The Open Economy

First of all, thank you very much Claro Partners for hosting the informal economy conference providing such a nice environment to receive, connect and share knowledge.

This post is more about what I learned from the experience than a rigorous description, I will connect dots with other things I already knew, heard or expect to happen, witch may or may not be connected to what the panelists / speakers were talking about. But hey, lets have a talk here, right?

Among with these ideas is the title of this post “The Open Economy“, trying to bring a more positive yet realistic view of this economical phenomenon. (I found some guys talking about “open economy” but I don’t think they meant what I mean, so…)

UPDATES: I will post it AND keep righting it, so comment down there and we can keep the conversation going while I have some coffee and type my fingers off.

Lets the games begin!

Opening Keynote – Keith Hart

 

Keith Hart is one of the world’s leading economic anthropologists. He is known for having launched the study of the informal economy in the 1970s. He is Co-Director of the Human Economy Program at the University of Pretoria, South Africa; Professor of Anthropology Emeritus at Goldsmiths, University of London and Honorary Professor of Development Studies at University of Kwazulu-Natal, Durban.

 

Opening Keynote – Keith Hart “The Informal Economy goes mainstream” from Claro Partners on Vimeo.

Firstly, the seems very open and funny. I dont know why, but with the years passing by I just discover that the most interesting people are usually very nice too, and it was the case. Keith made a lots of jokes and also participated asking some daring question to the panelists  It was great!

So, for me the most interesting things on his talk was:

Informal economy makes unemployment manageable.

It is better to have informal jobs than no jobs at all, and if governments can’t solve it “small people” can because…

Informal is faster!

Crises are not easy to deal with and when it knocks on your door is very hard to do something about it if you are part of a big, lazy and slow institution – cof governments cof – BUT if you are a small, lets say, entrepreneur you are fast on dealing with changes and make shifts to fit to a new reality. In the informal economy it means to sell umbrella instead of the usual ice-creams sometimes.

Penguins vs Butterflies

Keith traces a funny relation between masculine and feminine ways to deal with dress code when doing business.

Men are like penguins, all looking alike, trying to hide in the crowd, and anonymous indistinguishable mass of black ties.

I was thinking about it… business men and politicians ALWAYS dress this way… so MAYBE it helps because people don’t pay attention anymore, when they do something wrong it is just a business man and a politician and they are supposed to be dumb asses anyway, right? Why bother? So as a mass of faceless evil doers they keep going unnoticed.

Women on the other hand are like butterflies. They dress in many different shapes and colors, they move around gracefully.

For me this relation can be extended to formal and informal economy. The formal is like men, rigorous, black-and-white and in control (or at least struggling to look like they are). Ant the informal economy is this graceful butterfly presented in many shapes and colors, flying chaotically, coming and going at the airwaves will, but as Edward Lorenz said, they can cause the butterfly effect, where a mere wing-beat can cause a huge impact word wide. Hence, as the insects, informal businesses are small and in so many formats that you can’t easily keep track of them.

Fortunately Hart gave a great advice on how to deal  with this kind of complexity, the kind of advice only an anthropological mindset can create.

Bird Watcher’s Manual

Tracking complex environments, systems and behaviors is not easy. As when you observe birds you surely can take photos, but since each time the bird is facing one side, the other, it can be flying, eating or nesting. In order to create a more true visual description of the bird you must draw them, creating an, like Plato would say, “Ideal” bird.

In this case the wicked informal economy universe an be seem as many smaller actors, but to me understood you need to make sense of their “shapes” and try to guess their true form.

The Negative Informal

In the end he said something very interesting. “Informal” is a term that carries lots of negative (even criminal) meanings. It is maybe holding back the true rise of the informal economy as an valid way of exchange values and live.

Considering that “informal economy”:

  • Is based on small people, companies and actions;
  • Have almost no rules besides those present in the ethics on each culture and “user”;
  • Changes very quickly;
  • AND is virtually open for anyone who wants to get into it.

