By Dun Grover, Director of Monitoring, Evaluation and Learning, Transforming Market Systems Activity (TMS) Honduras, ACDI/VOCA
In this blog, Dun highlights some important learning from his project’s efforts to apply more rigorous monitoring methods when tracking systemic change. A key point is that quantitative methods are valuable when tracking systemic change, but they have to be understood in the context of complexity. As Dun explains, there has been pushback on the use of quantitative methods when trying to monitor and learn about systemic change. While there is a valid argument against quantitative methods, the concern is more narrow and related to how many practitioners perceive such methods as providing absolute answers. For example, traditional approaches have applied such methods to come up with absolute yes and no answers related to project attribution. While we have learned that such ways of thinking are not valid from a systems thinking perspective, we also have to recognize that quantitative methods are important when applied properly. The blog lays out important considerations and insights into how to ensure quantitative methods add value when trying to gain insights into whether and how systems change.
In Cape Town, I had the opportunity to share some of my experiences working with the Honduras Transforming Market Systems Activity and our market system diagnostic – more specifically, how we were attempting to measure several aspects of market systems, including resilience. One of the points that sparked dialogue at our Symposium session was the feasibility and usefulness of quantitative methods (versus qualitative ones) to measure market systems and their attributes.
Since then, we have completed the market systems diagnostic. I encourage you to check out the dashboards and whitepaper here at http://cohep.com/sistemasdemercado/. Now that this process is complete, I’ve had the chance to reflect on the discussion from Cape Town. In addition to the interesting results which you can read about in the link, here are some of the realizations I’ve had:
Quantifying helps inform management decision making, even if those measures are less precise. I think the challenge most people bump into when attempting to quantify complex systems is that is impossible to do so with the same level of precision that we can, say, measure yields. USAID’s definition for precision states that “data should have a sufficient level of detail to permit management decision-making.” It turns out that we can measure the number of shocks experienced and the pace of recovery of enterprises across a sample of enterprises in an industry within an acceptable margin of error. Though these may be proxies for systems-level change, they are very meaningful measures that inform adaptive decision-making for the project and its stakeholders. Data analysis brought to light several hidden features of Honduran market systems, such as the impact of certain shocks of enterprise performance, that have shifted activities and generated insights that have prompted qualitative inquiry.
You should focus on the key variables and their directionality of change – you don’t need to explain it all. In statistics, R squared is the percent of variance explained by the model. 0 percent indicates the model explains none of the variance and 100 percent indicates the model explains all the variance. In modeling our data, we found relatively low R squares (note: this is not surprising for social sciences fields). Despite this, we also found 17 variables that were statistically predictive of systems performance results. These discoveries are potential levers for systems change. Although these quantitative models might not tell you whether pulling these levers will result in an 11%, 32.5% or even a 500% increase in system ‘performance’, we do have a stronger evidence base to inform our decisions around which levers to pull in which directions. Further, we know with a level of confidence that when we do, the system will materially change to produce more of the results we want now and likely into the future.
How to cross-validate to avoid overfitting your models in order to reduce errors in your predictions. In developing a statistical model, you may develop a model that fits your data perfectly but doesn’t fit in the real world and leads you to make errors in your predictions. This statistical phenomenon is called overfitting. In ‘real-life’ overfitting is akin to when we try to generalize experiences from one situation to another and mistakenly apply variables that don’t belong in our understanding. In statistical analysis it is a standard practice to use validation methods to detect and remedy such errors. One of the methods we are applying to avoid overfitting is cross-validation. To do this, we are facilitating workshops with a set of enterprises to validate the measures, identify ones which may have been mistakenly included, and, further, to identify variables which we missed that we should try to measure the next year.
Quantitative reasoning is integral to constructing knowledge of systems. A core feature of systems that doesn’t change is that our knowledge and understanding of systems must always change. Quantitative reasoning is a process and way of thinking that helps us construct knowledge about systems. Quantitative reasoning involves the collection and reinterpretation of data and subsequent revisions to models and theories based on new lines of evidence. In our market system diagnostic, we intend to adapt, drop, or replace indicators on an annual basis that do not prove statistically or materially predictive of target outcomes. The purpose of this process is to continue to improve the precision and fit of our measurement methods to Honduran market systems. Further, by engaging academia and the private sector in this process, we are strengthening a systems mindset oriented towards exploration and discovery among local stakeholders in constructing collective knowledge of Honduran market systems.
We welcome you to contribute to this process of learning and adaptation. If you have recommendations of variables to include in the 2019 diagnostic or methodologies to model the data, please send them to firstname.lastname@example.org or email@example.com. Please include any evidence and sources as to why this contribution can help us to better explain Honduras’s market system performance.
Co-Authored by Anoushka Boodhna, Consultant, EcoVentures International &
Devi Ramkissoon, Acting Division Chief, USAID
In this post, Devi and Anoushka start an important evidence-based discussion about why diversity and inclusion are central to addressing complex challenges. Central to the rationale for taking a market systems approach is that market systems are complex systems, which means that they are dynamic, evolving systems that are influenced by many factors all at the same time. Because there are many factors influencing a market system at one time, traditional approaches that assumed away all the factors except for one technically solvable factor have not worked. As donors have become more comfortable with recognizing that development is complex, they have also had to realize that the process for addressing complex challenges is different to traditional approaches. Specifically, complex challenges need teams that can engage in a learning and creative problem-solving process that emerges of overtime. Organizationally, best practice for such challenges includes teams that are diverse and inclusive of as many perspectives as possible. Diversity and inclusivity are not only a nice thing to have, but are necessary characteristics of teams that are effective at generating results in complex environments.
In this blog series, we examine the ways in which the concepts of diversity and inclusion apply to market systems programming. We hold that diversity in complex adaptive systems is one signal of a healthy market system. To this end, embedding these principles in programming will contribute to successful market systems activities whose results will ultimately be more sustainable in the long run.
The concepts of diversity and inclusion are increasingly becoming integrated into workforce management across the public, private, and non-profit sectors. According to George Washington University (GWU), the term “diversity” is commonly used to describe “individual differences (e.g., life experiences, learning and working styles, personality types) and group/social differences (e.g., race, socio-economic status, class, gender, sexual orientation, country of origin, ability, intellectual traditions and perspectives, as well as cultural, political, religious, and other affiliations) that can be engaged to achieve excellence in teaching, learning, research, scholarship, and administrative and support services.” GWU defines inclusion as “the active, intentional, and ongoing engagement with diversity -- in people, in the curriculum, in the co-curriculum, and in communities (e.g., intellectual, social, cultural, geographical) with which individuals might connect.” Diversity and Inclusion (D&I) are now seen as a crucial aspect of increasing productivity for organizations, no matter what their goal.
