Informality and the capitalist economy: A perspective from the Global South

7 Conclusion

Markets such as the one on Mumbai’s Linking Road, where we started this Insight, may seem like vibrant and interesting places to spend an afternoon looking for great deals. But it has many times the number of sellers needed and it highlights how the process of structural change is incomplete. Despite decades of economic growth and globalization, most low- and middle-income countries continue to struggle with high levels of underemployment and precarity in their workforce. Finding a path to a successful structural transformation will benefit not only informal-sector workers but the entire economy as it will raise average incomes and reduce inequality.

We end this Insight with some outstanding questions in this field that would benefit from the work of future economists.

First, the persistence of the informal sector despite many years of economic growth needs to be better understood. Are increasing levels of automation to blame for lack of job creation, or what has popularly been called ‘jobless growth’?^1 2 Or is informality a choice, with people preferring to remain their own bosses and/or avoid regulatory or legal supervision that comes with being formally employed?³ Finally, there are scholars who have questioned the universality of structural transformation itself, saying that past examples of a successful transition within a country cannot be generalized to all countries. In this view, informality is a perennial companion of the capitalist sector.⁴ These remain open questions for further research. Governments in low- and middle-income countries are looking for creative responses to the persistence of informality.

Another pressing question for policymakers in these countries is: if structural change is going to take decades or even centuries, what can be done in the meantime to improve the livelihoods of those in the informal sector? Does the answer lie in formalization via inclusion in the formal financial system? Would collectivization along the lines of the SEWA model help? How can productivity be increased in the informal sector? The answers to these questions have the potential to benefit millions of low-income families worldwide.

We hope that you will be motivated to ask and answer such questions.