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Mammo Muchie1, Saradindu Bhaduri2, Angathevar Baskaran3 and Fayaz Ahmad Sheikh4
1DST/NRF Research Professor of Innovation Studies at the Institute for Economic Research on Innovation at Tshwane University of Technology, South Africa
2Assistant Professor in the Centre for Studies in Science Policy at Jawaharlal Nehru University, New Delhi, India
3Senior Research Fellow in the Faculty of Economics and Administration at the University of Malaya, Malaysia
4Centre for Studies in Science Policy at Jawaharlal Nehru University, New Delhi, India
Formal and informal, developed and developing sectors and economies, rural and urban, agriculture and industry, innovation as outcome from either investing R&D or without, continue to exist and define all the economies in the world regardless of what economic system dominates to shape each country’s economic development trajectory. This continued fragmented economic landscape between formal and informal sectors and economies, and the continued existence of informality even within those countries that reached the formal levels present a real challenge on how best to transform the informal into the formal sectors and economy. This continued dichotomy presents a serious challenge to innovation research. There is a need to position innovation research to address these dichotomies and overcome them by promoting grounded epistemological paradigm to generate relevant and realistic approaches to undertake workable and tangible outcomes. In addition to the dichotomy of formality and informality, economic systems also are awash with persistent fluctuations, cycles, disruptions, crises that affect both human and ecological spaces. Innovation research has to address economic and social, environmental and developmental challenges. How to include the excluded and create systems of innovation that unify social, economic, environmental and developmental problems to create a wellbeing anchored trajectory for both humans and nature has remained on the intellectual agenda for a long time. There is a real gap in the innovation approach to address this challenge.
Innovation to transform the informal economy is the main thrust of this edited book, by bringing together all the chapters that were published as two special issues in the African Journal of Science, Technology, Innovation and Development (AJSTID).
Informal sector was introduced as a concept in 19711. The definitions and the names of the informal sector are varied. Informality is associated with unregulated, traditional and survival sectors of the economy and the definitions stress different variables to define what is informal. The informal sector is very heterogeneous and different researchers stress different variables to define the main characteristics. Some use wage and non-wage employment to differentiate informality characteristics. The informal sector continues to make up a significant portion of the low income economies in developing countries and the poor often have economic opportunities mainly in the informal sectors. Given poverty remains a serious challenge to all economies, the informal economy will remain as long as the conditions of the poor have not been transformed. Integrating the informal economy into the formal sector is critically important as a policy challenge to all economies in general, and developing countries in particular.
In 1972 the International Liberation Office (ILO) produced what is called a Kenya Mission Report2 by defining informality as a way of doing things with the following characteristics: (a) ease of entry; (b) reliance on indigenous resources; (c) family ownership; (d) small scale operations; (e) labour intensive and adaptive technology; (f) skills acquired outside of the formal sector; (g) unregulated and competitive markets. Informal sectors are populated by a variety of economic agents that include, owner employers of small and micro enterprises, those who operate one owner micro enterprises, and owners whose small and micro enterprises rely on family and domestic labour. According to the ILO, the ‘informal sector’ covers the “unorganized spectrum of economic activities in commerce, agriculture, construction, manufacturing, transportation and services, now absorbs as much as 60% of the labour force in urban areas of developing countries”.3
It is now well documented that the space of informal economic activities is expanding across the globe. This expansion has been particularly significant in the least developed and developing countries, especially since the onset of neo-liberal policies and the withdrawal of the welfare state. Perhaps concomitantly, there has also been a welcome shift in academic thinking on the informal sector, with attempts being made to understand the (positive) contribution of this sector in generating employment and economic growth besides the conventional emphases on the various exploitative labour conditions in these sectors. Indeed, with the retreat of the welfare state and the introduction of contract labour in the formal sector too, the ‘hazards of informality’ are no longer confined to the informal sector of the economy. In this context, this re-orientation of academic thinking is a much needed step. This issue addresses a specific concern: the matter of knowledge generation and innovative activities, which lie at the core of sustained competitive advantage in economic activities but which have not yet been given their due place in academic literature.