Diversity is an important characteristic of a healthy market system. In particular, there are three ‘capacities’ in market systems that are bolstered or enhanced as a system becomes more diverse:
Within international development programming, D&I is integral when working in market systems and navigating complexity. A diverse and inclusive team is more likely to bring about the variation needed to catalyze market system change through individual and social differences in perspectives, viewpoints, and ideas. When aligned around core principles such as poverty alleviation, they are better able to support market actors to explore different pathways for business growth and inclusion as well as generate innovation where needed. A diverse and inclusive team is also more likely to support market actors to navigate risk in constantly changing environments by thinking ‘out-of-the-box’ when observing signals, making adaptations, and finding creative ways to solve problems.
From program design through implementation, learning, and adaptive management, and monitoring and evaluation, diversity in staffing and perspectives can be invaluable to the market system change. For example, by cultivating an inclusive, diverse team and hiring staff with diverse backgrounds, one program in Kenya was able to advance its goals. Specifically, the program hired a marketing expert to support inputs distribution strategies for smallholder farmers. Not only did she fit a diversity profile as a young Kenyan woman, she also was from the private sector and introduced new cross-cutting interventions in ICT and media, which became a new space in MSD and agriculture. She also linked the program to a young, creative, tech startup scene in Nairobi. This is just one of the ways that programming responds positively to applying D&I concepts to MSD.
In Part 2 of the Diversity and Inclusion Blog Post Series, we’ll dig deeper to explore how D&I plays out at some of the key junctures of MSD program design and implementation.
By Lorenz Wild, a seasoned MSD practitioner who is currently on pseudo-sabbatical in Italy and actually has some time to think about stuff rather than dash wildly after donor reports, partnership negotiations, staff capacity building, baselines, budgets, and so on.
In this provocative blog, Lorenz highlights what many systems thinking development practitioners have been struggling with for years, which is whether the myopic focus on saving the individual ignores more dangerous systemic misalignments. A central theme in the 2019 Market Systems Symposium was a call for more donors, practitioners, researchers, etc. to question long-standing assumptions about development, economics, markets, and agriculture. Through the use of systems-thinking lenses, insights can be gained on why serious issues such as climate change, inequitable markets, and political corruption remain so intractable, including how positive change can be catalyzed. It seems increasingly clear that good development has to be able to do both, deal with immediate and acute issues facing certain populations, while also embracing complexity as a way to more effectively catalyze positive and inclusive systemic change.
This blog will raise the question of how we, as MSD practitioners, should respond to the failing global economic model upon which we base our work.
I left the Market Systems Symposium in Cape Town energized and excited. Catching up with old colleagues, meeting new people, and sharing learning all made me feel like I was part of a community of leading thinkers in MSD, ready to take on global challenges for the well-being of others. But I was also left with a nagging thought, a feeling coming from the gut that has bothered me since I started doing economic development work in 2005 in Kyrgyzstan. And while I was planning on writing a simple practicable blog upon my return, I’ve suddenly been called to fry a bigger fish as I once again question whether or not, through our work, we are promoting a global economic model that is sustainable and equitable.
I actually believed to have found the answer to this question some years ago when the value chain development approach evolved into Making Markets Work for the Poor (M4P), now more commonly known simply as Market Systems Development (MSD). In this approach practitioners identify opportunities to benefit the “poor” (by economic standards mostly) by capitalizing on existing market forces.
I dove into the MSD world, excited to put my brain and brawn behind an approach that aims at benefitting the “poor” in a sustainable way that is also scalable, the multiple MSD orgasm. I worked in Ethiopia, Jordan, and Solomon Islands on MSD projects that saw thousands of people increase their resilience, incomes, and find jobs. But, despite these and other positive development outcomes, the nagging feeling in my gut grew stronger, and the question - am I promoting an economic model that is inherently unsustainable and inequitable? - grew louder.
I am now seeing that the answer has been screaming in my face for years, starting with the 2008 global financial crisis, the Panama and Paradise papers, global warming, the plastic waste dilemma, species extinction, continuing violence around the world; the list goes on and on.
While our global economic system, largely of neoliberal capitalist timbre, has helped, and continues to help millions to rise up out of economic poverty, we have bet on the future and negated the costs of negative externalities that are now coming to the fore. This is especially evident in our current environmental crisis, the resulting climate change-promoted natural disasters costing millions in dollars and lives, and record-breaking levels of “economically developed” illnesses such as cancer and depression.
While disheartening statistics, such as the one from the 2019 Oxfam Report showing that the "26 richest people on earth in 2018 had the same net worth as the poorest half of the world’s population, some 3.8 billion people” could be justified by the fact that a rising tide lifts all boats, more troubling is that the report also claims that 2,200 billionaires worldwide saw their wealth grow by 12 percent, even as the poorest half saw its wealth fall by 11 percent.
Yes, statistics can be cooked, framed, and re-framed, and used for an agenda, and not all development is regressive. The book Factfullness, by Anna Rosling Rönnlund, Hans Rosling, and Ola Rosling, actually shows that, in terms of the United Nations Millennium Development Goals, some real progress has been achieved, especially in the areas of health and education. But I again ask, at what cost?
One doesn’t need to be a genius to understand the basic mechanism that an increasing global population with increased wealth, largely coming from the regions of our work, require more food, demand more meat, and with improved purchasing power will want to take part in the race to own all the latest gadgets. Agriculture is shown to be one of the biggest, if not biggest, contributor to climate change. So how is this going to work?
This paradox is what has scientists screaming; activists screaming; youth screaming; spiritual leaders screaming (see the encyclical "Laudato Si" - “On Care for our Common Home” - from Pope Francis addressing environmental challenges, economic systems, and the question of social justice); while we, MSD practitioners, enthusiastically labor to perfect the MSD approach, fail to look up from the microscope to see the larger reality that with good intentions and some good results we are promoting an economic system that is failing humanity, failing to contribute to the common good of all.
The “common good”, rather than just wealth, is, in fact, what the economy is supposed to produce. As Claus Dierksmeier, director of the Weltethos-Institut (Global Ethics Project Institute), points out, this idea has been a historical consensus of the greatest political and philosophical minds (Reframing Economic Ethics. The Philosophical Foundations of Humanistic Management, Palgrave Macmillan, 2016, p. 35). It is also the principle and fuel of various new movements underway, including the Institute for New Economic Thinking, the New Economy Coalition, the New Economic Foundation, and one by my fellow Austrians, Christian Felber, the “Economy for the Common Good Movement”. Felber echoes Dierksmeier as he shows us that virtually all constitutions over the world posit that the economy must be a means to an end, and not the other way around (see Colombian constitution’s article 333, US Constitution’s Preamble, and Bavarian constitution’s article 157).
