The “Informal Economy” – Makeshift

Today’s post comes to us from our on-the-ground man in SE Asia, Scott. You may remember Scott, who is now an integral part of our team, from his post Why I Ditched California for Mongolia.

Before Scott left for Asia earlier this year he met an interesting guy. I’ll let him continue…

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I met Steve Daniels earlier this year in a West Village coffee shop where, sipping my latte I was enamored by what I was hearing.

Steve was on a mission to expose backyard entrepreneurs from around the world, in all of their glory, via a magazine startup called Makeshift.

His network of independent correspondents from around the world, including Nigeria, Zimbabwe and Cambodia to name a few, uncover hidden talent in the “shadow economy”.

By showcasing them to the world, Makeshift not only uncovers the potential of countries which have been embroiled in civil wars, run by dictators, or just mis-managed into abject poverty, but also proves that start-ups don’t require an office in mid-town Manhattan and a million-dollar venture capital investment to be successful!

Steve’s stories highlight grass-roots, rugged entrepreneurship and survival.

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Scott: Steve, Makeshift Magazine is trucking towards its fourth issue (published on a quarterly basis.) What inspired you to get the concept off the ground?

Steve: We recognized a simple fact: two thirds of the world works in the informal economy of unregistered businesses, yet we know almost nothing about how they work and thrive.

In 2009, I spent some time in Kenya designing farming tools, and I was blown away by the ingenuity of makers and roadside engineers there. Where the formal economy had mostly failed, informal systems of scrap sourcing, manufacturing, and trade rose organically to deliver ingenious products throughout the country and provide a huge number of jobs.

Makeshift is an extension of that research — an exploration of creativity and innovation in informal environments.

Scott:  Makeshift’s focus is on frontier markets. Why so?

Steve: Informal economies thrive in frontier markets because many of the institutions formal economies rely on are absent — both the government backbone and private marketplaces. It’s interesting to see what solutions people come up with to fill in these gaps.

Social relations replace formal contracts. Apprenticeships replace universities. Any development or new business introduced to this marketplace needs to adapt to the way people are used to working and leverage the cultural-economic systems in place.

Scott: You cover a lot of ground, following entrepreneurs in a number of countries. In General, what are some of the main differences you see among entrepreneurs in each region or country?

Steve: Informal economies often look similar on the surface because they’re under similar global economic forces, and there’s an innate human drive to remix the environment to make a profit. But there’s also big differences in terms of the cultural and political context under which economies form.

Cuba has a thriving do-it-yourself culture under trade embargoes, but in Mexico, manufacturing gave way to imports when Marco Polos made connections with Chinese vendors. In Kenya, people are wary of innovation with a lack of intellectual property, whereas China’s Shanzhai culture has embraced rapid iteration through copying.

Scott: How about some similarities?

Steve: The most striking thing is that you see similar types of informal economies everywhere, even in the most developed countries. In New York, there’s an informal bus network that’s remarkably similar to Nairobi’s Matatus. In most cities, scrap pickers roam the streets collecting valuable materials.

And some of the core patterns of informal systems like social contracts and resource pooling are creeping into the digital world. The “sharing economy,” led by sites like AirBnB encourages pooling of resources and incorporates digital representations of trust through reviews and ratings.

Scott: You’re mainly writing stories on “backyard” entrepreneurs. How do you see entrepreneurship and general creativity perceived in countries like Nigeria, Myanmar, Kenya, etc?

Steve: Depends who you ask. There’s often a certain pride surrounding the entrepreneurial spirit. In Kenya, informal entrepreneurs call themselves jua kali (Swahili for “hot sun”), and a popular rapper even adopted the name “Jua Cali.”
In Nigeria, “Nollywood” films depict 401 e-mail scammers as resourceful heroes. But this doesn’t always translate to economic or political benefits. Kenyans are skeptical of locally made products, and politicians the world over raze workshops to make way for large factories that usually fail.

Makeshift is part of a movement to give informal makers a common identity to rally around, in the say way that “do-it-yourself” has transformed hobbyist culture in the US.

Scott: “Backyard” indicates small scale operations, not even on the SME level. What resources does this class of business people most commonly lack?

