Tweet

4.1 Institutions, markets and development: Working Out of Poverty

Written by: International Labour Organization

Article Overview: One of the leading thinkers about the importance of institutions and rules to making markets work for development, Nobel laureate Professor Douglass North, has explained that societies evolve institutions to “reduce uncertainty by providing a structure to everyday life”. He argues that this is essential to organizing the productive division of labour and that “institutions affect the performance of the economy by their effect on the costs of exchange and production”. He also stresses that many of the rules guiding daily behaviour are informal and that effective institutions for governing markets are a blend of socially accepted norms and laws underpinned by shared values.

4.1 Institutions, markets and development: Working Out of Poverty

One of the leading thinkers about the importance of institutions and
rules to making markets work for development, Nobel laureate Professor
Douglass North, has explained that societies evolve institutions to “reduce
uncertainty by providing a structure to everyday life”. He argues that this is
essential to organizing the productive division of labour and that “institutions
affect the performance of the economy by their effect on the costs of
exchange and production”. He also stresses that many of the rules guiding
daily behaviour are informal and that effective institutions for governing
markets are a blend of socially accepted norms and laws underpinned by
shared values.

The debate about how to generate and maintain pro-poor growth is increasingly
focusing on how to construct a framework of public and private
institutions that improves the functioning of the decentralized decisionmaking
that characterizes markets as well as the mechanisms available to
governments and communities for coordinating action for economic and
social goals.

The role of communities, or “social capital”, and the conditions
under which various forms of association contribute to improving the
situation of particular groups, notably the poor, and economic and social
performance in general have also attracted renewed interest.

In these debates
the term “governance” is used to mean the regulating influence of the
set of institutions, norms and policies that determine the functioning of an
economy and society. It is a wider concept than that of the structure of political
authority and government, and includes the role of a variety of public,
private and voluntary economic and social institutions.

The continued existence of poverty on a large scale shows that institutions,
including those that govern labour markets, are not performing well
for large numbers of people in many countries. Often worthwhile micro actions
targeted on the poor and macro strategies aimed at financial stability
are disconnected and fail to generate an overall pattern of steady growth that
helps the poorest most and reduces inequality. The challenge is to create formal
rules that mesh with the widely accepted values and evolving informal
norms to reduce uncertainty and mistrust, thus improving the functioning of
markets. The quality of the institutions that constitute the governance
framework for labour markets is central to strategies to promote productivity,
growth and sustainable development and ensure that poverty is reduced
and eventually eradicated.

The ILO’s decent work strategy offers an integrated framework for
promoting institutional change, founded on universal values, that can help
countries shape the governance of the labour market to promote opportunities
for women and men to obtain productive work in conditions of freedom,
equity, security and human dignity. This is a complex process, not least because
the institutions to solve today’s problems are built on those established
in the past. Since many institutions are deeply embedded in society, serve the
interests of powerful groups, and take time to change even if the circumstances in which they were originally formed have altered, formulating and
implementing new approaches are unlikely to proceed smoothly. There is no
single model applicable to all countries. Nevertheless, for most families the
main route out of poverty, and the key to reducing the risk of falling into
poverty, is decent and productive work for women and men. This focus provides
an agenda for building up a broad agreement on priorities for action.

A major challenge for the ILO is to help its constituents address the often
neglected issue of the governance of the labour market. As many as 4 billion
people, two-thirds of the world’s population, live largely outside formal
legal systems, mainly in developing and transition economies where poverty
is most severe. The most fundamental elements of a market economy, such
as respect for contracts and recognition of title to property, are often not
available to wage workers, self-employed workers or micro and small businesses
in the huge and growing informal economy.
Furthermore, employment
growth in the formal economy is sluggish in many countries, failing to
offer enough jobs to match the expansion of the labour force and the shakeout
of jobs in larger firms, especially state-owned and newly privatized enterprises.

Related Articles
  1.15 Building an employment agenda: Working Out of Poverty
  1.17 Building partnerships: Working Out of Poverty
  4.0 Sustainable pro-poor growth and the governance of the labour market: Working Out of Poverty
  Moving Forward: International Financial Institutions
  5.1 The SME Development Policy (SMEDP): Support for Growth-oriented Women Entrepreneurs in Tanzania, 2005

Article Tags: debates, decentralized decisionmaking, division of labour, douglass north, economy and society, everyday life, financial stability, governance, labour markets, large numbers, large scale, mechanisms, nobel laureate, norms, poverty, private institutions, social goals, social institutions, social performance, thinkers



Related Forum Posts
Re: What is Your Favorite Thing About Owning A Business? - [quote="freddyb45":1t3lpfi8]For me it's the fact that all the time and effort you put in is worth a lot more, due to it making you "business" more profitable. Working for yourself is also a positive, although employing people you can trust is quite different.[/quote:1t3lpfi8] I like this idea. Working for yourself means you are investing in your own future, not someone else's, although there is value in working for someone else first to gain experience and confidence. Working for yourself does not automatically mean success, fame and fortune. For most entrepreneurs, it takes much work and dedication to get to the point of financial success and comfort - sometimes years. But the benefit is, again, you know you are investing in yourself and building equity for your own future. GT :-]
Re: Alexa Rank - How To Get A Better Alexa Ranking - Hi Jeff, It was your posts on previous threads that I was thinking about. Thanks for contributing to this conversation. In the last few weeks the development of my Internet business, bringing a product to the market and signing up subscribers has been moving ahead even as my Alexa ranking has deteriorated. In the case of niche markets what matters more than Alexa ranking is keyword ranking. Best wishes, David H
Setting a Budget For Professional Development - Hi Louis - I think a big challenge is that many entrepreneurs don't set a budget for professional development. It's usually something companies will look at as they hire people and use as a staff retention & development tool but it's not usually the case that you'll find an entrepreneur sets a professional development budget for themselves.
Re: What or Who Sparks Your Business Interest - this might be surprise to you, but poverty spark my business interest. Poverty is prevalent in Africa. And I discovered early in life that people that own their businesses are richer than anypne else. I decided to get out of the poverty level and business provided a way of escape.
Re: Search Engine Optimization - It is worth mentioning that the smaller markets around the world are going to soon catch up with the bigger markets in terms of integrating SEO techniques and technologies into their business operations. Many small business owners now offer "SEO Services" as part of a larger service plan, and its only a matter of time before everyone knows what SEO is and why it is important to ecommerce success.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Bootstrapping Your Start Up Business.

Leading with Discernment

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.