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Livelihoods, poverty and institutions

The purpose of the Rapid Guide is to assist field missions to better understand how local institutions affect the livelihoods of rural households, especially the poor, and their implications for design, implementation and evaluation of specific projects.

Box 1 - Definitions

"A household is a group of people who eat from a common pot, and share a common stake in perpetuating and improving their socio-economic status from one generation to the next."

"A livelihood comprises the capabilities, assets (including both material and social resources) and activities required for a means of living. A livelihood is sustainable when it can cope with and recover from stresses and shocks and maintain its capabilities and assets both now and in the future, while not undermining the natural resource base."

The Sustainable Livelihoods Framework (below) is a tool for understanding how household livelihood systems interact with the outside environment - both the natural environment and the policy and institutional context.

Understanding the Sustainable Livelihoods Framework

Box 2 - Overview of the Sustainable Livelihoods Framework

The left hand section of the figure shows how the vulnerability context impacts on the livelihood assets of rural people - denoted by a pentagon. Livelihood assets are also influenced by outside policies, institutions and processes. Livelihood strategies of different categories of households are shaped by their asset base and by the policy and institutional context in which they live. Livelihood outcomes of different types of households are influenced by the vulnerability context - people's exposure to unexpected shocks - and their ability to withstand the shocks, which depends on their asset base.

Five concepts are crucial for understanding the linkages within the framework:

The vulnerability context refers to unpredictable events that can undermine livelihoods and cause households to fall into poverty. Some of these factors are fast acting (such as earthquakes) and others are slower acting (such as soil erosion), but both can undermine livelihoods. It is important to distinguish between shocks originating from outside the community, which affect all people in the same locality, and idiosyncratic shocks that principally affect only individual households.

Box 3 - Vulnerability context (illustrative examples)

Weather-related shocks and natural calamities: drought, earthquakes, hurricanes, tidal waves, floods, heavy snow, early frost, extreme heat or cold waves

Pest and disease epidemics: insect attacks, predators and diseases affecting crops, animals and people

Economic shocks: drastic changes in the national or local economy and its insertion in the world economy, affecting prices, markets, employment and purchasing power

Civil strife: war, armed conflict, failed states, displacement, destruction of lives and property

Seasonal stresses: hungry season food insecurity

Environmental stresses: land degradation, soil erosion, bush fires, pollution and

Idiosyncratic shocks: illness or death in family, job loss or theft of personal property.

Structural vulnerability: lack of voice or power to make claims

Livelihood assets refer to the resource base of the community and of different categories of households. In the centre left of the diagram above we have a pentagon that stands for different types of assets available to local people - human, natural, financial, physical and social. These assets are interlinked. Each type of asset is denoted in the figure with a capital letter (H, N, F, P, S).

Box 4 - Types of livelihood assets (illustrative examples)

Human capital: household members, active labour, education, knowledge and skills
Physical capital: livestock, equipment, vehicles, houses, irrigation pumps,
Natural capital: access to land, forests, water, grazing, fishing, wild products and biodiversity
Financial capital: savings/debt, gold/jewellery, income, credit, insurance
Social capital: kin networks, group membership, socio-political voice and influence

The size and shape of the asset pentagon - that is, the amount and relative importance of each type of capital - varies between communities and between wealthy and poor households within the same community. For instance, for historical reasons, rich communities may control more and better land and natural resources than poor communities, and within any given community, rich households control more land, livestock and physical and financial capital than poor households.

Community and household assets are influenced by two sets of outside factors: first, the policy and institutional context and secondly the vulnerability context.

Policies and institutions are an important set of man-made external factors that influence the range of livelihood options open to different categories of people. They also influence access to assets and vulnerability to shocks.

Box 5 - Institutions (illustrative examples)

Institutions include both membership organizations and invisible "rules of the game"

  • Formal membership organizations such as cooperatives and registered groups
  • Informal organizations such as exchange labour groups or rotating savings groups
  • Political institutions such as parliament, law and order or political parties
  • Economic institutions such as markets, private companies, banks, land rights or the tax system
  • Social-cultural institutions such as kinship, marriage, inheritance, religion or draught oxen sharing

An enabling policy and institutional environment makes it easier for people - poor and less poor -to gain access to assets they need for their livelihoods. A disabling policy and institutional environment may discriminate against the poor, thus making it difficult for them to get access to land, livestock, capital and information.

Asset ownership influences the range of livelihood options open to different categories of people. Households with plenty of assets such as land, water, livestock, equipment and money, as well as higher education and skills and better socio-political networks, generally have a wider range of livelihood options than households with fewer assets.

There is double causality between the vulnerability context and asset ownership. On the one hand, shocks cause people to lose their assets. On the other hand, assets help protect people's livelihoods against shocks. Human capital is less vulnerable to shocks because it cannot be stolen, lost or taken away easily (unless you die).

