Informal economy: Wake me up after election day to new economic order

South African business consultant Kathy Berman wants to wake up the day after election 2014 to a redefined economic order. Taking a leaf out of the book of Hernando de Soto, Peruvian economist, she asks us to consider how different South Africa would look if we embraced sole proprietors and business people in the informal economy. Kathy argues that this would be good for South African Revenue Service coffers. We would perhaps treat people differently, too. Beggars would be classified as entrepreneurs as would housewives earning cash for their part-time baking efforts. Social entrepreneurship is a growing field of study internationally, precisely because leading theorists are thinking along the lines that Kathy is drawing for us here: a new way of thinking is required to address high levels of unemployment and poverty. – JC

By Kathy Berman

So: It’s the day after the Election 2014. A new democratic dispensation is entering its third decade and… its time to “re-frame”, “shift paradigms” … and any other cliché that helps us with the “Art of the New View”.

What if we woke up on 8 May 2014 and looked at the guy sifting through our garbage and schlepping it up the hill in a large scuffed white plastic wheely-container, and called him an ‘entrepreneur’?

Entrepreneurs - Kathy Berman
Changing the way we think about South Africa’s informal economy holds the key to a vastly improved national picture, is the message from Biznews blogger Kathy Berman.

What if we took another look at the blind man being led dangerously across the traffic intersection by a young woman with tin mug outstretched and didn’t call him disabled or a beggar…but an ‘entrepreneur’?

What if we start calling stokvels ‘financial institutions’?

What if we realized that the formal sector is not as distinct from the informal sector  as we always like to depict it – and, consequently, no more superior …


What if, to borrow from developmental economist Hernando de Soto, we no longer exclude the “poor” from the ranks of “respectability” just because the aren’t holding down a suited-job in a sprawling Corporate – or Public Sector Organisation?

What if, like Hernando de Soto, we simply conferred trading rights on these “societal scavengers”? Hernando de Soto’s theory of the barking dog suggested that wherever there is a barking dog… there is a household. And a household in Peru or Cairo that could be conferred with leasehold – and thereby, legitimized and enabling its inhabitants to step in from the grey shadows to formal legal recognition. To a place where they can borrow against an asset; can participate as legitimate trading citizens in the “formal” economy.

What Hernando de Soto did for Developmental Economics, I want to impose on Entrepreneurialism.

Yes I know the idea of the ‘entrepreneur’ already feels like it’s cutting edge and rocking the boat… Well I want to extend it just a smidgeon. Stay with me… and lets see where it gets us:

Don’t shudder, just stop and think. How many retired civil servants, “housewives”, single mothers, do you know who are making ends meet, baking for the tuisnywerheid; cooking boeres outside the local rugby game; holding down ‘piece-jobs’; developing websites online? All of this “under the table”… tax free.

NoW, other than the opportunities afforded SARS to swoop and collect even more money for the national coffers, I am looking to a legitimization of a different kind –where re-defining our economic activity, or shifting the paradigm just a bit takes us forward into the new Century.

And that’s really all it is. Because, if we stop defining and pigeon-holing, we stop imputing values – and judgements – on valid economic activity. How many of us in air-conditioned motoring splendor ignore the enterprising individuals who are trying to legitimately garner 50cents in exchange for the service of cleaning a windscreen – versus breaking it and running?

And yet we are quite comfortable to allow a youngster on a beach in Xai-xai or another one in Goa to sell us a curio…walk us to his mother’s house where she is industriously painting saris, dad is cobbling shoes, his sister is cooking dhal and…you get the picture? For every living breathing person in the household of eight people, each one is an economic unit, bringing in something to ensure the ongoing livelihood of the extended family.

In De Soto’s model of Exclusion: “The existence of such massive exclusion generates two parallel economies, legal and extra legal. An elite minority enjoys the economic benefits of the law and globalization, while the majority of entrepreneurs are stuck in poverty, where their assets –adding up to more than US$ 10 trillion worldwide– languish as dead capital in the shadows of the law.”

To survive, to protect their assets, and to do as much business as possible, the extra legals create their own rules. But because these local arrangements are full of shortcomings and are not easily enforceable, the extralegals also create their own social, political and economic problems that affect the society at large.”

So now back to our enterprising garbage-sifter who sells his plastic bottles to an even more enterprising ‘social entrepreneurial’ collective in Alex. Just like the Grameen Banking model has gained currency in the West [where sophisticated economic concepts and measurements hold sway] since its founder Professor Muhammad Yunus won a Nobel Prize… what if our National Empowerment Fund, Business Partners, and others shifted their focuses a bit. Paradigm-ally speaking!

What if we stopped defining an entrepreneur as someone who is somehow “higher” in the pecking order than a subsistence self employed garbage sifter? And what if we ceased believing that the apotheosis of human economic achievement is a job in a corporate “adding value” (while surfing through Facebook on shareholder time)? What if we genuinely took in the lessons of the Harvard Customer Discovery and Entrepreneurial Validation?

Then, when corporate retirees evacuate the mainstream, then when their spouses continue to supplement their household income baking cakes, then when they drive past a mama selling chappies on a street corner, two teens juggling at the traffic light… Then we will all be South Africans, all equally contributing to the sustainable continuity of our individual domestic economic units. Then we will all be South Africans equally contributing to the sustainable health of our collective economy. Then the notion of Innovation and Entrepreneurship will be inclusive. And then we will all begin to understand that the market out there includes 50 million units, not just the privileged formally employed.

Then: We can all contribute no matter what our age – as producers; consumers and beneficiaries. Then we will be circulating our capital – financial and human – and all benefitting.

Suddenly the pie gets a whole lot bigger – and tastier too.

About Kathy Berman: From a career working in television, print and radio journalism and production for global and local media during the 1980s and 1990s, Kathy threw it in for an MBA, and a career in consulting – Corporate Finance, Strategy and Communications. After a stint in Government, where she served on the Exco at SARS, Kathy formed Space Consulting where her role  as “Chief Catalyst” includes consulting and lecturing in strategy, investor and stakeholder relations, policy and communications – for public and private sector clients. An Afro-optimist, she is delighted to be back writing about the things she is passionate about: news; current affairs; entrepreneurialism; technology; development; art; culture; life and innovation. 

Also by Kathy Berman:

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