ethnocentric, advances in our understanding of the dynamics and inter¬
relatedness of the informal with the formal economy have moved us beyond this naive approach.

181
It also appears that much of our earlier understandings were fomented from the murky waters
of class discrimination. But as case studies better illuminated the truly diverse nature of infor¬
mal life and our understanding of class composition grew increasingly refined, our research of
this growing phenomena has been greatly facilitated.
I make the argument that the informal sector does not necessarily stand by as a reserve
labor pool for the formal sector since—due to the ever-present resourcefulness and occasional
prosperity of the informal sector—formal sector wages will not always be elastic enough to
draw them in.
I argue that it is this resourcefulness that renders foolish any attempt at an all-encompass¬
ing definition of the informal sector since any such attempt remains vulnerable to the incred¬
ibly boundless innovation of those seeking to improve their quality of life outside of formal
sector wage labor. Indeed, any attempt to “capture” the essence of the informal sector reality
will ultimately serve to foster new forms of its manifestation.
What remains to be seen is how much longer writers on the subject will continue to
attempt cross-cultural definitions of the informal economy in light of the uniqueness of their
ethnographic accounts. This inviting trap is made more treacherous by the fact that our lan¬
guage does not readily lend itself to expressing opposing concepts in other than dichotomous
terms. Indeed, even those who acknowledge the informal sector is part of a continuum of
economic activity, have difficulty consistently phrasing their conceptualizations in other than
dichotomous terms. I argue that it is time to recognize that the informal economy defies
description beyond seeing it as a pan of the complex process of economic articulation and that
what we should strive for is an understanding of how it fits into the political, economic, and
social milieu.
Hypotheses Examined
With the data collected from a series of ninety-eight households two primary hypothesis
were tested. Analyses for the first of these, the “Household Quality of Life Hypothesis,” sought

182
to uncover whether or not it was true that households with a mixed economic strategy, that is,
with workers in both informal and formal sector jobs, were better off than those households
with a single sector strategy. Tests of each of three quality of life indices—reported income,
Material Quality of Life (QoL), and Perceived QoL—indicated that there was significant statis¬
tical evidence to reject the null hypothesis and thus, accept that mixed strategy households were
indeed, better off than single sector households.
Both the quantitative and ethnographic data tend to support this belief. Of the three
measures of quality of life, household earnings provided the strongest statistical support for the
hypothesis; material quality of life and perceived quality of life followed with positive, but
weaker support for the “Household QoL Hypothesis” across the four barrios. In other words,
the strongest statistical evidence to support rejection of the null hypothesis was found when
earnings were examined for each household sector strategy. Mixed sector households also scored
higher on the Material QoL and Perceived QoL indices than did single sector households
(although these trends were less conclusive statistically).
On the other hand, although there is some evidence that informal sector workers gener¬
ally earned more than formal sector workers, the statistical data to back up the observed trends
were significant only in one of the four barrios—Barrio Altagracia. Thus, the data are not
strong enough to support rejection of the null “Individual QoL Hypothesis.” One possible
explanation for this is that informal sector workers had more reasons—both willful and unwit¬
ting—to under-report their earnings Indeed, findings also showed there was evidence to sus¬
pect under-reporting of income in 58% of the cases interviewed.
We also saw how various economic conditions favored households with workers in both
the formal and informal sectors. The failure of the rationing system, escalating hyperinflation,
and economic policy shifts of the Sandinistas contributed to fostering a broad diversity of
household strategies. Some of these proved to be more robust than others in the rapidly chang¬
ing economic and political climate. By most accounts, nearly everyone engaged in some sort of

183
speculative or “black market” activity, even if it was simply buying enough rice for two months
or changing dollars for their gringo friends. As we have seen, while those who could attach
their cart to the runaway economy held some hedge against inflation, it was no guarantee of
economic success.
In many ways, investigating the Nicaraguan economy from May 1987 through January
1989 was a lot like trying to hit a moving target. One would just get a handle on the structure
of relative prices, the availability of goods in various venues, or the government economic strat¬
egy, when the entire apple cart would be overturned, a new strategy would be implemented,
and an entirely new set of informant responses would become appropriate. Similarly, the changing
relationship between wages and the cost of living made even minor temporal comparisons
more difficult to understand than simply knowing the exchange rate from one week to the next.
Such conditions made it all but inevitable that certain statistical assumptions would be stretched,
if not overtly violated. Nevertheless, qualitative evidence confirmed the direction and tenden¬
cies suggested by the hard data—that informal activity was flourishing in all parts of the coun¬
try, not just Managua.
What Will the Future Bring?
Although the many changes made for an exciting time to conduct research in Nicaragua,
I constantly felt frustrated for many of my struggling Nicaraguan friends whose livelihoods
often danced along that narrow balance between modest survival and financial ruin. As Nica¬
ragua moves forward with its new, more conservative direction, will people fall through the
cracks in greater numbers? Will recent capitulations to the IMF and World Bank—so devastat¬
ing in the short term, pay off in the longer term? Is there any chance that those at the bottom
of the economic ladder will benefit? Development trends in the last few years have not sug¬
gested otherwise, but new trends in thinking have advanced us to a clearer understanding of the
issues at hand. These fresh perspectives have suggested new strategies for assessing, planning,

