Reinventing the Informal Economy

Sharon May 29th, 2009

One of the most important things to know, I think, is that the growth we depend on (including the “green shoots” we might or might not be seeing) is always fed by taking something from somewhere else.  That is, we tend to talk about growth as though it comes, magically, from nowhere - we all of a sudden wake up and realize we need VCRs and then, the VCR industry emerges, the economy grows, we move on to DVDs and Blu-ray or whatever, and on and on. 

But this is not all the story.  Many people who read this will be familiar with one part of the story that was left out - the energy equation.  That is, all growth depends on energy as a master resource, and the assumption that energy consumption can always grow, is, well, a problem.  Those of you who are peak oil aware will have seen many versions of this account, revising the classic economic assumption that we’ll just find more energy when we need it.

But there’s another piece of the story that doesn’t get told quite as often - that energy is only part of the equation.  In order to grow, we have to use a lot of energy, of course, but that energy use *has never* come without also bringing many more people into the economy as well - while energy does reduce human labor in some ways (ie, one guy can do with a tractor what 40 guys did with horses), the net demand for human labor in growing economies is always positive - you need more and more people.

More importantly, those people have to come from somewhere, and they have been doing things that *also* have economic value.  Think of it as a law of conservation of human energies - that is, whenever you build a new industry and create growth, you take people who have been *WORKING* at something, contributing something, and you shift them from one sector of the economy to another.  I realize this sounds obvious, but our society works hard to convince us that that’s not true - that in fact, the people moved into the formal economy weren’t actually doing anything important.  Think about how much energy was devoted, say to talking about “unproductive” farms in the years of industrialization, or the amount of energy people have spent convincing us that cooking is “drudgery” and should be left the corporations - of course, Mom doesn’t need to spend time cooking, she can be an administrator for SuckItUp.com, because she can open a can, and that work is mindless, boring and pointless anyway.  Of course you can’t keep ‘em down on the farm after the war has taken them off to see Paree - what’s on the farm?

Because the US and other developed nations operate almost entirely in the formal economy, enormous efforts have been made, through industrialization and globalization to bring billions more people into the formal economy, where money is everything.  The growth of the formal economy at the expense of the informal economy and the ecological economy has been the whole project of the last 70+ years.  Now, it is considered normal to need a lot of money for everything - everything from things once supplied by the commons (water, education in crappy school areas) to things once supplied by the infromal economy (cleaning, cooking, gardening, etc…).   And since we are presently in the middle of massive deflation - a contraction of the money supply - this is already a scary and troubling situation for many people.

I wrote in _Depletion and Abundance_ about the distinctions between the formal economy - the world of GDP statements, income taxes and salary and benefit equations, which constitutes about 1/4 of the world’s total economic activity; and the larger (although this comes as a surprise to most Americans, who live entirely in the formal economy and are often barely aware that the informal economy exists, much less vastly exceeds the value of the formal economy), which covers subsistence and domestic economies, criminal activities, under the table work, etc…

One of the effects of the last 70 years or so of industrialization is to pull everyone available into the formal economy.  First came the farmers, black and white, many of whom did most of their work in the subsistence economy, often needing very little income.  The Depression/Dust Bowl pushed many of them off their land, and World War II took them away from home, and they never went back to the farm.  Whole families were moved to the cities, to serve the war effort, and their land was left behind.  After the war, the future was in the suburbs, the factories, the new, more formal economy.

Next came the women of the Global North.  We tend to think of this as a product of the women’s movement, a conscious choice by a generation of women to move into the formal economy, away from the drudgery of domestic, informal economy life.  And there’s a degree to which that’s true.  But the story is more complex than that.  First of all, women first went into the workforce during the war, and despite our vision of the 1950s housewife at home, in fact, women continued to work in rising numbers after the war years.  Quite a few women never left the workforce, and still more entered the formal economy during the 1950s.  Both my husband and I had four grandmothers who worked in the 1950s and early 1960s, not because of the women’s movement, but because of their class and circumstances - two were single mothers, one divorced, one widowed, both worked at the phone company as operators.  One was a recent immigrant whose household needed both incomes - she sold Fuller Brushes door to door. Another went to work in a department store to pay for college for her daughters.  Rather than viewing feminism as creating a radical break between a past in which women mostly did not work, we can see the war and the subsequent shift of laborers from the subsistence economy as a gradual progression that served to expand the formal economy, at the cost of the labor that sustained the informal one (it is worth noting that almost all “commons” are in some large measure sustained by informal economy work - volunteer efforts, for the most part, and that this was part of the destruction of the commons.)

