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Always Regulated, Never Protected: How Markets Work

Richard Mallett's picture

If you’re not already interested in livelihoods, you should be. Because livelihoods are the bottom line of development. Millions are spent on trying to build more effective states around the world, but development isn’t really about state capacity. At the end of those long causal chains and theories of change, there’s a person – an average Jo (sephine), a ‘little guy’. Making things work a little better for that person, making it easier for them to make their own choices and carve out a decent living…that is the why of development.


OK, maybe that’s a little simplistic. But lots of organisations thankfully do care about the ins and outs of how people around the world make a living. One of them is the International Development Committee (IDC), a British parliamentary body tasked with monitoring the workings of the UK’s Department for International Development (DFID). A few months ago, the IDC launched an inquiry into jobs and livelihoods, inviting written submissions from external parties to inform their final report. We at the Secure Livelihoods Research Consortium (SLRC) put our heads together and, drawing on some of our own research as well as the work of others, threw our own thoughts into the mix (you can see the submission in full here).

In the interest of stimulating debate around the question of how governments, donors and agencies can better support people’s livelihoods and contribute to job creation in some of the world’s poorest and most difficult situations, here is a quick rundown of the points we made.

Access to opportunities is always regulated…but not always formally

Most economic activity in developing countries is informal in nature. But the mistake people make is thinking that it is therefore untaxed and open to all (a kind of ultimate free market). This simply isn’t the case. Here are two reasons why.

First, it is a myth that the informal economy goes untaxed. In many places, especially those affected by conflict and fragility, simply getting by comes at a substantial extractive cost. In eastern DRC, for every 20-litre bottle of palm oil produced and sold at market, the state takes seven litres (as well as $0.12) while the military takes a further seven litres (plus $0.25). And then there’s another $10 per year to access the trees, plus a tax on the machine to extract the oil. Similarly, a recent study on the livestock trade in Darfur found that the tax burden had almost doubled between 2002 and 2011: traders now have to pay armed guards to accompany their herds and numerous checkpoint fees to ensure safe passage. This kind of tax – which is closely related to the phenomenon of ‘everyday corruption’, recently highlighted by the Independent Commission for Aid Impact (ICAI) as a major barrier to poverty reduction – is often overlooked by agencies. But if we care about supporting livelihoods then we cannot just focus on what people get; we need to have a much better understanding of what they lose.

The second reason is that access to economic opportunities is shaped by social norms and connections. Recent research by SLRC in Kabul, Afghanistan clearly shows that participation in urban labour markets can be socially regulated by an individual's identity – and particularly their gender. For example, in Kabul's tailoring sector, a woman's ability to enter the labour market is largely dependent upon the support of key male figures (fathers, uncles, husbands).

Gender is just one way in which economic activity is regulated. Other identity vectors are also important in shaping labour market outcomes. In its study of internal displacement and livelihoods in Azerbaijan, the World Bank found that internally displaced persons (IDPs) had systematically worse access to post-conflict employment opportunities as a result of weaker social connections (relative to non-displaced persons). And research by Timothy Raeymaekers in the town of Butembo in eastern DRC reveals similar patterns of labour market exclusion based on ethnicity, displacement and social connection.

The broader point is that labour markets are not neutral spaces of simple economic exchange; they both reflect and reinforce wider patterns of social inequality. So, while attempts to boost poor people's human capital (more education, better skills) remain important, this is nowhere near enough to address the more structural constraints that limit many people's ability to secure decent work.

‘More jobs’ is not the same as ‘better jobs’

Labour markets around the world work in favour of the owners of capital to the detriment of workers’ rights. Targeting policies purely on job creation therefore slightly misses the point. Absent in many countries is an adequate supply of decent jobs which pay well, offer some sense of security, and maintain the dignity of those taking them up. Of course, this is not a problem limited to developing countries: there are parallels with the recent rise of 'zero hour contracts' in the UK and US, where large corporations take on workers but offer no guarantee of actual paid employment.