184
and implementing development projects—although, as always, much of what is presented as
new is merely a matter of shifted emphasis.
Summary
As I have tried to show in this work, the path to development is neither a straight nor
clearly marked one. In the case of Nicaragua, this is partially owing to the fact that the direc¬
tion of development has been set by many players: The Sandinistas have attempted to wrest
decades of dominance away from the “Yankee oppressor;” The United States, seeing the
Sandinistas as an ideological and strategic threat in the region, has sought to—and been mostly
successful in—bringing this “hemispheric destabilizing agent” to its knees; The national capi¬
talist class has conspired with the north to install a government favorable to its political and
economic agenda.
With these components considered, this research, while focusing on a small piece of this
global picture, has been informed by the historical precedent and proceeds from an analysis of
internal policies—sometimes responding to and sometimes determined by international hege¬
mony. Thus, the analysis has been largely inspired by the International Political Economy
perspective. The research conducted at the household and individual level of analysis, largely
designed in Nicaragua with the help of Nicaraguans, echoes the concerns of the actor-oriented
approach.
As far as development in Nicaragua is concerned—at least in the sense of development of
infrastructure, development of health programs, development of housing for the poor— "¡No
hay natia!”—“There isn’t any” or there is very little. Although the mid-80s provided us with
some exceptions as large development projects funded by Scandinavian countries and the Sand¬
inistas were able to move social programs forward in certain areas, with the Chamorro govern¬
ment those efforts have been halted and, in some cases, reversed (some of the effects of which
are explored in the following Epilogue). Even development funds are being diverted to servicing

185
the debt as called for by the IMF and World Bank. Thus, it is not the development of capital¬
ism that has had to take a back seat. Not only are ways being found to move capital from the
periphery to the core (i.e., paying the unpayable debt), but capitalism is encouraged by such
programs that takes once-expropriated land away from peasant cooperatives and returns it those
who left for Miami in 1979. In the Nicaraguan case, unlike in many other pans of the world,
it often seems that it is not so much how development has been botched, as much as how it has
been blocked.
This book has shown how, in spite of the many forces that placed the odds against them,
informal sector actors flourished during a time when hyperinflation ravaged the formal economy.
At the same time, given the Sandinista’s attempt to provide special “safety-net benefits” to those
in the formal economy, households that were able to adopt a strategy of placing workers in both
formal and informal sector jobs generally found themselves best equipped to survive.
Beyond that, with the new era of the Chamorro government upon us and economic
times more difficult than ever before, those at the bottom of Nicaraguan society will begin to
realize some relief only to the extent that domestic pressure can be brought to bear on the
political process to resist (or at least, temper) capitulation to the North. To win the elections in
1996, political leaders must heed this cry for help and remain endeared to the north, at least
enough to forestall a cessation of the flow of vital development, relief, and loan funds into the
country.
Epilogue Conclusions
As we will see in the following Epilogue, much has changed in Managua in the past five
years. The desperation of massive unemployment has caused many to turn to crime to make a
living, others to check out with drugs, and still others to continue to seek informal sector
employment. With the markets teeming with new vendors, it is clear that, even without hyper¬
inflation, selling informally is still a major draw. Still, of those I spoke to in November and
December 1994, many informal sector workers would prefer to have a regular job with a steady

186
salary. While the informal sector continues to demonstrate what I have earlier characterized as
“incredibly boundless innovation” flowing like mercury into previously undiscovered crags in
the economy, no longer is it the “can’t miss, just-wait-for-prices-to-go-up-tomorrow” affair it
had been in the late 80s.
With many state sector workers now out of jobs due to massive government cutbacks and
substantial belt tightening looming ahead as yet another round of monetary reforms is being
prepared, the vagaries of the economic situation is affecting everyone. It seemed clear that,
with wages held down and prices rising, even the once successful informal service sector is
losing its customers. And while most formal sector workers are finding it difficult to make ends
meet, there is a growing class of professionals who can apparendy afford U.S. grocery prices for
canned, prepared, and imported foods.
In retrospect, it seems the “hyperinflation honeymoon” enjoyed by so many informal
sector workers has come to an end. Those same individuals—mostly untrained for much of
anything else—now have to work twice as hard just to feed their families. In part, thanks to
capitulations to the IMF and World Bank and the United States, the many homeless haunting
the earthquake zone no longer have the “socialist-leaning” programs of the FSLN to keep them
from falling through the cracks. Indeed, not only are the poor left without a safety net, even the
many informal sector workers who once achieved near middle-class status are without the help
they need to feed their families.

