The Informal Inventory

The woman who sold breakfast on the corner of Calle 9 and Avenida Central in San José arrived every morning before six and was gone before nine. She transported rice and beans, eggs, and leftover chicken in aluminum pots on a two-wheeled cart, sold them out of plastic containers to people who were already on their way somewhere, and collected cash. She did not have a business license. She did not appear in any official inventory of economic activity in the country. She was also, by any reasonable definition, essential infrastructure for the neighborhood.

Economists call what she did the informal economy. This is one of those technical terms that is almost exactly as accurate as it is misleading. Accurate because the activity is genuinely outside formal regulatory structures — no permit, no tax registration, no inspected commercial kitchen. Misleading because the word “informal” implies something casual, improvised, provisional — when informal economies are often highly organized, governed by dense networks of trust and reputation, and central to the livelihoods of a substantial fraction of the world’s working population. In many lower-income countries, the informal sector accounts for more than half of total employment. In some, it accounts for more than two-thirds. Calling this informal is like calling the ocean a large puddle.

The standard explanation for why informal economies exist is poverty: people who cannot navigate the formal system — its costs, its paperwork requirements, its implicit assumptions about what a legitimate economic actor looks like — operate outside it. This is true. It is also incomplete. Informality is not only a feature of low-income contexts; it appears wherever formal systems fail to match the actual texture of economic life. In the United States, informal childcare arrangements — grandparents, neighbors, the woman down the block who watches four children while their parents work — are not captured in official childcare data, but they are central to how many families manage. The informal economy is the gap between the world as institutions imagine it and the world as people actually move through it.

What makes informal economies interesting is not their scale but their specificity. Each one is a precise map of a particular kind of institutional misfit. The breakfast cart marked the place where the formal food service sector — with its permitting requirements, its commercial kitchen mandates, its minimum order sizes — had failed to provide an affordable, accessible meal to people leaving for work before sunrise. Her presence was an argument, stated in aluminum pots, about what the formal economy had gotten wrong. You could read off the shape of the institutional failure from the shape of the informal solution.

This is what I mean when I say that informal economies are evidence. They are not the mere absence of formal institutions but a kind of negative image of them — revealing, through their outlines, what the formal structures have missed. To understand why a particular informal economy exists, you have to understand the specific formal structure it has grown up around, the gap or misfit or design failure that called it into being. The inventory is always local. But the lesson, sometimes, travels.