So what does this principle, of the “economic for the common good" mean for us, MSD practitioners?
What is our stance? What is our role, if any?
Are we satisfied knowing that our work improves the lives of many now, while contributing to future negative impacts for the entire planet?
By Peter Saling, Associate Director, Winrock International
In this blog Peter Saling discusses concerns in how international develop often takes an, “I know better” approach when designing and implementing projects. While the blog focuses on youth, Peter raises a broader concern about how development practitioners and donors often pre-define a solution or outcome that they have decided is appropriate. Although well intended, from a systems thinking perspective, it is not good practice for a project to predefine and deliver a single solution. Rather, systems thinking approaches should catalyze and amplify connections and emerging behaviors that harness a system’s own human (and other) capital to innovate solutions that work in that system’s context. In systems thinking, a country becoming self-reliant is sexy.
In the United States, May and June is graduation season, when America’s youth mark an important milestone in leaving behind known comforts and pursuing economic independence. The occasion is observed with platitudes from community leaders, politicians, business leaders and celebrities about seizing the moment, the endless opportunities ahead of them, and being the change they want to see in the world. The messages are at once familiar and totally forgettable.
To my knowledge, not one of these speeches encouraged young Americans to be smallholder farmers. President Barack Obama spoke at my graduation in 2010. Can you imagine if someone had told his father his future was limited to smallholder farming?
Yet, this is the future envisioned by donors, development leaders, and programs throughout transitioning economies. Why should the young people of Kenya, Senegal or Vietnam have their opportunities defined by programs meant to give them those same opportunities for economic independence? How can we, as development partners and implementers, encourage the boundless ambition and creativity of today’s youth?
At the Market Systems Symposium 2019, practitioners and thought leaders from throughout the development community met over three days to discuss the challenges young people face in agriculture, experience in designing and scaling interventions that create opportunity for youth, and how to engage young people as the leaders of transformational change, not those to whom change happens.
In keeping with the tired tradition of the graduation speaker, we arrived at a list. But not a list for young people; rather, a list for the adults in our industry intending to empower them. So to the donors, the developers, the designers and the doers, these are our development rules for engaging youth in agriculture:
A recent New York Times article boldly proclaimed, “Millennials ‘Make Farming Sexy’ in Africa, Where Tilling Soil Once Meant Shame.” The article went on to explain how young people in Ghana, driven by technology, social commitment and, yes, profit, are causing a cultural shift around attitudes toward agriculture in Ghana. As development practitioners, let’s expand the opportunities for young people in agriculture, not define them. Let’s bring sexy back.
If that had been President Obama’s message, perhaps I would remember more of what he said.
By Sadruzzaman 'Tamam' Noor, CARE Bangladesh
In the following blog, Sadruzzaman Noor provides and interesting perspective of a practitioner at the forefront of learning and applying systems thinking. In the blog, a number of important challenges are raised. For example, many practitioners absorb new ideas like market systems thinking through experience. At the same time, learning something from experience can lead practitioners to perceive that there is a specific market systems approach. During the Symposium, many systems thinkers raised an important concern that ideally, international development practitioners should not focus on a market-systems-develop approach, but rather focus more on learning how to apply systems and complexity lenses to challenging market conditions and contexts. While there can be some tension between these points of view, it is increasingly clear that being able to both support field practitioners learn from experience and establish greater clarity around the theoretical underpinnings of the thinking is important.
The approaches being undertaken nowadays by the international donor bodies to improve lives of the general population in underdeveloped parts of the world differ significantly from approaches assumed a couple of decades ago. We have seen the emergence of systemic thinking and market systems development (MSD) approach that are quite distinct from the conventional aid schemes. We have predicted, observed and analyzed the merits of involving the market in pushing the agenda of enhancing living standards in the package of increasing inclusivity as a tool of sustainable business growth. This is mostly because we have learned to identify the root causes of market level failures that bars the flow of production and delivery of goods and services for all. As a result, and as a general solution, the market systems development professionals are putting up a great effort to increase the frequency and quality of interactions between providers and consumers through short term projects engaging the private sector anticipating behavioral changes at both tiers.
The market systems development programs (MSD) follow a number of facilitation guides that would help the managers to plan and communicate strategies to engage the private sector in achieving certain goals. However, as the vast majority of the aid workers working in this sector in developing countries are still graduating to this relatively new market systems approach and as the saying goes “unlearning is much more difficult than learning”, MSD project managers often face troubles in acquainting the team and other relevant stakeholders into the complex paradigm of systemic thinking. This article offers a summarized private sector engagement and facilitation approach to help project managers in this regard and trigger critical thinking within the team.
A good starting point is explaining how MSD works and why we need the private sector engagement to find solutions to most of the questions present at the market level. Let us start by trying to define these two in the following chapters.
2. Market Systems Development
Markets, just like any other system, are composed of several components such as actors (e.g. private companies, service providers, consumers), their relationships (e.g. transactional, partnerships), and the dynamics of the relationships (e.g. bargain power, influences). Apart from these, there are norms and perceived notions that dictate how these components function. Simply put, a ‘market’ is a thing that allows a range of actors to exchange values, in other words ‘problems and solutions’, which help these actors to survive and grow. The main role of markets is to provide the space to create opportunities for participation of buyers and sellers. The performance of a market is calculated from the quality and quantity of opportunities it creates and the proportion of the relevant population it invites to participate.
Markets move in the direction the actors chooses it to. Interestingly, when we observe markets, we identify two key issues:
a) Buyers and sellers do not efficiently foresee the outcomes of following certain directions in dysfunctional markets. This lack of foresight basically makes these markets low-performing.
b) Markets always rectify itself. Whenever there is a gap of certain product (a good or a service) in a well functional market someone usually steps up and fills it.
Now, these two issues may seem counterbalancing each other, and mostly it does. A low-performing market do have the need of policies, tactics and guidelines that may help it get better. This latent demand, once surfaced, can call out to entrepreneurs and authorities to adopt strategies and standards that can add value to the performance of the market. The only real issue to be addressed here is the speed of change. There are many actors who are extractive and do not see investing in growth to be profitable because no one else is doing it. This is where the MSD approach can offer it service to ‘accelerate’ the process.
Here is the thing, MSD professionals do not offer real solutions to real problems. Rather, they bring the actors together who might be interested in solving the problems. Hence, MSD approach tries to establish mechanisms that guide the market to become more resilient to internal and external threats by equipping them with systemic thinking patterns.
This is much easier said than done. One might wonder why extractive actors would listen to these external characters such as MSD professionals. This is exactly where the facilitation part comes.