EPILOGUE
MANAGUA IN 1994
During November and December 1994,1 returned to Managua to do a rapid, first hand
reconnaissance on what had happened since the main body of fieldwork had been conducted in
1987-1989. My principal interest was to see if the informal sector—which I knew had thrived
in conditions of hyperinflation—was still alive and well now that inflation had been success¬
fully brought under stria control (listed as 1.35% for November 1994). Instead of speculating
on what the córdoba is going to trade for tomorrow—or next week—the government prints a
schedule in the newspapers mapping the exchange rate over the next two months. Each day the
córdoba is designed to be devalued by about C$.003.
Two conditions have pushed rampant hyperinflation from center stage: 1) an extremely
high unemployment rate—widely reported to be around 70%, and 2) crime—drug busts on
the coast, beatings in the market, robberies in previously quiet barrios, even widespread gang
aaivity provide enough material for a daily, full-page spread (e.g.: La Barricada, December 5,
1994, p. 8). To cast some light on this new economic climate, I offer the following vignettes.
Originally written in Managua during November and December 1994, I have attempted to
leave these essays in their first person narrative style to capture the spirit with which they were
initially composed and to tell something of the urgency now being felt by the people. These six
examples epitomize life in Managua governed by a new, very different economic reality.
187

188
The first of these typifies the growing preoccupation with crime held by most Managuans.
In the past, having always been able to travel wherever I pleased—day or night—and never
having encountered other than the friendliest of people, it was difficult for me to now take
seriously the constant warnings to “watch my back.” Was it not simply that people were react¬
ing to a few, highly publicized articles in the typically sensationalist newspapers? Were they
beginning to believe what I thought was mostly inflammatory, politically motivated rhetoric?
Vignette I: Escape from the Cathedral
Tuesday, November 29. 1994. The journey begins with a desire to visit my old favorite
place to write and one of the best places in town to take pictures—the upper balcony of the
ruined cathedral near the lake. Just to the north of the earthquake-damaged building there sits
a new waterfront park—one that does not quite stretch to the still-polluted waters of Lake
Managua. Five years ago this area was nothing more than a muddy, grassy bog with a few
wandering footpaths. Now, one is greeted by a perfectly aligned row of brighdy colored kiosks,
elaborate concrete stairs, and brick plazas oriented to a view of the lake. A small set of carnival
rides defines the east end of the park. Although nearly deserted when I was there this after¬
noon, I did have the fortune of getting some advice and my shoes shined for C$2 (about 28
cents). The nine-year-old entrepreneur told me that he normally is able to find only about five
clients a day. “C$10 a day isn’t much,” he said. “I can’t buy any clothes, and barely am I able
to help my family.” I asked him about the cathedral I was about to visit and he said that it was
very dangerous and prohibited to go in there. “Everyone says that,” I thought arrogandy.
Once a magnificent structure, the cathedral—mosdy destroyed in the 1972 earthquake—
now stands as a shell and testament to the relief funds siphoned off by Somoza. As I approach,
I find a safe place to lock my bike (rented for $10 a week from a friend’s informal business)
where I know I can keep an eye on it from above. I want to approach from the side so as not to
tip off any thieves—nor to have to try to explain my way past the police should they be sta¬
tioned in front. The wide side stairway appears recendy swept and even the inside seems better

189
kept than I had remembered from five years ago. (I later found out that there had been a
complaint in La Barricada a couple of weeks ago and the mayor had sent in a cleaning crew.) I
creep up the staircase with a bit of trepidation as it seems ready to give way from rust and
neglect below my feet. Only a faint smell of urine lingers. On top, I apparently interrupt a
young couple who are pulling their clothes back on as they run across the balcony out of the
rain shower that has just begun. The air is fresh and warm and the sun quickly returns to
properly light the surroundings of this photographic command post.
The roof is a simple lattice of steel that once supported tiles and protected the elaborate
painted frescos now rapidly deteriorating in the elements. Profane graffiti is beginning to
appear and—even though considerably cleaner than five years ago—a variety of tropical plants
have sprouted from the crumbling tile floor, giving it the appearance of a Mayan ruin.
The walkway around the top of the cathedral provides a commanding view of the “down¬
town” part of the city that was flattened in 1972. A few skeletal remains of buildings are now
inhabited by scores of the many new Nicaraguan homeless. Also remaining is the Palacio
Nacional which faces the Plaza of the Revolution adjacent to the cathedral and is being refur¬
bished to house the Ministry of Finance. I watch as rubble is being removed by the interior
remodelers. In the opposite direction stands the Ruben Dario Theatre—one of the most elabo¬
rate buildings in the country—where many embassy balls, upper-class entertainment, and
international expositions are held.
I compose a few shots of the fading great moments in biblical history and the surround¬
ing areas and, after about twenty or thirty minutes, prepare to head down. As I approach the
stairwell, a well-dressed Nicaraguan whom I had seen casually wandering around, motions to
me and, as I approach, he points to a shot 1 should get of the bell tower. He tells me how the
bell had been moved to the other cathedral and, not wanting to offend him, I feign a composi¬
tion of his “interesting vista.” But as I turn my back to him, he grabs me around the neck with
one arm and, wielding a crude prison-like knife with the other, shouts, “¡Dame solo su dinero!”
(Just give me your money!). I manage to break free and in that instant that one decides whether