Steve: As you might imagine, resources are quite restricted in this type of environment. Tools, skills, information, and financing are hard to come by. That said, local knowledge of the environment and market are abundant, and creativity thrives where resources are constrained. You see people making all sorts of useful products and services out of very little.

Scott: Is there anyone providing those services?

Steve: Micro-financing and business development services have helped. I’m working on a model to get manufacturing tools to people who need it. And all of this for naught if people don’t have the information available to find out about these resources.

Scott: Makeshift has an impressive group of on-the-ground journalists. How did you build that network?

Steve: It’s a challenge because we want all primary research; no press releases. To launch Makeshift, I partnered with journalist and photographer Myles Estey, based in Mexico City. I brought my networks from the academic and design worlds, and Myles brought his journalism network. We built up a nice following in the journalism community through our Kickstarter campaign and magazine blogs, and it’s been growing ever since.

We still find ourselves scratching our heads each issue though to find a journalist to check out a mountain village in Laos or a cyber cafe in Lagos.

Scott: Do you envision acting as advisers or perhaps even investors in some of the more promising projects you come across, to help get them to market?

Steve: Absolutely. We already help and make connections when we can. We’re working on delivering technical capacity and business services through a project called Bronze Belt Foundry. And we’re figuring out the best model for investing with a project called Fringe Fund.

Scott: Micro-finance can be a very predatory business. Often the interest rates charged can trap the borrower in a vicious circle of debt. However, access to capital for the poorest one billion, soon to be two, is tough. Do the people you write about have access to capital? How do they get that access?

Steve: It varies by geography and industry. In my research in Kenya, I found that most small manufacturers had never accepted credit, either because they were skeptical or didn’t know what was available to them. Hardware vendors, on the other hand, were likely to accept credit regularly because they had a good handle on products which would sell and when.

There are also informal mechanisms for credit, such as purchasing from hardware vendors on credit or rotating savings and credit associations (RoSCAs), more popular in rural areas.

Scott: What’s been the craziest business idea you’ve come across? I’m sure you have a couple (laughs).

Steve: (laughs) Of course. There’s a farmer outside of Beijing, Wu Yulu, who decided his real passion was robots. So with no college degree, he starts tinkering with scrap parts and makes all sorts of crazy robots to help out on his farm, pull his cart, things like that. He sells some of the bots and now consults for universities.
There’s also a team of scrap pickers in Mexico City who started riding around door-to-door on horses and now out-compete the public disposal system.

Scott: I spend a lot of time traveling throughout Asia and am hoping to make a significant foray into Africa soon to look for opportunities. However, as the world goes through another churn of power, Asia is rising while the West is falling; has your team seen a return to small-scale innovation in places like Eastern Europe or the U.S. for that matter?

Steve: That’s definitely a trend. A lot of it has to do with connectivity and digital technology. In Providence, RI, where I went to school, there were lots of small, creative companies that acted really similarly to the micro-enterprises I saw in Kenya. They pooled resources and labor, had networks of collaborators, and manufactured on a small scale. But they didn’t necessarily have to be in the same place because they could collaborate online. And they took advantage of ever-cheaper digital tools like laser cutters and CNC routers.

It’s interesting to watch how technology is simultaneously driving integration and decentralization. And, of course, driving illicit economies… but that’s a topic for another interview.

Scott: Thanks Steve. Keep the momentum going and we look forward to speaking with you soon.

Steve: Thanks Scott, it’s been a pleasure.

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Entrepreneurs are the backbone of any society, especially so in developing countries.

With endless opportunity and the most urgent need – survival – innovation is everywhere. Makeshift is doing exciting work.

As backyard entrepreneurs innovate to make their cities, countries and the world a better place in which to live, we are confident that Steve and the Makeshift team will continue to expose this group of people with ever-greater insight.

– Scott

“To me, the poor are like Bonsai trees. When you plant the best seed of the tallest tree in a six-inch deep flower pot, you get a perfect replica of the tallest tree, but it is only inches tall. There is nothing wrong with the seed you planted; only the soil-base you provided was inadequate.

Poor people are bonsai people. There is nothing wrong with their seeds. Only society never gave them a base to grow on.” ― Muhammad Yunus, Creating a World Without Poverty: Social Business and the Future of Capitalism

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