The Challenges of Informal Economies

In Foreign Affairs Nicolas van de Walle reviews Kate Meagher's new book "Identity Economics: Social Networks and the Informal Economy in Nigeria":

Within development circles, conventional wisdom has it that successful manufacturing sectors often develop in low-income countries thanks to identity-based social networks made up of producers working together. These networks are said to generate the social capital that can be used to overcome many of the shortcomings of underdevelopment. Meagher's careful study of two such networks in southwestern Nigeria -- of small, undercapitalized garment and shoe manufacturers -- suggests that the advantages for producers within the networks are being undermined by an increasingly dysfunctional state. Meagher shows that these networks, whose roots go back to the colonial era, bring in hundreds of millions of dollars in revenue and export their goods to states throughout West Africa. But in recent years, they have proved vulnerable to Asian imports and have largely failed to develop economies of scale, invest in new machinery, or generate new lines of production; these networks, it turns out, stifle innovation and consolidation, even as they protect their members. Informed by theory as well as sustained fieldwork, Meagher's study is a useful antidote to the purveyors of magic-bullet solutions for African development. It should be read by anyone interested in Africa's industrialization.