3. Facilitating MSD Programs
An integral part of changing the direction of a market to make it more participatory and inclusive is to involve the private sector stakeholders who would be potentially benefited from such a change. Graduating businesses from having an extractive attitude to supporting growth and investing more on process innovations and product designing can lead towards increased traction. Moreover, we have seen many projects providing ready-made solutions to specific market level actors that brought immediate success, but died down as soon as the flow of donor money stopped. So, it is very important to ensure that the ownership of change lies with the agents of change, i.e. the market actors.
Putting things into perspective, even in high performing markets there is a very high (nearly 90%) rate of failure for start-ups. However, if the market system is designed in a way it provides cushion for entrepreneurs to get back on their feet and try again, the total number of trials will keep increasing. Markets learn from their failures, adjust tactics, and retry enriching the institutional memory of the sector in the process. This is exactly how the world got popular products like NetFlix, Facebook, Uber and AirBnB, simple trial and error. This is a continuous process that helps markets to get better in terms of becoming more participatory and creating more opportunities.
Naturally, businesses strategize on evidences and peer learning. Innovations can be expensive, and with the lack of the ‘cushion’ we discussed in the previous paragraph, it can bear high risk in low-performing. Merging these two concerns an MSD program assumes two important roles such as –
The Evidence Collector MSD programs should analyze the market by gathering and dissecting data. There has to be some potential for growth showing benefit for the actors to make any change. The duty of generating tailor made business cases incorporating inclusive growth lies with the MSD programs.
The Guarantor MSD programs should help market actors to see the benefits of trying out new things, learning from failures and adjusting tactics. We often see private sector actors, especially in stagnant economies, showing reluctance to invest in innovations. This is where an MSD program can add real value in sharing the risks and shaping the behavioral patterns of private sector actors to move towards inclusiveness.
By assuming these two roles, there are several ways an MSD program can shape its own guideline of market facilitation. I would like to share one variant of such a method in the following chapter I have been following to guide my teammates, most of whom have very recently been oriented in the MSD approach.
4. Private Sector Engagement Strategy
Shomoshti is an MSD program funded by SDC and implemented by CARE Bangladesh. It works across 6 agricultural subsectors in 4 geographic hard-to-reach regions with poor and disadvantaged population who are vulnerable against natural disasters. One of the key focuses of the project is to bring change in the market through efficient mobilization of the private sector enterprises.
There are certain roles Shomoshti has undertaken to improve the performance of the Bangladesh market working within the scope mentioned. The facilitation model adopted by the program has 3 parts that would benefit the private sector partners:
A. Incentive Identification
As discussed in last chapter, an MSD program needs to identify incentives, economic and social, for the private companies and so that a business case can be built on the opportunity. The potential growth of business from increased interactions should be projected as convincingly as possible to attract private investment in sustainably increasing inclusiveness. And to make it convincing, offering strong data augmented by logical analyses is imperative. Therefore, this is the most important mission for the project to gather and present market data that shows incentives.
B. Institutional Memory Creation
An MSD program works towards changing the behavior of market actors. To do this, the program needs to collect and manage evidence of impact per dollar. In doing so, the program tries to build the institutional memory of the actors and the market as a whole establishing the merit of the intervention idea. For example, packaging seeds at a lower cost targeting ultra-poor farmers has not been interesting for large agri-input companies in Bangladesh before a program shared the costs in launching such a project to try out the idea. It became an instant hit in bringing profit for the company as well as increasing poor farmers’ chance to generate more value from their crops. Nowadays, there are several initiatives taken by private agri-input companies in Bangladesh that target low-cost packing of inputs to penetrate the ultra-poor market segment. The market learned how to utilize its forces to adjust and respond to its own call. The MSD program would help the market in creating this institutional memory.
C. Ensuring ROI
Three most important factors related to scale and sustainability should be remembered while designing an MSD program. These are – Relationships, Ownership, and Intensity of investment. As the program assumes the role of a guarantor that is trying to help the private sector to learn the merit of “trying out new things”, these three guiding principles can help build effective interventions. We will briefly discuss this in the following paragraphs.
Since, an MSD program tries to find solution from within the market system, it is of utmost importance that the interventions work towards improving the relationships between the market actors with as light a touch as possible. For example, we often see traditional donor projects to intervene between the connection of vegetables farmers and collectors by imposing fixed and higher than market rates. This would only provide the farmers a relief for a short time by gaining higher price of their vegetables. However, this distortion would not sustain as the market forces defined by higher bargain power of the traders will push it back to the previous status as soon as the donor money dries. On the other hand, the program would have a better chance in gaining impact – higher prices for farmers – by strengthening the connection between the parties, facilitate exchanges of information, and finally letting the market work out the balance in the price.
The ownership of the intervention should stay with the change agent. Often MSD programs fail because they do not do a good job in transferring the ownership of change to the market actors. A really good analogy is that of the magic solution pill. Often programs try to find out the magic solution pill to a certain systemic constraint, package it with academic wisdom, and force a partner to implement it hoping for a positive success story to emerge out of it. However, since the private sector partner had not really own the idea, it seldom continues the effort even if profit is seen. A good way to ensure its true involvement is including it at the planning stage of the intervention and create avenues for it to invest. Reinforcing the actor’s relationship with relevant stakeholders as described in the previous paragraph also helps because it enables the private partner in assuming the role of a change agent.
Finally, an MSD program should avoid pouring down money to help push a certain solution. Often, this does not work in the long run. For example, there are programs that tried to help the dairy subsector of Bangladesh by partnering with private milk processing firms to establish milk-fat testing machine at village level collection points. Though initially it was successful in generating a boost in price for dairy farmers in the short term and helped them understand the benefits of target based production, e.g. feeding the cows with a target of increasing fat content in the milk. Point to be noted is that these testing machines are very expensive and though it would help the processors in the long run to ensure sourcing better quality milk it calls for a very high financial commitment. As a result, this solution proved to be too costly to be uptaken by private sector and ultimately was not scaled up. Learning from examples like this, an MSD program should always look for the sweet spots where the private partners’ required internal rates of return on investment match makes sense for the investment being committed by an MSD program.
There are many cases where we see programs to fail to achieve sustainable impact in spite of having an apparently fail-proof strategy. All of the initiatives mentioned in the previous chapter are from well-known programs vetted by experienced strategists, experts and donors. However, as the saying goes - “the devil is in the detail”, a program needs to be sound in deploying tactics. Introducing tactical thinking to the inexperienced team can lead to changes and bring real impact.
 This situation has its roots to another related issue called ‘profitability’. For example, even if profit is seen by catering to the ultra-poor market segment, a large national level agricultural input company in Bangladesh with limited supply of credit might calculate the ‘profit-per-dollar’, compare it with other options (such as investing further in the high value market), and get discouraged to continue.
 Fat content is very important for milk processors as generally water is stripped down for most of the processed milk based consumer products.
