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Why rethinking how we work on market systems and the private sector is really hard

May 17, 2017
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Whatever your ideological biases about ‘the private sector’ (often weirdly conflated with transnational corporations in NGO-land), markets really matter to poor people (feeding families, earning a living, that kind of thing).  But ‘making markets work for the poor’ turns out to be really difficult and, just as with attempts to tackle corruption or improve institutions, there is a rethink going on in the aid business. Critics of conventional approaches (of which I am one) argue that systems thinking and complexity both explain why a lot of previous approaches haven’t worked that well, and suggest some new ways to tackle the problem.

To catch up on some new research on all this, I spent a fascinating afternoon at DFID last week. The ‘knowledge hub’ BEAM Exchange (they don’t like to be called a thinktank) Beam exchangepresented a discussion paper and technical paper on ‘rethinking systemic change’, along with a warts-and-all case study from Palladium on the difficulty of trying to put this into practice in a large market development programme in Uganda. Some highlights.

The discussion and technical papers reviewed the lessons from the 3 elements of New Economic Thinking: evolutionary economics, new institutional economics and complex adaptive systems. Eric Beinhocker’s influence much in evidence. The papers draw some useful and pretty challenging conclusions:

‘The aim of development must be to enhance the evolutionary process in an economy and create access to this process for all levels of the society, both politically and economically.’

‘Institutional change cannot be put in place by solving problems and scaling them up. Institutional change can only occur if the local actors who are part of the system become aware of their role in the system and have options to purposefully influence institutional evolution. A group that is targeted by an intervention is likely to become more marginalised, not less – a boundary is drawn around the people, and the group is given an often highly simplistic and idiosyncratic label, such as ‘the poor’. Instead of labelling groups of people, the aim of market systems development should be to create opportunities for all people to engage in a functioning market economy.’

market-systemThe authors, Shawn Cunningham and Marcus Jenal, find that a lot of people say they are thinking in systems, but they really aren’t:

‘Too often in our work we see programmes claiming to work towards achieving systemic change while they are busy fixing narrowly defined problems guided by very specific objectives in very short time frames, while ignoring the broader systemic context. They then expect to be able to ‘scale-up’ the solution they have found and through that make it ‘systemic’.’ Ouch.

As is often the way, the critique is more powerful than the proposed solution – a set of 7 pretty generic and unobjectionable ‘general principles’ for those working on market systems (e.g. ‘create and maintain situational awareness’).

But what really made it real for me was the case study on Uganda. The paper, by Palladium’s Andrew Koleros, discusses the challenges faced during the inception phase of a £15m, 6 year programme: “Northern Uganda: Transforming the Economy through Climate Smart Agribusiness – Market Development (NUTEC-MD)”. It compares the project’s experience during its first year with the insights provided by the BEAM think pieces.

What came graphically across in the case study and seminar discussion is the tension between good intentions in design and the subsequent pressures to deliver short term, predictable results in tight timeframes. Systems thinking informed NUTEC’s initial analyses and approach. That initial desire to understand and ‘dance with’ the system however, was swiftly undermined by the pressures of running a multi-million pound project and in particular, the demand to both predict in advance, and then achieve, pre-agreed results. In practice this seems to have generated a lot of anxiety, pressure and an emphasis on ‘us’: what do we do? How do we hit the target of 75,000 families in 6 years? How do we find some quick wins to keep DFID happy? This is in conflict with and rapidly squeezes out efforts to walk the walk in terms of dancing with the system, bottom up solutions, engaging with positive deviance and understanding and supporting endogenous change processes.

This tension also led to a shift to safe bets – a 9 month inception phase was meant to produce proposals to reach a quarter of the 75k households. So the team ended up importing and adapting successful interventions from elsewhere in Uganda to ensure it met its donor targets, rather than trying to identify and support solutions emerging locally.

NUTEC’s inception phase ended a little over a year ago. Since then, the team says it has had more breathing space. It has been able to step back and take a more holistic, participatory approach to engagement with local market actors. But tensions remain.

Hats off both to Palladium for being candid about some of the problems it faced and to DFID, for creating the space for critical reflection.

