The Informal and Illegal Entrepreneurship

Informal Economy

The informal economy is submerged in a contentious definitional framework (Harding & Jenkins, 1989). The concept was introduced into international convention in 1972 by the International Labor Organization (ILO, 1972) and describes as a:

In the developed economies there is general agreement over what informal economy is, but absolutely no agreement over what to call it. Consequently many terms; ‘informal’ ‘black’, ‘underground’, ‘unrecorded’, ‘hidden’, ‘shadow’ ‘irregular’, ‘subterranean’, ‘parallel’, economy have all been used to essentially describe income or production that escapes taxation and/or GDP estimates (Bernabè, 2002), and each seeking to express its own nuance (Williams, 2004).

Mostly, the informal economy is described as economic activities that are unregulated by law. Portes and Sassen-Koob (1987: 30) define it as activities which “escape normal record-keeping”. Such an approach cautions against associating informality with illegality. To Williams and Windebank (1998: 1) the informal sphere is “all ‘productive or work’ activities that are hidden from or ignored by the state for tax, social security and/or labor law purposes, but which are legal in all other respects”. Renooy (1990: 24) suggests that informal production covers those “activities aimed at producing a positive effect on income for which the term of legislation and regulations are not being met”, and further indicating that the decisive characteristic of the informal economy which distinguishes it from the formal economy is the lack of governmental control (Renooy, 1990).

Samers (2004: 202) refers to informal production as a process, implying that what is deemed ‘underground’ or ‘informal’ shifts with the contours of regulation. For instance, the business of Khat (a leafy plant that acts as a stimulant when chewed) was driven underground when it became banned as a class C drug in the UK to the detriment of the Black African entrepreneurs (e.g. Somalians) involved in its supply chain (Grimley, 2014). Meanwhile, Portes and Sassen-Koob (1987: 31) are of the opinion that, while that class of definition “encompasses criminal activities, the term is customarily reserved for such activities as those in the food, clothing, and housing industries that are not intrinsically illegal but in which the production and exchange escape legal regulation”.

The informal economy is consequently envisaged as a route to creating income rather than a description of an individual. Williams and Windebank (1998) differentiate between informal economic activity that is paid (informal employment) and un-paid informal economic activity (un-paid informal work or mutual aid). Its size and role increases during economic depressions and periods of economic adjustment and transition. Lubell (1991) argues that whenever the formal economy shrinks, individuals become more involved in informal sector activities for lack of options of earning a living. Equally, whenever the formal economy expands, the direct and indirect demand for goods and services created in the informal sector will enlarge in size.