This post was reblogged from LinkedIn. View the original posting here
By Mike Field, Market Systems Specialist, EcoVentures International
Over the last few years there has a been an interesting evolution in my thinking that initially was grounded in questions about systemic resilience. Central to understanding resilience has been how societies manage risks around shocks and stresses. However, from a systems thinking perspective, how communities are managing risks is only a small part of the challenge. How to do societies mange risks across communities, regional etc.? What are the patterns in investment, policies, etc. that indicate an orientation in how societies perceive and think about risks related to stresses and shocks? In starting to investigate these and other questions regarding how a society could shift in ways to better manage known and knowable risks. IN particular, why and how could a society via its political and market systems manage risks across groups/communities at a systemic level, which has in more developed countries limited the burden placed on individual isolated communities.
Taking northern Kenya as an example, the communities have evolved ways to manage risks from shocks and stresses based primarily on their ability to absorb the risks through strong communal fabric. All members of the community are essential threads in the fabric, and as long as community members can maintain their roles the fabric can absorb enormous amounts of hardship. In addition to communal loyalty, communities seek to accumulate resources and see outsiders often as rivals for scarce resources. Resilience programming has primarily sought to bolster a community’s ability to weather shocks and stresses by reinforcing their absorptive capacity, which makes complete sense.
While much of this is not new, when systems lenses are applied to this landscape some interesting insights and questions arose. Primary among them is a question about how does this landscape and the efforts around it align with efforts to get a country to middle income status. More specifically are these efforts leading to an improved capacity at a nation-state level to manage stresses and shocks over time so they can remain on a path to middle-income status? This question has implications past resilience tied to shocks like drought in northern Kenya as many NGOs that focus on the most vulnerable also focus on the resilience of those communities in relation to day-to-day stresses that leave them on a knife’s edge. For organizations and practitioners working in areas prone to bigger shocks and stresses or those working in areas where vulnerable populations are often under stress related to basic needs, they have tended toward focusing on social safety net services as essential to stabilize the communities. While this is makes sense, as practitioners have become more aware of systems thinking and applied systems lenses question continue to arise related to how such programming aligns with supporting a country towards becoming self-reliant.
It would be expected that as a country moves toward middle income status and greater self reliance, it would also see the value in investing in mechanisms and tools to manage stresses and shocks in ways that reduces the burden on its populations. This expectation brings to light an important conversation that has started, but needs to progress much further. Specifically, how should/could practitioners engage around shifting the way the system provides social safety net services, as opposed to providing the services themselves. The challenge here is that any such suggestion has to recognize that there would be a gap around social safety net services. This challenge would not be easy to address but it is critical, especially once it is understood that social safety net services are central to market system development. They are also essential to a society’s ability to manage resilience at a higher systemic level in ways that can mitigate and neutralize known and knowable risks without forcing individual communities to always take it on the chin.
A serious conversation about how societies manage known and knowable risks including how that affects markets, political, social, etc. systems is essential. It is increasingly clear that as a result of international development evolving multiple stove-piped areas of investment, many efforts now work at cross purposes. Systems thinking has provided effective lenses to see how and why alignment across these domains is needed and possible – even if it is not going to be easy.
By Marcus Jenal, Partner, Mesopartner
Marcus Jenal’s blog highlights the importance of systems thinkers gathering and share their learning and experience. He also raises some important points related to how hard it is for practitioners ignore or leave behind their own personal histories, beliefs, etc. Maybe the most important takeaway from the blog is that real and durable change happens because the system and the agents in the system shift toward behaviors that are more attractive in relation to the current and emerging environment. This understanding that it is more effective to amplify or make more prominent alternatives so market actors can assess and sift in response to the attractiveness of the new behavior is central to what is emerging as best practice in systemic change projects.
I have spent the last three days at the Market Systems Symposium 2019 in Cape Town. I really enjoyed the event. Besides meeting good friends, there was a great number of practitioners with astonishing accumulated experiences on how to implement Market Systems Development (MSD) projects. There was also a good number of donor staff, which provided their perspectives on the challenges of implementing adaptive and learning programmes – unfortunately the European donors were largely absent (with the exception of one participant from the Swiss Agency for Development and Cooperation), most of the donor staff were from USAID. The majority of the active participants were those that are working on further developing the approach, innovate within their project and generally try to make market development more effective – it was really exciting to hear what they figured out and what they are struggling with. There was a good energy around during the three days. But I have also picked up some concerning trends, particularly around the growing intent of MSD projects to change market actors’ behaviours.
Bridging the conceptual and the practical
What I enjoyed the most about the Symposium was the ability of the event to bridge conceptual discussions with very practical experiences. One of the discussions throughout the Symposium was on how to use concepts and frameworks from systems thinking and complexity in practice. But then there were also many sessions where people talked about their experiences, for example when a bunch of project leaders shared the stage in a plenary session and talked about what they are excited about and what keeps them awake at night.
I also enjoyed the thematic track on Market Systems Resilience as there are some really interesting explorations going on in various projects. Also there, the participants were able to discuss conceptual questions around resilience with practical challenges projects face when working towards Market Systems Resilience and attempting to measure it. There were lots of other interesting discussions in and between the sessions, for example on the question how we become more effective in learning as a field of practice and avoid repeating the same failures over and over again.
I want to send out an appreciation to the organisers who have been able to pull together an amazing bunch of people and that at only the second instance of the Symposium, which premiered in 2018.
Designing better behaviours?
There was, however, a concerning trend that I picked up in various sessions. As MSD projects do not generally provide grants or build infrastructure but facilitate change by working with and through partners, behavioural change has grown in importance, also driven by insights from behavioural economics gaining more broad recognition. The questions asked are for example: How can projects shape behaviours of buyers of agricultural goods to change their business strategy from short-term extractive to more oriented towards building a sustainable business? Or how can projects influence market actors to show behaviours that would improve their resilience, e.g. by making them save more, buy insurance, or diversify their assets?
In one exercise, the participants were asked to come up with statements a market actor would make who shows ‘bad behaviours’ (which often reflects current behaviours) and statement one would make who shows ‘better behaviours’. Once we know the two apart, we can convince the market actors that it is in their own interest to take up these ‘better behaviours’ that are described to them by the projects.
We know that behaviours are shaped by many different factors, including but not limited to a person’s history, knowledge and experience, their social and commercial relationships, formal and informal norms and customs, values and beliefs, etc. All of these factors, as well as how they come together in the particular moment, influence how people make sense of what is going on and how they behave as a result. Recent research even shows that the current mood as well as what people eat for breakfast that day influences their sensemaking. In the logic of behaviour change in MSD project this is unfortunately often conflated into a simple ‘they don’t know better what behaviour would be good for them’. Hence, if a project works with the people and shows them the light of a better way to behave everything will work out. I’m using on purpose a stark formulation here to make a point, reality is most certainly more nuanced.
