Economy

The economy is a system where goods and services are produced, distributed, and used in a
country. It includes how people, businesses, and governments interact to manage resources and
wealth. Economic activities include producing goods, selling them in markets, exchanging
money, and using resources. Factors like supply and demand, prices, jobs, inflation, and
government policies affect the economy’s performance and stability.
Definitions of Economics
1. Paul Samuelson:
"Economics studies how societies use limited resources to create valuable goods and
distribute them to people."
2. Lionel Robbins:
"Economics is the science of studying human behavior to deal with limited resources
that have different possible uses."
3. Alfred Marshall:
"Economics is a social science that studies how goods and services are produced,
distributed, and used."
4. Thomas Sowell
"Economics is the study of how people make choices under conditions of scarcity
and the results of those choices for society."
5. John Sloman and Alison Wride
"Economics is the social science concerned with the efficient use of scarce resources
to achieve the maximum satisfaction of economic wants."
6. General Definition:
"Economics is the study of how people and societies decide to use limited resources
provided by nature."
 Informal Economy
The informal economy includes different types of economic activities that are not regulated or
recognized by formal institutions. It involves self-employment, small-scale businesses, and
cooperative ventures that work outside formal legal systems.
The informal economy includes work and businesses that are not controlled by the government.
This means these jobs do not follow official rules like labor laws, taxes, or other formal policies.
It includes:
1. Selling things on the streets.
2. Small businesses.
3. Self-employment (doing your own work).
4. Jobs that have no contracts or protection.
The informal economy is common in places where it is hard to find proper jobs. People work in
this sector to earn money and support their families. While this sector gives income and jobs to
many people, it also has problems:
 Workers do not have job security.
 Workers do not get proper rights or protection.
 There is no economic stability for workers.

Definitions
1. Keith Hart
The informal economy is made up of small businesses that are not registered or controlled by the
government. These businesses are usually very small, depend on family labor, and serve local
markets.
2. Martha Chen
The informal economy includes all jobs and businesses that are not protected or controlled by
government rules. It includes:
 Self-employment (own work)
 Temporary jobs
 Small businesses
These businesses work outside the control of government regulations and protections.
3. Hernando de Soto
The informal economy includes work and businesses where property rights and legal protections
are not officially recognized. These businesses operate outside the formal legal systems.

4. Keith Hart and Jean-Louis Laville's

"The informal economy includes different types of economic activities that are not fully
regulated or recognized by formal institutions. It involves self-employment, small-scale
businesses, and cooperative ventures that operate outside formal legal systems."

Nature and Characteristics of the Informal Economy in Pakistan

1. Large Informal Sector:
Pakistan has a big informal sector where a large part of the economy operates. It includes
jobs like street vendors, domestic workers, small-scale farmers, and self-employed
individuals.
2. Low Formal Registration:
Many businesses in the informal economy do not follow official government rules. They
work without licenses and are not included in the tax system.
3. Informal Labor Market:
A big part of the labor market in Pakistan is informal. Workers do casual or irregular jobs,
like daily wage work or small contracts. These jobs do not provide job security or
benefits like health insurance.
4. Cash Transactions:
Most transactions in the informal economy are done using cash because people have
limited access to banks or digital payment systems. Workers and businesses mainly use
cash for their daily needs.
5. Lack of Social Protection:
Workers in the informal economy do not have any social protection like health insurance,
pensions and social security or other benefits.
6. Importance of Informal Networks
In Pakistan, informal work depends a lot on social connections and trust. These networks
help people find resources, work together, and build relationships. This trust allows
informal businesses to run smoothly.
7. Informal Sector as a Survival Strategy
The informal economy is very important for many people and families in Pakistan. It
helps them earn money when they do not have proper jobs. However, workers in this
sector do not get benefits like job security, pensions, or insurance that formal workers
receive.
Informal Economy of Pakistan
The informal economy plays a big role in Pakistan’s economy and jobs. It also brings challenges,
such as issues with workers’ rights, social problems, and difficulty in collecting taxes.
1. Size of the Informal Economy
According to the International Labour Organization (ILO), 72% of all non-agriculture
jobs in 2018 were in the informal economy. This shows how big and important this sector
is in Pakistan’s economy.
2. Street Vendors
Street vending is a major part of the informal economy. There are around 1.5 million
street vendors in Pakistan. They earn income and support their families through this
work.
3. Small-Scale Manufacturing
Small industries like handicrafts, cottage industries, and informal workshops are part of
this sector. These businesses are small but employ many workers and help in producing
goods locally.
4. Domestic Work
Domestic work is another major part of the informal economy. A large number of people,
especially women, are employed in this type of work.
5. Construction Sector
In Pakistan, many workers in construction work without formal contracts or benefits.
They include laborers, masons, and helpers who are paid daily wages but don’t get social
protection.
6. Transport and Logistics
Informal transportation, like rickshaws, taxis, and loaders, plays an important role in
urban areas by providing affordable transport. Many of these workers operate without
proper permits or formal employment contracts.
7. Agriculture and Rural Activities
8. In rural areas, agriculture is linked to informal activities like farming, livestock, and
informal agricultural labor. Many of these workers lack proper contracts and social
protection.