I think we could call it “open economy“, avoiding negative meanings and opening it to more constructive approaches than “lets discover how to make these people pay more taxes”.

Panel 1 – Scope, Meaning, & Tensions

Alexa ClayThe Misfit Economy

It was a pity that Alexa couldn’t make it to the symposium, but at least we had the teaser video for her book / film that looks pretty amazing and you can be a sponsor on kickstarter.

 

THE MISFIT ECONOMY from invisible sessions on Vimeo.

Adam WhiteGroupshot.org

Adam White is the co-founder of Groupshot, where they work to bridge existing and informal systems with global patterns of innovation through technology, community, conditions and culture. Adam has worked on and consulted a variety of innovative development, infrastructure, and urban focused projects in over half a dozen countries.

Panel 1 – Adam White “Legible Economies” from Claro Partners on Vimeo.

Informalized X Formalized

He brings very interesting numbers, for example, right now unemployment reaches around 10% in United States, on the other hand in Thailand it is less than 1%. How could it be? Most of Thailandese are self-employed or entrepreneur  in fact, only 20%-30% say they have an employer. Which could mean, helping to get informal open economy business to rise can help a government to deal with unamployment rates – just like Keith said.

Extreme scenario

Adam talked about his experience in field, especially in Kibera, one of the most famous slums in Africa which is located aside to Nairobi, Kenya.

The place has between 200 thousand or 1.5 million people living in there – as an slum one could not expect very accurate demographic information right – but according to Adam in reality there is about 550 thousand people living in the area – that has the same size as the Central Park in NY.

As an extreme poor region, it is not strange to know that they have a HUGE amount of NGOs working in the region.

Unintelligible Business Systems

A big characteristic of this kind of environment is that is very hard to know what is going on. In this case Adam was studying the “transportation system”, an almost impossible to know number of vans – known as Matatus – that drive around the slum.

There is no “boss” so to speak, the whole thing seems to be run as a cooperative, and it works. They basically manage themselves to organize the business and do things like buy new vans and alike – apparently right now they have plans to start using buses.

Richard TysonCaerus

Richard Tyson is a Principal at Caerus Associates, a consultancy specializing on strategic design for complex environments and areas of conflict. His work is built on the idea that organizational success in a complex, uncertain world is more closely tied to ideas of resilience than to ideas of singular breakthrough success.

Panel 1 – Richard Tyson “Design Strategies for the Permanent Crisis” from Claro Partners on Vimeo.

Richard started saying that informal is not really an economy and there is a lot of negative things going on below these sheets.

He came with a with a very good question:

Why talk about informal economy? And why now?

That is simple. Because formal business are collapsing, and informal can be a response to it.

But the informal world is not just happiness. He talks about the MS-13, a gang originated in the 80’s in L.A., now spread allover California and other places, running businesses and running moving money from crime all around. Obviously, informally, in a “parallel economy”.

Not all flowers in the informal world…

Panel 2 – The Future of Money

Ben LyonKopoKopo

Benjamin Lyon is the VP of Business development of Kopo Kopo, a world-class platform to enable small- and medium-sized businesses to accept mobile payments and build relationships with their customers. Providing a safe and convenient gateway between M-pesa and merchants, Kopo Kopo aims to be the premier merchant acquirer for mobile in Sub Saharan Africa by 2015.

 

The thing is that in Kenya (as in many other places) the system simply doesn’t work, and again without official services, informal methods bloom, and there you have a very trustworthy payment – hello, why not banking? – system very efficient. I must say if it is as good as it looks I envy these guys, bringing money from Brazil to UK inside the same institutions was a pain – and a quite expensive one.

According to Ben one of the biggest problems at the small informal businesses – as restaurants, groceries and street sellers – is that it is very hard to keep track of sales. In fact they usually do not do it at all, sometimes the “translations archive” is a cup with a couple of receives. Not much right? Which brings a traditional management problem, “one cant manage what one cant measure”.