Some wider thoughts from the ensuing discussion:

There is no guru: local business people often have fixed ideas about what is wrong, and they may not be the best ones. Outsiders have partial knowledge at context intervention 2x2best. So surely a good approach is to find ways to programme in uncertainty – eg multiple parallel experiments (see my current favourite 2×2 – there seems to be a huge resistance from aid agencies to going below the x axis).

The relative power of outsiders and endogenous drivers of change seems to matter. It may be harder to ‘dance with the system’ when the aid business is a 300kg gorilla, and the system a relatively flimsy stripling, as in Uganda. Harvey Koh presented FSG’s Rockefeller-funded study of the Indian dairy cooperative, Amul – did that do better because of the size and self confidence (especially post independence) of Indian reformers, and the secondary role of outsiders? (I’ll blog on the Amul story when FSG finally publish its paper).

How could a portfolio approach help: as long as each project is under pressure to hit its individual targets, you get plain vanilla and safe bets. Can you take a portfolio approach within a project, e.g. by establishing a minimum acceptable target for results, and then having innovation on top? Could Payment by Results have a role? Or a portfolio approach across a region, country or donor, that looks for a blend of safe bets and high risk/high innovation projects?

Finally, it still feels like there is a real need for market systems people to catch up with the work on institutional reform by the governance people – Doing Development Differently, Building State Capability and so on. Governance people seem to have made a lot more headway in understanding what goes on in the black box of institutions, and how to influence it. Some of those insights might well be relevant to market institutions too.

And we really need some more iconic positive market systems stories, like SAVI on governance – hurry up on Amul, please!



  1. Interesting, especially the recognition that simply scalling up ain’t enough.
    But surely this is a contender for dullest definition of development: “The aim of development must be to enhance the evolutionary process in an economy and create access to this process for all levels of the society, both politically and economically”…? And very econo-centric.
    Much prefer Manfred Max Neef’s notion that development should be about creating “conditions for people to adequately satisfy their fundamental human needs”. Obviously markets have a huge role to play in that.

    1. Doesn’t seem so much dull as either horribly false, or empty and obvious (depending on whether ‘evolutionary process’ is a yay-term or neutral). New to this blog, and don’t know this development theory at all, but I’m getting flashbacks to Hayek’s trippy suggestion that Darwin stole the theory of evolution from Adam Smith.

  2. Great example from Uganda. And so familiar & depressing. We’ve been trying to find alternatives to log frames for years. But the audit culture keeps growing. When does the pressure for accountability & reporting to donors finally get to be too much, and kill what we’re trying to achieve? Or have we already passed that point in practice, and are now dancing a heavy footed bureaucratic shuffle on nothing but sand – waiting for the taxpayers to notice?

  3. “Hats off both to Palladium for being candid about some of the problems it faced and to DFID, for creating the space for critical reflection.”

    Thank you Duncan, for this thoughtful blog – and for this observation in particular.

    There is much to celebrate in the sustained efforts of many donors to do development differently.
    I see donor acceptance and adoption of market systems approaches making a noticeable difference to practices in financial inclusion, in smallholder agriculture, in access to household energy, sanitation services and other sectors. Yes, tensions remain – but was there ever a time or place when they didn’t?

  4. New to the blog here… a great piece.

    Complexity is an issue a lot of people don’t want to get into. Thanks for encouraging us not to simplify too much but, perhaps, to embrace the complexity, so as to embrace long term solutions that require tension and mess and real human relationships.

    I look forward to following and learning more!

  5. Interesting to read this comment on (again) a “new research-afternoon at DFID”. I personally wonder why so many people keep spending tax-payers money and time on things so simple as 1+1=2. Yes, the system in which highly (respect !) motivated “development guys (and dolls)” have to squeeze themselves into, has perverted over time. And now we invent new workshops and researches and books and blogs etc. etc. to invent a new wheel, which already exists in the normal world for ages.

    As member of the “private sector”, being owner of private funds after being in business successfully, we now act as impact investors for over 10 years. Apart from doing investments in the reals sense I was always also interested to try to enhance effectiveness and efficiency in the world of development agencies. Bringing the best of both worlds together, so to say, in a good cooperation between us and relevant NGO’s, mainly on economic development. It was (and partially still is) quite a journey. Seeing highly motivated people burned down and indoctrinated by “the system”. Spending their time on things they should not spend their time on. And having too little time left to spend on the real actions to be taken. And in doing so, getting frustrated, unless you like to write logframes, budgets, project-proposals and all other stuff no one really reads and that are outdated the time you print them or send them to “the donor”. But in the end only bringing false impressions of results. So many reports with figures that do not represent the reality on the ground.

