Legalized Extortion: The Exercise of the State’s Fiscal Capacity over Informal Street Vendors at Lima’s Gamarra Market, Peru

By Francesco Ginocchio

This essay is part of Emergent Conversation 13, ILLICITIES: City-Making and Organized Crime

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View of a commercial district in downtown Lima, on April 07, 2016. The textile industry in Peru –which concentrates about 80% of the work force– has lost more than 230 thousand jobs in the last years. In the Gamarra commercial district, galleries and workshops are operating at 50 percent. Photo by MARTIN BERNETTI/AFP via Getty Images.

In the city of Lima, Peru, informal  labor takes many forms, but street vending is one of the main manifestations of precarious, informal labor. Street vendors use urban spaces as selling points throughout the Lima metropolitan area. Government regulatory attempts to “solve” the problem of the informal economy in Peru could unravel the livelihoods of more than 70 percent of the country’s economically active population. The textile cluster of Gamarra has great significance, due to its economic, political, and social significance, both locally and nationally. Economically, this cluster concentrates the largest number of commercial transactions linked to the country’s textile industry, reflected by the number of jobs generated there—by 2019, Gamarra had a workforce of more than 71,000 people (INEI 2017). Located less than 3 kilometers from the center of the country’s capital, Gamarra is at the heart of both metropolitan and national political interests (El Comercio, 2018). Furthermore, Gamarra’s population is of largely migrant origins, and is considered an example of entrepreneurship for the country’s capital city population. Given these circumstances, governance of informal street vending has been a policy issue for most local governments over the last 30 years. When analyzing the outcomes of several policies implemented over time, we see the co-existence of formal governance arrangements and extra-legal practices, both oriented to profitting from informal economic activities. By analyzing these policies, this essay develops the concept of  “legalized extortion” to explain the existence of a simultaneously state-led and criminal governance regime, based on taxation and extortion, as the dominant approach to governing informal street vending in Lima.

The Context of Licit/Illicit Governance

The new mayor took down the district flag and washed it in a symbolic act against corruption. From the municipality Twitter account.

On January 1st, 2019, the new mayor of La Victoria, George Forsyth, washed the district flag outside the municipal building. The municipality’s Twitter account announced that Forsyth arrived at the building minutes before midnight on December 31st, 2018, and at midnight washed the flag as a symbolic act against corruption before taking office as district’s mayor. In doing so, he sought to distance himself from the traditional political class that, according to the common public opinion voiced by one street vendor I interviewed, “dedicates their time to steal money” (“M.R.,” representative of street vendors in Gamarra since 2002, June 23, 2018).

Reaffirming his commitment to a zero-tolerance campaign against corruption, the district mayor declared that,

From the first day, we are going to carry out audits, we are going to open the door of the controller’s office and we will ask him to investigate and convict, together with the prosecution. I will be focused on moving the district forward, but I am not going to allow any misruling inside the municipality. The first to come with acts of corruption will be decapitated [a rhetorical way of saying fired], because they are representing my government and I am not going to harm my government or my name by a corrupt person.

Months earlier, on August 3rd, 2018, the then-mayor of La Victoria, Elías Cuba Bautista, alias El Uno (the One), had been imprisoned as the leader of Los Intocables Ediles, a criminal organization that controlled the streets of the district. Further investigations revealed that the leadership of the criminal organization had a shared governance structure, in which the mayor co-governed with a financista (investor), to obtain greater profitability from the leasing of public spaces. According to police reports, the presence of the financista on the streets of the district dates back to 2012, when the first extortions were carried out by non-state actors in coordination with officials from the municipality (Ministerio Público 2018). The financista also financed the 2014 candidacy of Elías Cuba Bautista, seeking to maintain their criminal activities. In exchange for that backing, the financista sought two types of favors once his candidate won the elections: 1) economic revenues from the leasing of public spaces, and 2) the overvaluation of public works and services. Both are rent-seeking activities squarely located in the gray zone between legal and illegal, licit and illicit. This collaboration set the tone for what became the political agenda of the criminal organization-meets-human resource management of the municipality. Behind municipal doors, the modus operandi was characterized by appointments of members of the mayor and financista’s criminal organization to government positions. From these state positions, criminal organization members supported the law enforcement actions implemented by non-state members of the organization.

