China's Neglected Informal Economy

The informal economy—defined as workers who have no security of employment, receive few or no benefits, and are often unprotected by labor laws—in China today accounts for 168 million of the 283 million urban employed, but the official statistical apparatus in China still does not gather systematic data on the informal economy. Part of the reason for the neglect is the misleading influence of mainstream economic and sociological theories, which have come from the “economic dualism,” “three-sector hypothesis,” and “olive-shaped” social structure theories that held great influence in the United States in the 1960s. This article reviews the core elements of that modernization model, the “revolution” in development economics that followed in the 1970s and 1980s, and the “counterrevolution” from neoclassical economics that came with the rising ideological tide of neoconservatism. The article argues for a balanced theoretical perspective that can more appropriately capture the realities of the informal economy today.