I have argued before, and continue to argue that while the project of feminism itself is a good one, the version of feminism that succeeded and prospered was the one that served the larger goal of stripping the informal economy and the commons to feed the formal one - it was coopted from an early stage.  While many feminists critqued the popular version of feminism we got, it is no accident that corporations were happy to describe domestic work as mindless drudgery, unworthy of women, even before they moved en masse into the workforce - it is no accident that Betty Friedan and Campbell’s Soup were working towads the same goals.  The same can and should be said of many of the liberation movements of the period and since -  this is not a maligning of the importance of the civil rights movement - the early civil rights movement focused on access to the commons - to the public square.  This is why water fountains, buses, schools and lunch counters were so important.  But the later versions of the civil rights movement have emphasized not the strengthening of the commons, or investment in the many African Americans who did subsistence and informal economy work on small farms or in local economies, but in the idea that freedom and justice are tied to greater access to corporate and factory jobs and the formal economy.  Everything, in the end, is coopted by the need for growth - and growth in one part of the economy is never natural - it is stripped from ecological capital and the informal economy.  That is, we do not grow, in the sense we mean - we reallocated resources from one sector to another.

In the 1990s, about as many American women were moved into the formal economy as were going to go - it has hovered around 60% for years, and this is probably something of a cap, because the minimal informal economy work never went away - while much of the work was stripped off, outsourced into the formal economy (ie, shifted from people cleaning their own toilets to hiring poorer people to do it), or simply no longer done by Americans (either it was offshored or abandoned), the reality is that someone still had to nurse the kids, do the laundry, maintain minimal civic culture, etc…

 So the formal economy needed more natural resources, but since natural resource can never be separated from the people needed to use them, also more people moved from other sectors of the economy into the formal one.  The next step was globalization, the modern step-sister of colonialism.  In it, millions and millions of agrarian people were moved into cities, and set to doing industrial labor.  Where once they grew food, and after meeting most subsistence needs, they sold their surplus, now they work for a living and move into the money economy - which is great, as long as they’ve got money.  The problem is that rising food and energy costs (which remain high, despite deflation), and falling incomes make them vulnerable.

And they make us just as vulnerable.  During the last great economic crisis, more than 1/4 of the population lived in large part in the informal economy. Now, it is a minute portion of US workers - it was once possible for families in the Depression to go home to the family farm, and at least eat, even if they had little else.  It was once possible for urban communities that relied on informal sector labor to support themselves minimally in some ways.  It was once possible for most people to rely on the commons to provide for some needs.  Most of those resources have been heavily stripped away.

The single most significant project of the next few decades will not be dealing with “peak oil” or “climate change” or “financial crisis” - or rather, it will be all of them.  Instead, it will be rebuilding the informal economies.  In difficult times, the role of the informal economy cannot be overstated - for example, economists all over the world couldn’t figure out what the Russians weren’t starving en masse during the collapse of the Soviet Union - the reason is that the informal economy, as Peasant economist Teodor Shanin and others have documented, arose to take the place of the formal economy. 

Now the informal economy isn’t perfect.  Unless you join the criminal parts of it, or are a natural scrounger, you probably won’t get rich off of it.  But the truth is that the informal economy is more resilient (being vastly larger) than the formal economy - markets, as we all know, long preceeded “the market.”  That is, human beings always have economies - they are simply not always formal.  In most cases, people live partly in one, partly in the other - the formal economy is needed for the paying taxes and debts, for some projects, while the informal economy meets other needs.   The more cash money you have, the less you may rely on the personal ties and subsistence labor of the informal economy, but also, the more unstable, complex and vulnerable the formal economy is (and these are the defining characteristics of modern finance), the more the informal economy is necessary - family ties take over for retirement accounts, barter when neither of you has any cash, subsistence labor replaces money labor for some people, so that you need to earn less.

I do not believe that the formal economy will disappear - but we are facing falling incomes, increasing insecurity and instability, and more and more of our formal economy incomes being used to serve enormous, and unsustainable debts.  We already know that Medicare is going broke, that workers are facing high tax burdens, and uncertain futures - this is a long term problem, whether there are green shoots or not.  And most of us are vastly overreliant on the formal economy.

