Markets that work for the poor?

Dear Michael,

Thank you for organizing the JICA (Japanese International Cooperation Agency) event here at the DPU on Friday March 18, where we heard from JICA’s UK office and a representative from Malawi ministry of trade and industry about JICA’s One Village One Product (OVOP) framework and the initiatives taking place in Malawi. The session generated a lot of interesting discussions and reflections. It was very good to hear a market oriented approach that is actually focusing on small and medium enterprises, rather than large scale infrastructural development, which we see having little impact on the lives of the poor. So it was encouraging to hear about JICA’s prioritization of building the capacity of local producers in coming up with products that can be commercialized not only locally but also in international markets. Also it was interesting to hear about the strong emphasis on cooperatives as means to bridge economic productivity with social empowerment. These trends [I feel] are much welcome in the field of development as means to enhance the ability of marginalized groups in also getting the benefits from global markets.

But at the same time, the talk has also stimulated a series of thoughts in relation to such market oriented approaches to poverty reduction. Firstly, I wonder: what is the ability of such projects to actually reach the poorest? As Caren Levy commented, little was said about who are the poor, and their social-political and economic disparities. Such understanding in terms of the characteristics of the poor would allow us to see more clearly who are being benefited by the OVOP framework. For example we see that often the poorest do not sell to formal markets nor engage in export oriented activities [as it is emphasized by the project], but rather interact in dynamic informal markets. So, if we are to support the poorest, shouldn’t we first consolidate the internal production and enhance the benefits that can be reached through such existing market paths rather than substitute it towards one that is beyond the control of local markets?

This reflection leads me to my second point: what is the sustainability of such initiative? Maybe we manage to create a demand in the international market for a certain “ethnic” product (i.e. banana wine).  However the crucial question is how do we sustain that demand? The international market is full of barriers and protectionism. Competition is far from fair. Once the niche for a product is proven to be successful, it is easy for stronger market players to reproduce it in large amounts and at cheaper cost crushing this way our OVOP producers. I was talking with professor in development economics in the University of Florence, Mario Biggeri, about this and he says that the problem is that agencies are not prepared to act globally to address some of the root causes of unjust global competition, such as subsidies and loose working conditions regulations in some other countries (i.e. China). Biggeri mentioned also that such framework to synergize efforts in one town or a cluster towards the production of a competitive product has also been applied in Italy, China and Vietnam. However, the sustainability of the strategy relied not only on an export oriented approach but on its focus [at least initially] towards internal consumption, for markets that already existed in local contexts. This goes back to my first point, that instead of focusing on export-market only, maybe in the case of Malawi it would be more sustainable to start focusing also on existing demand in the local context and then move to the export oriented strategy.

Such export-oriented focus is actually dictated by the Malawi Growth and Development Strategy (MGDS), where the OVOP initiative is actually embedded into. This raises my final concern: Are OVOP and MGDS working in similar directions of poverty reduction or leading to contradictory efforts? Does the MGDS, as many other similar plans, involve a reduction of public expenditure into social welfare, hoping that private sectors will come in with investments that will generate improvements? If so, as private investments are not pumping in, the poor, in the meantime are left with inadequate access to basic services. In such context, how can the poor be expected to invest in setting up competitive business, if they have to probably pay a considerable amount of money for informal waste collection, water supply, sanitation facilities and private education? As demonstrated by series of studies, for the livelihoods of the poorest to be improved, often is much more effective to focus on better access to assets [human, social, financial, physical, political and natural], rather than merely target the setting up of entrepreneurial activities. Based on this discussion, Biggeri showed me the following Italian cartoon that actually relates a lot to these points.

For me the main issue here relates to this idea that somehow working with the capacity of the poor the conditions that generates poverty can be overcome. Through training, skills and access to finance the poor are expected to get themselves out of poverty. However as we often see, and as argued by Mario Biggeri, the barriers for moving out of poverty go beyond the capacity of the poor. It involves collective action in a local and global scale, addressing politically crucial issues related to subsidies on the one side (north countries) and exploitative working conditions on the other, trade relations and protectionism of certain markets while opening the borders of others.

(for more on this check out Oxfam 2004 report on ‘Trading our rights’).

Micahel, it would be great to hear your thoughts on this.

Best wishes,

Alex Frediani