Exercising the State’s Fiscal Capacity to Govern Informal Street Vending in Gamarra

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A woman sells t-shirts on the street in a commercial district in Lima, on April 07, 2016. MARTIN BERNETTI/AFP via Getty Images.

At the beginning of 2018, everyday economic and social life in Gamarra was divided into quadrants, taking place on occupied sidewalks with people jostling everywhere. When I asked research participants about the agglomeration on the streets, the response was similar among both formal and informal vendors: “This is the mayor’s business,” said “R.M.A.,” a representative of street vendors in Gamarra since 2008 (July 3, 2018). But what specifically did they mean when referring to the “mayor’s business?” “Marco,” a street vendor in Gamarra since 2002, went further and said,

The streets have always been a place of work in Gamarra. Before, we collaborated with the serenazgos (municipal police) so they let us work, we collaborated with what we could . . . You know, in the streets it is impossible to have a fixed income and the serenazgos knew that. Now the situation is different, we have a legal fee to respect, whether you sell or not . . . The good thing is that you know that if you pay it, you can work and nobody has the right to take your place” (July 17, 2018).

On the other hand, for “Monica,” a formal vendor working in one of Gamarra’s commercial galleries since 2008, argued that “The mayor is a scoundrel, before, we [the people selling inside the gallery] understood that people need to work and somehow we were able to handle this issue of street vendors. Today, the mayor sends his thugs to collect money and they even claim to respect their job” (August 2, 2018). This sentiment became vox populi even for the media, which recognizes the existence of a mafia governing the streets of Gamarra.

Under these circumstances, a twofold legitimate way of governing informal street vendors in Gamarra existed, the limits of which were not directly definable: taxation and extortion. In effect, taxation and extortion were employed in a complementary way, and the success of one appeared to depend on the success of the other.

Legalized Extortion: Governing Informal Street Vending in Gamarra

Local government policy to control street vendors. Photo by author, 25/09/2020.

The exercise of the district’s fiscal authority over informal street vending in Gamarra is evidence of a criminal governance scheme that enjoys legitimacy. This situation can be understood as a sort of “legalized extortion.” Following Charles Tilly’s (1985) analogy of state-making and racketeering, this convergence of political power and commercial capital in Gamarra created the perfect scenario for rent-seeking. However, the success of this governance scheme is not limited to control of the means of violence. On the contrary, there are structural factors that condition the scheme. In particular, I identify three structural factors that feed legalized extortion in Gamarra: 1) a crisis of representative democracy; 2) non-state control of public spaces; 3) labor instability within municipal human resources. I will briefly elaborate on each of these before offering conclusions on the role of legalized extortion in illicit city-making in Gamarra.

The collapse of the representative system in Peru during the 1990s marked crisis of representative democracy, a breaking point in the ties between state and society (Tanaka 1995). Political representation in Gamarra fell into the hands of non-state institutions, whose power relations set the standards. There was a drastic reduction in electoral support for political parties and in a general discrediting of political activity, as “J.L.V.,” a public officer from the economic development office from the Municipality of La Victoria from 2014 to 2018, noted during an interview (March 13, 2019). Likewise, the repercussions of this crisis in representation were reflected at the economic level. “M.F.H.,” a public officer from the urban development office from the Municipality of La Victoria from 2008 to 2012, argued that the informal sector was established not only as an alternative to ensure livelihoods in the face of exclusionary local economic development policies, but also as the most effective and efficient way to commercialize products in the face of the increased administrative burden that formality required (August 24, 2019).

