How informal economies are shaped by global capital: A comparison of informal work and urban life in Freetown, Sierra Leone, and Mexico City, Mexico

It is easy to take for granted that in cities in the Global South (AKA “the developing world”) many people survive without formal jobs, often as street vendors, small-scale producers, or as employees who are paid “under the table.” These people are informal workers, and they survive in the informal economy.

Scholars and policy makers have, for a long time, wrestled with how to understand and address why the informal economies in cities in the Global South continue to grow, and why the rate of workers working informally remains stubbornly high.

The predominant liberal (i.e. mainstream, pro-capitalist) explanation for informality has been this: informality persists in places where economies are not fully integrated into the global capitalist economy. Informal workers are excluded, in other words, from the global capitalist system of production, credit, consumption, etc. All that is needed to address informality, then, is integration: more free-market reforms, more access to (micro)credit, etc. Yet nearly four decades of neoliberal free-market reforms have proven that freer markets do not, in reality, lead to a decline in informality.

Also according to the logic that understands informal work as defined by exclusion from capitalism (what I refer to as the exclusion paradigm), the types of informal work people do in a place is more-or-less random, undifferentiated, and disconnected from the formal economy.

But what if, as many critical thinkers have argued and now overwhelmingly demonstrated, the informal economy and informal jobs are not random nor are they the result of exclusion? What if, instead, the nature of informal work, the types of informal jobs people do, and the size of the informal economy are instead a mirror of the type of formal economy in a city and its surrounding area? What if the global capitalist system depends upon a large and permanent informal economy and billions of informal workers for its existence?

This is the starting assumption I work from in this essay. Some have called this the structuralist approach; I prefer to call it the materialist one. And from it many crucial and important insights into the nature of cities in the Global South and the nature of their economies and their social character can be gleaned.

Adopting this materialist approach also has important implications for the heated debate about the nature of difference, convergence, and variance in cities (and societies) across the world that have taken place for decades now.

Marxist thinkers have long argued that as capitalism spreads around the world, the dynamics of capitalism create universal forms of social relationships and social patterns, resulting, for example, in the making of a global working class with many shared experiences. For example: whether in a city in India or a city in Mexico, the adoption of a capitalist economy will create similar conditions for workers and similar social patterns across both locales. Local cultures may still diverge somewhat, and local pre-capitalist practices and social relationships in both locales may remain in-tact somewhat, but only to the extent that they do not interfere with the underlying logic of capitalism i.e. so long as they do not disrupt the conditions which allow for the exploitation of labour and the making of profit by capitalists (whether those capitalists live locally or abroad).

Since the 1980s, many postmodern thinkers have argued against this approach, arguing that cultural and historical differences are paramount and that capitalism is not near as universalising as Marxists argued: thinkers such as those of the postcolonial and postdevelopment schools of thought have pointed precisely to the forms of irregular and informal work that predominate in cities across the Global South to argue that capitalism has no such (or greatly diminished) universal tendencies. Postmodern urban scholars have argued that it is among the urban subaltern (i.e. the informal workers, the self-employed, etc.) of the Global South that culturally and locally contingent ways of living are the peak determinants of the social character and social relationships in cities, not universal dynamics imposed by the processes of capital accumulation. This view has largely displaced the Marxist view among critical scholars, especially in understandings of cities in the Global South today.

The materialist view I put forward in this essay, on the other hand, reasserts the Marxist view. It asserts that even informal work, even the survival activities, even the street vending that informal workers engage in, are shaped by an overarching capitalist system and are reflective of the dynamics of a global capitalist logic.

This materialist approach to informality, then, argues against the liberal and postmodern idea that informality in cities is disconnected from the capitalist system and an overarching capitalist logic. It opposes the postmodern idea that the social character of cities are primarily culturally defined and that, in turn, economic structures play little role in the social life and social organisation of cities, especially among the poorest residents (i.e. the informal working class).

