Foresight Alliance | Freelance Economy, Informal Economy

Lately I’ve been wondering if the future of work in the developed world and the future of work in the developing world are converging in some important ways. Let me explain by introducing a fascinating scenario for the future of innovation in Africa.

In 2013 the Open A.I.R. project (Open African Innovation, Research, and Training) reported three scenarios for the future of knowledge and innovation in Africa in 2035. One of these, called “Informal—The New Normal” describes an Africa in which informal institutions have become the primary economic and social mechanisms through which Africans operate and interact, eclipsing government and the formal private sector. “Informal—The New Normal” describes both negative and positive consequences of the persistence—and eventual dominance—of the informal sector:

“Most people earn part or all of their livelihoods through informal activities, and get the goods and services they need within a social network ‘defined by norms and institutions that are in essence non-economic.’ Africa’s labor, livelihood, political, and social needs are met by informal organizations, businesses, and supply chains, by informal skills transfer, by informal innovation approaches to intellectual property, and by informal provision of social services.”

In this scenario, the informal sector has become dominant due to the failure of governments to provide basic services, globalization that did not generate local employment, shortages of formal jobs for youth, and the “dynamism, versatility, and room for innovation” of the informal economy. Informal institutions supply services government cannot, such as primary healthcare, financial services, and education in the form of apprenticeship training. “Sourcing, production, and selling is mostly done within families or other trusted social networks” using labor-intensive methods. Organizations remain small, unable to leverage economies of scale. Institutions operate with informal rules, sustained by trust relationships.

Some of that sounds a lot like the future envisioned for workers in the freelance or “gig” economy. Consider this recent description of US freelancers:

“Anyone who signs a 1099 contract to start, say, picking up passengers for an app-based car service, is entitled to little in the way of benefits or stability from their employer. The obligations mostly run the other way: 1099 workers are responsible for paying their own taxes, setting their own schedules, learning on the job, and even supplying their own equipment. This makes 1099 workers cheaper than their W-2 counterparts—and far less closely managed.”

Of course, 1099 workers are part of the formal economy—they operate within employment law and pay taxes. But like informal workers in

Mark Warner (Flickr)

the “Informal—The New Normal” scenario they succeed based on the reputation and network they establish. They supply their own equipment and must find their own training within their network. They forego benefits like healthcare and retirement plans. And they have little or no expectation of stable employment. There is a low barrier of entry to the marketplace, but there are many barriers to establishing a secure livelihood.

Granted, there remain many important differences between informal workers in the developing world and freelancers in the developed world. But there are some interesting similarities, especially the reliance on a network rather than an employer to provide work and the support services workers need. As the freelance economy grows in the developed world, and as informal workers in the developing world receive better support and more social protections (a preferred future for many), these worlds may further converge.

The issues discussed here–informal work sector, the gig economy–are explored in-depth in our forthcoming report, The Futures of Work. To receive a free copy of this report when it is released, please send a request to FuturesOfWork@ForesightAlliance.com.

NOTE: The informal economy includes “all activities that are, in law or practice, not covered or insufficiently covered by formal arrangements.” [1] One estimate says that 9 in 10 African workers have an informal job [2], while another states “only 28% of the African labor force is in stable wage-paying jobs.” [3] Workers in the informal economy often lack legal protections and social support, face workplace health and safety hazards, have low incomes, lack access to important resources—finance, land, technology, markets—and lack basic skills and training.

[1] “The Informal Economy and Decent Work: A Policy Resource Guide,” International Labor Organization, 2012, www.ilo.org/wcmsp5/groups/public/—ed_emp/—emp_policy/documents/publication/wcms_212689.pdf.

[2] “Sorry, No Vacancies: Employment in Sub-Saharan Africa,” The Economist, March 29, 2014, www.economist.com/node/21599837/.

[3] Dobbs, Richard et al. “The World at Work: Jobs, Pay, and Skills for 3.5 Billion People,” McKinsey Global Institute, June 2012, www.mckinsey.com/insights/employment_and_growth/the_world_at_work.