Informal Economy

Historical Depictions of the Informal Economy

Throughout much of the twentieth century, the informal economy was nearly universally depicted as a dwindling sphere that was rapidly disappearing from view. The trajectory of economic development was widely believed to be one in which there was a natural, inevitable, and unstoppable shift of work from the informal into the formal economy. The informal economy was consequently viewed as a residue, or leftover, from precapitalism, and its continuing presence a sign of “underdevelopment,” “traditionalism,” and “backwardness.” The formal economy, meanwhile, was viewed as representing “progress,” “development,” “modernity,” and “advancement.”

From this classical perspective that has been variously referred to as the “formalization,” “dual economy,” “modernization,” “leftover,” or “residue” thesis, the formal and informal economies were portrayed as stable, bounded, and constituted via negation, with the “superordinate” formal economy endowed with positive attributes and impacts and the subservient “other”—the informal economy—with negativity. In consequence, the formal and informal economies were both temporally and hierarchically sequenced. They were temporally sequenced in that the formal economy was portrayed as in the ascendancy and replacing the informal economy that was read as “the mere vestige of a disappearing past [or as] transitory or provisional” (Latouche, 1993, 49). Indeed, this was seen as a natural, organic, inevitable, immutable, and unstoppable process. They were hierarchically sequenced, meanwhile, in that the informal economy was normatively deemed “regressive” and the formal economy “progressive,” as clearly depicted in “modernization” thinking, which hierarchically (and temporally) convenes differences between countries by placing first world nations at the front of the “development” queue while those nations in the second and third worlds are positioned behind them due to their slower progression toward formalization (Massey, 2005).

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