​By Mike Field, Market Systems Specialist, EcoVentures International

In a previous blog on this site, “Diversity and Inclusion in Market Systems Programming,” contributed by Anoushka Boodhna and Devi Ramkissoon, the authors raised an important evidence-based discussion on why diversity and inclusiveness are central to more durable economic growth. ​​
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​During many conversations around resilience and economic growth at the 2019 Market Systems Symposium, I found it useful to reframe the purpose of a market system. If you can, think of a market system as evolved social mechanisms that, when most effective (i.e., provide the greatest good for the society), can proactively manage risks, solve problems and generate more resources. The challenge when market systems are not working at their best is they often become tools of the powerful and connected to extract resources and consolidate power. So the question remains: what to do when a market system is not working effectively for the wider society? Specifically, there are three interconnected and interdependent capacities that a market system requires to effectively perform its functions for a society. Without these capacities a market system cannot effectively allocate human, financial and other resources in response to emergent risks and opportunities. These three systemic capacities include:

• Systemic Capacity 1 - Bridging Capital Capacity:  Through a combination of many mechanisms, functions and norms, a society can lower the social, political, and economic costs/risks of agents to engage other agents outside their identity group. Central to this discussion is how a society tends to either amplify or lower the perceptions of barriers between identity groups. Societies that lower the cost/risks evolve the following aspects/components that form effective guarantee mechanisms that de-risk bridging capital: 
  • fair and equitable judiciary/disputes resolution mechanisms,
  • cultural norms that reward individual accomplishment (i.e., over loyalty), 
  • cultural norms/morality that value equity (i.e., across identity groups), 
  • civil society that actively advocates for its constituents on the basis of equity/fairness,
  • effective, fair, evidence-based, and participatory political system that constantly develops/adapts regulations and laws that encourage testing, failure, and cross group interaction (i.e., contract law, bankruptcy, ease of registration, ease of compliance, etc.),
  • market forces that reward value add and sanction extractive strategies and tactics, 
  • formalized social safety net services/insurances delivered through public and civil society systems, and 
  • media that is independent and advocates for its audience on the basis of evidence/equity/fairness.  

​Through a combination of these components/mechanisms/etc, the cost/benefit of bridging capital can be substantially increased, which in turn, increases the level of interactions among agents across identity groups. Low costs and/or higher rewards for agents bridging across identity groups to work with other agents on goods and services like improved seeds, better IT apps, more effective health remedies, etc., are essential for a market system’s ability to innovate ways to mitigate, neutralize, or avoid risks, as well as take full advantage of emerging opportunities. 

• Systemic Capacity 2 - Churn: Churn is the process of agents and firms engaging in a cycle of connecting and testing ideas/relationships, and if the ideas/relationships add value, then they are supported with more resources (i.e., human and financial). If the ideas/relationships do not add value, then the agents/firms separate. When a system has an effective moral bridging capital capacity, the agents can cost-effectively engage with new agents/firms creating a new combination. High performing market systems can have failure rates as high as 80%, which is important in allowing significant testing and retesting with many combinations of agents/firms. The more a system includes as many people as possible in a cost-effective process of testing and retesting combinations, the higher the likelihood that the system will generate novel and increasingly more effective solutions to emerging risks/opportunities. This process creates an internal capacity for the system to constantly adjust resource allocation (i.e., human, financial, etc.) to solve/address complicated risks/opportunities in ways that demonstrates real value addition. The idea of churn also highlights the tension between agent and system level functions. From only an agent level perspective, high rates of failure could indicate a problem, but from a systemic level it is central to a system being inclusive, resilient and competitive. 
• Systemic Capacity 3 - Commercial/social feedback: Feedback in market systems is related to how agents/firms learn what the society thinks/defines as adding value, as well as sets the guidelines for how the system sanctions and rewards market behaviors. It is through effective feedback on collective demand that a society communicates how it prioritizes risks and needs that allow agents and firms to reframe that information into market opportunities for new products or services. When markets are effectively oriented to add value (i.e., solve problems, reduce risk, improve lives, etc.), feedback will evolve to sanction market actors that are unresponsive to demand and/or actively extractive in their strategies/tactics.  In addition to less demand being a common sanction, other types of feedback, especially across other interconnected systems, would emerge. For example, poor customer service experiences can be amplified via word of mouth in community systems, media can amplify extractive behaviors via investigative journalism, civil society can advocate for their constituents publicly, and the legal/political system can act where cases flaunt laws. The combination of certain feedback evolving to be more influential is central to a market system favoring value addition.

It is through the interdependent interactions of these three capacities that a market system can effectively allocate resources to various combinations of people and ideas that most resonate with the society, as well as an ability to define relative value between different types of risks and associated products and services.  A key point here is how market systems self-organize to be responsive to consumer/societal demands by innovating ways to meet demand and add value (i.e., by mitigating, neutralizing or otherwise managing risk proactively). These dynamic allocation processes ensure enough diversity and inclusiveness are integrated into the market system to best secure the wider society’s ability to proactively manage risk and add value.

By Dun Grover, Director of Monitoring, Evaluation and Learning, ​Transforming Market Systems Activity (TMS) Honduras, ACDI/VOCA

Co-Authored by Anoushka Boodhna, Consultant, EcoVentures International &
​Devi Ramkissoon, Acting Division Chief, USAID

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:
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1. Inclusivity: In market systems development (MSD), inclusivity is the value market actors place on underserved populations. In market systems that are more inclusive, firms tend to see underserved populations as a great opportunity for business growth; and in such systems, we find that market actors will adapt their marketing, supply chain, or management strategies to meet the needs of different market segments. As a result, inclusive growth requires increasing variation (i.e., diversity) in how the market works.
2. Innovation: In market systems, a diversity of ideas and perspectives encourages innovation. Diversity for innovation is closely tied to navigating complexity as the greater the diversity the greater the likelihood of innovation (new ideas, new ways of working, adaptations, re-combinations) in response to changing signals.
3. Resilience: In market systems, resilience is the ability of a market system to respond to disturbances (such as shocks and stresses) in a way that allows consistency, sustainability, or an improvement in the market system’s functioning. In this context, diversity - and diversification - is a central component of resilience.  As a result, the more diverse a system, the more resilient it is.

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.