When people think of economic opportunity, they often imagine rich, highly organized countries like China, Japan, or Germany—places with massive industries, stable governments, and strong institutions. On paper, these seem like the ideal environments for success. But the truth is more nuanced. In reality, it’s often harder to make money in tightly regulated, highly formal economies than in developing ones with thriving informal sectors.The reason is simple: in countries with little to no informal economy, it’s much harder to get started unless you’re already part of the system. The very structure that makes these countries efficient also makes them restrictive. You have to be on the grid—registered, licensed, and compliant—to do almost anything that generates income. For many people, that eliminates the low-barrier paths that form the backbone of entrepreneurship elsewhere.
What the Informal Economy Is—and Why It Matters
The “informal economy” refers to all the unregistered, often untaxed parts of the economy that exist outside formal business or government structures. It includes street vendors, freelance laborers, small cash businesses, domestic services, local markets, and countless other side hustles that operate off the books.
In many countries, the informal sector isn’t just a fringe—it’s the foundation. The World Bank estimates that the informal economy accounts for more than 30% of global GDP and over 60% of global employment. In some developing nations, it can be as high as 80–90% of all jobs.These economies thrive on flexibility. You can start a business today with little more than an idea and a phone. You can make money from small trades, local services, or even arbitrage—buying something cheap and selling it slightly higher. It’s unstructured, but that’s the point: it allows for experimentation, risk-taking, and independence.
The Formal Economy:
Efficiency with BarriersIn contrast, countries like China, Singapore, or Germany operate largely through formal economies—systems that are highly monitored, documented, and regulated. Every transaction, business registration, and financial movement is recorded. Taxes are expected on nearly every form of income, and failure to comply can lead to severe penalties.This formality creates efficiency and security for large-scale operations. Big corporations, exporters, and investors love predictability. Contracts are enforceable. Records are clean. Corruption is lower. The system works—if you’re already in it.But for individuals trying to start small, it’s often stifling. Want to sell products online?
You might need a business license, tax registration, and compliance with multiple consumer regulations. Want to rent out a property? There’s paperwork, verification, and government oversight. Even freelance work can be heavily monitored through tax reporting systems. In countries like China, your earnings are tied to your national ID, making “under the table” work almost impossible.The result: you can’t just hustle your way up like you can in a looser system. The barriers to entry are higher, and the penalties for bending the rules are much harsher.
China’s Model: Controlled Prosperity
China’s economy is the perfect case study. It’s the second-largest economy in the world and home to some of the most powerful tech companies and manufacturing hubs on Earth. Yet, for the average individual, especially a young or low-income worker, independent economic mobility is surprisingly limited.
China has spent decades formalizing its economy. The government emphasizes control, taxation, and data collection. Nearly every transaction—especially digital ones through platforms like Alipay or WeChat Pay—is traceable. The country’s social credit system further links financial behavior with personal identity, reinforcing the idea that every citizen should remain visible and compliant within the system.
For entrepreneurs, this means opportunity exists—but only within regulated channels. You need permits, registration, and often local government approval. If you sell goods or services without them, you’re not just “off the books”—you’re breaking the law. In such an environment, informal income generation is not only discouraged but almost impossible to sustain.Contrast that with places like India, the Philippines, or many parts of Africa, where informal business is woven into daily life. In these countries, people can start small, test markets, and scale gradually without heavy bureaucracy. It’s messy, yes—but it allows for mobility and experimentation in a way that China’s structured model does not.
Why a Lack of Informal Economy Stifles Creativity
The informal economy is more than a survival mechanism—it’s a creative ecosystem. It allows individuals to test ideas quickly, pivot when things don’t work, and build small income streams without formal constraints. Many legitimate businesses started informally before becoming official. Without that sandbox for experimentation, fewer people develop entrepreneurial instincts.In rigid economies, innovation tends to flow top-down—from big institutions or well-funded startups—rather than bottom-up from individuals. The result is a society full of capable people who are stuck waiting for permission to act.
Legitimacy Has a Cost
Being “legit” is often celebrated, but legitimacy isn’t free. Registering a business means paperwork, fees, and taxes. Complying with regulation means ongoing costs, accounting, and audits. These are all manageable for established entrepreneurs but daunting for someone just starting out.In places with strong informal economies, legitimacy is something you earn later, once your business can afford it. In countries without that flexibility, you have to buy legitimacy first, even before you’ve proven your idea works. That flips the entrepreneurial process upside down.
The Psychological Difference
There’s also a mindset difference between societies with and without informal economies. In informal systems, people grow up seeing others “make something from nothing.” Kids watch their parents trade, fix, sell, and hustle. They learn that opportunity is created, not given.In formal economies, success often feels more institutional. You need credentials, networks, and official recognition. People become dependent on systems—universities, employers, or government programs—to grant them legitimacy. The result is a population that’s more rule-abiding but also more risk-averse.
Efficiency vs. Freedom
None of this means formal economies are “bad.” In fact, they offer enormous advantages: stability, quality control, fair competition, and consumer protection. They’re designed for societies that value order and long-term security.
But the tradeoff is personal freedom. In countries with strict control, you can’t easily test, fail, or restart. You can’t quietly build a side business while working another job. You can’t easily move money, trade small goods, or experiment in the gray areas. Everything you do is visible and traceable.
Ironically, that means that in some of the world’s richest countries, it’s actually harder for individuals to become rich, unless they’re already inside the system. The gates to entry are higher, the paths fewer, and the risks of coloring outside the lines greater.
A strong informal economy is a double-edged sword—it comes with chaos, but it also comes with freedom. It allows individuals to act fast, to take risks, and to build from the ground up. Formal economies, meanwhile, offer order but at the cost of flexibility.
So when you hear that it’s easier to make money in China or another developed country, take that claim with caution. It’s easier if you’re already in the game. But if you’re starting from scratch, it might actually be harder than in countries where the rules are looser and opportunity is everywhere.In the long run, the balance between control and creativity defines how easily people can build wealth from nothing. A society that gives its citizens space to act informally—even imperfectly—often produces the most dynamic entrepreneurs of all.
