Making the market work better for the poor

THE Mecca of modern day capitalism is markets. Our needs and wants are usually allocated through the market; more and more aspects of our lives are becoming embedded in it. The global recessions and its widespread impact is a testament to the power, interconnectedness and importance of markets. Taking into account this ubiquity of market, one has to ponder why we have such widespread poverty coexisting with affluence. This is not a speculation on inequality or redistribution but a pragmatic question: is it possible to harness this powerful market to work for the poor? Take the vegetable seed market in Bangladesh; until recently, most companies were targeting farmers using large packages and distributing them through dealers/retailers. This made business sense and was reaching many farmers. But about the poorest farmers in chars, homestead growers or last mile farmers; who were reaching them? The reality was that most of these extremely poor vegetable farmers were either using low yielding retained seeds or buying small volume of open adulterated seeds from mobile seed vendors (MSVs). Seed companies had to undertake prohibitive search and negotiation cost to establish a new distribution channel using MSVs, if they wanted to target these poor farmers. The poor farmers faced high coordination cost meaning they couldn't raise their voices to demand smaller packaged seeds. Thus there was a market failure purely because of high transaction cost.

This underlying constraint was identified by a project that supported a leading local seed company to pilot and then scale-up production and distribution of low priced mini-packets of seeds through MSVs. Within a couple of years of launch, the number of mini-packets sold has crossed millions, with additional companies crowding in to the small packet seed market. Research shows that most of the customers are poor smallholder farmers. Philosopher Karl Popper was suspicious of the idea of wholesale change. He argued society, just like science, grows through incremental progress. Similarly when we talk about helping the poor, the answer is not starting with a blank slate, but rather exploiting the power of the market. Market development is a pragmatic approach, where we try to identify where the poor operates, what are the underlying constraints, and how by working with the market actors we can address them in order to bring about changes which are pro-poor, sustainable and resilient. While foreign donors can surely assist, in the long run, it is up to our government to take the lead and steer the markets so that they work better for the poor.

The writer is a student at  Cambridge University UK.