These sectors are just a few examples of informal work in Pakistan. The informal sector
contributes significantly to jobs, income, and the overall economy.
 Modern Economy and Pakistan
The modern economy involves advanced technology, globalization, and connections between
countries. It relies heavily on digital technology, automation, and decisions based on data. This
economy connects the world, where goods, services, and money are exchanged across borders.
The modern economy depends on innovation, entrepreneurship, and industries that focus on
knowledge. Financial markets are essential for managing and allocating money to different
sectors. However, this modern system also has challenges like income inequality,
environmental issues, and the effects of technology on jobs.
Joseph Stiglitz explains:
"The modern economy focuses on using knowledge, technology, and innovation to boost
economic growth and connect global markets."
Robert Solow's definition of the modern economy emphasizes the importance of technology,
innovation, and intangible assets in driving economic growth. According to Solow:
"The modern economy is dominated by services, technology-intensive industries, and
global interconnectedness, driven by innovation, entrepreneurship, and the increasing
importance of intangible assets."
This highlights that in a modern economy, growth is no longer solely dependent on physical
resources like factories or machinery but rather on intangible factors such as knowledge, skills,
technology, and innovation.

Nature and Features of the Modern Economy

1. Technological Progress:
The modern economy grows quickly because of new and advanced technologies. This
includes automation, artificial intelligence (AI), big data, and the Internet of Things
(IoT). These technologies help in production, communication, and consumption.
2. Globalization and Connections:
The modern economy is highly connected globally. Countries trade with each other,
invest across borders, and share financial markets. This helps in the movement of goods,
services, capital, and information, making national economies more dependent on each
other.
3. Knowledge-Based Economy:
In today’s economy, knowledge and information are very important. Industries that
depend on research, innovation, and creative services help drive economic growth.
4. Dominance of Services:
The service sector has become more important than manufacturing. Services like finance,
 healthcare, education, and other professional services are growing fast. This shows how
consumer needs and economies are changing.
5. Flexible Labor Market:
The modern economy needs workers to be more flexible. There is now more freelance
work, gig work (short-term jobs), and other flexible work arrangements. This means
work is changing, and people need specialized skills.
6. Data-Driven Decisions:
Organizations now rely heavily on data to make decisions. They use data to understand
customer behavior, improve their work, and create new products and services.
7. Environmental Sustainability Focus
Today’s economy is paying more attention to environmental problems. People are now
focusing on eco-friendly practices, like using renewable energy, efficient resources, and
taking responsibility for the environment.
8. Income Inequality
The modern economy has seen more income inequality. A small part of the population
holds most of the wealth and income. This has happened because of technology
improvements, globalization, and changes in jobs.
It’s important to understand that these are just some features of the economy. The economy is
always changing, and different regions or countries may have unique systems based on their own
situations and needs.
 POLITICAL ECONOMY
Political Economy studies how politics and the economy affect each other. It looks at how
political decisions influence economic results and how economic interests affect political actions.
It combines knowledge from economics, political science, and sociology to understand how
politics and the economy are connected.
Key Concepts
1. State and Market Interaction:
 This studies how governments control markets and economic activities.
 It looks at the balance between free markets (no government control) and
government involvement.
2. Economic Systems:
 Capitalism: Focuses on private ownership and market-based economies.
 Socialism: Focuses on state ownership and planned economies.
 Mixed Economies: These combine features of both capitalism and socialism.
3. Public Policy:
It studies how policies are made, like taxes, public spending, and welfare programs. It also looks
at how political ideas and power affect these policies.
4. Political Institutions:
It examines the role of parliaments, governments, and courts in making decisions. It also studies
how political stability and good governance impact the economy.
5. Interest Groups and Lobbying:
It looks at how businesses, labor unions, and other groups influence decisions. It also explores
how lobbying and campaign funding affect policy results.
6. Global Political Economy:
It studies economic relations between countries, including trade and global organizations like
WTO and IMF. It also examines how globalization affects economies and national independence.