    That’s why we started doing it the normal way. And for this comment: also in Uganda, in the North where we joined forces with local people getting out of the LRA-period. “The normal way”: like you do in normal business. No predefined plans for “making a market”. Or “making a value-chain”. The world is not “makeable”, we are only actors in a rapidly changing environment. So we have to focus on our actions. Being flexible, questioning yourself everyday whether you are on the right track, and if not: adjusting to the circumstances. How can a reasonable person ever think he can oversee, let’s say, a 3-yearsprogram in a rapidly changing environment like the countries in the Developing World?
    There is much to say, and of course with much more nuance than I do now, but space is limited here. And of course always willing to extend on our own experience. But everyday I wonder why well-educated people think the Development World has to create their own criteria for development, creating an Industry in itself. Bringing “shine certainty” in time- and money-consuming Budgetcylces and whatever. That’s not the way to get people out of Poverty, it is only a “fig leaf” for our own incompetence.

    1. Thanks Hans, love the sentiment and impatience (although probably disagree that all that matters is action – there is a role for theory, analysis, learning etc)

      1. Dear Duncan, of course, as university graduate I fully agree with the important role of theory and analysis. That’s for example why we went into a “partnership” with the African Study Centre, Leiden University to question our own actions and to let them make an “Action Brief” of our activities in Northern Uganda. You can find the report here:
        My main point though (on this matter), out of my experience, is that the Dev world, working in a system that has fully perverted, must not invent the wheel in creating other M&E-methods. These are already there from normal Business Economics research and studies, everyday implemented by millions of enterprises and companies all over the world. And implemented in environments where every day counts in staying alive (or not). Please do not create a new bubble of research, studies etc, while people are starving on the ground. I refer to the comment of Alex Jacobs (above): When does the pressure for accountability & reporting to donors finally get to be too much, and kill what we’re trying to achieve?
        The key is to my opinion that we have to invest in quality of good people, experts on the ground, and we have to trust them more, rather then annoying them with unnecessary paperwork, or M&E-cycles nobody ever reads.
        Please notice that I am writing this because I agree with the issue you raise. Really necessary and quite interesting.

        1. Dear Hans. I can feel your frustration. Sometimes it feels like we just need to get on the ground and get things done. Roll up our sleeves and fix the problems. Help these poor people to get out of their misery. It’s simple, isn’t it? And it makes you feel good. You can see the results of your work in the evening, a well-defined number of people get on with their work, businesses grow, create jobs.

          But did we create real, lasting change that can be called ‘development’ in the most fundamental sense of the often misused word? Did we change the systems that perpetuate the things we are frustrated with? Bad or non-existent support for entrepreneurs and enterprises? Policies that hinder companies to do what they do best: create wealth? Lacking institutions that are needed to create an environment for innovation, competition and creative businesses? Probably not. Because these things are not done by rolling up our selves and dig in. They require a deep understanding of the system. Ideally from within, from people who are part of the system. They need to start understanding what is going on, what is needed and what their role in this change process can be.

          We development practitioners (or well-meaning business men and women) need to start standing back and allowing these local pioneers and champions to take the lead and slowly and painfully reshape the environment they do business in and live in with their families. Institutions change slowly, incrementally, from within. They have a history and their change process is constraint, path dependent – we cannot force them to follow our ideals.

          What we can do as development agents is support this change process. Make connections, point out links, translate complicated economic and social change theory into something that can be understood on the ground. Build awareness and capacity. This is a slow process and does not always lead to the change we would like to see. But then, who are we to define what is ‘better’.

          In your comment, you conflate two different problems. The one is the aid industry and incentive systems within this industry. There is a broad agreement that not all things are well and not every penny is spent effectively. This was not, however, the topic of our report. The other problem is how we approach a developing economy as development practitioners and what our role can be to achieve ‘systemic change’. This was the aim of the report. The importance of the latter should not be diminished due to our frustrations with the first.

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