The idea of a rural informal economy

In two previous posts I have reported on my evolving study of the idea of an informal economy. This third post ruminates about the extension of the idea to rural life. Keith Hart's original work in Ghana (in the years up to 1973) had an almost exclusively urban focus, though he did not explicitly exclude the possibility of informality in the rural 'sector'. Indeed a UNDP Mission to Papua New Guinea in 1972-73 (of which Keith was a member) produced a report (the 'Faber Report') which appeared to endorse the idea. That's when I met Keith (at the time still optimistic about the value of his ideas for orthodox development planning). I intend at some future date to write about the Faber Mission's treatment of informality in late-colonial PNG, which had Keith's fingerprints all over it.

But most recently I've been thinking about the application of 'informality' to the world of contemporary small farmers, remembering that some 500 million small farm households today are working holdings of 2 hectares or less, and that these holdings are getting smaller and more numerous over time. It's been noted that small farms have proved remarkably persistent, and that while the importance of farming in household incomes may have declined, the number of rural households using farming as a platform for their livelihood strategies continues to grow. In other words, the world's small farmers are moving more and more to multi-activity modes of livelihood, with combinations of off-farm self-employment (value-adding, services, petty manufactures), cash- and subsistence agriculture, migration and remittances, and agricultural wage labour, all contributing to household incomes.In this mix of activity it seems obvious to me that rural informality is a useful concept for analysing contemporary rural economies in low-income countries. In arriving at this conclusion I've been stimulated by contact with colleagues from IIED (London) and Hivos (The Hague) and by reading their joint study of small farmer households and informality in the rural market economy (see Vorley et al. 2012

In the 'small farmer' setting, a relatively new economic orthodoxy has been brought to bear by international agencies and national authorities. This 'value chain' orthodoxy is promoted by the World Bank and the World Economic Forum under the rubric of 'inclusive business'. In this view, the private sector is seen as crucial in integrating smallholder producers into corporate supply chains, thus opening up markets for small farmers. The World Economic Forum's New Vision for Agriculture initiative has enlisted multinational agribusiness companies and other entities to 'develop a shared agenda for action ... to achieve sustainable agricultural growth through market-based solutions'. But a sober assessment of the prospects for such a strategy leads to the conclusion that no more that 7-10 per cent of small farmers can benefit from such a strategy, even in the medium term.

We see here a case of what Hart calls the 'discrepancies' between economic orthodoxy and the 'concrete realities' of economic life. A mode of operation is prescribed to which the great majority of small farmers is not -- perhaps cannot ever be -- institutionalized. I find the approach of the IIED/Hivos group more appealing, since it is based on recognizing the capacity of small farmers to exercise independent agency. In Vorley's terms, smallholders display agency by 'working and trading outside or at the edges of formal economic and political institutions', that is, by resorting to informal economic activity. In fact, as Lynn Bennett has noted, 'informality is the space of human agency. It is the realm of practice where individuals and groups playing the “game” use the inevitable space around the rules to make them work in their favor'. We need to reconsider the potential for constructive change among the majority of middle-level smallholders unlikely to benefit any time soon from the extension of formal value chains.

I've explored these ideas in my most recent paper, 'The idea of a rural informal economy' ( . In that paper, exploring Hart's notion of discrepancies between economic reality and prevailing economic orthodoxy, I also took a look at the evolving situation in two extant 'socialist' economies -- Cuba and North Korea. Both appear to be accommodating themselves to the need for informal economic activity in the face of a 'concrete reality' in which orthodox processes of production and distribution are failing demonstrably to meet the basic needs (North Korea) or the aspirations (Cuba) of citizens. A shorter and perhaps more digestible account of these situations is found in my recent blog post on the subject ( Incidentally, all of the materials I've put out to date in connection with my informal economy project are now gathered in one place at (

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Comment by Kate Wood on August 25, 2013 at 11:59am

They're mostly online here though not all of them are uploaded. A lot of them are in French, but a few of them have been translated. I got along OK with my schoolgirl French and a helping hand from google translate, actually, even with the French parts. (Sometimes their analysis is in English but they leave the words of their interlocutors in French.)