At the same time, the argument that what conflict-affected countries need is an increase in good jobs – for stronger growth and safer societies – is compelling yet reductive. For one thing, the data required to support the idea that unemployment breeds violence simply do not exist. For another, the mainstream economic policy lens renders most women’s work invisible, consigning participation in the reproductive economy to the margins. And finally, the evidence we do have actually suggests that the main problem tends not to be that people aren't working, but that they are forced and locked into forms of economic activity that are exploitative and which fail to produce much in the way of decent returns. In many developing countries, underemployment is a far greater problem. People are working, but the labour market is not working for them. Millions end up in forms of self-employment, arguably not because they are 'born entrepreneurs' but rather out of a lack of viable alternatives.

In fact, new (and soon-to-be published) research from SLRC in northern Uganda suggests that it is the experience of participating in paid employment that actually drives people into 'becoming their own boss'. Respondents working in catering establishments in the northern Ugandan town of Lira described the difficult and degrading conditions they face on an everyday basis, from chronic job insecurity (no contracts, a lack of grievance mechanisms) to mistreatment from the management (late payments, long hours). Perceiving exploitation in the labour market, employees envisage a future where they are able to establish their own business.

So, what’s the way forward for policy makers?

Here are five ideas…

1.  Pay more attention to the politics – and the sociology – of job allocation and the ways in which labour markets actually work. Find ways to support people locked into exploitative working conditions. This is ultimately about the need for stronger collective action, more active trade associations and unions, better workers’ rights and enforced minimum wages.

2.  Link up the jobs agenda with the social protection agenda. Better access to social protection can support a country’s care economy and enable vulnerable people to participate in the labour market on better terms. Establishing closer connections between social protection and jobs is not simply a priority for policy in developing countries – as Guy Standing has argued, it should also be a top concern in places like the UK.

3.  Scale up coverage and impact of basic support to peoples’ livelihoods in critical post-conflict periods. A few months of food aid and some seeds (as characterised the return package in South Sudan) isn’t remotely enough for people to get back on their feet after decades of displacement.

4.  Re-examine the core assumptions of programmes designed to support livelihoods. What is the focus on microcredit and vocational skills training actually pushing people towards? Often, it is overcrowded markets, thin profit margins and risky, insecure forms of employment.

5. Expand the focus on enabling and regulatory environments (which remains important) beyond the formal rules and regulations which govern how business is done – that is, beyond the dominant approach promoted by the World Bank’s Doing Business initiative and others like it. A renewed focus needs to take into account the often corrupt, messy and informal environments in which people and small businesses have to scrape out a living. Taking as a starting point these difficult realities should lead to more varied and imaginative tools to support them.
 

Comments

Submitted by mohamad hamad on

Qrvat short life of poverty Mo able live a decent life, but what remained suicide thank you

Submitted by Alesh Brown on

I like your comment about linking social protection and employment. One example being, using emergency cash transfers to re-employ affected populations in causal pre-emergency employment e.g. working on sugar cane plantations. The capital injection helped to kick start the value-chain / local multipliers / more sustainable employment. Provided the population with income so they could meet consumption needs and provided the agency / donor with the leverage required to secure better wage rages and more secure land tenure. (www.apt-info.org // making aid smarter)

Submitted by Rich Mallett on

Some feedback on the five ideas from the Twittersphere...

The IZA World of Labour project recommended looking at their work on designing labour market regulations in developing countries. Their research suggests that getting the right regulatory balance can a) help improve the functioning of labour markets, and b) provide protection to workers. Their work can be found here, and is well worth a look: http://wol.iza.org/articles/designing-labor-market-regulations-in-developing-countries

Chris Cramer from SOAS had the following to say: "Direct labour market intervention is hard. Indirect action may be more effective. Two things to consider. First, compulsory longer education (Koreans managed within years of war, different conditions but still...). And second, we could focus more on generating demand for labour - this, rather than micro-credit, is ultimately the key"

Thanks to both for their useful thoughts.

Rich

Submitted by lili puth on

Very good reasoning, but why there is no disaggregation by location (i.e. rural/urban)? In analysing labour markets and (lack of) decent employment, this parameter is crucial, yet, often overlooked. One of the major sectors with prevailing working poverty and informality is agriculture which in turn employs majority of rural population in many regions. Age related aspects (like youth employment and child labour), especially in rural areas, need attention too. Cheers!

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