Dead Productivity: Rethinking Informality, Formalization, and Development in Urban Peru

This paper argues that one of Peru’s barriers to economic development is not the persistence and growth of informality, but the failure of informal activity to compound into durable productivity. Against theories that treat the informal economy as an unproductive residue awaiting absorption, and against the dead capital theory that locates the bottleneck in the law and legibility, I propose a theory of dead productivity: that informal activity is carried out at a massive scale, but under arrangements that make accumulation slow, vulnerable, and extractable. Across the self-built housing industry, informal land markets, street vending, food markets, and commercial agglomerations, poor households and workers perform development functions before the state or formal economy reaches them. Peru’s current reactive policy matrix—titling, upgrading, subsidies, and formalization—improves outcomes without changing the conditions that make informal production inefficient. The paper calls for lightweight interventions that raise the productivity of informal arrangements directly in order to spur inclusive economic development and growth for the majority of Peru that works and lives within informality.