I visit friends in rural Jamaica every summer, and most of the individuals who make up the community in which I stay make their money through informal means. As mentioned in the post, this includes farming, child care, and transportation, to name a few. As I have found, and this is based on personal perception and may not represent the whole, there is a definite population of individuals in developing countries which stray from government contact, this including government sponsored jobs and aid. For my friends in Jamaica, and I assume for those who carry on in this manner in other developing countries, the state of the government’s well being does not necessarily reflect their own.

When considering the economic crisis, the situation remains the same. Small scale informal commerce will not suffer as much as large scale traditional commerce. This is to say, those selling fruit on the side of the road will generally stay in business while large corporations buckle under economic pressure. Still, when one looks at the whole, a decrease in economic growth will reduce spending. Yet, those not involved in traditional jobs will not be as affected. Moreover, as I am neither an advocate for or against the informal market, it is very interesting to see the subsistence informal trade and commerce is providing during the financial crisis.

I am compelled to disagree with scholars who tend to lead themselves to consider informal business as a new emerging safe haven thus, having a slight or substantial effect on the economy. The factors responsible for the global meltdown as identified both in United states and at the G-8 summit held in London, United Kingdom, precludes the activities of the informal business. Most factors responsible for the currently global meltdown were attributed to the sharp activities and policies of big firms, especially financial institutions whose their anti-state economic interest activities have majorly contributed to the global meltdown.

Currently,the G-8 countries have called on tax havens countries such as Switzerland, Luxembourg e.t.c to relax their state banking policy which strictly protects secrecy in respect of their clients information and this have drawn the attention of persons evading tax to store their capital wealth in this bank, thus rendering the budget and economy of their countries vulnerable to deficit or to a kind of slippery slope condition. Economists and states give little or no attention to informal business as a result of their well cognizance of the fact that this sector of the economy has less or nothing to do with the state...it is subsistence form of economy for the citizens.

The evidence of the foregoing could be clearly identified in the various countries in the this current global economic recession: the developing countries has felt a little or no impact of the current global economic meltdown. Countries like India and many African countries, even the so called developed countries are now taking a recourse to appraise the positive impact of informal economy as their citizens who are layed off their work are left with choice of no total loss, as these layed-off citizens are now resorting to informal business to meet up with their needs. Informal business has served as an economic self-help technique for citizens both of the developing and developed countries to fill the gap of economic and standard of living in a society as a result of the inadequacies inherent in allocation of scarce resources.

However, the quantity of the resources {income} earned from this type of business which is meager informs the basis for the little or no attention governments are paying to this underground economic activity {informal business}. The less strictness of government on taxing this type of business is not only as a result of the malleability of the impact of this type of business on state economic interest but one might suggest that it vividly suggest a moral wrong on the part of government if tax are administered so strictly on people carrying on this type of business. For instance, a person engaging informal business is not entitled to benefits enjoyed by a person working in a firm, a person engaging in informal business will have to save more of his meager earning to procure the need for this benefit, for instance.

Informal business was so prevalent in the western countries during the industrial revolution but this does not suggest the fact that informal business might face extinction in developing countries experiencing industrial revolution, since United States being an epitome of an industrialized nation has not failed to have informal business activities within her territory which is as a result of inevitable inadequacies inherent in the allocation of scarce resources which is of universal applicability. Thus, informal business cannot be totally extincted to give way to more complex organization of economy.

The informal economy, while seemingly effective during the financial crisis, cannot last in the long run in developing countries. As third world nations develop their corporate public and private sectors through trade with other nations, they'll inevitably begin to eliminate their underground economy.

I've been visiting family in China every couple of years since I moved to the States. In my travels, I've noticed a significant decrease in people's ability to make a living through informal means. Street vendors that were once prevalent in the cities have become obsolete due to an increase in stores that offer better and more consistent services, especially as the price gap between store prices and vendor prices became smaller and smaller. Government regulations have also made work in the informal sector more difficult.

This is not to say that the informal economy will diminish completely. The “Silk Road”, a popular mall in Beijing that sells counterfeit goods, for example, was once literally a street filled with street vendors. In the recent years, it has relocated into a four story mall, with counterfeit items organized into different departments within the mall. It has also become a popular tourist attraction that has been approved by the government. This is an example of successful jobs in the informal sector being legitimized into the formal framework.

The informal sector in my country, the Philippines, as for many decades thrive in every corners of the territory. There are those who sell all sorts of things ranging from personal needs to needless wants, food to satisfy a hungry stomach, services from cleaning every sort of things and driving all possible means of transportation. All of these are means of livelihood said to be informal but is the foundation of 60% of Philippine Economy. In the drought employment atmosphere in the Philippines it has been the savior of hundreds even thousands of people. And serve as another alternative aside from going abroad.
In this tough times, I mean the Global Financial Crisis, the failure of the formal sector to deliver growth to the economy make the people in the developed countries to take a second look in the informal sector as a means to earn money. But for us living in the "third world" (although I do not accept being branded this way) which all through out our life seeing face to face and experiencing the benefit of the informal sector. I could vividly state that the informal sector is not saving the economy today in the financial stricken world economy but it has always been since time and memorial saves our economy and all third world economies from falling apart.

