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.
To learn more about this author, visit International Labour Organization's Website.
Like this article? Share it with your friends
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
