In light of Hernando De Soto's recent embrace by the government of Lagos Kariobangi writes:
I used to like de Soto’s ideas, and to some extent I still do: as simple as they are, they point to the right direction – informal economies have a large development potential. But I turned more critical when I realized that his simple arguments have transformed into an over-simplification of reality. The equation “business registration=formalization” neglects that most activities in the informal economy are sustained by an infrastructure of (non-formal) regulatory, financial and welfare institutions beyond the reach of official governance. The central question raised in Lagos, “to know why most people choose to operate informally, and, then … encourage their migration to the formal sector” misses the point. The question should be reversed: we should try to understand how informal firms and their institutions work in practice, and to determine how formal institutions can “scale-down” and become appropriate for their needs – definitely not the other way around.More here