Utilising this materialist approach, I investigated how cities and their informal labour regimes (i.e. the type and nature of informal work being done in them) are shaped by their formal economies (and vice versa). I considered three main types of capital to identify the types of formal economies predominant in cities: finance capital, industrial capital, and extractive capital (i.e. the tertiary sector, the manufacturing sector, and the mining/agricultural sector, respectively). To undertake the study, I compared two very different cities where I have spent significant time interviewing and living among informal workers: Mexico City, Mexico, and Freetown, Sierra Leone. Some of my findings are as follows:

Mexico City is in central Mexico. It is shaped by its role as an international destination for investment in the FIRE (finance, insurance, real estate) sector and as a central cite of consumption. It is the largest city in North America. 51% of all workers in Mexico City (CDMX) are informal. Freetown is a much smaller and much different city on the West Coast of Africa. In Freetown, the main type of capital that flows through the city is extractive capital i.e. capital invested in the extraction of minerals, timber, fish, and cash crops for export overseas. 91% of all workers in Freetown are informal. I compiled and compared economic and labour statistics on Freetown and Mexico City and interpreted the differences I found in light of the dominant types of capital in each city (i.e. finance capital in CDMX and extractive capital in Freetown).

I found that in Freetown (as is likely in other cities where extractive capital predominates), the rate of informality is higher, more informal workers engage in street vending, and there is little stratification among the working class because almost all workers live in the same precarious positions (i.e. there is not really a middle class to speak of). This can be explained because extractive industries provide little local economic opportunities, jobs, or means of diversification, do not result in industrialisation, and require extremely cheap labour to keep the prices of exported minerals and crops low so as to be desirable on the global market. In Freetown, most street vendors only sell basic necessities, not souvenirs or other luxury trinkets, as there is no middle class nor a tourist population to sell to, reflecting the general lack of consumer capital in the city. In addition, street vendors are very numerous as a share of the workforce in the city, in part because they also provide the cheap food and necessities needed by workers in the extractive industries to ensure wages can be kept artificially low. In short, because extractive capital dominates in Freetown (and broader Sierra Leone), Freetown is characterised by a large relatively homogeneous (in terms of social class) working class that is almost exclusively informal and where many people are relegated to surviving as own-account street vendors, providing cheap goods and services.

On the other hand, I found that Mexico City’s informal labour regime reflects its financial/consumer economy in several ways. For one, in CDMX many people work in financial and service jobs, including many informal workers: 71.1% of all workers in CDMX are employees compared to 39.9% in Freetown. Relatedly, only 12.2% of workers in CDMX are street vendors, compared to 50.3 percent of workers in Freetown. Also in CDMX, the large FIRE sector and its consumer economy means an abundance of small business owners, managerial positions, and professional and middle class jobs, meaning there exists a more robust domestic capitalist class, a larger middle class, and more stratification among the working class in CDMX relative to Freetown. Because of the abundance of middle- and upper-class individuals in CDMX, there are many informal workers in Mexico City that find work as domestic workers (4.2% of all workers in CDMX are domestic workers, compared to just 1.2% in Freetown). And because of its role as a global destination city for tourists, street vendors in CDMX are often seen selling trinkets, souvenirs, and other tourist-oriented goods, unlike in Freetown. Also, basic goods in CDMX (such as flour, water, bread, etc.) are largely bought in established stores or regulated markets, whereas in Freetown most basic goods are bought from informal street vendors, reflecting the general lack of consumer capital in Freetown and the attendant abundance of street vendors in the city.

So what does all this mean? It means that the patterns of social life are distinct in Mexico City and Freetown not just for obvious reasons (their very different demographics, very different histories, very different geographies), but also for materially significant ones: i.e. the type of capitalist economy in each city shapes the way people survive, work, and interact with one another. This is true especially of the informal economies and the informal work in each city: informal work is not a solely cultural phenomenon, nor a haphazard, randomised or undifferentiated thing: informal work reflects the dynamics and logics and locations of cities in the broader capitalist system. If we wish to understand why informal work and, more broadly, life in cities across the Global South often look so different, or, on the other hand, often look so similar, we must consider the role of global capitalism in shaping cities, including their urban informal labour regimes.

Read the full article on Urban Studies OnlineFirst here.