The context
Despite the challenges of accurate measurement, there is a general acceptance that the informal economy is global and significant in size, accounting for around 20% of economic activity in developed nations and over half of non-agricultural employment in emerging economies (Chen, 2012; Webb et al., 2013). From food stalls on the streets of Cusco, to workers paid in cash in East London, informal economic activity is increasingly implicated in production and social reproduction in both developed and developing economies. Research on entrepreneurship in the informal economy tends however to focus on activities lying outside formal institutional boundaries, concentrating on the unregistered businesses, informal employers operating outside of labour regulations, and organisations selling forged products (Bruton et al., 2012; Godfrey, 2011; Webb et al., 2013). The entrepreneurship literature has treated the informal economy as a static concept, failing to appreciate that its size, function and form are contested across a range of disciplines and from a variety theoretical standpoints.
The argument
The informal economy is not a static concept. This article argues that a new conceptual approach to the relationship between the formal and informal sectors will serve to broaden the scope and relevance of research on entrepreneurship in the informal economy by appreciating tensions and dynamism.
Most literature seeks to strictly define informality. These attempts to bound informality face constant problems requiring numerous caveats and exceptions. The difficulty in defining informality often leads to a spectrum approach in which different forms of activity, organisation or institution are located. We argue that this approach is severely limited, serving as a descriptive exercise as opposed to holding any explanatory power.
Against this boundary spanning we suggest that the informal economy should be understand as a problematique of contemporary economic organisation. Instead of seeing informality as a bounded category of economic activity we instead propose a dialectical relationship between the formal and informality economy, in which the relationship between the two are constantly recast and renegotiated, mutually informing each other in each continuous phase of development. We argue that such an approach to informality helps not only recast existing examples in more nuanced and informative ways but also helps to reveal the dynamics which shape its current manifestations and future directions.
We argue that two moments can be understood to define the informal problematique in the current period, or some current manifestations of the informal/formal dialectic. These are (i) the informalization of previously formal economic organisations and activities (flexible specialisation, the share economy, etc.) and (ii) informal activities as the frontiers of capital accumulation (microfinance, informal housing, piracy).
Methodological approach
Our paper presents four illustrative case studies to demonstrate the moments of the informal problematique and highlight the usefulness of the dialectical approach. The first and second cases focus on the informationalization of previously formal activities carried out by corporations in the new sharing economy. The third and fourth cases take microfinance and ‘pirate entrepreneurs’ as examples to illustrate how informal activities are acting as frontiers of capital accumulation
Conclusions and relevance
The dialectical approach adopted in the paper reveals both contradictions (for example, the current UK court ruling about the employment status of Uber drivers) and explains the dynamism of the informal problematique. Our paper suggests that as the nature of formal economic activity has developed in levels of technological sophistication, so too has the dialectical relationship between the formal and informal economy been reshaped.
The paper concludes by considering the implications for the study of entrepreneurship in the informal economy. We propose fecund avenues for future research that encourage a focus on entrepreneurship in the informal economy as a boundary spanning activity, and highlight the importance of brokers or bricoleurs who sit on this blurred (and constantly shifting) boundary.
References
Bruton, G. D., Ireland, R. D., & Ketchen Jr, D. J. (2012). Toward a research agenda on the informal economy. Academy of Management Perspectives, 26(3), 1-11.
Chen, M. A. (2012). The informal economy: Definitions, theories and policies.
Godfrey, P. C. (2011). Toward a theory of the informal economy. The Academy of Management Annals, 5(1), 231-277.
Webb, J. W., Bruton, G. D., Tihanyi, L., & Ireland, R. D. (2013). Research on entrepreneurship in the informal economy: Framing a research agenda. Journal of Business Venturing, 28(5), 598-614.
7. Informal sector, popular economy, microfinance and development
