Is the informal economy going mainstream?

The informal economy is the fastest area of economic growth valued globally at an estimated US$10 trillion per year. Barcelona hosted the Informal Economy Symposium to shed some light on this topic.

In his opening keynote at the Informal Economy Symposium in Barcelona this October, one of the world’s leading economic anthropologists Keith Hart argued that the informal economy is going mainstream. Due to the great success of nation-states within such a short period of time, he stated, it is hard for us to imagine society being any other way. However he believes that our system of “national capitalism”, which emerged from the intertwining of nation-states with industrial capitalism and national monopoly currencies (legal tender) as its symbol, is coming to an end:

We are witnessing the world-historic collapse of the twentieth-century attempt to impose national controls on the economy – Keith Hart

NOTE: All keynotes and panels of the event are now available online at The Informal Economy Symposium channel on Vimeo

Undestanding the informal economy

When trying to better understand what the informal economy is and what is driving it, an important development to look at is the de-localization and globalization of elements of society, such as banks, mobile phones, brands and airports. As a reaction to this, we can observe a trend towards re-localization expressed through practices such as bartering, do-it-yourself (DIY) or the building of urban gardens. These are attempts to create a deeper sense of belonging and local connectedness.

According to the book “the p2p mode of production”, the growth of informal practices is a result of the emergence of distributed communication networks and the simple replicability of informal ideas and practices.

Necessity + tools = get things done – Scott Smith

Abby Margolis from Claro Partners also stated that informal economies can no longer be dismissed as criminal, marginalized to the underground or relegated to emerging markets and history. They are clearly visible around us today and we all participate in them. Since from her view there is lot to learn from these informal practices, it is important for everyone to understand how it works, where the formal and informal economy meet and learn how informality can be used by the formal economy.

Before the event the concept of informal entrepreneurship was introduced in a very interesting article on the conference blog titled “Untapped Enterprise: Learning to live with the Informal Economy.” In this piece the author argues that we need to find ways to recognize the informal economy as an integral part of the broader economy.

The report calls on the UK government and other institutions to rethink their approach to the informal economy and gives two recommendations: 1) move beyond deterrence measures; 2) treat the informal economy as a “wicked” problem.

Why must we end deterrence and punitive measures against informal practices? The report quotes Collin Williams and J. Windebank: “If a deterrence approach continues, then western governments will with each step that they take to deter informal employment destroy with one hand precisely the self-employment and entrepreneurial behavior that they are so desperately seeking to nurture with the other hand.” The report points out that people participate in the informal economy for a variety of reasons (cultural, structural, individual: see image). While some people may have bad intentions, most of them are looking to grow a business that would otherwise not flourish.

Why is the informal economy a “wicked” problem? It is wicked because it has no easy solution. Goverment, business and civil society all have roles to play in what the report calls a “stepping-stone” model and process. They journey to formal business is wickedly difficult, because of the complexity of drivers and stakeholders. Wicked problems need “clumsy” solutions that incorporate stakeholders, drivers, and potential outcomes.

Another question that was raised by Alex Clay, author of The Misfit Economy was the question of how to map informal practices. A common criticism of this is that trying to map these practices is an attempt to formalize them, which is seldom possible. The final advice that was given both to companies and individuals, was to acknowledge (and embrace) uncertainty and to learn to be lean and flexible to navigate always changing environments.

The informal is not designed to be mapped – Adam White

Bridging the informal and the formal

The formal and informal aspects of society are already linked, since the idea of an ‘informal economy’ is enbedded in the institutional effort to organize society along formal lines, particularly of national bureaucracy.

Informal and formal economy

It is then a healthy exercise to acknowledge that what brought us to this point (captalism, large corporations and national bureaucracy) is not going away anytime soon. We must also realize that the formal economy would be in even worse shape if the informal economy did not exist. The key is not to fight against each other, but to find links and bridges for cooperation.

It is important to identify particular governments and corporations that are interested in the informal economy, since its future will involve closer collaboration with public authorities. The best examples of this can be found in Latin America, Africa or regions of South East Asia.

As brought up by an RSA report as well as various speakers at symposium, since microentrepreneurs in the collaborative economy face so many legal problems, it will be crucial for authorities to embrace and support such new forms of business (and not only traditional capitalistic enterprises).

One obvious bridge between the formal and informal economy is a payment system. M-Pesa, a mobile-phone based money transfer and microfinancing service in Kenya, is an interesting example that was mentioned several times. Even though no measurements have taken place yet, Ignacio Mas is convinced that M-pesa could allow the informal economy to be tracked.

Is the informal economy going mainstream?

To close the event Rich Radka from Claro Partners summarized the patterns and implications for the informal economy with this slide:

At this stage it is clear that the informal economy is a global phenomenon that is here to stay. The rise of informality is a result of neoliberal policies (mania for deregulation in the last three decades, linked to the wholesale privatization of public goods and services and the capturing of politics by high finance) that ignored large chunks of the population.

The need to find alternative solutions combined with the emergence of new tools and communication networks is driving and accelerating this change. The complex formal economy that has worked well till now may have a hard time acquiring the new set of skills it will need to deal with this new (inf)normality.

Some of today’s edge practices indicates tomorrow’s norm – Rich Radka

Meet Barcelona’s informal economy

As OuiShare Barcelona Connector, I helped organize an informal session after the symposium to allow the participants to get to know the informal economy ecosystem in Barcelona including Caleb Meyer (Airbnb host), Carolina Zerpa (TradeSchool Barcelona), Cecilia Tham (Makers of Barcelona (MOB)), Mark Dix (Flea market Barcelona), Tomás Diez (Fablab Barcelona), Eduard Folch (Eco Alt Congost), Andreu Honzawa (Banc de Temps de Gràcia), Carlos Lascorz (Knok, home exchange) and Marga (Gratiferia Barcelona). Thank you all for your participation!

Meet the Informal Economy of Barcelona

Thank you to Francesca Pick for your contribution to this article by editing.

Photo credit header image: copyright Claro Partners with permission to use in this article