I thought The Wall Street Journal’s effort for a more in-depth understanding of the role of nations’ informal economies especially in the face of global economic pressures was important for several reasons. The article offers an analysis of the costs, benefits, and often necessity of operating in an informal economy without generalizing away from the diverse lifestyles and impacts taking place therein. While making it clear that any nation’s informal economy and that it shouldn’t necessarily be seen as a solution to a its economic ails, it shows how “stressing the negative impacts” of the informal economy, as economists have done for decades, clearly overlooks important dimensions of the discussion – including the diversity of the sector itself, the innovation taking place below the “formal” radar screen, the human resilience reveal in informal activities, and just the human faces that exist behind all economic activity. For that reason I agree with Lisa’s comment about “Social Economics.” It is a positive sign that economists are beginning to widen their lens to include alternative strategies employed by those individuals who most directly bear the costs.

I also think such analysis opens the door for broader discussions of the costs of imposing a business or economic model from the outside. Obviously, as several comments have observed, the informal economy is not going anywhere, and something about “formal” economics isn’t working. I have heard stats on the absurd number of forms, long waiting periods, and other layers of bureaucracy that face entrepreneurs wishing to enter the formal sector in developing countries. In light of this understanding of the positive role informal economies can play, I’d like to see a more critical analysis of some of the underlying assumptions that have informed the business models traditionally advanced for developing countries.

The safety net provided to the poor by the informal economic sector is a "trade-mark" of developing countries. This sector can be seen as double-edge sword; on one hand it is a medium through which people living in poverty can rescue their own economies and secure a better future for their families, and on the other this sector is not a source of profit for the state and often times due to its unregulated nature foments the formation of corruption networks. The informal sector is delicate to approach in developing countries due to the large percentage of the population economically invested in it and the relative "success" these people have experienced outside the formal sector of the economy. The informal sector needs to be incorporated into the formal economy, and to this end the benefits of being part of the formal economy need to exceed the price of being regulated.
Lima, Peru has one of the largest and most diverse informal economic sectors in Latin America. Having lived there for over 16 years, I was able to witness the delicate balance between the government (municipal and state) and a sector of the economy that refused to pay tribute to a government that pushed them into informality in the first place. The high levels of unemployment and poverty in Lima caused many to create their own job opportunities to grow within a struggling economy. The economist Hernando de Soto, president of Peru's Institute for Liberty and Democracy (ILD), pointed a blaming finger at mercantilist policies and applauded the entrepreneur spirit of the working class. His work highlighted the difficulties of regulating informal businesses, specially the enormous costs this would represent for the poor economy of a state such as Peru and for those profiting of informal businesses. A good example is the transportation industry in Lima, which is composed in its majority by informal agencies. When imposed a fee for a permit to operate by the municipal government, the informal agencies turned away from the municipality to mafias that circulated fake certificates for a lower price; consequently the regulation effort failed in its first stage and required further government spending to win the struggle. Marginal individuals part of informal business are likely to network with other informal-marginal groups to cut costs and increase their own revenue. In doing so, not only do they keep the state from receiving money, but they also fuel the economy of informal and even criminal organizations that act outside the boundaries of the law. By fueling the economy of more informal and sometimes criminal groups (contraband, falsification, etc.) informal businesses lower the living standards of society as a whole by generating additional costs to the state and by increasing the activity of marginal groups that profit of the null legal boundaries of informality.
The informal sector represents a risk for the state. Nonetheless, the spirit of entrepreneurship of this group and the will of individuals driven to this practices by necessity can be redirected to the formal sector with a productive outcome if the formal sector proves to be a more profitable medium to success than the informal and if it lowers its barriers to allow individuals from the informal sector to smoothly migrate to the formal one. Furthermore, the economy of the state must first be perceived as successful and reliable by the people and to this end it must demonstrate a steady rate of growth and a more even and less elitist distribution of wealth. Informal economies are factors that deteriorate the overall economic growth of a state and without mechanisms through which the informality could be regulated developing states are destined to struggle to grow economically. When assessing the potential to reduce the informal sector within a state, it is imperative to focus on the capabilities of governments to provide incentives and implement policies that would foment the regulation of the informal sector.
Of course the informal economic sector is not the sole causal factor of the deplorable economic situation of developing states. However, they are a significant flaw within economic systems that compete in disadvantage in the global economy. Informal businesses provide a short term solution for the economy of individuals that have been alienated from the formal economic sector, but in the long run deteriorate the economy of governments and foster the low living standards associated with informality.