The Future of Informal Economies

by Scott Smith


Economists, anthropologists and other social scientists have spent the past three decades probing, sizing and documenting so-called informal economies— from the structures and behaviors of deviant subcultures and black markets to informal production and labor dynamics. More recently, technologists, designers and social innovation experts have taken notice of these unstructured, unofficial, “unseen” economies as future growth sources and incubators for innovative practices. This past October, I was fortunate enough to speak at the Informal Economies Symposium in Barcelona organized by design group Claro Partners, where representatives from all of these groups came together to kick off a macro examination of the subject. The goal of the event was to improve understanding of the relationship between informality and formality, and to discern what the nature of this relationship can teach us about where global economies are headed.[1]

Our collective exploration started with Keith Hart, the anthropologist who himself coined the term “informal economies” in a seminal paper on labor in Ghana written for the International Labor Organization in 1973.[2] Hart’s insights anchored subsequent talks and panel discussions. Informal economies were probed  from multiple angles, by design and social innovation thinker John Thackara; strategic designer Richard Tyson; design strategist Niti Bhan,  who has studied so-called “prepaid” economies in India and Africa; Steve Daniels of IBM and Makeshift Magazine, whose graduate research focused on “maker” economies; and a number of other technologists, social innovation experts and entrepreneurs.

Against the backdrop of resurgent informality in Spain itself (the result of seriously ailing local and global economies), the discussion was rich with reflection on recent experiences in the field, problems with current “casual” thinking about informal economies, and open questions about how informality impacts the prospects for our own economic and social design. Throughout the day, speakers shared field and research lab experiences alike. The symposium was exploratory and inquisitive rather than declarative. As the putative inception stage of a longer process of discovery, it fused together disciplines and insights, and set us on a path toward greater understanding of the role of informality.

Hart’s opening call asked us to rethink how we define informality, particularly as the” formal/informal pairing”, as he calls it, was shaped both by the polarities of the Cold War, and later fragmentation of the economic order that the global industrial powers had sought to impose after World War II. For Hart, this “we/they” construct has become increasingly meaningless. The global economy has blurred the lines between formality and Informality, leading to a growing informalization of the global economy, to use Hart’s own phrase (for more on Hart’s thinking, see his blog, The Memory Bank).[3] As with many of the day’s discussions, Hart focused partly on the role of money in the formality/informality dynamic, pointing out that it, and therefore labor, became ungovernable after the oil shock of the 1970s. Add technology to this formula, as has happened in the past decade, and the shape and flow of informal economies look more like what we now think of as the formal. Formal definitions of work, commerce, innovation, and organization, in what we consider the formal and the informal, are increasingly indistinguishable, Hart told us. As such, we should focus on how to bridge formality and informality, instead of thinking of them as separate, oppositional spheres.

Richard Tyson, whose work with Caerus Associates focuses in part of systems design in frontier markets, and Adam White of Groupshot, who works in social innovation, focused on the need to “map” informal economies at a high level and understand how they relate to traditional systems. Informal economies are often understood endogenously, they argued, but to understand them exogenously, from the outside, we need to interact with them (interdict if necessary), manage the risks they present themselves and the larger world.  Better definitions are needed, they pointed out. However, both suggested in different ways that strict codification of informal economies is more harmful than not. Tyson emphasized the need to establish flexible systems and frameworks for understanding them, particularly in a state of what he called “permanent crisis” created by formal sector breakdown. Now would be a good time to better chart how they work, Tyson said, as the emergent power structures of groups creating greatest tension for the formal sector, such as insurgencies in the Sahel, are coded by the dynamics of informal economies.

A separate panel on the role of money in informal economies really turned to the subject of flexibility—how much of it exists, and needs to exist, within modern economies. Here, Hart’s point regarding the change to post-gold standard money flows: what we think of as flexibility in the formal economy is really just money and economies systems working in a natural state, not behaving according to some artificial freedom.

Within informal economies, money is situational. As Niti Bhan pointed out in her talk on prepaid economies, even something as “formal” as the iPhone ends up being converted, in an informal situation,  to local currency that make sense locally (like an equivalent value in, say, goats). We are only now beginning to (re)recognize how many forms money takes in the formal world, and as a result, we are pushing its boundaries and templates with everything from mobile payments to time banks and barter systems in depressed economies such as Spain and Greece.

The final talks focused on where future opportunities might be found. Steve Daniels of IBM and Makeshift showed his ongoing research on the extent of innovation within informal economies. Many of his examples were particularly striking in the way they underpin the resilience needed for survival — they are incredibly efficient and show levels of resourcefulness we historically haven’t had to develop in resource-rich formal economies. A tour through New York City, newly battered by Sandy, reminds us how well we would do to relearn these approaches in our own formalized lives. Tim Brown flipped this theme around and showed how Chinese and Taiwanese “Shanzai” culture has informalized massively formal cultures of technology development (something I’ve covered previously in the pages of this bulletin here).[4]

My own talk concluded the day. My intent was to inspire thinking about a possible future where the informal and formal come together on a local scale, to focus on sustainable, functional innovation.  I argued that this is in the process of happening right now as the remaining hulk of the formal economy slowly composts into a large-scale informal economy, increasingly functioning on foundations – through communications networks, and open software and hardware, for example – that we presume to be purely formal.

Growth is problematic in a world of finite physical resources and limited ability to absorb the byproducts of endless growth. So is resilience, which too often becomes a defensive strategy. Rather than try to recapture either of these, I proposed we refocus on functional innovation as a lesson from informal economies, building what we need, when we need it, in ways that are locally sustainable. Bookending Hart’s call to break down the barriers between formal and informal, I posited that this is where we increasingly stand, in a zone of traffic between the two demarcated by disappearing boundaries. Only those with a stake in keeping such boundaries intact seem to notice.



[1] Abby Margolis, “Notes on the Informal Economy Symposium,”, October 19, 2012, URL:

[2] Keith Hart, “Informal income opportunities and urban employment in Ghana,” Journal of Modern African Studies 11, 61–89, 1973. URL:

[3] Keith Hart, “How the informal economy took over the world,” The Memory Bank, October 17, 2012. URL:

[4] Scott Smith, “Shanzai! The Era of DIY Warfare,” Current Intelligence (18 July 2011). URL: /columns/2011/7/18/shanzai-the-era-of-diy-warfare.html.


About the author: Scott Smith writes regularly for Current Intelligence on disruptive technology and innovation in emerging markets. He is founder of Changeist, a futures research lab, and co-founder and partner of Platforme, a foresight and design strategy consultancy.


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