Background and Workshop

The formalization of the informal economy for an effective and inclusive circular economy is a complex puzzle—especially in developing nations. The Circular Economy working group (CE WG) for the Future Earth Systems of Sustainable Consumption and Production Knowledge Action Network (SSCP KAN) sponsored a professional development workshop (PDW) held at the Academy of Management International Conference in August, 2022. 

We set out an ambitious agenda—one which was to continue the work and conversation on this topic. We summarized this agenda in a recent perspective piece for Resources, Conservation and Recycling.

For those not familiar with the Informal Economy, we recommend this introductory video. In it, Prof. Alison Brown from Cardiff University, provides a number of sobering statistics showing that informal employment makes up a large percentage—in many cases the majority—of Global South countries’ economies. It highlights that employment in these economies can be precarious, with acute gender implications, and health and safety concerns.

General Insights

One of the primary concerns was whether formalization is even needed. We did not get to the bottom of this, but the discourse is clearly important. In theory, formalization offers poverty alleviation: increased earnings, stable income; improved work conditions and access to welfare. It also offers – in contexts where it is relevant – de-stigmatization, recognition and respect in the eyes of the authorities and society. But processes of formalization are context specific. Some related processes – such as ‘privatization’ and ‘integration’ – may include official support but fall short of addressing specific legal and regulatory requirements. In some cases – notably waste picking in South Africa – these initiatives have been seen to cannibalize the activities of informal workers, threatening to lead to greater inequalities and higher vulnerabilities of informal agents. In any process of change, dignity and respect for the agents is paramount. As Samson and colleagues (2022, p2) noted in a recent World Development article, informal agents should not be seen as a “human wrinkle to be ironed out of…closed circular systems”.

Some major concerns that arose during the Workshop which lend themselves to further discussion and development include:

• What does formalization and CE mean in the Global South context? How could the process of formalization go hand-in-hand with circular outcomes to reduce net environmental burdens and improved social measures for informal agents and their communities?
• What does the transition path look like? Getting from an informal to a more formal system in any case will start with a description of the CE informal practices and what motivates those practices; next, an assessment is needed of how should practices be evaluated and impacts determined; a third step should consider how to overcome barriers associated with scaling up informal circular practices and linking them to global value chains and formal economic agents.
• Geography matters, especially in connecting urban areas with various biodiversity and environmental concerns—this was especially true for the Amazon context.
• Co-creation of solutions may be difficult due to the dispersion and size of the many actors and enterprises that characterize the informal economy. The role of civil society organizations (such as NGOs, charities) to help project the voice of these organizations will be important. In previous cases of successful formalization, we have seen the importance of collectives. Through these member-based organizations, agents can gain access to different types of assets that can potentially support both a transition to formality and circularity.
• Many circular practices have been around for a long time. To some extent, discussing circular practices is like ‘old wine in new bottles’. The intriguing prospect of using traditional global south knowledge to replace linear and efficiency based industrial innovation arose in the discussion.
• Context issues related to labor costs of developing economies and their comparative advantage may be a major aspect in formalization, but also a limitation. The advantageous aspect of CE practices currently being relatively manual means that labor advantages may exist.

Overall, from an understanding perspective, we need to realize that these issues and CE informal practices are not happening in a void, that there is an existence of some circular practices, that different degrees of formalization are present where materials – be they products or wastes – interact with the formal system. This aspect gets into the thorny issue of system boundaries. It also reminds us that any innovative practices and new organizations must compete with the existing way of doing things; they must grapple with locked-in, path dependent routines and practices of the existing system. Here, the role of multinational corporations and global supply chains to come together with civil society and governmental agencies to interact with informal actors to develop CE ecosystems becomes paramount.

Finally, it is worth emphasizing the complex relationship to innovation in northern, industrialized systems. Innovations in formalization of recycling and chemistry may be useful, but they also are causes of pollution in the Global South. Plastic product sachets in the Philippines case spoke to northern innovations for branding and convenience of product designs that overtook traditional reusable containers for products. To support this issue, and maybe take advantage of informal agents linking more effectively to formal economy players, a product stewardship perspective is useful —especially as it requires major global brand companies to be responsible. To progress processes of formalization, systems could be created in collaboration with informal collectors. This issue has arisen and been addressed by companies such as Tetrapak—where formal sales and informal recycling work together such that brand products are not given a bad image.

Continuing the Conversation and Future Action

The Professional Development Workshop raised many issues – and this summary is just the tip of the iceberg. Significant effort and collaboration is still needed to progress our understanding of the puzzle of the informal economy and circular economy, and to start affecting action on the ground. We look forward to future discussions and developments. We will be continuing the conversation and discussion in our CE WG meetings (the next one in November 2022). We will also be following up this work in a session on (Bio-) Diversifying Circular Economy Research and Innovation at the “Transitioning to Systems of Sustainable Consumption and Production – from Knowledge to Action Symposium” in November, 2022.  

The Academy of Management Professional Development Workshop was organized by members of the Future Earth Knowledge Action Network Systems of Sustainable Consumption and Production Circular Economy Working Group: Paul Dewick, Felix Donkor, Joerg Hofstetter, Joanna Kamiche Zegarra, Adriana Marotti de Mello and Joseph Sarkis.