One important thing KopoKopo can do is to provide balances to business owners so they track not just how much money is coming in, but when – checking seasonality – and even knowing how loyal a certain costumer is! Basically, giving the information any cred-card company has – who spent how much where and when – back to the shop owner. How awesome is that?

This is also very good for governments and other institutions, because for the fist time they have a notion of how much money is running thought out the informal system, and who knows, maybe it helps to turn them into the new kind of formal someday.

Niti Bhan – Experientia and Prepaid Economy

Niti Bhan is head of emerging markets at Experentia Design and Founder of Emerging Future Labs. An established author and speaker, her research interests include the challenge of designing effective business and transaction models intended for those with irregular and unpredictable incomes. Niti also writes an inspiring blog on Prepaid Economy.

She is the head of Emerging Markets team at Experientia and have a lot to say about how people behave in places where the informal economy occurs and in the whole presentation Niti talked about how important flexibility is these contexts.

Firstly, “the only certainty is the uncertainty”. I know you may think this is almost an cliche, but in emerging markets it is more present, strong and impactful than other places – I should know, I am from Brazil right? – because one hardly know how much or when money will appear.

To deal with it people create flexible systems, such as the “prepayed economy”, which you probably have / had your pocket as a pay-as-you-go mobile phone. These form of purchases have a huge thing in common, the consumer controls it, not the companies.

This characteristic flows in these contexts based on the control of time – when you are going to pay – money – how much, many times by installments – and trust in the network – if someone will sell something to be payed after they must trust each other, right?

It reminds me of the classic discussion we had with foreign clients when talking about “price” in Brazil. After decades of economical crises, so many different currencies that it difficult to remember what was what,  Brazilians get used to installments and nowadays it is actually hard to buy something paying right away. It created an interesting behavior: people don’t recognize full prices anymore, most of the time they only recognize the installments value. For example, if you ask how much they payed fora TV they would say “around 100, 120 per month” for how long “around a year or so”. You do the math and see how much the difference is.

Following this logic stores present the installment value, not the full price – as you can see in the picture of the most famous retail chain in Brazil, Casas Bahia.

You can check her post about the symposium.

Scott Mainwaring

Scott D. Mainwaring is a senior research scientist in Interaction and Experience Research (IXR), Intel Labs. He co-leads the new Intel Science and Technology Center for Social Computing at the University of California, Irvine and chairs the external advisory board of the UCI’s Institute for Money, Technology, and Financial Inclusion.

Talking mostly about how easy is to track, store and transport huge amounts of data nowadays Scott argues that simply “anything that can be measured will be”.

As mentioned before, one of the biggest problems with the informal economy is the lack of information generated in the process – making it harder to track and to tax. A big innovation in this category is a  class of credit-card reader gadgets that can be plugged to smartphones, the most famous is Square, but Scott mentioned PagPop, which for my surprise is Brazilian – I’ve never heard about them before.

Scott also pointed out the concerns about data generation and the rise of movements like WeTheData aiming to discuss data generation and use by different institutions – from governments to companies.

Ignacio Mas

Ignacio Mas is a consultant on mobile money and technology-enabled models for financial inclusion.  He has been Senior Advisor in the Financial Services for the Poor program at the Bill & Melinda Gates Foundation and at the Technology Program at CGAP. He was previously Director of Global Business Strategy at Vodafone Group.

The first thing he did was to sign – in a very funny way – how some people think that real-time payment can magically lead to social inclusion.

In his opinion what between the various institutions surrounding this theme – financial services, business organizations, informal entrepreneurs and social networks between people – need a very important ingredient to coexist: trust. And the lasts are much more trustworthy than the firsts on the list – who can truly trust huge banks nowadays?

So, to create and move value one need to trust the system, meaning that it comes first. But what happens when the system doesn’t work or even doesn’t exist?

Well… than you start by the trust factor and build from the button-up. As in the case of M-Pesa – a good niche and a good value offered in a trustworthy community.
The lack of formal institutions leave a space where flecxible innovators can act, and this is what they do in these scenarios.

