Polanyi, Chayanov, and Lessons for the Study of the Informal Sector

This article offers an alternative institutional economic approach to the informal sector by interpreting the works of economists Karl Polanyi and Alexander Vasil'evich Chayanov. Far from withering away, the informal sector continues to occupy an important place within economies in general and within the so-called developing economies in particular. Relatively speaking, the informal sector is inferior and more spontaneous, if not actually incomplete. Within the informal sector there are numerous small competitive firms, free entry, market-determined factor and product prices, together with a concentration of petty retail and services, labor-intensive production processes, and low productivity. According to Polanyi, one major drawback of mainstream economics is the insistence that the market mode is synonymous with the economy, and, under the weight of this assumption, formalistic economic analysis is assumed to be universally applicable to the study of all times and places. As a consequence, mainstream economists see markets where there are none.