The name informal economy is somewhat misleading, suggesting a kind of economic activity that takes place outside of “formal” institutional settings. While this is what the phrase was originally meant to designate, and still has some truth, so-called informal economies emerge in many very different situations. They are vital to the contemporary global economic order, and in some ways the global economy is itself an informal economy.
For instance, in 2024, Nigeria changed the way it counted national economic activity and its gross domestic product that was 10% higher than under the old formula (Ekugbe 2024). Part of the change was to count entrepreneurial activity that people largely conducted out of their homes, with their own personal resources, and often without the benefit of legal protection of their private property ownership of their capital and resources. This was in fact estimated to represent half of Nigeria’s GDP. During the coronavirus pandemic, as universities hastened to resume in-class teaching, Stanford’s provost responded to staff concerns about childcare by suggesting that staff could consider “leveraging teenagers that might not be engaged,” a tried and true practice of struggling single mothers for ages (Drell and Zacharias 2020; cf. Stack [1974] 2008). What was once considered marginal and only relevant for the poor is not only recognized as a potent economic force but also an increasingly important part of middle class and affluent households in supposedly developed, highly formal economies.
Keith Hart (1973) is credited with first arguing for the importance of what he terms “informal” economic activity based on his ethnographic study of a slum on the outskirts of Accra and the Frafra people who lived there. Frafra was a term of abuse for slum-dwellers used by others, but adopted by the residents. They were, Hart observed, not simply poor or destitute as they were perceived. Having migrated to the city from rural communities, they were outside of the system of chieftainship in those societies and no longer participating in the dense networks of interdependence on which these systems are based. At the same time, they were excluded from participation in wage labor and the cash economy in the city itself because its economy was not large enough to incorporate so many new arrivals. Frafra people were both literally and figuratively between two worlds, the rural world based on the logic of reciprocity and the urban world based on markets. To make a living they needed to straddle these worlds, borrowing what they needed from neighbors in order to create the basis for home production of goods that could be sold. Moonshine was a lucrative enterprise; householders would distill liquor at home, gather a few chairs and tables, and run a bar on their front porch. Like a lot of informal enterprise, this was illegal. More pertinently, informal enterpreneurs were operating in a gray area in many ways. They could not, for instance, call upon government services, including police, to provide infrastructure for this business. That came from the ties of reciprocity among people in the slum. It was both a safety net and a platform for personal accumulation. Far from being indigent, the Frafra slum was a hive of productive activity. It was invisible when viewed through the lens of bourgeois ideology based on private property, alienation, and individual economic rationality.
The informal economy is an integral part of life in what is known as the developing world and itself highlights that so-called developing societies cannot simply be understood as lacking development. Rather these societies are generally characterized by occupying the same interstices that Frafra people do, and in that straddling are where we find alternative forms of economy. One can argue that informal economies are not anomalous at all. If capitalism is based ultimately on dispossession and extraction, and always results in an underclass, then informal economic activity makes possible the expansion of capitalism as a means of overcoming its own crises.
Informal economies of some kind are part of affluent societies too. They are one major way in which people obtain a living as newly arrived immigrants (Salama 2023). And they are where we find people perpetuating and adapting alternative economies to life after generations of displacement (Brinker 2011). Here too informal economies are meeting grounds of diverging systems of value.