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In praise of the Informal Economy

<a href="">IFPRI-IMAGES</a> via <a href="">photopin</a> <a href="">cc</a>

Busy market in Dhaka, Bangladesh- IFPRI -IMAGES via flickrCC

The informal economy is everywhere, from street food vendors, cell phone dealers, mini markets, to Facebook-based stores; the dynamism that informality brings to the world economy is undeniably on the rise. According to the World Bank, informal economies generate up to 40% of Gross National Product (GNP) in the developing world. However, despite its significance, the informal economy is usually misunderstood and underestimated.

In informal economies, individuals lack the protection of a safety net that they would otherwise obtain in the formal economy (such as that of a social security or health insurance). Additionally, informal economic activity cannot be taxed, and it is very hard to track for statistical purposes. Yet, despite the obstacles and the challenges that informality represents, one thing is clear about informality: it keeps economies going.

Not surprisingly, informal economies are a great alternative to rising unemployment and poverty. Organizations like the International Institute for Environment and Development (IIED) estimate that the informal economy (IE) accounts for half of global employment. Thus, arguably, if it wasn’t due to the easy access to the informal economy, the estimated 1.8 billion people worldwide that are involved in the informal economic sector would find themselves stranded and unemployed.

It is worth noting that the informal economy is shaped by certain conditions, such as weakness of institutions, poverty, corruption, and of course, unemployment. Thus, despite commonly held biases towards informality, many people resort to the informal economy out of necessity, not out of the decision to avoid regulation or taxation.

Therefore, those governments that undermine informality should be aware of the “hidden” potentials that their nations possess to jumpstart their economic growth. Informality should be seen a niche for entrepreneurs, as well as for small and big corporations alike who find a space in the informal sector to introduce themselves to bigger markets, and eventually to incorporate themselves in the formal economy.

Hence, not only does informality play a big role in preventing economic stagnation, but it is also a trampoline through which big ideas, social mobility, gender equality, stability, and even sustainable development can be achieved. Although not ideal, governments should start looking at the strengths the informal economy provides to their nations. Thus, governments tasks should be that of organizing and aggregating the interests of the informal sector by means of the creation of institutions or specific agencies in order to adequately monitor, tax, empower and protect under the law a sector that could become the motor in many economies, especially those in developing economies.

 Elogio de la economía informal 

La economía informal está en todas partes, desde vendedores ambulantes de alimentos, distribuidores de teléfonos celulares, mini mercados, a las tiendas con sede en Facebook; el dinamismo que la informalidad trae a la economía mundial es significativo y va sin duda en aumento. Según el Banco Mundial, las economías informales generan hasta un 40% del Producto Nacional Bruto (PNB) en los países en vías de desarrollo. Sin embargo, a pesar de su importancia, la economía informal es usualmente mal entendida y subestimada.

En las economías informales, las personas carecen de la protección de una red de seguridad que de otro modo obtendrían en un trabajo formal (como lo son los seguros sociales o seguros de salud). Por otra parte, la actividad económica informal no puede ser gravado, y es muy difícil de rastrear con fines estadísticos. Sin embargo, a pesar de los obstáculos y los retos que la informalidad representa, una cosa está clara acerca de la informalidad: mantiene a las economías andando.

No es sorprendente que las economías informales sean una gran alternativa ante el aumento del desempleo y la pobreza. Organizaciones como el Instituto Internacional de Medio Ambiente y Desarrollo (IIED) estiman que la economía informal (IE) es responsable de la mitad del empleo global. Por lo tanto, podría decirse que, si no fuese debido a la accesibilidad que la economía informal ofrece, un estimado de 1,8 billones de personas en todo el mundo que laboran en el sector informal de las economías a nivel global, se encontrarían varadas en el desempleo.

Vale la pena señalar que la economía informal está determinada por ciertas condiciones tales como debilidad de las instituciones, la pobreza, la corrupción y por supuesto, el desempleo. Por lo tanto, a pesar de los prejuicios comúnmente sostenidos hacia la informalidad, muchas personas recurren a la economía informal por necesidad, no por la decisión de evitar la regulación u obligaciones tributarias.

Por lo tanto, los gobiernos que subestiman o minimizan la informalidad, deben ser conscientes de los potenciales “ocultos” que podrían impulsar el crecimiento económico de sus naciones. La informalidad, es un nicho para los emprendedores, así como a pequeñas y grandes empresas por igual, que encuentran en el sector informal un espacio para encontrar mercados más grandes, y eventualmente incorporarse a la economía formal.

De modo que, no sólo la informalidad juega un papel importante en la prevención de estancamiento económico; sino que también es un trampolín a través del cual grandes ideas, la movilidad social, la igualdad de género, la estabilidad, e incluso el desarrollo sostenible se pueden lograr. Aunque no es ideal, los gobiernos deberían empezar a encontrar y reconocer las fortalezas que la economía informal ofrece a sus naciones. La tarea que gobiernos deben asumir es organizar y agregar los intereses del sector informal por medio de la creación de instituciones u organismos gubernamentales con el fin de monitorear adecuadamente, capacitar y proteger bajo la ley a un sector que podría convertirse en el motor de muchas economías, especialmente para aquellas economías en vías de desarrollo.


6 thoughts on “In praise of the Informal Economy

  1. Thanks for sharing such a well written article on this matter. I totally agree with you, and informal economies should have the same benefits as the formal economy

    Liked by 1 person

  2. Reblogged this on dan allosso's blog and commented:
    Closer to my home, the informal economy can be seen in institutions such as farmers markets, barter, and Craigslist selling. Of course, some of the activity that happens in these markets is strictly illegal and may be unsafe for some people, such as selling individual cigarettes on the street. In addition to issues of size, informality also seems to me to address a growing issue of localization vs. globalization. In that light, it might be more helpful to analyze informal markets’ contributions to local economies rather than GNP.


  3. Reblogged this on Journey of a Squivelist and commented:
    My first reblog, part of the reblog Wednesday initiative. The Global Consilium blog deals with important issues in a serious and informative way, which I somehow never manage to do myself. It’s worth checking out, and this topic about the informal economy caught my eye especially, as Mayotte is quickly making that transition from a largely informal economy to one that is regulated .

    Liked by 1 person

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