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Sub programme 2
The political economy of market development and integration
Researchers: Marleen Dekker, André Leliveld, Marcel Rutten, John Sender
The time is not far that African economies were widely thought to escape the
rule of the market and were idealized as gift economies or pre-capitalist
collectivisms. But markets in Africa have a much longer history than often
is assumed (see, for example, Bohannan & Dalton 1962, Sender and Smith
1986). During the last century, the market principle has conquered African
economies, a process supported by the international financial institutions
and bilateral donors as well (see World Bank 1981, 2002). Today many African
economies would easily qualify as ‘market economies’ (Fafchamps 2004). This
qualification does seem to have, however, a different meaning in the African
context than in the OECD countries. The (few) available empirical studies
suggest that millions of people in Africa live on the fringe of markets,
caught up in a very chaotic and contradictory process of incorporation into
developing political and economic systems which make new demands on
allegiances and resources, and wreak havoc with their life.
The market comes in conjunction with very complex political forces, creating
opportunities for some and grave dangers for the livelihood of others. It
affects social relations throughout communities, kin groups and families.
And the very incompleteness of market integration, whether for commodities
or labor or land, implies the existence of extraordinarily and much varied
survival strategies, altered with great frequency (see, for example, Hewitt
de Alcantara 1993 (ed.); Perry 2000; Ponte 2002; Sender & Smith 1986; Tiffen
2003; Woodhouse 2002).
How to study these complex configurations then? In economic studies on
markets in Africa, the term ‘market’ has basically been applied in
accordance with the principles of neoclassical economics, which leads to an
extremely stylized and formalistic analysis of how markets in Africa work.1
More recently, the application of neo-institutional economics - an offshoot
of neoclassical economics – has allowed for a more diversified portrayal of
markets across African economies by including the notion of market failures
to explain incomplete market development and integration2 (see
Fafchamps 2004). But as Bernstein (1990) observes, a double abstraction is
manifested in this type of analysis: firstly, the abstraction of exchange
from the totality of relations of production and power, and secondly, a
substitution of an overarching ideological conception of the market for the
analytical, empirical investigation of ‘actually existing’ markets, how they
are produced by specific historical patterns of commoditization and how they
work. With such an analysis African market realities would continue to be
under-researched and continue to be an unexamined ‘black box’.
Given incomplete market development and integration and in order to
understand the role of markets in people’s access to resources, non-market
configurations for resource allocation (gift exchange, redistribution) and
their intertwining with market configurations should be analyzed as well. We
need to study markets not as these are hypothesized to function in
neoclassical economics, but as it is substantiated (to use Karl Polanyi’s
term) or made operative through the interaction of real social groups.
Markets are culturally and politically specific institutions. Societies have
different histories and values. The balance of power among major groups
within each country is particular, and principal players adhere to
historically specific rules of the political game. A varying degree of
vulnerability to external forces (or capacity for external alliance) affects
the capacity to manoeuvre in innumerable concrete cases. All this makes for
distinct allocative priorities and forms of regulation, and thus for
qualitatively different ‘real markets’ (Hewitt de Alcantara 1993). The
physical setting of certain regions, the crops they produce and the foods
they consume, their social and political history and current status within
national development projects or struggles all affect the actual existing
market structure. There is, for example, often a network of micro-markets in
which local power structures define the terms of trade as well as the
channels through which resources pass from lower to higher levels in the
economy. And market development has different consequences for different
groups of people. Within households it may change the structure of rights
and obligations for men and women. The incompleteness of market integration
(whether for commodities or land or labor) leads to much varied survival
strategies.
A political economy perspective can provide a powerful framework for
analysis to capture the complex dynamics of real markets in Africa and what
this means for people’s access to resources, because it goes beyond the
strict boundaries of traditional disciplinary divides and aims at explaining
how systems of economic, political, and social relationships shape rural
societies, the range of processes affecting these systems, and the factors
which may cause changes within them (see Harriss 1983; Ponte 2002). The
central question of research domain ‘The political economy of markets’ will
be how incomplete market development and integration is related to
non-market configurations for the same resource, and what this means for
social relations of production through which people have access to a
particular resource and for people’s opportunities and prospects to escape
from poverty. Therewith, the position of people is considered not just in
terms of the standard quantitative measures of poverty and vulnerability,
but is also investigated by considering changes over time in their
bargaining power, “voice”, or real political opportunities.
The approach outlined above will be used to analyze two market
configurations: markets for high value export commodities with a focus on
the effects on wage labor conditions, and markets for financial services
with a focus on insurance products. Both projects build upon previous
research of the EEE theme group. The ASC has a long tradition of research on
food and export crops markets. This research is continued under the new
programme. The well-being of a great number of people in Africa depends on
their involvement – as direct producers and/or wage workers – in
international trade in agricultural commodities. In addition, large numbers
of other rural Africans survive by providing food and services to those
engaged in producing agricultural export commodities. In particular, there
has been little attempt to explore rigorously the impact of rapidly changing
market trends and different institutional arrangements (in production and
marketing) on the lives of people who depend for their survival on wage
employment. The fact that internationally traded agricultural commodities
such as coffee, flower, or horticultural products, depend on access to
markets for wage labor inputs has, until very recently, been neglected. The
forms, levels and conditions of wage employment in agricultural commodity
production vary enormously, not only between neighboring
plantations/agribusinesses, but also between contiguous smallholder
producers. Instead, where wages and working conditions have been found to be
inadequate and to discriminate against women, supermarkets and other foreign
agents in the supply chain have been blamed for imposing undue pressure on
farmers.