190
to fight or to run, I break across the wide balcony to the landing at the top of the other stairway.
Not having time to make the turn and run down the stairs safely, we face off. He repeats that he
only wants my money and, motioning to the couple sitting nearby, says, “They will not help
you. They are thieves too.” Stalling for a little more time to size up the situation, I tell him I do
not have any money. Again he insists that he wants only my money and I can keep my camera
and other belongings. He is standing about five feet away and repeatedly changes the grasp he
has on his knife from an overhand one to an underhand one. It seems odd, like he is trying too
hard to look menacing. In the seconds that pass, I feel that he is just as scared and inexperi¬
enced at this as am I and, somehow reasoning that one more card has yet to be played, I fake a
confident-looking karate stance and stare him in the eye. To my surprise, he immediately
lowers the knife. “Go ahead and go” he said, “there will be another thief waiting for you
downstairs.” Leery that this is yet another ploy to get me to lower my guard, I watch carefully
as he backs off from his commanding position at the top of the stairs. Slowly backing down, I
peer through the metal mesh steps watching below for his alleged accomplice.
As it turned out, there is no one else around and 1 hurry to my bike to look for a police¬
man. When I finally spot two young policemen on the side of the road (they must be in their
early twenties), they say “there really isn’t much we can do unless we catch him in the act.” I tell
them that it is not that important to me since, after all, I have not lost anything, but I expea
they would have wanted me to report it. They politely agree and we say our good-byes.
Reactions tp the Tale
Later when I told this story to doña Teresa, the maid where I was staying, she responded
with a story about an attack of her own.
“About two months ago, as I was walking home, I was attacked by a older, fat man on a
motorcycle. He grabbed my purse, my watch and my necklace, knocked me down, and sped
off. A small truck was passing by and I was able to get help from them.” She says it is because
“no one has a job and there isn’t much else to do. People are hungry.”

191
Also, when I told the story to doña Areila, longtime friend and proprietor of the Restaurante
Los Tacos, she said that this never happened when the Sandinistas were in power. “There was a
war going on and everyone was considerably more calm. Of course there were more police to
be found everywhere. Now with the worsening economic conditions people are resorting to
violence, theft, and crimes of all sorts.” La doña complained that the new government has done
nothing to ease the situation.
Vignette II: Street-wise in the Mercado Orientál
Five years ago I was known among my friends at INIES as “el Maestro del Mercado Oriental”
I knew many of the vendors and many recognized me often with a familiar smile. I had taken
numerous international delegations and even some Nicaraguan groups for tours. Even if it
appeared in disarray, I found the market was quite well organized and, through numerous
visits, I had quickly become familiar with where to find just about anything. The Mercado
Orientál had always been a safe place and certainly one that I was familiar enough with to
navigate by bicycle—day or night.
Despite not having grown up on the streets of Manhattan or Los Angeles, I usually con¬
sider myself a fairly street-sawy guy, but even with all the warnings I received, I was unprepared
for what happened on that day in the part of town that I once considered my own.
“. . . Like the Back of my Hand!?)”
November 26. 1994. The morning of my second day back to the city in five years, found
my two friends and me taking a taxi to the Mercado Orientál. I was boasting how 1 would be
glad to show them around when the driver asked us where we would like to be let off. This was
my first clue that things had changed significandy. “Anywhere,” 1 said smugly, thinking, “how
big could it have gotten?” The second clue that this was no longer the same familiar market,
was that my usual entry point—once a closed road, lined with vendors selling things from
baskets—had been replaced with a dense maze of considerably more permanent-looking covered

192
stalls. We walked though the extremely narrow, crowded aisles to where the cheese vendors
used to be. There stood dozens of electrical appliance vendors—radios, tape players, wall clocks,
lighted Christmas trees—even bicycles—all items that had previously been available only at the
“Diplomatic Store” and only for U.S. dollars. It took about twenty minutes, but I got us so
disoriented that I could scarcely find the central part of the market. When we finally left, I
could not stop shaking my head in disbelief at how much the market had changed in five years.
No question about the organic nature of the market. It seemed to have more than doubled in
size and number of vendors. I decided to return the next morning to regain some familiarity,
change some money, and buy a cheap mattress.
The Money Change
Sunday morning proved to be much less busy and, after checking a few street vendors
outside of the market for prices on mattress, I locked my bike and headed in to change money.
I had heard all the dangers of changing money in the markets but the rules seemed easy enough
to follow: don’t take out your money until you have theirs in your pocket; don’t keep it in a
pocket that can be picked; stay away from quiet places, etc. It seemed, however, that most of
the reported problems were usually fights breaking out between drunken youths. Indeed, that
morning I witnessed one drunken brawl and later, saw another young man (about sixteen)
being escorted off by a policeman who was holding the youth’s arm being his back.
It didn’t take long until I was approached by one of the coyotes flashing the trademark wad
of córdobas and offering to change at 7.20 to one—the best rate I had heard yet. He asked how
much 1 wanted to change and I suggested $50. Whipping out his calculator and showed me as
he multiplied 7.20 * 50 = 360. I was satisfied and he started counting. He handed me the pile
of pesos (as he referred to them) and before ever taking out my money to pay him, I carefully
counted out 355. “¡Falta cinco!” I complained, and he took the stack back, counted 355,
apologized for having made the mistake, and added five more córdobas to the pile. He handed
it back to me and I stuffed the wad in my pocket. I dug into my wallet and produced the $50.