Box 6 - Vulnerability and resilience

Households with many livelihood assets are generally more able to preserve their lives and property in the face of shocks than households with fewer assets. They have enough savings that they can afford to buy food when crops fail. They have enough animals that they can afford to lose or sell a few and still have enough breeding animals to build up their herds again after the emergency passes. Resilience is the ability to withstand shocks.

Households with few assets (i.e., little land, few animals, limited physical and financial capital, weak family labour, poor education and lacking in marketable skills) are much more vulnerable to outside shocks than households with more assets. In the face of prolonged drought, when crops fail, poor households are forced first to sell off their animals at low prices to buy grain to feed their families. The longer the emergency, the more they deplete their asset base, to the point that they no longer have anything left to sell but their labour, and even their labour is weak due to hunger and failing health. When they lose their assets, they lose their means of livelihood.

Livelihood strategies are "the range and combination of activities and choices that people make in order to achieve their livelihood goals." On the basis of their personal goals, their resource base and their understanding of the options available, different categories of households - poor and less poor - develop and pursue different livelihood strategies. These strategies include short term considerations such as ways of earning a living, coping with shocks and managing risk, as well as longer-term aspirations for children's future and old age.

A livelihood system is the total combination of activities undertaken by a typical household to ensure a living. Most rural households have several income earners, who pursue a combination of crop and livestock, farm, off-farm and non-farm activities in different seasons to earn a living. Income brought by different household members may be pooled in a common "pot" or "purse" or income earners may hold part of it back for personal spending money. In addition to productive tasks, there are reproductive tasks that need to be performed on a daily or seasonal basis such as fetching water, fuel, cooking, cleaning and looking after children. Finally, participation in community-level socio-cultural and political activities is part of the livelihood system. The livelihood system also includes the total pattern of labour allocation of household members between crops, livestock, off-farm work, non-farm business and reproductive and community tasks.

Local institutions influence household livelihood strategies directly, by determining which activities are legal/illegal and appropriate/inappropriate for women and men, by creating incentives to pursue certain activities and choices over others, and by influencing perceptions of the effectiveness of particular strategies for achieving desired outcomes. Local institutions also affect household livelihood strategies indirectly through their influence on access and control of household assets.

Livelihood outcomes are what household members achieve through their livelihood strategies, such as levels of food security, income security, health, well-being, asset accumulation and high status in the community. Unsuccessful outcomes include food and income insecurity, high vulnerability to shocks, loss of assets and impoverishment.

Box 7 - Key linkages in the Sustainable Livelihoods Framework

  • The vulnerability context influences household livelihood assets
  • Policies and institutions also influence household livelihood assets
  • Policies and institutions can increase or decrease individual vulnerability
  • Household asset ownership widens livelihood options
  • Asset ownership decreases vulnerability and increases ability to withstand shocks
  • The range of livelihood options influences livelihood strategies
  • Different livelihood strategies lead to different livelihood outcomes (positive and negative)
  • Livelihood outcomes influence the ability to preserve and accumulate household assets

The process of falling into or getting out of poverty is illustrated in the modified Sustainable Livelihoods Framework figure below.

Livelihoods and poverty

The asset base of poor households is much more limited than that of non-poor households because of disabling policies, institutions and processes. Restricted access to land, water, natural resources and other assets limits poor households' livelihood options. Lack of assets to fall back on in an emergency makes them vulnerable to shocks. Shocks contribute to negative livelihood outcomes and further depletion of household assets, leading to a downward spiral of deepening poverty.

Because of enabling policies, institutions and processes, non-poor households enjoy a broader livelihood asset base, which widens their livelihood options and reduces their vulnerability to shocks. This enables the non-poor to pursue winning livelihood strategies and to achieve positive livelihood options.

To enable poor households to overcome their poverty, development projects can take three broad lines of action: (a) they can help poor households to build up their assets - especially their human and social capital; (b) they can transform the policy and institutional context from one that disables the poor to one that is more pro-poor, or (c) they can reduce vulnerability, by strengthening resilience at community and household level, in parallel with support for disaster prevention and risk management at higher institutional levels.

Local institutions, poverty reduction and the Millennium Development Goals

Local institutions that are elite-dominated, unegalitarian, undemocratic, un-transparent and unaccountable to local community members are disabling to the poor and reduce their chances of getting themselves out of the poverty trap. Such a disabling institutional context can undermine the effectiveness of poverty reduction efforts and slow progress on achieving the Millennium Development Goals. Conversely, poverty reduction efforts tend to stand a greater chance of success when they are implemented in an enabling institutional context (i.e., where local institutions are egalitarian, autonomous, self-reliant, democratic and accountable to local citizens).

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