The informal sector is thus a very significant economic and social space in the world economy. What is critically important is how to use the innovation approach to address the policy challenge of eradicating poverty, unemployment and inequality by transforming the informal economy. There is a critical task of transformation remaining to drive the informal sector with innovation. If the informal sector grows, economic development may shrink and even fail. The rapid transition from informality to formal economy is likely to stimulate the rapid transformation of economic development. How to apply an innovation system approach that can transform the informal economy to the formal economy – without introducing more informality in the formal economy – is what will bring measurable developmental outcome. What is still a challenge is how to transform informal sectors and economies into standard formal developed stages and levels.
There are issues of how to distinguish between different types of informality and also the boundary between the formal and informal remains unclear. In different economies informality can vary, just as the definition of small and medium sized industries also vary. In many low income economies informal businesses may not be registered, but if some informal businesses become registered, they may still be informal but may be classed into the category of formality. How can the system of innovation be used in order to help formulate a way to overcome the dilemmas of informality and formality within economic systems in general and developing economies in particular? A system of innovation that combines knowledge, learning, research, innovation, and competence building (KLRIC) can be applied to transform the informal sector and informal economy structurally. In South Africa, the co-existence of two-economies, one that is an advanced formal economy, and the other, a large informal economy, requires that the innovation system approach is applied to remove poverty, inequality and unemployment. In an economy like South Africa which has various types of linkages what is relevant to address is to transform the current link between townships and cities that are distinct though they exist side by side. There are formal and informal economies with the formal economy linked globally and the informal not connected strongly with the formal. This makes the innovation approach very relevant to transform and interconnect the South African economy within the country. The innovation framework approach is very necessary to transform through KLRIC the economic system at various levels from the local to the regional. The system of innovation approach will be a useful tool to resolve divisions/imbalances within a national economy.
We need to re-think innovation before we assign a role to transform the informal sector and economy as the neo-classical and even neo-Schumpeterian approaches to innovation need to be re-thought, re-framed and applied in the context where local practices and knowledge exist richly though they may not be recognised and utilised. The preference has always been to link innovation to economics mainly because it is seen as a critical factor in the economic development and transformation processes. Despite the recognition that innovation is defined by the creation of new processes and products, the distinguishing mark has been how these processes and products reach a market and user from whoever is the producer. There is however a need to re-link innovation not only to economics but also to a variety of other fields particularly engineering, management and services. Innovation is linked to new ways of thinking, new ways of doing, new institutions, new production systems, new organisations, new management approaches and practices, new engineering designs, in addition to new methods of marketing businesses and practices.
The drive for innovative activities is varied meaning innovative outcomes originate from diverse sources. Innovation can be seen to be interconnected to a variety of fields such as technology, engineering, management and services. It can extend also to include philosophy, sociology, economics, the sciences, both natural and human, and social science if we assume new and innovative outcomes are also part of all these disciplines.
The sources for all processes and products that can pass and be designated as innovation are all fields of human, social, natural and applied sciences, technology and engineering, not just economics and commerce. Processes and products are created, but to be defined as innovation their relevance to users and markets has to be recognised as priority i.e., their economic relevance is preferred as the distinguishing defining attribute. We need to rethink the claim that what is produced as product and process can be said to turn into innovation when it passes from the producers to the end-users, the market and the relevant identifiable economic actors.
We think the very creation of new processes and products to define innovation is a necessary condition, the awareness of economic value can be sufficient, but without the necessary ingredients, the sufficient condition will not materialise. At the necessary level all sources are included for innovative creativity and at the sufficient level the commercial recognition is relevant. But the recognition through economic market does not invalidate or take over the whole innovation cycle as mainly being in the economic domain.
There is room to open innovation for service delivery excellence and not just commercial excellence. Innovation is broader and should include both economic and non-economic uses and applications. In fact the non-economic, like service delivery, can be promoted by Ubuntu and values that are associational and not individualistic, self-interested, instrumental, apartness and unsocial. As Nelson Mandela put it “… humanness does not weaken business. It strengthens it … It cements the relationship upon which the teamwork and innovation must rest … Both teamwork and trust are seen as vital components of world-class entrepreneurs today. They embody the positive values of the so-called ‘triple bottom line’ of business sustainability.”4
So economics as it is driven by the current dominant capitalist logic suffers from a value deficiency. Innovation has to be liberated from the domination of individualistic economics. Innovation can have valuations that do not necessarily become tested through commerce alone. It can still be innovation if it remains not only commercially but also socially and economically useful. Innovation can be re-defined by the validation of not just commercial gain alone. Social gain, economic gain and usefulness for both directly as outcomes can be linked to innovation. All the issues of employment poverty eradication and inequality in the informal sector or between the formal and informal sector can best be addressed when innovation is also conceptually re-thought. A new validation other than just the market, also a social validation is embedded in its core definition.