193
As I handed it to him, he warned me to watch out where I show my money because there are
thieves everywhere. I thanked him and proceeded with my re-familiarization quest.
Buying a Mattress
1 wandered around for a while, purchased a few things, and had a fabulous meal at one of
the many small comedors (kitchen stalls). I decided to finish with the mattress purchase task
before it started raining since 1 was going to carry the matronial (double) sized roll on the back
of my bike. By now I was educated on the various kinds of colchones (mattresses) and had
decided to go with the less expensive futon-like style stuffed with Nicaraguan cotton instead of
the two, three, or four inch foam mattresses which were considered to be hotter. Ultimately, I
came upon a vendor that showed me the best one yet. He too was asking C$140, but when I
suggested C$120 would be a better price, he rolled it up for me. We had a deal and I reached
for my money. It was not in my pocket. I looked through my wallet. Nothing there—except
for the tens and ones I had earlier. I looked through everything several times and couldn’t find
it. I still had enough in tens for the mattress, but I was a bit distraught at having lost the money
I had just changed. Even more upsetting was the fact that I could not be sure how I had lost it.
Had 1 dropped it pulling something out of my pocket? Had I given the wrong bills for one of
my minor purchases? Not likely. Finally it came to me; when I handed the coyote back the
money to recount, he slipped the fifties off the bottom of the pile. I was watching him the
whole time and failed to recount the money when he handed it back to me. It was a sleight of
hand that cost this participant-observer $40. My mattress salesman expressed considerable
compassion for my predicament, but it only helped me feel a little less foolish. Graciously he
even insisted on carrying the mattress to my bicycle several blocks away. I thanked him pro¬
fusely and, feeling a bit incredulous that such a scam could work on me, I peddled away. Later
1 was to discover that I was not the first one to be taken in by this old ploy.
Bicycling back with the mattress aft, I pulled into a pack of about eight kids selling lottery
tickets at the stoplight in front of the Hotel Intercontinental. In the time it took to say “No, I
don’t want any lottery tickets,” one of them had unzipped my backpack, another had reached

194
into my shin pocket and—finding nothing—tried to yank the watch off my wrist. Unaccus¬
tomed as I was to giving my Nicaraguan compañeros threatening looks, I pushed forward, run¬
ning the red light in disbelief.
In the two years that I stayed in Nicaragua in the late 80s, never had anything been stolen
from me. Now within three shon days, 1 had been attacked, held up, and ripped off, just like
everyone had warned. Managua had changed and it did not appear to be simply a few isolated
incidents reported in the “sensationalist press.” Usually quite cavalier about such things, I
redoubled my security vigilance.
Vignette HI: The Bovs of the Mercado Montenegro
In the late 1980s Managua was not known to have any sort of drug problem, indeed, it
was rare to ever even smell marijuana being smoked. That too, has changed in the last five
years. Although marijuana and crack use is not unheard of, it is the inhalation of the glue
commonly sold for shoe repair that is creating an inexplicable wave of interest—mosdy among
the poorest and youngest of the homeless market kids. The following is an account of one
person’s struggle to do something about it.
Getting the Market Kids Off Glue
December 4. 1994. Jonathan Roice has been in Managua since 1990, arriving just
about a year after 1 conducted my field work there. In that time, glue sniffing has become
the major problem, especially among the kids who are either homeless or who otherwise
spend their days in the market. After seeing his original project achieve self-sufficiency,
Jonathan felt the need to do something about the growing drug problem and the market
kids whose lives it was consuming.
Su A La Vida
The objective became to help organize a community-based project to give the market
kids something to do during the day and, if they were homeless or abused, to provide them

195
with a safe place to stay at night. Having no money to begin with, the few kids that were
recruited into the program spent the nights on the front porches of some of the neighbors in
the barrio. When this grew to be unmanageable, the local Anglican church opened the doors of
its community house to the boys at night. A few artisan programs were developed for them to
make some money and some of the mothers in the community pitched in by providing meals
twice a day—at lunch and dinner—for the growing band.
The program is entirely voluntary and kids are brought into the program who express
some desire to make an effort to get off glue and who need something to eat and/or a place to
stay at night. Jonathan travels through the market looking for those that show the signs of glue
sniffing—mostly a spaced-out look and the smell of glue on their breath. He claims that, after
a time, one can tell if their breath is from fresh glue sniffing or if it still in their lungs from days
before. Available in all the markets, some of the local shoe-making supply vendors have infor¬
mally agreed not to sell the pega, as it is called, to kids.
Doña Mercedes, another saint of patience, also devotes many of her hours to helping the
boys by organizing activities for the program. The name of the program is “Si, a la Vida” (Yes,
to Life). Although Jonathan says it is far more complex than Nancy Reagan ever seemed to
imply, he acknowledges that they really do have to start by saying no. Of course, the fact that
a community-based effort has spawned a safe, no-cost place for them to stay with activities that
they can use to support themselves, seems to make a significant difference.
Jonathan said that he was surprised how quickly the kids responded to the offer of some
help. Yes, there are still a number of kids who live on the street, a number who fall off the
wagon, and even more who drop out of the program altogether. Still, interest is growing. The
number of kids wanting to enter the program has exceeded the capacity of the small, 224 square
foot room that stands on the site. The plan is to expand the center to accommodate fifteen
kids, but construction of the house is currendy held up for lack of funds. With only the one,
small roughed-in room and the exterior wall completed, the site is mostly a dirt plot with a few
rough-hewn planks set atop small piles of cement blocks for benches. Only about $8000

