Global Value Chains for Local Development

Individual Essay Assignment

Professor: Marijn Falling

TA: Lucy Cosenza
Student: Sietske Groen
Student number: 583784
Date: July 5th, 2021
Word count: 1568

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How to enhance the local development
impact of global value chains?
ILO’s helping hand shaking Adam Smith’s Invisible Hand?

“It is not the ILO’s role to solve problems that national governments and the social partners have
failed to solve. That is the job of the countries themselves. But the ILO may lend a helping hand,
and it has a wealth of experience from its member States, so that it could build up a global jobs
network from which each and everyone could draw”. — Angela Merkel (ILO, 2011)

Introduction
With experience of over 102 years, the prestigious International Labour Organisation (ILO) aims to
increase social and economical justice throughout the world. The quote by a world leader like
Angela Merkel, preluding this essay, indicates the eminent role that the United Nations specialised
agency plays. Nevertheless, the quote also indicates the debate around the role that the organisation
should play. The organisation’s ambition to enhance local development by means of global value
chain market mechanisms is a delicate and extremely complex task, hence multiple approaches and
opinions circulate on what the appropriate way is to enhance local development, and how exactly
this should be executed. This essay will determine how the ILO is approaching local development.
Additionally, without undermining the outstanding contributions the ILO made to improving
sustainable and ethical employment worldwide, this essay aims to offer critical counter arguments
suggesting that the ILO’s message is not incorrect. However, that it should not limit itself to the
approach taken, and complementary reasonings should be considered.

The ILO’s message

From its audiovisual content, ILO seems to suggest that to enhance local development, it is required
that a thorough examination containing a market systems thinking approach should be adopted to
determine where the root causes lie, contributing to smallholder farmers or bottom of the pyramid
actors, not being able to enjoy the development that global market players are (ILO, n.d.). Involving
multiple perspectives into this investigation is vital, to be able to determine where barriers lie. After
an extensive analysis of the problem, a market-led solution is formulated and offered, that will
facilitate the possibility to develop better jobs for everyone involved. They call this approach, the
Market System Development Approach, and ILO’s team involves multiple cross-sector partnerships

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to effectively execute these market-led solutions. The ILO believes that local development can be
enhanced by providing local people with knowledge, resources, expertise and technologies via
global value chains and its players.

The Exclusivity of the Capability Approach

The market systems approach follows three principles according to Thorpe and Reed (2016). First,
the root cause of the problem has to be determined. Second, markets are looked at as complex
adaptive systems, that involve a multitude of actors, constantly interacting. Third, these identified
actors have to be incentivised to change their behaviours and capabilities. The ILO follows this
approach and the corresponding principles and, as outlined before, aims to enhance local peoples’
capabilities. This approach seems to suggest a capability approach. The capability approach looks at
‘’what people are effectively able to do and to be; that is, on their capabilities’’ (Robeyns, 2005, p.
94). Removing barriers to these capabilities to do things, is the means to wellbeing and
development, being the end to this mean (Sen, 1985).
The ILO adopts a capability approach and focuses on for example enhancing the knowledge
of Timorese farmers on modern cultivation techniques. Whilst this approach results in social
development and job creation for some, it does not seem to allow ‘’reaching very isolated or
marginalised populations, which need more investigation’’ (Thorpe & Reed, 2016, p. 33). Taking a
market systems approach to enhance the capabilities of actors via market mechanisms, suggests that
by creating linkages between value chain actors, or empowering one actor to realise its potential
value, market mechanisms eventually allow for local development. However, the underlying
assumption that actors already have some unrealised potential or form a detached part of value
chains, leads to the exclusion of the extremely impoverished, marginalised actors that are not yet
able to develop by means of a market based solution. To illustrate, the ILO offers a market based
opportunity to Timorese farmers that do already have a plant and basic resources. the ILO
disregards people that do not have the resources to produce and eventually access markets. Another
example is the video by BEAM EXCHANGE (n.d.), a platform collaborating with the Donor
Committee for Enterprise Development (DCED), their explanation of a market systems approach,
considering ‘Petra, a smallholder farmer in a rural area’, as the actor in need for a market based
solution to locally develop. Therefore, it can be argued that taking a capability approach and
operationalising this by a market systems approach is a way to achieve local development.
However, it should not be considered as sufficiently inclusively tackling local development issues.
Which leads to another argument, that besides the market systems approach, alternative approaches
to value chain development should be adopted. A suggestion for a complementary approach will
now be made.

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Circularity & Inclusivity
Preston and Lehne (2017) suggest a circular economy strategy as a means to offer sustainable
growth opportunities for local development, and even skip traditionally assumed conventional
stages or phases of development, to catch up rapidly with developed nations. Currently the idea of
circular economies mainly received momentum in the global west (Heshmati, 2017). However, a
CE strategy could be adopted as a development model or alternative lens than the GVC
development approach, as it can also create jobs for the extremely impoverished in the ‘reusing’,
‘recycling’, ‘remanufacturing’, and ‘repairing’ stages as new parts of the global value chain, turning
the chain into an actual circle, while capitalising waste. Apart from generating jobs, this model can
shift local economies’ dependency from one particular raw material and corresponding prices. A
circular economy development model offers an appealing opportunity for inclusiveness that also
pertains to the potentially marginalised groups before.
Moreover, a report by MVO Nederland and the University of Utrecht state that in general, a
new focus should be adopted within value chains, that circular economy thinking and inclusivity
should be intertwined as the two concepts offer important opportunities when approached
simultaneously (MVO Nederland & Universiteit van Utrecht, 2021).