Non-state control of public spaces enabled non-state actors to rent-seek from users of public spaces; this rent-seeking was not limited to street vending. For instance, informal economic activities that make use of public spaces range from collecting tips for parking and washing cars, to specialized legal and accounting advice. Given the informal economy’s demand for public spaces, this non-state actors did not hesitate to rent-seek. Like the phenomenon observed by anthropologist Daniel Goldstein (2016) in Bolivia, staying or roaming on the streets was linked to the payment of a fee. In Gamarra, this normalized behavior was not considered illegal until the economic interests of local governments were at risk, as noted by “R.M.O,” a public officer from the municipality of La Victoria from 2014 to 2018 (August 15, 2019). For R.M.O, his work as an enforcement agent-cum-racketeer was successful because he already knew how to relate to his people: “You know, people have to collaborate, one says . . . Papi, let us work, we respect your work, you respect ours” (August 21, 2018). For R.M.O., the key to success lay in his ability to protect the people who worked in his area. This protection is not only against the possibility of theft or eviction, but also against confrontations with other commercial inhabitants of Gamarra. In this particular case, he makes explicit reference to “the formal ones,” who work in the commercial galleries. His explanation in this regard says a lot about his new role: “There is bread for everyone here, papi, we all have to eat, we all have to look for bread . . . They [the formal ones] know that they cannot complain too much, . . . they will have the right to complain once the people [i.e. racketeers like R.M.O.] go to adjust [that is, threaten] them” (August 21, 2018). In response to this situation, “the formal ones” opted for leasing of public spaces outside the commercial galleries, too. For Malena, who has worked in a commercial gallery for six years, “Clients are no longer prone to visit the galleries as much, they prefer to stay on the first floors [galleries usually have more than 6 floors]. It is not profitable for us to continue paying rent here” (July 25, 2018).

In Peru, municipal government periods have a duration of four years, and since 2014 the re-election of mayors is forbidden. This leads to labor instability within municipal human resources. The short duration of the municipal government is not consistent with medium- and long-term planning, so most government policies are short-term. This situation also directly affects the development of public careers at the municipal level. “C.A.N.,” a councilor of the municipality of La Victoria from 2008 to 2018, noted that short-termism is reinforced by this “clean slate,” political tradition each time a new municipal government takes office (August 3, 2018). In other words, municipal human resources are transitory and there are disincentives that limit the hiring of qualified public servants. As a consequence, municipal positions tend to be distributed in a clientelist manner and are vulnerable to cooptation by both criminal organizations and  political parties with criminal intentions. Municipal authorities in La Victoria exploited this situation by diverting the money collected in taxes through non-state law enforcement agents.

For informal street vendors, the distinction between state and non-state agents was almost non-existent. Not only were non-state agents perceived to be poorly camouflaged as municipal human resources, informal vendors also recognized the influence of longstanding criminal networks that co-governed the streets of Gamarra. Indeed, many of the non-state “law enforcement” agents were known in the area as former inmates or retired criminals who, because of their connections with local authorities, were able to obtain “decent” jobs. For “Armando,” street vendor since 2005 and neighbor of the district, “Many of the collectors are stoners and criminals from the area, here in La Victoria they are well known  . . .  I prefer to know how they are robbing me rather than being caught unaware. At least in this way they do not steal from us without giving us anything in return” (July 13, 2018).

Illicit city-making practices are made visible by using  the concept of “legalized extortion” to understand the governance of informal street vending in Gamarra. This concept highlights the complementarity of taxation and extortion as a twofold, legitimized way of governing. Both taxation and extortion are practically tailor-made to the needs of the social structures over which local government exercises its coercive power. In Lima, the regulation of the informal economy exposes how government legitimacy is manifested in its capacity to build alliances and co-govern with non-state criminal actors to build structures that combine licit and illicit, with an emphasis on the illicit.

Francesco Ginocchio holds a Ph.D. in Urban Studies and Regional Science at the Gran Sasso Science Institute (Italy), a Master of Arts in Development Studies from the ISS of Erasmus University Rotterdam, majoring in Governance, Policy and Political Economy, and a Bachelor’s degree in Political Science and Government from Pontificia Universidad Catolica del Peru. His work is focused on urban governance, crime and informal labour markets in the Latin American region. This essay is part of the research project “The Governance of Informal Street Vending: Regulation, Extortion and Marginality in Gamarra, Lima, Peru.”

Works Cited

Goldstein, D. M. 2016. Owners of the Sidewalk: Security and Survival in the Informal City. Durham, NC: Duke University Press.

INEI. 2017. Características de las Empresas del Emporio Comercial de Gamarra, 2016.

Ministerio Público. (2018). Expediente judicial 6-2017.

Tanaka, M. 1995. “La crisis de representación de la sociedad peruana y la importancia en el análisis del ‘piano individual’. Una revisión crítica de alguna literatura de la primera mitad de los noventa.” Estudios Sociológicos 13: 421–432.

Tilly, Charles. 1985. “War Making and State Making as Organized Crime.” In Peter Evans, et al., Eds., Bringing the State Back In. Pp. 169-191. Cambridge: Cambridge University Press.

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