Since 2003, South African policy discourse about persistent poverty has been dominated by the notion that poor people stay poor because they are trapped in a 'second economy', disconnected from the mainstream 'first world economy'. This paper considers the adequacy of this notion in the light of research conducted in 2002 and 2005-2006 in Mount Frere in the rural Eastern Cape, and in Cape Town's African suburbs. It argues that a process of simultaneous monetisation, de-agrarianisation and de-industrialisation has created a heavy reliance on a formal sector in which employment is becoming increasingly elusive and fragile. Fieldwork suggested high levels of economic integration, corporate penetration and monetisation even in the remote rural Eastern Cape. Rather than being structurally disconnected from the 'formal economy', formal and informal, 'mainstream' and marginal activities are often thoroughly interdependent, supplementing or subsidising one another in complex ways. The dynamics of these diverge significantly from those imagined both in 'second economy' discourse and in 'SMME' policy. Instead of imagining a separate economic realm, 'structurally disconnected' from the 'first economy,' it is more helpful to grasp that the South African economy is both unitary and heterogeneous, and that people's prospects are determined by the specific ways in which their activities are caught up in the complex networks and circuits of social and economic power. Rather than 'bringing people into' the mainstream economy policymakers would do better to strengthen existing measures to reduce vulnerability, and to consider ways of counteracting disadvantageous power relations within which they are caught, and supporting the livelihood strategies that are found at the margins of the formal economy.
A. du Toit, D. Neves. In search of South Africa’s Second Economy: Chronic poverty, economic marginalisation and adverse incorporation in Mt Frere and Khayelitsha. CPRC Working Paper No. 102. (2007) 43 pp. ISBN 978-1-906433-01 [Published in a shortened version in Africanus (2007) 37 (2)]