Tuesday, March 24, 2009

a non-formal look at the non-formal economy

Real World Economics Review | Non-formal economic exchange is not a relic of the distant past nor is it a practice limited to the most underdeveloped and economically “backward” of modern times. It is ubiquitous, yet frequently overlooked; under various guises, non-formal economies exist today alongside and intermixed with formal markets, even in the most advanced capitalist countries. From the trading of snacks in an elementary school playground to the trafficking of people all around the world, the workings of non-formal economies are embedded in our daily lives, actively shaping everything from bank policies to foreign policies. The world we know floats atop a tumultuous ocean of non-formal economics. It’s about time economists—and the ordinary person on the street—take a look.

Every day, in the privacy of their homes people produce goods and services which are theoretically “non-economic”. Every year almost three trillion dollars is laundered worldwide––also “non-economic” (Lilley 2007, 32). The “non-economic” are consigned to the margins of analysis by the definitional poverty of mainstream economics; it is the “other” of economics, existing outside of the formal purview. Mainstream economic analysis shines its dissertational light on an exceedingly narrow and superficial field. But the distinctions erected by the mainstream discourse are purely conceptual and often don’t hold in reality; households depend on their informal activities such as non-wage labor to sustain their formal ones, and similarly, money launderers depend on formal banking institutions to transform their non-economic (i.e. illegal) activities into economic profits (Nordstrom 2007, 21). Non-formal economies do not operate independently of their formal counterparts, yet the idea of “co-existence” does not grasp the complex engagement and interplay between the two. The formal and non-formal face each other as dependants, each working with and through the other. In his analysis of modern black markets, R.T. Naylor finds that “what has emerged today is a set of interrelated, mutually supporting black markets (still usually thin and imperfect) within which there exists a mix of individual entrepreneurs along with ‘firms’ large and small, all engaged in essentially arms-length commercial exchanges. No longer isolated, these black markets are institutionally embedded in the legal economy” (Naylor 2005, 3). The mutually constituting realms of the formal and non-formal economies can no longer be clearly distinguished. Their boundaries overlap and obscure; economic reality is a messy one