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dollars are needed to finish the floor, build a living room, kitchen, roof, and complete construc¬
tion on the bathrooms. A second story is intended to be added as a dormitory. Furnishings like
a refrigerator, washing machine, chairs, tables, and beds will cost another $3000.
Masters of Manipulation
The kids themselves—all boys mosdy between the ages of ten and thirteen—are the
toughest, street wise kids imaginable. Extremely independent having lived on the street most
of their lives, they are masters of manipulation. On one occasion when 1 was taking pictures of
the La Purissima festivities, Randal—the youngest and one of the newest members of the group—
started grabbing at the camera and when I asked him not to touch it, he taunted me with “look,
look” and repeatedly slapped at the lens. When I gendy lifted it out of his reach, he feigned
being hurt, fell into a crouching position at my feet, and pretended to cry. Sensing that this was
a ploy for sympathy, I continued to look straight ahead and began to compose another shot of
the group. Through the corner of my eye I could seem him looking up to see if 1 was going to
capitulate. When he sensed that I was ignoring him, he ran back to his friends and continued
to play. Randal and I later became the best of friends.1
Numerous rivalries and equally strong friendships have formed among the boys and
antagonism from those who have, thus far, refused to join the program can be intense. A lot
like many former smokers, those who manage to quit are adamantly against those still using.
The kids that do get off glue will go around the market smashing the jars of those still sniffing.
Not surprisingly, if they fall off the wagon and begin to use again, those kids whose jars they
broke will gleefully smash their jars in retribution.
Triki-Trakasand the Virgin
It was on the eve of La Purissima—a week-long, nationwide celebration of the Immacu¬
late Conception of the Virgin Mary—that I first visited the house of the project, “Si, a al Vida.”
A statue of Mary had been borrowed from the neighbor across the way and was set up on a
small stand using cement drain pipe and some scrap lumber. The statue was adorned with

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flowers and, as the ceremony began, two candles were lit. Doña Mercedes led the prayers,
which almost everyone knew by heart, and as long as Jonathan was holding the large package of
50,000 triki-trakas (firecrackers), the boys were attentive—at least to a degree. As the singing
began more neighbors from the area came to participate. All of these were women or young
girls, mostly well dressed and with heads bowed. They sat on the seven rows of plank benches
or stood around the periphery singing and reciting the prayer responses.
About twenty minutes into the ceremony, there was a break and Jonathan handed out the
100-count packages of triki-trakas, one to each child present. The boys all rushed to be first
and a few of them repositioned themselves back in the audience to try to get another. Jonathan
had apparendy seen this ploy before and remembered, even to the most sincere denials, that
they had received one already. What ensued was nearer to pandemonium than heaven. As the
singing and the ceremony reconvened, the boys began lighting the firecrackers—either the
entire packet at once or one at a time and, in most cases, throwing them at each other. It was
akin to giving matches and straw to a room full of pyromaniacs and asking them to not hurt
themselves. A couple of four foot long roman candles where brought out and the “leaders” of
the group managed to take the courageous position of holding them as they were lit by their
peers. These sky rockets, fly up trailed by a swarm of sparks and explode with the sound of
small artillery fire—twice—about forty feet up. Such things always make me a bit nervous
because of the questionable nature with which they were are constructed. On more than one
occasion, I watched Luis throw a firecracker at the feet of another boy and, when it failed to go
off, he would rush to pick it up. Then, holding the remaining fragment of the wick about she
inches from his face he would blow on it to get it going again. A couple of times he got caught
on the short backswing.
Finally, it was Randal who was burned in the back of the neck by one thrown at him; an
end to the melee had to be called and the remaining firecrackers were confiscated (for later
redistribution). Jonathan has clearly become a father figure to the boys who treat him with the

