An expanding set of economic activity is taking place outside countries’ legal boundaries. Indeed, the proliferation of organizations being formed and operating in the informal economy is an important aspect of today’s world. For some, working in the informal economy is a choice. For example, the Organisation for Economic Cooperation and Development suggests that in some countries, individuals choose to supplement their income from a job in the formal economy with the income generated by a second job in the informal economy. But for others, perhaps those living in conditions of desperate poverty, to work in the informal economy isn’t a choice—it’s a necessity.
The informal economy refers to commercial activities that occur at least partially outside a governing body’s observation, taxation, and regulation. Sociologists Manuel Castell and Alejandro Portes suggest that the “informal economy is…characterized by one central feature: it is unregulated by the institutions of society in a legal and social environment in which similar activities are regulated.” In contrast to the informal economy, the formal economy is comprised of commercial activities that a governing body taxes and monitors for society’s benefit and whose outputs are included in a country’s gross domestic product.
For many decades, management scholars have examined research questions that are almost exclusively centered on the organizations and individuals located in the formal economy. That is about to change.
The informal economy’s size and scope is noteworthy and impressive. This economy accounts for noticeable portions of economic activity in developed countries such as Finland (18.3 percent), Germany (16.3 percent), France (15.3 percent), and the United States (8.8 percent) to name but a few. At the other end of the spectrum, informal economy activity accounts for between 50 and 75 percent of non-agricultural employment in many developing countries. Its influence is certainly pervasive. Partly because of this, the informal economy poses significant challenges—but perhaps also opportunities—on both a human and a policy level.
In spite of the informal economy’s size and scope, management scholars have largely ignored it. Our inattention might be grounded in a view that unregulated activity may leave workers exploited, natural environments abused, and governments undermined. Some scholars may fear at least partially legitimating the informal economy by the attention their scholarship could bring to it. But some development agencies have no such qualms. The Swedish International Development Cooperative Agency (Sida) for example, argues, perhaps provocatively that “…the informal economy has a significant job and income generation potential (and that) the main challenge is thus to develop innovative and supportive policies that recognize the contributions of the informal economy and its workforce.” The fact that some formal economies are now urged to develop policies to support their informal sector tells us that we really should pay attention. We will gather in Boston to do just that.
We can start by considering questions flowing from SIDA’s position about the informal economy. Under what conditions might the benefits of informal economic activity outweigh the disadvantages? If indeed some institutional environments are corrupt, are there “good” and “bad” informal economies? Relatedly, can we distinguish between “good” informal economy work activity and “bad” informal economy work activity? How do moral and ethical values comingle with economic and political considerations when making these judgments? What is the relationship between formal and informal economies in any setting but most especially in bottom-of-the pyramid (BoP) settings? How do these relationships differ in BoP settings, where the bulk of a nation’s output may be accounted for by informal economy activities, and in developed economies, where informal activities account for far less of a nation’s output? And methodologically, how can we begin to answer these types of questions? Data may be hard to come by. Finally, if some informal economy activity is beneficial, how might a society selectively cultivate these positive attributes?
All manner of organization and management research questions come alive in this setting. Scholars in our divisions and interest groups will find a host of interesting questions to explore. For example, (1) How do organizations recruit, train, compensate, and retain workers in the informal economy? Do these practices differ substantially from the human resource management practices we see in formal economies? (2)
To what extent does our knowledge about such concepts as leadership, motivation, negotiation, justice, diversity and equity generalize to the informal economy? (3) Who are the stakeholders with whom informal economy organizations have relationships? How are those relationships managed by those leading informal economy organizations? (4) What do strategic management practices look like in such an institutional environment? What is the meaning of competitive advantage in informal economy organizations? What can firms in formal economies learn from organizations competing in informal economies? (5) How do the resources—or lack of resources—in an informal economy affect the nature of innovation? And again, what might firms in formal economies learn from them? (6) Why and how would an organization established in the informal economy move into the formal economy? Turning the question around, how do firms in a formal economy engage the informal sector? (7) Comparative issues loom large here. All informal economies cannot be alike. How do they differ? How do organization and management practices vary by setting? These questions are merely suggestive; they certainly are not definitive. Only our imagination limits our thinking about fruitful research questions to explore.
While management scholars will find a host of interesting and important questions to answer in this setting, they will also enter a world of some controversy. To be sure, the informal economy, like the formal economy, includes aspects we might admire alongside those we might find appalling. But of course as scholars, we would be remiss if we ignore that which we might find personally offensive.
As we prepare for our annual meeting in 2012, let’s innovatively use our concepts and theories to qualitatively and quantitatively examine a rich and yet-to-be-fully defined set of organization and management questions that are embedded within the informal economy. I look forward to your contributions and to seeing all of you in Boston!
R. Duane Ireland, Program Chair
Texas A&M University