Upward mobility in the informal economy is largely a ‘myth inspired by wishful thinking’. Instead, innumerable studies -often sponsored by the World Bank and other pillars of the so-called Washington Consensus – have sought consolation in the belief that the informal sector is potentially the urban Third World’s deus ex machina. 

De Soto-inspired optimism, in its most absurd version, has led some development-aid bureaucrats to redefine slums as ” Strategic Low-Income Urban Management Systems.” This semi-utopian view of the informal sector, however, grows out of a nested set of epistemological fallacies.

Although I really enjoyed Mike Davis‘ book Planet of Slums (2006), I completely disagree with this position. We should never portray a romantic view of poor micro-entrepreneurs, especially when they operate for survival and extreme poverty. However, local markets are far from being a homogenous blend of subsistence activities with no growth potential. Quoting an early study on Nairobi’s informal markets, Davis somehow contradicts his earlier statement:

The informal sector can be further categorized into at least two subsectors: an intermediate sector, which appears as a reservoir of dynamic entrepreneurs, and the community of the poor, which contains a large body of residual and under-employed labor.

This distinction already identifies a potential for upward mobility: from residual labor to the “intermediate sector”. In Kariobangi, when we ask entrepreneurs to describe their previous job experience and education we see that many entrepreneurs follow a similar pattern: 1) They enter in the market as apprentices, working for free or even paying their bosses to learn the job skills. 2) They are employed for some years, getting experience and the relevant networks of suppliers and clients and 3) As soon as they have sufficient capital and experience, they start their own business.

Isn’t this upward mobility? Isn’t this a way out of poverty occurring completely within local markets?

I am aware that this anecdotal evidence does not say much about the actual probability of upward mobility in the informal economy. However, it is far from being a “myth inspired by wishful thinking”. In fact, it often represent the only chance for escaping poverty.