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Critical Linkages: Livelihoods, Markets and Institutions
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1. Introduction
The benefits of livelihoods thinking and approaches are widely recognised, including, for example, its stress on the importance people centred change, a holistic approach , people’s access to different assets, poor people’s vulnerability, partnerships, sustainability, change, and the multi-faceted nature of livelihoods. We focus in this paper, however, on what we argue is an important gap in much of the conceptualisation and application of ‘livelihood approaches’, a lack of emphasis on markets and their roles in livelihood development and poverty reduction. Given that one of the roots of livelihoods thinking was Sen’s concept of entitlements, this is surprising. The omission is important. If the roles of markets and market relationships are not properly addressed in livelihoods analysis and action, then it can lead to failure to identify and act on
- livelihood opportunities and constraints arising from critical market processes and
- institutional issues that are important for pro-poor market development. These are intimately related to macro- and meso- processes of change in national and local economies.
This paper explores these arguments in more detail and suggests ways in which they may be addressed. Discussion focuses particularly on the SL approach as developed and applied by DFID.
We begin, however, by asserting the importance of markets and the private sector for pro-poor livelihood development and poverty reduction. This follows from four observations: first that the livelihoods of most poor people are directly dependent on their involvement in a range of markets as private agents or as employees (and are indirectly dependent on the wider economy for the demand and supply of goods and services); second that major current and historical poverty reduction processes have depended on equitable private sector economic growth (but we note later the importance of actions by other stakeholders – such as CBOs and the state – in market development); third that poor people themselves often identify problems with markets as critical to their livelihoods (but these problems may concern both the absence of markets and the effects of markets); and fourth that in support of such growth, markets can provide a highly efficient mechanism for exchange, coordination and allocation of many resources, goods and services, but they often fail. Recognition of the frequent failures of markets to serve the interests of the poor is critical to the arguments of this paper: we examine some of the reasons for these failures and argue that conventional promotion of liberalised competitive markets is often misplaced. A more imaginative approach is needed, rooted in a stronger understanding of the importance and nature of institutional development in economic growth, with market development being one part of that institutional development.
We stress that although we see improved market access as critical driver of sustained and broad based poverty reducing development, it is neither a magic bullet nor a sufficient condition for such development: other social, political and technical processes of change are also vital. With the very real difficulties that the poor face in accessing markets, ongoing actions to support livelihoods in the absence of market access are important in many instances. Expanded market access can also pose real threats to the livelihoods of poor people. The core of our argument here is an appeal to two different development communities. To ‘market sceptics’, we put forward what we suggest is a realistic understanding of markets’ potential and of their problems, and plead that action should be compatible with and complement the longer term potentially powerful market processes for pro-poor growth. To ‘market fundamentalists’, we call for (and offer) a realistic, pragmatic and theoretical understanding of problems of market based development, and suggest some of the ways that these may be addressed.
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