 Which means that we must rebuild the commons, and the informal economy - and that means reallocating time and resources and labor away from the formal economy - the law of conservation here requires that just as we have rapidly taken our commons and informal economy labor and placed it in the service of economic growth, we must equally rapidly begin shifting our resources to the informal economy - we need to spend more time volunteering, we need to return to domestic labor that saves us money, like gardening, mending, making things.  We need cottage industries that can operate under the table, if necessary, and barter.  We must take things away from the formal economy to build new commons - new water resources, new food resources, new community resources.  Mostly, what we need to take is our time and labor - because we can’t do it all, to the extent we can, we need to use the destruction of the formal economy to make new and better work for ourselves in the informal economy.

Don’t think that I believe this is easy - your mortgage lender won’t take chickens, and most of us can’t pay for our day to day life without formal economy work.  Which is why what we’re doing now is so very hard - most of us are trying to fit our gardening and canning and other work around our jobs, and our other projects.  We’re stuck in the formal economy, unless it casts us out.  But that is, I think a necessary transitional reality - again, don’t think I think it is easy, don’t think I think you aren’t tired - me too.  But the truth is that if we are going to rebuild public, communal, domestic and informal economies, that time and energy will have to come from where we can spare it best - and we’re going to have to push ourselves.  For some of us, time will be forthcoming when lose our jobs, or when we get enough benefit from our activities to be able to take one earner out of the equation, or when we consolidate households and resources to need fewer earners.  But in a world without growth - and whether growth ends now or as we come up to absolute limits of natural resources, it is ending - we have no choice but to rebuild the informal economy.

 Sharon

19 Responses to “Reinventing the Informal Economy”

  1. dexon 29 May 2009 at 2:08 pm

    Sharon-

    Thanks for this. I don’t quite agree that *all* growth comes from somewhere else(I’m sure you grow more food with less work than you did in your first year, yes?), but your larger point jives with something I’ve been thinking about a lot in the few months since I lost my “real job”.

    Looking around, it seems like lots of people are moving into the informal economy — not by choice, for the most part. I’m interested to see how sticky these changes are going to be. Will people realize that they’re actually happier with the changes? Or will we (collectively — I don’t plan on going back) go back to our old habits as the next “recovery” sets in and we can afford to?

    Someone on another blog recently commented that “stay-at-home mom” is a new status symbol. There’s truth there; hopefully it’s a positive change.

  2. curiousalexaon 29 May 2009 at 2:55 pm

    Is that what women’s lib was about, fighting for the right to work for the patriarchy? Of course not, it was fighting for the right to choose how one spends their life time. And not just women, men also. Instead of chopping wood, we can pay for heating oil. But we get to choose which approach we want to take.

    This seems like such an obvious concept to me, but it never ceases to amaze my friends that I choose labor over wages.

    Which is probably why I’m about to move across the country, leaving the city life and its formal economy for a rural life and an informal economy. I honestly have no idea how to find the informal economy in the city, but it’s fairly easy in the country. Why is that?

  3. TLEon 29 May 2009 at 4:38 pm

    I’ve always thought that it was the growth of industrialisation that triggered feminism. Once value was linked to labour *outside* the home (for men & women), ‘women’s work’ was robbed of its worth. I think early feminists were quite right to argue that domestic labour was taken for granted by the industrial system. I’ve always considered myself quite lucky to have been raised in a family where feminist politics, care for the household’s wellbeing, and an enjoyment of ‘womanly’ pastimes (ie cooking, gardening) were seen as totally compatible.

  4. Shiraon 29 May 2009 at 7:40 pm

    The formal economy is fighting back.

    The IRS, after years of ignoring the small change, has marching orders to crank down on the informal economy. Since most of the babysitters, barterers and dog walkers out there don’t make enough money to return diddly to exchequer even if they filed, this is mostly an exercise in show trials for the purposes of intimidation. The bottom fifty percent of the earners pay something like three percent of the tax revenue.

    The state of Washington is on it, too. Labor and Industries is on the warpath. Washington has some of the most byzantine labor rules in the country. If they actually enforced the rules, a lot of small contractors would be out of business.

    Shira in Bellingham, WA

  5. NMon 29 May 2009 at 9:12 pm

    I Am tired, and several of my friends and family have spent years thinking I’m nuts for half-killing myself to do so much food preserving, grain grinding (well, that’s been falling by the wayside a bit), etc., while working full time. So very validating to hear No you’re not, you’re doing important rebuilding work, and must keep it up, tired or no.
    Also nice that others of my friends are the same brand of crazy; that helps, too.