To fill the research gap above, EEE researchers will participate in an
international research project, which will investigate the impact of fair
trade schemes, relative to non-fair trade schemes, on the wages and working
conditions of those people employed (as permanent, seasonal or casual
laborers) on farms producing coffee in Ethiopia, Kenya and Uganda. The study
is an example of and representative for a broader research gap in research
on market development and integration in Africa. It is increasingly
recognized that there is far too little empirical knowledge about the labor
market dimensions of rural poverty and poverty reduction. Further, much of
the wage labor employed in agriculture is female labor. It is widely
acknowledged that the majority of the poorest rural people are women and
girls. Given that wage employment may offer important opportunities for
poverty reducing remuneration to women, but that the conditions of
employment are often pitiful, an important emphasis in this empirical
research will be on casual, seasonal female employment. There are further
issues that require research. For example, the fair trade movement appears
to focus on particular commodities, often so-called traditional commodities.
Thus, the most dynamic sub-sectors in rural Africa, including floriculture
and luxury, off-season horticultural products have received relatively less
attention from fair trade advocates. EEE researchers, together with UK based
and African scholars, intend to investigate the possibilities for extending
above research to these products as well.
The second study in research domain two will concentrate on the market for
insurance products. An increasing amount of theoretical and empirical work,
including work by EEE members, has been published on how people in Africa
deal with income and consumption shocks in the absence of public safety nets
and fully-developed financial markets. A general conclusion drawn from these
studies is that the effectiveness of people’s individual and collective
efforts to deal with risks and uncertainties is limited and gradually
eroding. In international policy circles the vulnerability of the poor has
only recently been recognized as a major problem and as an obstacle to
improving living standards. This policy shift has revived a discussion on
the role of markets for financial services to protect people – and in
particular the poor – against hardship. Until recently, the development of
financial markets and the provision of financial services to households have
been mainly understood in terms of enhancing income generation. The role of
financial services in providing safety nets for people has largely been
neglected. Examples include supporting self-insurance via savings, assisting
income or consumption risk management by providing access to credit,
supporting community-based risk-sharing, and encouraging the introduction of
insurance products tailored to poverty contexts.
The policy neglect is reflected in research gaps as well. For example, most
of the research on financial services markets in Africa, including research
on microfinance, investigate the income generating effects of
(micro-)financial services, but have little attention for the vulnerability
reducing aspects. There is also little known about people’s access to new
emerging (micro-)insurance services, and the extent to which initiatives in
the field really do help people to cope with risks and uncertainties better
than in the past. A new EEE research project intends to contribute to
answers to this question by pursuing a better understanding of the impact of
new financial products – provided through emerging financial markets and
other means – on the ways people deal with risks and shocks and how this
influences their vulnerability. Particular attention will be paid to the
relationships between international and national insurance markets and local
or community-based non-market configurations of insurance and how
developments in the market sector influence the operation and dynamics in
the non-market sector. The study will be located in Uganda, but may extend
to other countries as well.
1. In neoclassical economics, the market is a resource allocation mechanism
based on prices, determined by impersonal forces of demand and supply (Mwabu
& Thorbecke 2003). This feature contrasts markets with the two other
possible allocation mechanisms, gift exchange and hierarchies (see Polanyi
et al. 1957).
2. Market failures draw the attention to the role of institutions, which
include not only organizations as the state, firms and households but also
include rules and regulations, law enforcement systems, property rights,
systems of land tenure, norms of behavior, traditions and customs.
a. Coping with Zimbabwe’s economic crisis
Marleen Dekker and Bill Kinsey In the past decade a political and economic crisis has unfolded in Zimbabwe. The media have reported about the economic and political crisis, highlighting the sometimes physical confrontation between the opposition and the ruling party as well as the skyrocketing inflation in the country. Yet, such general stories only allow us to guess what is happening on the ground and do not tell us much about the challenges, difficulties and opportunities ordinary Zimbabweans are facing in the face of disintegrating food, input, labor and output markets. At present, there is virtually no primary fieldwork based research going on that can answer many of the pressing questions about household and individual wellbeing in rural areas. This project aims at filling this gap by conducting a study into the impact of the crisis in rural farming areas, specifically on processes of impoverishment and accumulation. The study will be based on case-study fieldwork that links up to previous survey data collection for the Zimbabwe Rural Household Dynamics Study (ZRHDS). b. Community based health insurance and the well-being of children and households in Plan communities in Togo
Marleen Dekker and André Leliveld Achieving the Millennium Development Goals (MDGs) remains an important global challenge. Better protection for the poor against health risks is crucial in this endeavor and micro or community-based health-insurance (CBHI) schemes are being advanced as a means to reduce and stabilize the costs of treatment, increase access to health care and reduce the use of costly risk-coping strategies. In the past two decades, hundreds of small schemes have been implemented across the globe (Bennett et al., 1998) but, to date, profound empirical evidence of the effects of health insurance is still limited. The objectives of this project are (i) to understand the impact of CBHI on (improved) access to health care and the health status of children and their families and (ii) the contribution of CBHI to poverty reduction and wellbeing. c. Network and Group Formation for Collective Action
Marleen Dekker, Abigail Barr and Marcel Fafchamps Recent years have witnessed a renewed policy interest in community-based development, which seeks to provide public goods for the poor by mobilizing local communities. For mobilization to be successful, a proper understanding of the limits to such initiatives is essential. Contributions to local public goods are often voluntary in nature, creating a potential for free riding. For informal arrangements to be sustainable, participants must trust each other. The need for trust puts limits on mobilization. This project seeks to document these limits by investigating the community mobilizing process and the formation of local groups and networks. We want to understand the factors that make it possible for certain individuals to trust each other enough to form a group aimed at generating a collective good on the basis of voluntary contributions. See also: http://www.csae.ox.ac.uk/resprogs/eangfca/
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