Besides the complexity on how behaviours are shaped, also the complexity of the context needs to be taken into account. We cannot really define what ‘better behaviour’ looks like, as we cannot predict what outcomes a specific behaviour would result in in a complex context. If we convince a number of actors to become more inclusive and move their business strategy away from short-term extractive behaviour this could well lead to the end for these companies in a very competitive environment which does not value these traits. From evolutionary economics we know that it is not only the things that we try that counts, but also the selection environment in which they are expressed. So instead of designing ideal behaviours in an unpredictable context, we should encourage diversity and variety in behaviours and at the same time we need to work on the selection environment on which behaviours are valued in a market. In addition, whatever I have heard as examples of ‘better behaviours’ during the Symposium is strongly influenced by Western normative views on how the world should work. It doesn’t help if we say that a trader should build up more trusting and long-term relationships with his or her suppliers if the whole incentive structure around this person shapes a behaviour that is short-term focused and extractive. This can be a very rational reaction of these people to their reality. So we should assume that given all the factors the people perceive they are making the right decisions for them at the moment.
There is also a moral reason why I think directly targeting people’s behaviour is problematic. Who are we to go to a country or region and tell the people how to behave? On what moral basis can we as development actors argue that our interpretation of reality and the required behaviour to respond to this reality is superior to the people who actually live in this reality? The same moral argument has been made against nudge-type interventions in general, but I think it becomes much more powerful in development with development workers coming from developed countries and/or totally different cultures (and the symposium was, probably representing a good sample, still dominated by mostly white, western development workers) – this is simply patronising.
But what is the alternative?
We find an alternative approach in complexity thinking. We can catalyse attractors, change constraints or increase diversity. Catalysing attractors means that we can supply a place for new behaviours to crystallise. This can for example be through making existing divergent behaviour more visible, i.e. working with so called ‘positive deviance’, or by exposing market actors to different realities that might stimulate some exploration of different behaviours. Changing constraints would look at why certain behaviours are not taken up, e.g. because there are strong social norms that prevent them or because there might even be formal rules that do not allow them or severely hamper them (e.g. red tape). A project can work with such institutional or structural aspects like constraints, but the exact change in behaviour that will become visible on the surface will be an emergent result of this work – i.e. it cannot be predicted. This means we need to be cautious and tread lightly, ideally by using safe-to-fail probes. Increasing diversity and variety of things tried in the system opens up new options for different behaviours. This could be different business models, different processes, or different products. A project can stimulate this by working on and strengthening the local innovation system. It generally means working through meso organisations like technological or extension organisations, research stations or educational organisations like universities or vocational training institutions.
For me the fact that many are trying to design the ‘better behaviour’ is a symptom that we as a community often still default back to our traditional modes of working where we identify a problem and try to find a solution. So in that sense we haven’t made the switch to a way of working that is truly informed by complexity thinking. The types of solutions may have shifted from doing capacity building or building factories or cold storages to designing better behaviours. But it is still about fixing problems through designed solutions, rather than about attempting to work on the evolutionary potential and the development trajectory of the system.
Another thing that I picked up is that people still ask for concrete tools and methods they can implement in their projects. This is also a symptom of the linear, reductionist way of thinking: “If I can find the right tool I can design the right solution”. In reality, complexity requires us to deeply explore a context by engaging with it. Pathways will emerge as we do that. There is heuristics guidance on how to do this (like our Systemic Insight approach), but here is no recipe as what needs to be done and how is unique in each context.
All in all, I think events like the Market Systems Symposium provide important spaces to grapple with these ideas, methods and concepts and learn together as a community. I’m already looking forward to the Market Systems Symposium 2020!
This post was reblogged from Marcus Jenal. View the original posting here.
By Zenebe B. Uraguchi, Programme Coordinator, East and Southeast Europe, Senior Advisor, Sustainable & Inclusive Economies, Helvetas
Zenebe Uraguchi’s blog raises some critically important challenges facing systems thinkers that were central during the symposium. One of the more difficult challenges has been the question of evidence. In the blog, the tension between what is typically collected as evidence, versus what systems thinkers say is more critical evidence to collect, is highlighted. When most people ask for evidence they are coming from a linear/mechanical perspective that once you can count an outcome it is set in stone. Systems thinkers focus on trying to understand the underlying guardrails that form in a society/market guiding how the system will evolve over time. Evidence that supports whether the guardrails have changed in a way that will lead to ongoing outcome patterns such as increasing incomes, better health outcomes, greater participation, etc. is very different from gathering information on the number of farmers trained, jobs occurring in a finite period of time, income increases in a finite period of time, etc. Maybe a more important question is what evidence for what purpose, as opposed to what is the evidence on applying systems thinking. Another very important point raised in the blog is the current devaluing of learning. Central to any good systems thinking is an understanding that the complexity of any social system, including market systems, means that change is an emergent process and can only be managed through learning and adapting. At present, this understanding remains limited in international development as most practitioners and donors subscribe to a more linear or expert driven understanding of the challenge that assumes there is a specific solution to each problem. Zenebe’s blog reiterates a key theme from the symposium that more work is needed to learn how to apply systems thinking to market challenges.
Among the many relevant sessions, there was a creative poster at this year’s symposium, as shown in the cover picture for this blog. Everyone was taking a picture in front of the poster and I also joined the crowd. Beyond picture taking, the poster listed ten key features that supposedly describe what market systems thinking is expected to involve.
With a second thought, I wasn’t quite sure whether I embody these ten features to be “qualified” as a market systems thinker. To begin with, I don’t know why there were ten features; I also don’t dare to make a reference to Moses’ Ten Commandments! Here are the ten features:
Facilitate and catalyse durable systems changeIncreasingly many implementors of development initiatives are embracing – at least from their declarations and reports – the market systems development approach. The Symposium was proof of such emerging trends. It wasn’t dominated by “the same old faces, with a few more wrinkles every year, using [confusing] jargon to present the same old stuff.” There were diverse organisations and people and not just the usual suspects that have been at the forefront of promoting the approach. This’s definitely encouraging, as it provides increased momentum for doing development differently.
We need, however, to be sincere and critical.
First, listening to several discussions, presentations and informal discussions gave the sense that the level of understanding of the market systems development approach is quite different. This’s problematic and worrying, and I am not trying to make a mountain out of a molehill. For example, the approach isn’t just about private sector engagement or development. It doesn’t exclusively focus on “markets” in the economic sense. Development cooperation is a multi-stakeholder endeavour. Increasingly, this’s becoming apparent. It involves not only the private sector, but also public-sector actors and civil society. We need to ask ourselves: who is best fit to do under what kind of context?