  6. Kevin Maheron 29 May 2009 at 11:42 pm

    Thanks so much. The importance of the informal economy seems like such a vital piece of the puzzle and I hadn’t considered it until I read your first book. It has been a struggle to make the jump towards the informal economy while the demands of the formal economy never let up. Baby steps I guess.

  7. bryanon 30 May 2009 at 12:02 am

    I’m fascinated that since WWII most(?) women have entered the work force and been ‘assimilated’. Let’s say you need 10 bank clerks per town and only men work. A ‘housewife’ (not counted in the workforce) is hired when a man is fired. Presumably now one man in town is unemployed. But this never happened. All those new workers just disappeared into ‘the economy’, now there are 20 clerks at the bank, plus the ATM’s. And now it takes both people working to have a ‘decent’ lifestyle’.

    I’ve always found this to be the strangest side effect of the modern economy - twice as much work is getting done yet only the top 10% (or less) of society has seen any gains.

  8. Greenpaon 30 May 2009 at 8:13 am

    ” the version of feminism that succeeded and prospered was the one that served the larger goal of stripping the informal economy and the commons to feed the formal one - it was coopted from an early stage. ”

    Absolutely true. Being a male, I’m going to say something you, being female, would probably avoid saying, because it would tick people off-

    The version of feminism that succeeded was the version where females became males- culturally.

    That was what “equality” meant- and it’s a mistake.

    The older version of feminism was successful for tens of thousands of years- the one where women’s magic was just as strong as men’s; but not the same.

    Translate “magic” into “contributions”.

    Think of any team- which is what men and women dream of being. Do you want a partner whose strengths are identical to your own? Or someone whose strengths fill in the blanks of your own- someone who complements your capabilities? I think there can be no question which team will be stronger.

    This gets to be a long discussion!

    So basically, Sharon- I’m with you. :-)

  9. Greenpaon 30 May 2009 at 8:16 am

    curious alexa: “Of course not, it was fighting for the right to choose how one spends their life time. And not just women, men also”

    :-) you are my hero.

  10. MEAon 30 May 2009 at 8:22 am

    Gee, and I always thought that female emancpation had to do with things like making wife beating illeagal, extending the franchise, ending coveiture, allowing married women to own property, that sort of apparently pointless sort of stuff.

  11. Greenpaon 30 May 2009 at 8:37 am

    MEA- well, that too. :-) LOOOONG discussion, yes?

  12. MEAon 30 May 2009 at 9:40 am

    Very long….

    Speaking of the informal economy, one of things I find odd is that while more and more people are willing do reconize the contributions that stay at home parents and their ilk make to in ecomony, once one works work for money, any similar contibutions one makes are not considered (by many) to have any effect.

    We really have devided the world in two…

  13. Greenpaon 30 May 2009 at 10:03 am

    MEA - yep again.

    I’m launching a revolt against the use of the word “consumer”. If you give it any thought, it’s a massive insult- “Hi, I’m a happy alimentary tract! Holes at both ends!”

    I’ll be damned if I’ll let anyone characterize me that way. I’m a citizen. That means quite a lot more; and can be used in any place the other c word, wished on us be economic fantasists, could.

    “Informal economy” has the same problem; and comes from the same highly suspect source. It’s an insult, in itself; connoting “this stuff is not as important”.

    Bull.

    We need a different term for it. I don’t have the right one yet. Suggestions?

  14. gaiasdaughteron 30 May 2009 at 10:25 am

    Thanks, Sharon, for another thought-provoking post!

    Greenpa wrote, “Being a male, I’m going to say something you, being female, would probably avoid saying, because it would tick people off-

    The version of feminism that succeeded was the version where females became males- culturally.”

    Greenpa, that’s something I, as a female, have been saying for a long time — so it doesn’t tick me off!

    Initially, the feminist movement was about equal rights and opportunity, or as MEA put it, “making wife beating illegal, extending the franchise, ending coveiture, allowing married women to own property,” etc., and those are tremendous gains I hope we never lose. But as with most movements, the original focus got lost somewhere along the line.

    Many people, for whatever reason, interpreted equal rights as women becoming more like men. The hidden assumption was that men were superior and that for equality to be realized, women had to become more like their male counterparts, an assumption many never recognized or questioned. So we saw the tough, no-nonsense female CEO with a flat stomach and tailored pants suit become our new ideal, while the stay-at-home mom was treated with indulgent scorn. I have nothing against tough, no-nonsense female CEOs as long as the shoe truly fits — and as long as we recognize the inestimable value of the stay-at-home mom/household manager/gardener/family care giver/many other contributions too numerous to mention.