Characteristics of Political Economy

1. Political Instability:
Pakistan faces political problems like army involvement in politics, quick changes in
governments, and political division. The army has had a strong influence on governance and
policies.
2. Dependency on Agriculture:
Agriculture is very important for Pakistan’s economy. Many people work in farming, and it
contributes a lot to the country’s income. However, there are problems like water shortage, old
farming methods, and land issues.
3. Economic Challenges:
Pakistan has many economic problems, like not enough money, rising prices, and high debt from
other countries.
4. Informal Economy:
A large part of Pakistan's economy is unregulated. This includes businesses and jobs that are not
registered with the government. Although this sector provides many jobs, it faces issues like lack
of rules, taxation, and access to financial services.
5. Foreign Relations and Aid Dependency:
Pakistan's political and economic situation depends heavily on its relationships with other
countries, such as China, the United States, and Gulf states. These relationships bring foreign aid
and investment, which help develop infrastructure and boost the economy.
6. Challenges in Governance:
Pakistan faces issues like poor governance, corruption, and inefficient bureaucracy. These
problems make it difficult to properly implement policies and provide services, which slows
down economic progress.
7. Youth Demographic:
Pakistan has a large and growing young population. This can be an opportunity for economic and
social development, but it also presents challenges. Effective policies are needed to make use of
the potential of this youth population.
Pakistan's political economy is complex, influenced by politics, economic problems, and external
factors. To overcome these challenges, Pakistan needs strong reforms in governance, economic
policies, and social development to achieve growth and prosperity.
Pakistan’s economy is influenced by politics, economic challenges, and other countries. To solve
these problems, Pakistan needs better government systems, strong economic policies, and social
development.

Comparison Between Informal, Formal, and Modern Economies

Modern Economy
Informal Economy Formal Economy
Aspect
Advanced work with
Activities not under Activities follow government laws
Definition technology and global
government rules. and rules.
trade.

Size Very common in poor Important for the economy, gives Very strong in rich
countries, helps the countries, big impact on
 economy and jobs. formal jobs. the world.

Very strict rules, global

No government control, Follow rules like taxes, business,
Rules agreements, and
no legal protection. and labor laws.
financial laws.

Skilled jobs, high

Flexible jobs, low pay, Jobs with contracts, benefits, and
Jobs salaries, and special
no job security. good structure.
benefits.

Uses the latest

Uses basic tools and old Uses modern machines and
Technology technology like AI and
methods. technology.
robotics.

Global markets, trade,

Local markets, no access Access to national and
Market and big financial
to banks or loans. international markets.
systems.

Better productivity Highest productivity,

Low productivity, fewer
Productivity with technology and continuous improvement
resources and skills.
innovation. with technology.

Very little innovation, Encourages new ideas Brings new global technologies
Innovation
uses old methods. with research and patents. and disrupts old industries.

Sociology of Economy
Economic sociology studies how society and culture influence the economy. It focuses on how
relationships, institutions, and traditions affect economic decisions, behaviors, and results. It also
examines how economic systems interact with things like social class, power, and networks.
It helps us understand how social factors impact economic decisions, markets, and resource
distribution. By mixing sociology with economics, this field explains the social side of economic
systems and shows the role of cultural and institutional forces.
Economic Sociology
Economic sociology studies economic activities like production, consumption, and distribution
from a social perspective. It aims to understand how social relationships, networks, and cultural
meanings influence the economy.
1. Neil J. Smelser and Richard Swedberg
Economic sociology analyzes social relationships and cultural meanings connected to the
economy.
2. Viviana A. Zelizer
Economic sociology understands how social and cultural processes influence economic
activities. It studies the effects of social interactions, networks, and institutions on economic
decisions and resource distribution.
3. Mark Granovetter
Economic sociology examines how social relationships, institutions, and culture shape economic
outcomes. It aims to understand economic behavior within a social context.
Why is Economic Sociology Important?
Economic sociology is a broad field that studies the social and cultural aspects of economic
behavior, institutions, and processes.
1. Social Embeddedness of Economic Activities
This means that economic decisions and activities are connected to social relationships,
networks, and norms.
2. Economic Institutions and Organizations
This area studies industries, firms, markets, and other economic institutions and understands how
they are shaped by social forces.
3. Cultural Dimensions of Economic Behavior
This topic studies how cultural values, beliefs, and traditions influence economic activities and
institutions.
4. Inequality and Distribution
This studies how resources and opportunities are distributed among individuals and groups and
how social factors influence these patterns.

Economic sociology helps us understand how society and the economy are interconnected.

5. Globalization and International Economic Relations:

This is about how countries trade, invest money, and allow people to move from one country to
another. It also explains how these actions affect people’s cultures and society.
6. Economic Crises and Instability:
This means studying problems like economic slowdowns, financial crashes, and recessions. It
also explains the reasons and effects of these problems on society and culture.
7. Economic Development and Change:
This talks about how economies grow and change over time. It also explains how social factors
like new ideas and innovations help economies to develop.
In short, economic sociology helps us understand how society and culture shape economies and
how they work.