Second, there were impressive cases demonstrating good practices and successes. The cases and the extensive discussions were eye-opener. Yet, most of us seem to be less concerned about a major problem – the evidence on impact of the market systems development approach is thin! This is a very, very big elephant in the room. The BEAM Exchange and ITAD worked on developing the evidence map of different initiatives. The conclusion is that “we still need to expand the evidence base to better answer in-depth questions about who benefits and how, and in what circumstances the approach can be most effective.” For this reason, the Eastern Europe Unit of HELVETAS, covering several countries, is currently preparing a regional impact assessment of labour market systems projects to know what works and what doesn’t and why.
There's also another, apparently abstract and small but crucial challenge: the lack of consensus on what constitutes systemic change. Most projects seem to struggle to define concretely what it means and how to support it.
See what is below the surfaceThis means conducting proper analysis before moving into actions. It involves understanding of relationships and social norms within a system. With the risk of over-complication, the purpose is to have a better insight regarding constraints and identify opportunities.
In reality, we often conduct one-off or long and boring studies which we never bother to look back once we’re done or update the studies later for that matter. This problem is especially true with dynamic sectors such as ICT in which trends quickly change and development practitioners need to keep abreast of changes.
In addition, one can dig deeper to find root causes, but several different interconnected and interdependent elements and structures may be the reasons for the failure or underperformance of a system. For example, why the education system isn’t producing skilled young people in Kosovo; why the tourism sector isn’t attracting more visitors and hence employers invest and create more jobs in Bosnia; or why young people and their parents aren’t having relevant and attractive information to decide what to study or which career path to choose in Albania.
Look for patterns in behaviour. This, I guess, refers to good understanding and identification of formal and informal norms and values of actors or partners in (not/under) performing their functions. The norms and values are about relations, interactions and connections between people, organisations and other networks. Understanding how social norms work and navigating them carefully for effectively influencing positive changes is highly important. How often are we paying good attention to such factors?
Long-term change in behaviour is rarely a simple process. As our experience from 15 projects globally shows, most monitoring and results measurement systems are designed to capture quantitative data. This means that, narratives (qualitative data)fail to “understand existing perspectives, beliefs, decisions and norms, or the way these are changing in response to interventions and other environmental factors.” In other words, we often pay more attention to formal and quantitative (observable) changes.
Of course, there's good progress mainly in health interventions (e.g. water and sanitation, HIV) but not in other initiatives. Let us take change in gender relations, be it for income or employment impact. Men and women don’t exist in isolation from surrounding informal rules and social norms. In other words, it isn’t simply the interaction between men and women that determines the outcome of gender equitable relationships. Complex networks of social norms are often at play. Another example is in the skills development area. In the Balkan region, a pattern has been emerging in the skills development area in which more and more training providers play critical role on job matching. Such a trend is also playing an important role of lowering the risk of unemployed youth to invest in new training programmes, as training providers are involved in ensuring the job placement of trainees.
Celebrate learning, including the “oops moments”Most conferences, unfortunately, lack honest inquiry where successes are proudly packaged in glossy formats and heavily disseminated and presented. One of the new introductions by the Symposium was consultations on several topics. Even though participation was quite low, topics such as “taking learning seriously” were important.
There’s a reason why I’m focusing on learning. Development initiatives suffer from the deficit of ensuring that learning is durable.
First, learning is taken as an add-on and not part of our work. Therefore, the culture of learning is weak. Fear, embarrassment, and intolerance of failure drives our learning underground and hinders innovation. Learning and innovation is helped or hindered by the surrounding system. Therefore, the importance of learning and innovation from oops moments have more value when individual experiences are linked to organisational culture.
Second, even if learning happens, it’s just owned by development projects. There’re scant cases of development projects working with actors such as universities. This means, organisations and leaders will need to proactively nurture learning and innovation to be owned by systems actors in the countries where we work. Without this, the experiences will remain limited to few individuals who dare and feel safe to share their knowledge and learning.
One last word…It’s easy to get so caught up in the daily grind that development practitioners lose motivation or excitement for their job or interests. Taking a break from our day-to-day responsibilities creates new settings for developing ideas. Conferences or symposiums can be rejuvenating by being inspirational and offering energising opportunities. Listening to other people share their ideas and feeling their enthusiasm gives us the energy to tackle new challenges. In other words, conferences can be an important reminder that we are not on our own.
Hats off to the organizers of the Market Systems Symposium! And look forward to the 2020 sessions….
This post was reblogged from Helvetas. View the original posting here.
By Elizabeth Eckert (RTI International) with Marcus Jenal (Mesopartner)
It's not every day that a group of development practitioners from around the world get together to discuss complex systems theory. In late April 2018 during the Market Systems Symposium in Cape Town, South Africa, we were offered that opportunity. On a daily basis, a group of participants met to discuss and unpack the concept of “self-organization” and how it can be of use to implementers of market systems development projects. This blog seeks to capture this robust discussion while also serving as a platform for future discussion around this topic.
So, what is it?
Self-organization, in systems lingo, is also referred to as “spontaneous order.” An important feature of self-organization is that the process is not controlled or driven by agents outside of the system itself, or by anybody, really. Rather, self-organization arises within the system naturally. In thinking about market systems, a topical example would be the seeming black box of the informal market – traders at varying levels know how to set their prices; information about new market opportunities emerge through unexpected relationships; informal rules influence who sells products at which locations and at which prices – and all of this without a central designer or authority. The organization of the informal market is not written down or codified -- it is known through repeated patterns of behaviors and continuous interaction. Feedback loops, some that are reinforcing, and some that balance out new factors (internal or external), are essential to maintaining the coherence and nominal order of the self-organized system.
For some in our discussion group, self-organization is a useful conceptual framework to help understand and map the complex relationships of informal market actors; particularly information and transaction flows; spoken and unspoken norms or “rules of the game;” and the formal laws and regulations that informal market actors are navigating. This allows us to subsequently develop strategies to influence and shift these norms and rules so that the system is more equitable and inclusive. For others, self-organization speaks to spaces for engagement or convening power such as after-school committees, pick-up football matches, and community advocacy groups. Finally, some members of our discussion group emphasized that self-organization is not only important as a way of understanding change, but also as a way of framing the change we expect to see. For example, introducing new technologies is one of many possible tactics to shift how a system self-organizes so that it generates more desirable behaviors and results.
What is it not?
