Facilitating the formalisation of entrepreneurs in the informal economy. Towards a variegated policy approach

Date14 April 2014
Pages33-48
Published date14 April 2014
DOIhttps://doi.org/10.1108/JEPP-05-2012-0027
AuthorColin Williams,Sara J. Nadin
Subject MatterStrategy,Entrepreneurship,Business climate/policy
Facilitating the formalisation
of entrepreneurs in the
informal economy
Towards a variegated policy approach
Colin Williams and Sara J. Nadin
Management School, University of Sheffield, Sheffield, UK
Abstract
Purpose – Although it has been recognised that many entrepreneurs operate in the info rmal
economy,little is so far known about their reasons fo rdoing so. The pu rpose of this paper is to begin to
unravel entrepreneurs’ rationales for trading in the informal economy in order to consider what policy
measures need to be adopted to facilitate their formalisation.
Design/methodology/approach – To do this, the results of an empirical survey are reported
conducted in Ukraine during 2006/2007 with 331 individuals who had started-up or owned/managed
an enterprise.
Findings – Revealing that the rationales for entrepreneurs operating in the informal economy
markedly differ according to whether they are wholly or partially informal entrepreneurs
operating temporarily or per manently in the informal economy, the result is a call for a move
beyond a “one-size-fits-all” policy approach and towards a variegated public policy approach
whereby policy measures are tailored to tackling the different types of informal entrepreneurship,
each of which operate informally for varying reasons.
Research limitations/implications – No evidence yet exists of whether the rationales for engaging
in each type of informal entrepreneurship, and the consequent policy me asures that need to be used to
formalise each type, are more widely valid. Further research to evaluate this is required.
Originality/value – This is the first paper to start to move beyond a “one size fits all” policy
approach when considering how to facilitate the formalisation of entrepreneurs in the infor mal
economy.
Keywords Informal economy, Public policy, Europe, Shadow economy, Tax evasion,
Underground sector
Paper type Research p aper
Introduction
It is now widely recognised that the informal sector is large and growing across the
globe (Charmes, 2009; ILO, 2002a, b; Ju
¨tting and Laiglesia, 2009; Schneider, 2008)
and that many entrepreneurs trade wholly or p artially in the informal economy
(Williams, 2006). So far, however, there has been little attempt to evaluate
entrepreneurs’ rationales for operating informally in order to consider what policy
measures need to be adopted to facilitate their formalisation. T he aim of this paper is to
start to fill that gap.
To this end, the first section will briefly review the existing literature on informa l
entrepreneurship and show that few if any studies have evaluated entrepreneurs’
rationales for operat ing informally. The second sec tion will then repor t the
methodology used to identify these rationales in the post-socialist society of Ukraine
and the third section will report the findings. Revealing how entrepreneurs’ rationales
for trading in the informal economy vary across different segments of this hidden
enterprise culture, the fourth section then evalua tes how if informal entrepreneurship
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2045-2101.htm
Received 22 May 2012
Revised 24 June 2012
Accepted 24 June 2012
Journal of Entrepreneurship and
Public Policy
Vol. 3 No.1, 2014
pp. 33-48
rEmeraldGroup Publishing Limited
2045-2101
DOI 10.1108/JEPP-05-2012-0027
33
Facilitating the
formalisation of
entrepreneurs
is to be formalised, a “one-size-fits all” approach needs to be repla ced by a variegated
approach across the different segments of this hidden enterprise culture. The final
section will then draw out conclusions and make a call for further research and
evaluation of the wider validity of the policy interventions required.
Before beginning, however, a clear definition of informal entrepreneurship is
required. If we define an entrepreneur as someone actively involved in starting
a business or is the owner/manager of a business (Harding et al., 2005; Reynolds et al.,
2002), and the informal economy as involving monetary transactions no t declared to
the state for tax and/or benefit purposes when they should be declared but which are
legal in all other respects (e.g. European Commission, 2007; Williams, 2006), informal
entrepreneurship can be defined here as encompassing those who are starting
a business or own/manage a business who p articipate in monetary transactions not
declared to the state for tax and/or benefit purposes when they should be declared but
which are legal in all other respects (Williams and Nadin, 2012).
Literature review: entrepreneurship in the informal economy
It is now widely recognised that the informal economy is not some minor practice
only persisting in a few marginal populations. Indeed, of the global working
population of some three billion, nearly two-thirds (1.8 billion) work in the informal
economy (Ju
¨tting and Laiglesia, 2009), the majority on a self-employed basis:
70 per cent of all informal workers in sub-Saharan Africa, 62 per cent in North Africa,
60 per cent in Latin America, 59 per cent in Asia (ILO, 2002b) and 77 p er cent in the
European Union (Williams and Windebank, 2011). This intimates that a large
proportion of entrepreneurs in many global regions might operate in the informal
economy. However, few studies have so far evaluated whether this is the case. As
Williams (2006) and Jones and Spicer (2006) explain, this might be largely because
entrepreneurship as a discipline remains dominated by a wholesome, positive and
virtuous ideal-type representation of the entrepreneur as a sup er-hero (Burns, 2001;
Cannon, 1991; Williams, 2009). The outcome is that forms of entrepreneurship
tarnishing this ideal-type have tended to be positioned either outside the boundaries
of entrepreneurship, ignored, portrayed as temporary, or asserted to have little to do
with “proper” entrepreneurship.
Over the past decade or so, nevertheless, this ideal-typ e depiction of the
entrepreneur as an object of desire has begun to be challenged. A small emergent set of
entrepreneurship literature has sought to advance an earlier body of work on how
entrepreneurs do not always play by the rulebook (Kets de Vries, 1977). On the one
hand, a literature on criminal entrepreneurship has begun to document the illegitimate
acts conducted by entrepreneurs (Armstrong, 2005; Deutschmann, 2001; Gottschalk
and Smith, 2011; Jones and Spicer, 2005; Rehn and Taalas, 2004; Sko
¨ld and Rehn, 2007;
Smith, 2007; Storr and Butkevich, 2007) as well as how those pu rsuing illegitimate
practices, such as criminal organisations, drug dealers, prostitutes and pimps, often
display entrepreneurial traits (Bouchard and Dion, 2009; Frith and McElwee, 2008;
Friman, 2001; Gottschalk, 2010; Smith and Christou, 2009).
On the other hand, and beyond these entrepreneurs trading illegitimate goods and
services, a further literature has started to explore entrepreneurship in the infor mal
economy where the only illicit aspect is that the remuneration is not declared to the
public authorities when it should be declared (Antonopoulos and Mitra, 2009; Bure au
and Fendt, 2011; Gurtoo and Williams, 2009; Llanes and Barbour, 2007; Ram et al.,
2007; Rehn and Taalas, 2004; Small Business Council, 2004; Valenzuela, 2001;
34
JEPP
3,1

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