DUAL ECONOMY THEORY REVISITED: GOVERNANCE AND THE ROLE OF THE INFORMAL SECTOR by

This paper argues that an adequate understanding of Governance in Sub-Saharan Africa requires consideration of not only the economic role of the informal sector, but also its political role. The principal theses are that: (a) The failure of the formal sector in many African countries to contribute to economic growth with equity has been due to its largely static and inflexible character; (b) Dynamic adaptation of the informal sector to changing conditions in both domestic and international arenas has been an important domestic contributor to economic survival in those same African countries; (c) A superficial understanding of the arguments propounded by both the advocates and critics of dual economy theories (during the 1950's and 1960's in particular) contributed to the establishment of counterproductive formal sector economic development policies in African countries; which, in turn, (d) Contributed to the absence of sufficient attention being paid to the dynamic contribution of the informal sector to those economies; (e) The inadequate performance of the formal sector in both economic and political terms resulted in the alienation of formal government structures from the political communities they were expected to serve; and, given that alienation, (f) The requirements of the informal sector (parallel economies) reinforced historically rooted authority structures and/or resulted in the creation of "parallel governments." Given the experience of the last two decades, increasing attention is being given to redressing the imbalance in our understanding of the relative roles of the formal and informal sectors. However, much of that new attention remains too narrowly focused on conventional economic premises. Therefore, this paper argues that reconsideration of those respective roles requires broader consideration of the political and cultural dimensions of the issue. The most important institutional policy implication derived from the above analysis is that legitimating the informal sector (from the perspective of the formal sector) will require: (a) Intermediaries/interlocutors between culturally rooted practices and those of the internationally sanctioned formal sector; and (b) Attention to the legitimacy of informal sector quasi-governmental institutions which are an inherent part of that sector's economic role and behavior. Because current thinking about the role of the informal sector and its relationship to the formal sector in Africa (and elsewhere) is yet in its early stages, this paper is limited to: (i) providing a critique of both the proponents and critics of previous dual economy theories; (ii) outlining the elements of a new, more appropriate, conceptual framework; and (iii) suggesting some implications for applying the suggested conceptual framework to both policy and operational aspects of economic development in Africa. Thus, this