Governance & Power

Lastly, and perhaps most importantly, the ILO does not seem to take into account the ‘cascading
effects’ that stem from their market based interventions. A concern arises regarding power
asymmetries following from market based, local development by global value chains. Neilson
(2013) describes the approach to look at value chains for development as facilitating multinational
companies to be able to expand on their capital, at the expense of the local marginalised population.
Moreover, Dallas, Ponte, & Sturgeon (2019) propose to look at the arena of collectives instead of
dyads, enforcing institutional power. The dyadic linkages that the ILO now focuses on are based on
the exchange of resources. Collective arenas can be multi stakeholder initiatives that jointly can
enable rule setting and eventually indirectly influence these dyadic linkages. Therefore, the ILO is
recommended to not only help to guarantee vertical linkages from players upstream the chain to
players downstream the chain. The ILO should also consider guaranteeing vertical linkages
amongst farmers. e.g. unions. This will help farmers to bundle forces and offer a collaborative
strong power. Additionally, as also expressed by Corina Kerkmans, CSR coordinator at the RVO
(Rijksdienst voor Ondernemend Nederland), firms often time take a, too narrow perspective
regarding development (Kerkmans, 2021). Therefore, after the ILO has enabled a market
mechanism for development, a longitudinal type of independent ‘referee’ may be required to

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monitor the value chain development process. In line with this, Thorpe and Reed (2016) argue for a
neutral agent as market facilitator that can monitor whether information and power asymmetries
arise, and prevent this. This argument does not mean to trivialise the argument for a learning curve,
that lead firms and value chains can offer for local communities. However, a learning curve only on
the terms of a more powerful player is problematic (Gibbon & Ponte, 2005; Humphrey & Schmitz,
2002), and ensures that ‘’the dominant classes secure their hegemonic rule’’ (Chodor, 2015, p. 45).
The ILO has the potential to play a key role in not only enabling local development by global value
chain market mechanisms, but by enabling equalising development and an equitable balance of
power if these potential negative externalities are accounted for.

To conclude
Instead of traditional development aid by means of transferring public funds, the ILO adopted an
approach to guarantee sustained development by adopting a market systems approach. Like Angela
Merkel indicated, the ILO is offering a helping hand to local communities in order for them to form
partnerships with global players and value chains. In this way, the ILO is shaking Adam Smith’s
Invisible Hand, by highlighting the unforeseen forces of the market and bringing these to a halt,
enabling local development. ILO’s message is clear and is not overturned or contradicted.
Nevertheless, even though the market system approach to development is a
significant improvement to traditional financial transfers for development, this essay argues that the
ILO should complement its approach by acknowledging the shortcoming of the capability approach;
by adding elements of alternative approaches for local development such as circulair economy
development models to their current way of enhancing development, allowing for even more
inclusive local development. Lastly, the ILO is recommended to monitor the development
longitudinally to ensure equitable power.

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References

BEAM Exchange. (n.d.). Two short videos about the market systems approach. Retrieved from:
https://beamexchange.org/market-systems/video/.

Chodor, T. (2015) The Neoliberal World Order. In: Neoliberal Hegemony and the Pink Tide in
Latin America. International Political Economy Series. Palgrave Macmillan, London. https://
doi.org/10.1057/9781137444684_3.

Dallas, M. P., Ponte, S., & Sturgeon, T. J. (2019). Power in global value chains. Review of
International Political Economy, 26(4), 666-694.

Gibbon, P., & Ponte, S. (2005). Quality standards, conventions and the governance of global value
chains. Economy and Society, 34(1).

Heshmati, A. (2017). A Review of the Circular Economy an its Implementation. International

Journal of Green Economics, 11(3-4).

Humphrey, J. & Schmitz, H. (2002). How Does Insertion in Global Value Chains Affect Upgrading
in Industrial Clusters?. Regional Studies, 36(9).

ILO, International Labour Organization (n.d.). THE LAB - Market systems development for decent
work. Retrieved from: https://www.ilo.org/empent/Projects/the-lab/lang—
en/index.htm.

Kerkmans, C. (June 1, 2021). Guest lecture.

MVO Nederland & Universiteit Utrecht. (2021). Circulair & Inclusief report. Retrieved from:
https:// www.mvonederland.nl/wp-content/uploads/2021/06/Resultaten-onderzoek-
Circulair- Inclusief.pdf.

Merkel, A. (2011). Quotes from Heads of State and Government in support of ILO at the 100th
International Labour Conference. Retrieved from:
https://www.ilo.org/ilc/ILCSessions/ previous-sessions/100thSession/media-
centre/news/WCMS_158198/lang—en/index.htm.

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Neilson, J. (2013). Value Chains, neoliberalism and development practice: The Indonesian
experience. Review of International Political Economy, 21(1), 38-69.

Preston, F., & Lehne, J. (2017). A Wider Circle? The Circular Economy in Developing Countries.
The Royal Institute of International Affairs. Retrieved from:
https://www.chathamhouse.org/ sites/default/files/publications/research/2017-12-05-
circular-economy-preston-lehne- final.pdf.

Robeyns, I. (2005). The Capability Approach: a theoretical survey. Journal of Human

Development, 6(1).

Sen, A. (1985). Commodities and capabilities. Amsterdam New York: Elsevier Science Pub.

Thorpe, J., & Reed, P. (2016). Addressing Market Constraints to Providing Nutrient-rich Foods: An
Exploration of Market Systems Approaches.