Panel 3 – Innovation & Opportunities

Steve Daniels

Steve Daniels is the Editor-in-Chief of Makeshift, a quarterly magazine and multimedia website focused on street-level ingenuity and invention around the world. Makeshift was inspired by research Steve conducted on informal systems of innovation in Kenya, published in the book Making Do.

 

Makeshift is a magazine focused on unexpected innovation sources – interesting enough  it was funded thought Kick-Starter.

(I lost most of this lecture because I was having a conversation after coffee, sorry guys).

Tim “Tai-Pan” Brown

Tim “Tai-Pan” Brown while born in Canada has been living and working in Asia for over 15 years in the mobile device & hardware component industries. He is the Editor-in-Chief of Shanzai.com a website dedicated to tracking the products, trends and reach of China’s local consumer electronic products with a particular focus on Chinese tablets.

This is the Tim Brown you are used to see promoting innovation, and ironically enough this one talked about copycats.

The expression “shanzhai” comes from the Chinese characters for “mountain fortress” or “mountain bandit” – Robin Hood? – and describe the coping culture Chine have experimented in the technology business, strongly present on mobile phones and increasing in size and power since Android allowed a more trustworthy system with millions of apps available, making it easier to any hardware manufacturer have their own device. The whole Shanzai market – from gadgets to fashion items – represents 600 billions problem in piracy. Not easy to ignore…

But are they only Ctrl+C – Ctrl+V machines? According to Tim, they are not.

They surely use big brands fame as a stair to sell their products, but with the time they improve and experiment in ways that the mainstream would never try – like a mobile phone with a lighter, razor or as a belt.

A very interesting – and provocative – argument is that Shanzai is more common in uor lives than we imagine – or like to accept.

Disney – Copied and re-branded classics of the literature, stories that people have been told for centuries, now repackaged – under copyrights – in such a way that it anyone make a princess doll as they were described in the old fairy tales, it is possible to Disney just sue the hell out of the person.

Zara – Lots of copycats (or at least look-alike) clothes hitting their stores worldwide.

And obvious the last big case… Samsung, which made the risk move of “coping” some of the features on iPad and have being sued by Apple since them, BUT keeping a very profitable part of the market with their many sizes variations. Now, how much a rounded rectangle glass can be a copy of another OR how much of a copy is the new Apple mini-iPad or how dumb is to call innovative a device slightly longer than the predecessor… Well… this is another story…

Here is a Wall Street Journal article mentioned by Tim called “In Praise of Copycats“, arguing that coping is not just harmless to many industries, it really can drive it to a better more profitable position.

Scott Smith

Scott Smith is the founder of Changeist, a foresight and innovation lab that develops and explores speculative futures. Scott´s work on macro trends and emerging scenarios focuses on established, informal and emerging practices, and is used by commercial clients, non-profits and NGOs to explore new opportunity spaces.

Firstly, he was very funny, a thing I admire on speakers, maybe because I like to make jokes myself…

Scott talked about informal and formal as an vivid interactive ecosystem, focusing on examples where the fast hacking thinking of the informal economy uses standard systems, sources and parts from the formal universe to create something new, such as the english supercomputer made out of Lego parts, the Open Source Satellite Initiative and  DIY (Do It Yourself) Biotechnology – yes, you are reading it right.

The thing is that communication technologies are allowing people to get in touch and develop projects together as never before, and these people also have access to technology that allow them to build, test and improve the work they develop together, going beyond the limits that the regular industry seems to have.

Closing Keynote – John Thackara

Soon

2 thoughts on “The Open Economy

  1. Hi Fernando, I wish I had thought of the term open economy. It is much better. A minor correction: the penguin/butterfly comparison referred to formal dress not business. The men wear a uniform (tuxedo), while their female partners express themselves colourfully as individuals. Many women in business dress formally too. Good luck with your blog. Keith

    • Thank you very Keith!
      Now I see what you meant and what my crazy mind created based at your talk, hahaha. For me there is a relation between men-penguins-formal and women-butterflies-informal, now I think the text is more clear.
      Cheers.

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