If innovation is re-thought a re-learning on how informality can be transformed structurally to create a standardised and harmonised system will not be difficult to promote and achieve. The epistemological disobedience to the narrow economic take to innovation is necessary in order to re-position the innovation approach to transform informal sectors and economies and create a sustainable developed economic system by systematically eradicating poverty, inequality and unemployment.
A variety of sources for innovation can be used to re-define productive services that can result as outcomes from the value chain processes from different disciplines. We can define different types of innovation arising from different disciplines. For example the innovation related to engineering and management can generate services by the various actors that are involved in both designing new engineering products and managing the overall processes. Innovation for service delivery can be different from engineering or technological innovation and can generate new service development and service designs, processes and products.
Effective service delivery requires the capacity to create new approaches to engineering to produce tangible and recognisable service processes. Excellence in service delivery systems requires the synergy of human, technological and organisational capabilities on the input side before the products reach the market. Technological and non-technological, economic and non-economic factors influence the innovation that generates process and products that in turn become services and service delivery systems. Combining commercial and service delivery gain and economic and social gain are the necessary conditions to transform the informal sector and economy. A new innovation validation index that includes as variables the economic, social, environmental and services as integrated components is essential to construct. The following contributions bring together the important problem of how informal economies from varied sources can be transformed. Though each chapter addresses specific issues, together they share the approach of addressing the challenges of transforming the informal sector and the economy.
Chapter 2 by René Rivera-Huerta explores the main economic theories that have been used as lenses to examine the informal sector. The theories appeared to have had little success in explaining the consistencies founded empirically and in proposing efficient policies to bring up-to-date the non-structured sector. The author searches for and proposes more suitable theoretical analysis to discover policies to encourage productivity in the informal sector. New variables (such as institutional arrangements) were incorporated in the analysis with some assumptions modified – particularly those related to agent rationality – in the analysis of these social phenomenon.
Chapter 3 by Franklin Obeng-Odoom and Stephen Ameyaw reveals a new informal economy in Ghana as the ‘in formal informal economy’ – where the actors are highly educated and skilled, and are also neither migrants nor ‘dropouts’ from the formal sector. Cast in the same setting where the concept of the informal economy was born, the chapter shows that there are informalisation dynamics and moments within the process of professionalisation. This informal economy is not only different from existing informal economies, it is also differentiated internally and externally – differentiated relative to existing informal economies and differentiated regarding its own sub-sectors. The chapter shows that in addition to the cohort of informal workers who fail to get formal jobs because they are not qualified, there is a cohort of informal workers who fail to get formal jobs even though they are qualified. As a result, there is a segment of temporary informal workers who are educated and certified in a queue for formal jobs, but who are unlikely to obtain them because the ‘solution’ to their condition is simultaneously the cause of their experience.
Chapter 4 by Akeem Ayofe Akinwale, based on the theory of planned behaviour, examines the development of entrepreneurial potential among the undergraduates of a private university in north-central Nigeria by taking a total of 250 randomly selected undergraduates from various departments that participated in a survey at the university. The findings revealed that an overwhelming proportion of the respondents expressed their talents with an interest in entrepreneurship. Self-employment in the informal economy was the next plan of more than half of the respondents. Several factors such as ethnicity, level of education, self-expression, and interest in entrepreneurship influenced the expression of talents and desire for entrepreneurship. It is concluded that investment in higher education with interest in entrepreneurship will enhance the development of entrepreneurial potential among graduates in Nigeria. This suggests the need for relevant strategies including self-help, innovative behaviour, and government-university-industry interaction for the development of entrepreneurship in Nigeria.
Chapter 5 John C. Harris investigates two agglomeration economies, innovation and production specialisation, within Nairobi’s handicraft sector. The chapter asks if and by what mechanics urban informality might interfere with these important potential outcomes of clustered production. One hundred and two semi-structured interviews were conducted with participants of the industry. Findings suggest that informality contravenes innovative and specialised outcomes for firms through the introduction of high levels of entrepreneurial risk, diseconomies of informal agglomeration, and rationa...
