The State and the Origins of Informal Economic Activity: Insights from Kampala

Abstract

Understanding the root causes of informal economic activity is crucial for the effective governance of the informal sphere. Precisely what these root causes are, however, is subject to significant debate. This article contributes to these debates by arguing that the state is central to the origin and evolution of informality. Stressing the importance of understanding informality through a historically rooted political economy approach, it analyzes the modern history of informal vending in Kampala, Uganda, and identifies six ways in which the state has fundamentally shaped informal economic activity in the city: colonial planning, a history of poor governance and instability, economic liberalization, geographic development trends, an ineffective taxation regime, and the self-interest of state officials. An appropriate understanding of the centrality of the state in the informal economy highlights the necessity of designing effective institutions, policies, and interventions that prioritize the needs of the urban poor.