Enhance existing strengths (e.g., craftsmanship, community trust, cultural assets),
Provide selective access to market expansion tools,
Invest in intermediary institutions that translate between layers (e.g., cooperatives with digital arms, tech-enabled traditional markets).
This avoids "karbitan" (artificial) economic transitions that overlook the agency and context of grassroots actors. A strong, inclusive economy does not require every actor to enter the digital layer, but rather ensures that each actor has meaningful options to participate and benefit according to their strengths and aspirations.
4. Hernando de Soto -- The Extralegal Economy
Hernando de Soto's work on the extralegal economy, particularly through his influential book "The Mystery of Capital" (2000), challenges mainstream assumptions that informal economies are inherently disorganized or inefficient. Instead, de Soto argues that many informal economic systems---especially in developing countries---are governed by robust but undocumented legal and organizational norms, operating outside the purview of state regulation and official economic metrics.
This perspective shifts the focus from simply formalizing the informal sector, to understanding and recognizing the legitimacy and logic of extralegal systems, many of which are deeply embedded in social networks, customary laws, and localized trust-based arrangements.
A. Core Contribution: Informality as a Parallel Order
De Soto's theory asserts that informal economies are not devoid of structure; they are highly ordered yet extralegal. Key insights include:
Informal entrepreneurs often have property, businesses, and networks, but lack formal recognition (e.g., land titles, business licenses).
This lack of documentation limits their ability to leverage assets for growth (e.g., securing credit, scaling up operations, entering supply chains).
Informality persists not due to laziness or ignorance, but because formal systems are often inaccessible, costly, or unresponsive to local realities.
De Soto's thesis reframes the informal economy as a legitimate economic space that is invisible to formal systems---not because it lacks value, but because it lacks legal legibility.
B. Indonesian Context: Invisible Entrepreneurs in the AI Age
In Indonesia, the extralegal economy is not only large but structurally resilient. From street food vendors to small-scale manufacturing clusters in peri-urban areas like Tangerang or Bekasi, vast segments of the workforce operate in a realm that is:
Productive, yet disconnected from banking systems, taxation frameworks, or business databases;
Relational, relying on community ties, kinship networks, and mutual obligations;
Underrepresented, meaning that even AI-based financial systems or credit-scoring algorithms cannot detect or assess their existence.
This poses a major implication: algorithmic systems trained on formal data inherently exclude these actors. For example:
AI credit models trained on banking transactions will score informal businesses as "non-existent" or "high risk" due to lack of documentation.
Public policy interventions driven by big data may overlook entire communities, leading to skewed targeting and inefficient resource allocation.
As Indonesia increasingly embraces digital government services, AI-driven finance, and algorithmic marketplaces, the extralegal economy becomes even more marginalized by invisibility---not by design, but by default.
