Concept of formal economy

When talking about the development of the formal economy and its integration into the world system It should be pointed out that it is closely related to current natural phenomena and the relationship of man to capital and the geographical environment that surrounds him.

It refers to the exchange with the natural and social environment, to the extent that this exchange has its own result by providing you with funds for their necessary material satisfaction regarding the use of labor and the value of using the common good.

Namely, the historical analysis of the “great transformation” begins with an understanding of social reactions, which took place in the context of England at the end of the 18th century, to the commercialization of spheres of social life that until then had been left out of trade, such as land or work force (Rendueles, 2004).

On the other hand, in the formal economy the will of society It is alien to economic processes because there are no models like intention that precede the economic process. The fundamental value in the formal economy is efficiency, and ethics derives from coherent behavior related to production and optimal allocation of resources (Polanyi, 1976).

In this sense, formal economics would not explain the analysis rational-individual choice and less the difference between these patterns of consumption that reaches deeper into the periphery of the city, penetrating even into the consumer society where the market relationship becomes more intolerant of the balance of profits. For modern and postmodern culture, there is an idea that development implies progress, and that progress is a value.

The goal of the formal economy as defined by Keynesian economics is to imagine development as a historical process of social and production transformations that take place in the capitalist system, both in its physical infrastructure, in its social relations, and in its culture, with the aim of contributing to an increase in wealth (GDP) and improving the well-being of the population; all this as the fundamental pillars that support it continuity of capitalism (Keynes, 1936) .

Indeed, outside the price system formed by the market, economic analysis loses most of its importance as a method of changing the economic system. Today, the economic planning system designed within class struggles is mostly a product of informality countries of Latin America after the Covid-19 pandemic, and represents an example of the crisis of the formal economy.