One sticking point within our group discussion was the confusion around the term itself: many kept jumping to the idea that we were talking about organizing groups. In our field, there are entire methodologies, approaches, and tools around organizational development (producer organizations, marketing cooperatives, savings and lending groups, etc.). This is not what self-organization is talking about. Rather, those existing organizational structures are part of the multitude of actors that make up the broader complex system. However, this doesn’t mean we cannot work with already formed organizations. In fact, we can use approaches discussed in the next section of this blog, to encourage new patterns of interaction and behavior of these formal organizations. In Senegal, for example, the RTI International-implemented, USAID-funded Feed the Future Senegal Nataal Mbay project employs a unique approach toward influencing producer groups to use evidence and data for their own advocacy. The project focuses on building data fluency as an entree to finance, insurance, and improved contracting. This intervention has catalyzed new relationships between these farmer groups and buyers, financial institutions and local government.
How might we use this this concept in practice?
Our group discussed a number of ways in which development practitioners can harness self-organization for market systems change:
Regardless of how we influence change in a self-organizing system, our interventions should identify leverage points that can 1) trigger a ripple or multiplier effect, and 2) create changes that are lasting and self-reinforcing, rather than short-term reactions. MSD projects should identify and activate leverage points and observe the resulting ways in which market actors react in groups or individually. Which leverage points increase healthy business cooperation and competition? Which shift roles, rules, or norms towards a more inclusive system? It is also crucial here to understand that actors’ self-organizing is unpredictable if a constraint is changed or a catalytic intervention is introduced. Therefore, we need to tread carefully and be ready to remedy unintended negative consequences should they occur.
Final thoughts around our role in market systems development
Our last big discussion point as a group was on our role, as market systems practitioners, vis-a-vis self-organizing systems. Development projects, as we often know them, err toward tight control to achieve specific milestones and targets while adhering to a predefined logical framework. A big take-away of our group exploration on self-organization is that we may need to let go of some of that control. Rather than acting as project managers, the system we are working with is better served if we act as influencers, enhancers, space-creators, risk-reducers, and learners. In doing so, we recognize the internal logic that self-organizing market systems have – we can then build upon that logic, moving the system toward increasing inclusivity.
We look forward to additional feedback from the MSD industry on our exploration of self-organization, and to future discussions on this subject at the annual Market Systems Development Symposium.
Erik Derks, of The Canopy Lab, also contributed to reviewing and providing input to this blog.
 Miller, J. H., and S. E. Page, Complex Adaptive Systems: An introduction to computational models of social life. Princeton University Press, 2007.
Derks, E., Field, M. and Sparkmen, T. Practical Tools for Measuring System Health. Leveraging Economic Opportunities Brief. USAID.
 Cunningham, Shawn, Ph.D. & Jenal, Marcus. Rethinking systemic change: economic evolution and institutions.” BEAM Exchange. 2016
By: Mike Field, Senior Technical Advisor, EcoVentures International
When working on private sector development it is often cited without question that profit motives are good. The thinking goes that a firm that makes a profit would have to make their customers happy in order to sell to them and as a result generate that profit. While this thinking on its surface makes sense, it is founded on a set of assumptions that when seen through various systemic lenses is quite flawed. Let’s start with a definition of profit. As a banker once stated in a training, profit is an opinion based on accounting rules. It is not a universal thing, but an evolved definition related to accounting and tax requirements. So in most cases, when people say profit they really mean gross margin or what is left of revenues once you subtract out costs. Even if we leave aside the detailed accounting definitions and only frame the discussion around a very general idea of profit meaning what a business person gets to take home, then we are still left with a range of assumptions related to how markets function. Understanding how markets function is where systems lenses have proven very valuable in uncovering important misguided assumptions about profit.
Going back to the original statement that profit motives are good, the assumption is that markets and market forces universally reward business that add value through customer satisfaction and that companies that cheat customers are sanctioned effectively. This assumption in how markets reward and sanction firm behavior is at the core of the concerns that good systems thinking highlights. More specifically, in most countries where there is widespread poverty, market systems are biased in favor of more extractive behaviors like rent seeking, mis-information, fake products, adulteration, etc.. – i.e., tactics and behaviors that business people can do to extract revenues without providing value in return. In many cases such biases can become rooted in social systems resulting in a process of institutionalization where norms emerge reinforcing the behavior. For example, if we take a case of an ag input provider that sees an opportunity to begin selling fake seeds, how would the market sanction that input firm if:
The multiple important mechanisms required in a market to sanction poor behavior relative to value addition are not present so sanctioning is not effective. In this scenario, it is likely that the farmers would not be able to recognize that the seed seller is cheating them, and since competitors or third party organizations like media or consumer protection NGOs are not organized to advocate on behalf of the farmer and against the seed seller, it is unlikely for the seed seller to be sanctioned. More likely, the seed seller would be rewarded for cheating the farmers by gaining more revenues with lower costs. Further it would be rational for the seed seller in such market conditioned to think that maximizing profits would mean cheating more.
In this case above, the profitability of the shop is not an indicator of adding value as the shop is specifically reducing value in the system – it is extracting value from the system not only in real financial terms in that it is taking financial capital in exchange of something that has no productivity value, but also because it is reducing the efficacy of social capital by further eroding trust. The systemic feedback via the lack of sanctions and rewards from having immediate higher margins would also reinforce that kind of behavior to be normalized, which is exactly what is observed in many developing country contexts. The result is that firms that are profit driven in systems that reward extractive business practices would, as a normal course of business, engage in behaviors (i.e., selling/buying tactics) that capture value at the expense of their customers/suppliers.
Given that in international development where many if not most market systems are biased in favor of extractive business practices, profit is especially a poor indicator of positive change at firm or market system level. Even further, the greater the profit orientation of firms within such a system often suggests that the underlying incentives pushing extractive behaviors is deeply rooted in the system and will be difficult to change. If most firms are aggressively applying tactics to extract value from their suppliers, staff, and customers then that would be an indication of a system’s strong bias in favor of markets that have self-organized to capture resources (i.e., and not add value). It is important to understand that such biases are mostly likely related to a risk management strategy that accumulates resources as a means to deal with shocks/stresses.
The table below provides specific firm and systemic patterns that indicate an extractive or a value addition orientation of a market system.
A good market systems project will focus its efforts on catalyzing firms to see the value in behaving in ways that align with a value addition orientation. They would also try to catalyze systemic changes that also align with a value addition orientation. Simply assuming profit motive is good further a myth in how market work and why they are not providing appropriate benefits to a wide enough set of citizens. Systems thinking is critical to understanding the orientation of market systems and how to shift that orientation to being more value added.
A good market systems project will focus its efforts on catalyzing firms to see the value in behaving in ways that align with a value addition orientation. They would also try to catalyze systemic changes that also align with a value addition orientation. Simply assuming profit motive is good further a myth in how market work and why they are not providing appropriate benefits to a wide enough set of citizens. Systems thinking is critical to understanding the orientation of market systems and how to shift that orientation to being more value added.
The MSDHub Blog Series is authored by respected implementers and donors of market systems projects globally.