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greatest affection which he genuinely returns. He is ever steady, treating each situation—and
they seem endless—with incredible calm and pragmatism.
Informal Credit and the Work Ethic
Jonathan has clearly gained the unabashed trust of the boys and serves as their banker. He
carries a small pad with a page for each boy and the running balance each has. Some boys are
more savings minded and industrious than others as reflected in the account balances ranging
from as much as C$35 (about $5) to a few negative balances. Most of the boys have about a 75
cent savings balance. One of Jonathan’s deals with the boys is that, if they will earn half of the
money for a pair of shoes, he will pay for the other half. In this way, he says, they will take
better care, appreciate them, and learn some sense of value rather than if they were just given
shoes. The boys generally buy shoes for around C$25 to 30, although few of them were wear¬
ing them when I visited. Most of the boys who make advance withdrawals from their savings
are pretty good about paying back the loan as the long lists of positive and negative balances
attest. The only rule is to stay off the glue.
One of the main activities the boys are encouraged to participate in is the weaving of
place-mats. These are made on small wooden frames with dozens of rusting nails around which
thin cotton yarn is woven. The weavings are sold in the nearby Mercado Montenegro for C$25
or made by special order (when I first visited, they had an order for twenty-four of them from
a woman who wanted to give them away as Purissima gifts). It was unlikely that the deadline
was going to be met, but Rolando worked into the wee hours that night to complete as many as
he could. Each place-mat seems to take at least a couple of hours to complete.
Still, most of the boys prefer to shine shoes and Jonathan will finance the box and mate¬
rials to get them started. Again, the only rule is that they stay off glue and that they repay the
loan. The boxes cost about C$5 to 15 for materials. The shoe polish and brushes cost about
another C$11. This is usually repaid in a couple of days. On at least one occasion, when a boy
went back to the glue, Jonathan asked for the box to be returned and, much to his surprise, the

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boy brought it back without an argument. I consider this significant testament to the respect
he has earned. A really industrious boy can make about C$100 to 150 a week shining shoes,
which is about a teachers salary. But even this is not considered the most lucrative way of
making money. A couple of the boys are experts at crawling around the floors of buses, clean¬
ing people s shoes and then—looking sufficiently downtrodden—they beg for money. Some of
the boys can make as much as C$30 a day doing this, although it is discouraged as being
dishonorable.
Thus the lives of these boys are deeply intertwined with informal enterprise and a com¬
munity program to get them off the pega they can so readily purchase in the market that was
once home. The good news is that the community is well versed in organizing—something
they learned through the many health, literacy, and political organizing campaigns of the Sandin-
ista era. I was impressed with how much good was being done and how little money would be
needed to really make it a sustaining effort. But, most of all, I was impressed with the courage,
entrepreneurial spirit, and likability these boys had learned to wield.
Vignette IV; El Sup^rmgrgadg “La Colonia” Revisited
Monday, November 28. 1994. This morning’s visit to the Supermercado at the Plaza
España was a case of reverse culture shock for me. Five years ago when I was here, La Colonia
had very few things on the shelves, usually displayed one deep. Many aisles were completely
bare. Typical commodities included toilet paper—single, unwrapped, blue, tan, or pink rolls of
a rough, almost elastic texture—filled an entire aisle. There would always be a thousand bottles
of ketchup and another half aisle of mustard, but sometimes, little else. There might be another
aisle of tin candle holders and crude kerosine lamps; the chicken freezers would usually have a
few small chickens packed in plastic bags. There would be every manner of fresh Nicaraguan
beef and pork. One section of the store was devoted to Marxist-Leninist books, many printed

200
in the Soviet Union. And, of course, a whole row devoted to Flor de Caña—allegedly the best
rum in the world—and its lesser brother, Ron Plata. I will never forget my first time in the
store. I wanted to get a roll of toilet paper, a package of biscuits, some more candles for the
daily power outage, and a few other things. I waited in line for a full three hours to check out.
The lines were all the way down the aisle and each transaction was being calculated by hand
calculator. That was five years ago.
That was Then. This is Now
Today the same store looks like any medium-sized Publix in south Florida, or Safeway in
California. Your groceries are even wrapped in copious amounts of Publix plastic bags. Virtu¬
ally anything can be found here. The Marxist book section has been replaced with a Revlon®
and CoverGirl® cosmetics counter and Power Rangers™ headlining the toy section. Dozens
of employees are busily stocking the shelves and check-out is a breeze. At least it was until I got
up to the checkout counter. Just as the gentleman in front of me was about to receive his total,
the power went out. The computer terminal-like cash register fell dead and the lights went out.
A audible gasp was heard from the crowded store. Now what, I thought, will it have to be
totaled by hand? The cashier looked calmly at the machine, blinked a few times and, to my
utter amazement, within seconds the backup power kicked in and the entire store was illumi¬
nated once again. Nicaragua had certainly changed.
And the Bad News Is...
Of course, all this progress is not without its component downside. Besides being as
modern as a Florida supermarket, it was also as expensive. On average this represented at least
a tripling of prices and, in some cases, a quadrupling of what they were in 1989. Below are
some typical prices (converted to dollars and cents):
plastic silverware tray $2.00
lowest quality ground beef 1.00 / pound
small head of lettuce .40
Nicaraguan cheese 1.30 / pound