Comment by John Conroy on August 25, 2013 at 5:53am

Hullo again John (McCreery): You ask how it might be possible to promote creativity among the poor. I was writing of a 'new orthodoxy', a situation in which the attention of 'developers' (aid agencies, agribusiness companies, national governments, NGOs) is directed to the top of the pyramid of small farmers, with the objective of incorporating them into formal contractual 'value chains' with large corporate entities. This may be appropriate for the largest and most 'bankable' small farmers, but I characterized this situation as an attempt to institutionalize small farmers to a mode of operation from which (realistically speaking) few of them can ever benefit. I suggested we need to reconsider the potential for constructive change among the majority of middle-level smallholders, who are unlikely to benefit any time soon from the extension of formal value chains. Freeing them from restrictive regulation and allowing them greater agency in regard to production and marketing will, I argued, unleash the creativity within these hundreds of millions of small farmer households.

Responding to Kate Wood: thank you for drawing my attention to the DRC. The informal economy plays an important role in conflict-afflicted zones, in maintaining lines of supply as well as providing livelihoods. I've not been able to locate the Regards croisés materials on the Pole Institute site, which appears to be disrupted (and if anyway it should prove to be in French I won't get much value from it, alas!)

Comment by Kate Wood on August 24, 2013 at 9:43pm

This is an interesting topic. I examined something like it in my MSc dissertation (which ended up being about informal economic activity as a means of resistance in the DRC, though that's not where I started). The Pole Institute publishes an irregular newsletter, Regards croisés, which has a lot of first-hand interviews published as is about informal economic activity around Goma.

Comment by John McCreery on July 31, 2013 at 9:18am

I am reminded of a piece I read several years ago in the Harvard Business Review. The project in question was intended to improve the nutrition of children in rural villages in Vietnam. Repeated top-down efforts in line with orthodox development theory had failed. Someone had the bright idea of looking for well-fed children, discovering what their mothers did to keep them well-fed, and promoting the mothers as local heroes and role models for others. In one case, the mother had added vegetables and protein to her children's diet by harvesting edible weeds and snails from the village rice paddies. The problem was that, while the promotion worked, the snails and weeds were soon extinct, resulting in a recurrence of the original problem. When unorthodox creativity became orthodox practice, its value collapsed.

The problem would appear to be greater than identifying and promoting creative solutions that work, at least for a while, in a given situation. How do we go about promoting on-going creativity that results in continuing improvement, even when the initial circumstances change?

Comment by John Conroy on July 31, 2013 at 8:29am

Hullo again, John McC

You are focusing on an inter-generational rise-and-fall scenario, very often suggested in the context of the Chinese family firm and given as an explanation of the relatively short life-expectancy of such enterprises. In this scenario we see an accumulation, then a de-accumulation, of capital over three generations, occurring for psychological reasons. Such an individual family scenario is consistent with continuing growth of enterprise capital and societal prosperity at the aggregate level (a situation of individual social mobility within a growing economic system).My analysis (dealing as it does with 500 million households or maybe 2.5 billion people) is obviously at a highly aggregated level in which the mobility experience of individual peasant households would no doubt reveal something like the pattern you suggest. But my overriding concern is with the potential for growth and rising household incomes in the small farmer universe as a whole. At the lower extreme, many of these households pursue a largely subsistence existence, with very limited access to cash income. The top 7% to 10% of small farmer households, by contrast, are engaged in formal 'value chains' involving contractual relationships and are above and beyond any rural informal sector. The value chain 'orthodoxy' of which I speak is concerned to bring more households into that fold, though I believe this can be only a painfully slow progress and therefore suggest (along with the colleagues I have cited) that public policy needs to recognize and facilitate the 'unorthodox' creativity which exists within the informal small farmer economy. Individuals and families will fall by the wayside, more as the result of catastrophes associated with weather, ill-health and other misfortune than because of some predictable psychological/generational sequence or cycle.


Comment by John McCreery on July 30, 2013 at 7:44am

Fascinating. The one thing I see missing in the analysis is consideration of the developmental cycle of rural households, described for example, here in the case of China. The Chinese have an expression... 富不过三代 (fu bu guo san dai) Literally: Wealth does not pass three gen.... The idea that it conveys is that the first generation works hard and builds the family wealth. The second generation works less hard but keeps the wealth intact. The third generation are slackers. They waste it all, and the cycle starts over.

When you talk about programs that will likely benefit only 7-10% of small farmer households, I find myself thinking of those who start the cycle, the rural entrepreneurs who build small family fortunes. I wonder if it is possible to design a program to motivate those at other points in the cycle, or those who, for whatever reason, have given up and accepted their poverty as their fate.


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