Author of this blog post, Raphael Kaplinsky, is Professorial Fellow, Science Policy Research Unit, and Emeritus Professorial Fellow, Institute of Development Studies, University of Sussex.

Technological progress does not unfold in a Darwinian and technically determined direction. Nor, despite the assumptions in mainstream economic analysis, is it exogenous to economic growth. Instead, technology is socially created and can evolve in multiple directions and as such it reflects the environment in which it is generated. Until very recently, the overwhelming source of technological change has been in the high income economies. Consequently, and for obvious reasons, technological progress has predominantly resulted in the development of capital-intensive, energy-intensive and large scale techniques requiring pervasive, high-quality and reliable infrastructure. The products and services produced by these techniques have overwhelmingly targeted the needs of middle and higher income consumers. And since technological progress has been driven by profit-seeking Schumpeterian entrepreneurship, it has as a general rule been less successful in producing public goods and has often been environmentally damaging since private producers have not been forced to compensate for environmental externalities. This stream of technological progress has both reflected and contributed to the growth of inequality which increasingly characterises the global economy.

These biases in technological change may have delivered substantial economic progress. But it is questionable how far its benefits have spread. This pioneering and innovative book addresses the relationship between technological progress and those largely excluded from the fruits of economic growth who live and work in the informal sector in developing countries. This is a well-trodden path. But, the distinctive character of this edited volume is that it does not focus on the impact of technological progress on the informal sector, but on the extent to which the informal sector has become a source of innovation allowing for both greater inclusion in production and for the provision of goods and services which meet the needs of the poorest segments of the global population.

The volume can broadly be segmented into three sets of discussion. The first focuses on definitions and measurement. The contribution of Charmes charts a path through this labyrinth, points to the links between the formal and informal sectors, and reports evidence which suggests that in both Africa and southern and south-eastern Asia, 70 percent of employment outside of agriculture is in the informal sector. A complimentary chapter by Charmes, Gault and Wunsch-Vincent considers problems of measuring innovation in this sector – the incremental and experience-based innovation processes in the informal sector are not captured by the battery of instruments used to describe and measure innovation in the formal sector.

Three empirical chapters, using similar methods, analyse informal sector innovation in Kenya, South Africa and Ghana respectively. Bull, Daniels, Kinyanjui and Hazeltine explore the nature of appropriation in a cluster of metalworking enterprises in Nairobi. This is a well- (and perhaps over-) researched set of informal sector enterprises, but the distinctive feature of this analysis is in its focus on technology appropriation mechanisms. Perhaps unsurprisingly, they observe that the incremental nature of technical change in this sector does not lend itself to technological barriers to entry, and that competitive pressures in this sector are consequently high, and income relatively low. Kraemer-Mbula’s analysis of innovations in the production of personal and homecare products in South Africa is notable for highlighting the close interconnections between the formal and informal sectors. “informality” is seen as a continuum rather that a defined and separate cartegory of activity. It also evidences the role of trust in the development and sharing of innovation developments. Essegbey and Awunis’ research into innovation in herbal medicines in Ghana illustrates the interactions between the formal and informal sectors; it also shows the importance of long time-horizons in the building of innovative capabilities.

The third set of issues raised in this book are the policy implications. This provides a particularly illuminating set of analyses since each of the individual chapters is followed by a series of commentaries by influential policy actors and policy analysts. These are drawn from African governments, international institutions such as the International Labour Organisation (ILO) and the World Intellectual Property Organisation (WIPO), NGOs and academia.

This is a pioneering and valuable set of readings. It addresses an important and under-researched set of issues, and is especially illuminating in arguing that the informal sector is not just impacted by innovation but that it has the capacity to innovate itself. It helps to clarify ambiguous analytical categories. It makes it clear that the formal and formal sectors are intertwined and synergistic. It collates secondary material and reports interesting and rigorously-researched findings. And in a chapter by Kraemer-Mbula and Konte, and in all of the individual contributions, it addresses the policy implications for strengthening the role of the informal sector in the promotion of more appropriate innovation trajectories, particularly for low income economies.

Notwithstanding these attributes, two issues are raised for critical reflection. First, whilst the existence of the informal sector follows in part from dominant innovation trajectories in the global economy, the resolution of this sector’s problems lie in the realms of politics and macroeconomic policies, within which income distribution is key. Second, this edited volume results from an initiative by the WIPO. This perhaps explains the prominence of the analysis of appropriation mechanisms and other forms of IPRs in the case-studies and the inclusion of a chapter on Intellectual Property by De Beer and Wunsch-Vincent. Not surprisingly, as Lundvall’s foreword points out, most of the changes in practice in the informal sector are based on experiential learning and tacit knowledge rather than in legally codified barriers to entry.


Raphael Kaplinsky

Science Policy Research Unit and Institute of Development Studies

Sussex University


Read the book: Kraemer-Mbula, E. and Wunsch-Vincent, S. (2016) (Eds.), The Informal Economy in Developing Nations: Hidden Engine of Innovation?

Leave a reply

Your email address will not be published. Required fields are marked *