    Of course, CEOs of all ilk may well be on the way out . . . It’s time, as Sharon reminds us, for male and female alike to ramp up the informal economy.

  15. MEAon 30 May 2009 at 1:37 pm

    Hi, Giasdaugher,

    As I expect you know, the orginal idea was to make men more like women — less likely to “stray,” more nuturing, all that good stuff.

    But getting rid of the double standard didn’t excatly work.

    I found it very intesting that on the heels of my post you draw a division between the CEO and the SAHM, while very few work outside the home mothers are CEO, and a heck of a lot of them to at least some of the so called SAH stuff.

    That may not have been what you said. I may be so trapped in that world view that that’s what I read.

  16. MDon 30 May 2009 at 3:46 pm

    Growing up, my dad did maintenance work in a factory, but our survival also depended on a lot of under-the-table work he did after hours for cash or trade. He brought home interesting items (one of our TVs was assembled from two trashed ones, and neither back would fit). The local owner-for-a-time of the factory seemed to “find” jobs at his house for Dad to do when Mom had surgery, and we needed money. It was life near the poverty line (and below it during my early childhood), but a life that taught me to acquire new skills continuously.
    I see things in the “formal” American economy happening that remind me of what happened to the factory as it was sold and resold. The new owners (after the one above) would strip out machines and other things of value to send to other plants, slap a new coat of paint on and redo the office space, rearrange what was left, and resell the plant. Finally it closed down, and Dad had to help disassemble the last bits of value after 28 years of working there.
    As industries go bankrupt and jobs vaporize, it seems like somebody is stripping out the American economy. It is scary, but we can fall back on that informal economy if we remember what to do- Dad has a whole basement full of stuff to trade (and he can fix anything that isn’t computerized) if that time comes.

  17. teresa from hersheyon 30 May 2009 at 5:05 pm

    Replacement term for consumer:

    I think the term Greenpa is looking for (to replace consumer) is CONSERVER. I picked this up from a book by Charles Long called How to Survive Without a Salary; Learning how to live the Conserver Lifestyle. This was published in 1988 by Summerhill Press of Toronto. Mr. Long also wrote Life After The City; a Harrowsmith guide to rural living. I won’t rehash the book (absolutely worth finding a copy) except to quote this passage:

    “Conservers look at what it costs to be bigger, what it costs to consume more, and even what it costs to make a bigger income.”

  18. agwhon 30 May 2009 at 7:57 pm

    Several things:

    1. Greenpa–I also have been rebelling against that word “consumer” for a long time. Citizen is the work I chose to replace it, too. I am glad to know that you, whose writing I read and thoughts I respect, feel the same way.

    2. At the university where I work part-time, the students are often referred to as customers, which REALLY irritates me. They are about the only group I know that is happiest when they get the least back for their money (if the teacher is “easy” and gives them all good grades for very little effort on their part, they are thrilled!).

    3. A high percentage of female professors at this university who are my age or older (I am 49) do not have children. They had to make a choice: either have a career or have a family. There was no other way, when they were starting out, to make it in the professorial world. I am happy to see that younger female professors can do both and still be taken seriously as professionals.

    4. One woman I know has a husband in mortgage banking. A man came to him several years ago looking for a mortgage to buy a property. It turns out that the man had never filed an income tax return and never reported any income in an official way, so he was ineligible for the mortgage. He came back a week later to offer his girlfriend as a cosigner. She raised exotic rabbits and did odd jobs for a living. It turns out that she had never left a paper-trail either. Then the guy tried to use a male relative who owned/ran an automotive repair shop as a cosigner. It turned out (you guessed it!), that this man had also never reported income, employees, etc officially anywhere. The man never got his mortgage. There is a lesson in here somewhere about the informal economy, but I’m not sure what it is. Maybe, never the twain shall meet?

    5. My neighborhood is fairly blue-collar. Recently, I have been able to get to know more and more of the people on my street. The bad news is that they are not able to find work every day. The good news is that we are able to meet and trade information and used items, because people are actually home during the day.

  19. Lynneton 30 May 2009 at 8:51 pm

    RE: Consumer. This name gripes me too. To a business, I am a CUSTOMER. To a city, county, state, nation, I am a CITIZEN. If I was attending college, I would be a STUDENT.

    I also like the idea of CONSERVER instead of CONSUMER. But a person would have to earn that name. It would entail some very significant lifestyle changes for almost all of us.

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