Economy, Informal

Modernization Theory

Throughout the 20th century, the near universal belief was that the informal economy was a dwindling sphere that would disappear from view. The future of work widely envisaged was one of an inevitable, natural, and unstoppable shift of work from the informal into the formal economy. The informal economy was therefore represented as a leftover from an earlier mode of production, and its continuing presence in economies was depicted as a sign of their “underdevelopment,” “traditionalism,” and “backwardness.” Formal work, in contrast, was normatively seen to represent [Page 459]“progress,” “development,” “modernity,” and “advancement.” This has become known as the modernization theory of the informal economy.

In this classical modernization theory, which has also been variously called the formalization, dual economy, leftover, or residue thesis, formal and informal work were portrayed as stable, bounded, and constituted via negation, with the “superordinate” formal employment viewed as possessing positive attributes and impacts, and the subservient “other”—informal work—viewed with negativity. In consequence, formal employment and informal work were both temporally as well as hierarchically sequenced. They were temporally ordered in that formal work was depicted as growing and replacing informal work which was read as part of a disappearing past or as a temporary phenomenon. Indeed, this was seen as an organic, natural, and immutable process. They were hierarchically ordered, meanwhile, in that informal work was normatively depicted as “regressive” and formal work as “progressive,” as displayed by the depiction of work in global perspective in modernization theory, which hierarchically (and temporally) conflates differences between countries into a hierarchical sequence by placing First World nations at the front of the “development” queue, and positions nations in the Second and Third worlds behind them due to their slower progression toward formalization.

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