Cannibalizing the Informal Economy: Frugal Innovation and Economic Inclusion in Africa

Abstract

This paper argues that, far from collaborating with informal economic systems and actors, frugal innovation tends to treat informal economies as a pool of workers and organizational resources to be tapped for the benefit of corporate actors. I will examine how frugal innovation models selectively transform informal economic and institutional systems around formal economic interests, reconfiguring informal opportunities and the distribution of gains in ways that promote adverse incorporation of informal actors rather than mutual benefit. I will examine four mechanisms of adverse incorporation operating within frugal innovation models: copying, free-riding, bypassing nodes of accumulation and shifting risk. Drawing on case studies of M-Pesa and micro-insurance, I will illustrate the often selective and disempowering effects of frugal innovation, which operate to reconfigure informal economic systems in ways that divert profits and control away from informal operators.