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bottle of the finest Nicaraguan rum
bottle of Drambuie
12 oz. can of Nicaraguan beer
12 oz. can of Coca-Cola
liter of milk
sliced Chicken Ham
can of corn
package of 6 tortillas
200 grams of Nicaraguan bologna
5.50
40.00
.60
.75
.50
2.50 / pound
1.00
.50
5.65
Given that a primary school teacher makes around C$350 a month—or about $50 at the
current rate of exchange (C$7.10 to $1), these items are well beyond what most Nicaraguans
can afford.2 Still, the store was quite busy for a Monday morning.
Vignette V; A Conversation with Our New Empleada
November 28. 1994. Today Diego, my host, introduced me to our new empleada (house¬
keeper), Teresa. It was her first day on the job.
After Diego went to work, Teresa and 1 had quite a good talk about how things have been
in Nicaragua, but mosdy we talked about her life, her job, and her family. She said that her
husband had been arrested for smuggling Nicaraguans into Honduras and that, since he was a
contra, all of her furniture had been confiscated by the Sandinistas. Now she lives in a house
that was given to her by a government project for those who had land confiscated from them
during the piñata (the controversial Sandinista “land grab” made during their exodus from
power). She does not have to pay any rent, thank goodness, because it takes everything she can
make to buy food for her three sons and herself, which she says cost C$350 every two weeks.
She pays C$100 for water once a month and the collector for the lights come by three times a
month for which she pays a fixed price (a total of about C$60).
Teresa makes C$25 for a five hour shift which she works from 1:00 to 6:00 PM (C$75 a
week and C$500 a month—about $70). That rate would be the equivalent of C$800 a month
if she worked full time, or about twice what a regular school teacher makes. (A typical salary for

202
a full time empleada is about 600 to 800 pesos a month.) She has a small store in her home
which brings in a bit more but, since she hadn’t been working, she had limited ability to keep it
stocked.
Vignette Yh- Informal Activity at the Corner of Ferretería Lang
December 3. 1994. The intersection of Carretera Norte and Benjamin Zeledon (one
stop light east of the U.S. Embassy) in the far western part of the city is commonly known by its
landmark—the Ferretería Lang—a large hardware store. On this intersection, as at every major
intersection in town with a stop signal, a small entourage of street vendors carry their wares
from car to car as they sit waiting for the light to turn green. With arms spread wide as they lift
their goods to the prospective buyers, the vendors amble up the lanes between the rows of cars
hawking as they go. When the light changes and the cars rush away, the troop marches back to
the starting position and wait for the next group to come to a halt. A ritual they repeat every
ninety seconds.
One can find just about anything if one could drive to enough street corners. Fruits and
vegetables—sometimes bagged for quick transactions—key chains, homemade candies, clothes
hangers,3 super glue, cashews in three different sized bags, gifts and small toys for Purissima,
Christmas decorations, even fully decorated plastic Christmas trees can be found. Street-side
sales of toilet paper—no longer as scarce as it was in 1989—have been replaced by once nearly
impossible to find surge protectors, electric coffee makers, and imported office furniture. Few
Nicaraguan artisan crafts can be found, but one exception is the finely tooled, leather automo¬
bile seat cushions. For the animal lover, multicolored birds and iguanas are a favorite since they
are captured locally by the vendors themselves for no cost. Except for the office furniture,
which comes from regular commercial oudets, most of the goods are reported to be purchased
in the Mercado Orientál—the hub of economic activity where nearly anything available in the
city can be found.

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Queen of the Ferretería Lang Corner
Xiomara (pronounced “Zee-o-mara”), an enterprising young woman of twenty-two, com¬
mands the most strategic corner of the intersection and flies tapestries from El Salvador and
towels from China along a fifty-foot frontage. The towels cost C$100, on which she claim to
make about C$ 10 per sale (that is presuming the buyer doesn’t pay the C$200 which is the first
price asked). On a four by ten foot piece of black plastic are scattered a plethora of appliances
and other goods. These too have been purchased in the Mercado Orientál. Vendors who have
any son of permanent location—as does Xiomara—pay C$50 in impuestos (taxes) for the space
she occupies to a collector who comes by each month. Generally she can make about C$ 100 a
day, depending, of course, on how many sales she can make. Since many of her items are pretty
“high ticket,” a few sales a day one way or the other can drastically alter the average. Xiomara
also has a brother and a few friends working with her who receive a small percentage of any¬
thing they sell. Although 1 have seen her with a surge protector around her neck and armloads
of yo-yos, Christmas lights, car antennae, etc., for the most part, she does not hawk goods car
to car, preferring to “run the business” and stand ready at the hanging display.
Xiomara says that she is definitely doing better than five years ago, and especially in the
last three years, since starting her business at age nineteen. She is sometimes helped by her
husband who is currently building a new house for them on a lot that they purchased for
C$2000 (about $285). Her three- year-old son generally stays with her during her eight to nine
hour day and they all live just a few blocks away in adjacent Barrio Altagracia.
The bus takes her to and from market when it is time to purchase her goods for resale.
She buys from the regular public oudets but does so generally in lots of a dozen or so to obtain
a better price. Given that many of the things she deals in are expensive—like car stereo speakers—
a trip to market requires a substantial investment. She has one small wooden cart with hand¬
made wooden wheels wrapped with strips of recycled tires to get things back and forth from
home. Informal sector life has been very good for Xiomara. Her case suggests that, as with so

204
many other businesses, the degree of success is determined, in part, by the scale or volume one
can achieve.
“These talking parrots are silent today.”
Working the same corner are Alexi Gonzales Borge and his brother Eduardo who sell
tropical birds in small, but ample cages made of galvanized wire. The pair of presendy silent,
but—they assure me—normally talkative parrots (who even speak English!) is first offered at
C$200 but the