Are market systems development projects too cool for rules?

Are market systems development projects too cool for rules?

This article looks at how market systems development projects can better connect with business environment reforms to improve the ways market work better for the poor. It has been written by Ines Bentchikou from the International Labour Organisation in Geneva and Simon White. 

Ines works with The Lab at the ILO, which is a global initiative funded by the Swiss State Secretariat for Economic Affairs that generates and applies knowledge on how a market systems approach can lead to sustainable decent work. In other words, how can we make markets work better for the poor?

Working with ‘rules’ for better market systems outcomes

Development cooperation projects using a Market Systems Development (MSD) approach understand the need for sound policies to regulate a system. The business environment is the base part of the market systems framework – or the laws and regulations that dictate how workers work and businesses operate. When properly set up and enforced, the business environment regulates behaviour and can drive productivity and better working conditions.

However, MSD projects often feel obstructed by a list of challenges when it comes to driving change in laws and regulations. From a lack of capacity to work on legal and regulatory issues and poor access to political forums, to a perceived lack of feasibility to address deep-rooted constraints, many MSD practitioners feel that reforming legal and regulatory systems is too difficult, and sometimes choose not to address these challenges.

This forces us to ask: is it truly enough to focus on market-based interventions and not reforms to trigger systemic change? Are results more likely to be perpetuated without the support from the public sector? Well, as usual, it depends.

How can market systems development projects integrate more business environment reform work?

First, we have to keep in mind that business environment reform does not always equal policy design. The rules and regulations can be hindered by a wide range of constraints – from the lack of coordination between public authorities and low policy awareness to low enforcement induced by a lack of capacity.

And thus, an extensive range of interventions can be developed by MSD projects before thinking about advocacy and law development. For example, MSD projects can work with governments to improve their communication process when a new law is designed, by linking government actors with the right private sector actors who can disseminate this information on their platforms. Such interventions are not so different from typical MSD and can truly have an impact on the application of law – getting the information to people such that they can decide whether to apply a law or not is sometimes half the battle.

Second, working effectively in rules and regulations in MSD projects requires putting these issues into focus at the analysis stage. MSD is well known for its analytical focus and trying to tackle the actual problem instead of its symptoms. Even if this is a major feature of MSD projects, it seems to be less so when analysing the formal rules and regulations. The problem is, if the analyses do not focus sufficiently on the rules, it will be harder to understand how to tackle challenges at the intervention design stage.

There is a clear need for MSD projects to step up their analytical skills in this realm as it can also teach us about the general context in which MSD projects are set up. Understanding the different political power dynamics in a country allows for more realistic intervention plans and effective work towards systemic results. Take, for example, an MSD project in Afghanistan. If it links a milk processing firm with dairy farmers in a remote province taken by Talibans, it needs to take into consideration different costing consequences, such as informal taxes, more expensive transport due to security issues and simply the fact that Talibans may decide the shut down the intervention any instant for political reasons. An analysis of the rules and regulations, inclusive of the political economy, naturally comes in handy to avoid bad surprises.

Thirdly, MSD projects do not need to change the nature of their work to incorporate business environment reforms. MSD is all about incremental change. This is still applicable to the legal and regulatory reform. Working on legislative processes or on political behaviours is also a form of informal behaviour change. This can be facilitated through light touch interventions with existing actors already present in the system.

Lastly, as with other MSD interventions, partner selection, building trust and moving slowly are all important. It is not because these interventions are developed with public institutional actors that the project can make no mistake. It is okay to stop, take a step back, understand why it is not moving as planned, tweaking the strategic plan, and starting over. Adaptive management is still relevant and feasible in this context.

Working on market systems development and business environment reform

To sum up, MSD and BER complement each other – identifying and improving the legal, regulatory and administrative framework in which market systems operate allows for both sides of the famous MSD ‘donut’ diagram to complement and support systemic change. The challenges in this work, including a broader cast of private and public actors to work with, are significant.  Often, too, the timeframe for business environment is long and the political processes involved are complex. But when project interventions that improve the supporting functions of commercial transactions are introduced alongside measures to reduce government-induced risks and transaction costs that improve competition, the benefits of these actions can be long-lasting and impactful. Thinking and working systemically requires us to consider all aspects of market and government systems and the ways they interact. We can improve the way we work with both these systems, by ensuring our diagnosis is comprehensive and recognising how these two systems interact with one another in any given instance.

If you enjoyed this and want to know more on this topic, check out this brief which is all about tips and tricks on how to concretely integrate more work on the rules and regulations in your project. This should hopefully give you some ideas and practical guidance, and who knows, might inspire you to actually integrate this as part of your project.