7. Small enterprise development and sustainable rural livelihoods

From the above it can be concluded that for diversifying rural households the comparative advantage of enterprise development over wage labor essentially consists in its potential contribution to innovate and adapt to a market-dominated environment (the socio-economic structure of the farming household.) Yet rural enterprise development is a form of diversification requiring higher investment and entailing higher risk. Therefore, it is not surprising that temporary wage labor is often the first choice for impoverished farmers in need for diversifying their livelihoods

Notwithstanding, small enterprise development has become an increasingly appealing alternative for all the stakeholders involved in rural development. Under the thrust of budgetary constraints, policy-makers and local administrators are prone to consider the development of an economically self-reliant sector of rural micro-entrepreneurs as a possible solution to the never-solved agrarian question^[3]. Inspired by sustainable development and equity concerns, international organizations and NGOs have found that with the increase in the number of household-based petty-enterprises a non-negligible contribution to a more equitable distribution of income and opportunities, as well an improvement in the containment of negative environmental impacts as with most major development interventions. Eventually, social movements resisting the impact of structural readjustment and market liberalization on rural society might see engagement in innovative self-employment initiatives as an alternative to impoverishment and forced migration.

Overall, enterprise-based diversification looks attractive because of its alleged capacity to promote more sustainable rural livelihoods. Recent research tends to validate this hypothesis. For instance, experts consulted in the framework of FAO/World Bank global study on “Farming Systems and Poverty” (Dixon, Gulliver and Gibbon 2001) have identified in the development of small-scale, labor-intensive household enterprises focusing on production of new cash crops and other agricultural commodities (categorized by the study under the heading of “on-farm diversification”) the most promising rural poverty reduction strategy for all the eight major farming systems types (and in particular for those featuring a medium or high level of intensity). Moreover, several studies (e.g. Barrett, Bezuneh and Abud 2001; Ellis and Bahiiigwa 2001; Ferreira and Lanjouw 2001; Escobal 2001) indicate that in a variety of regional and local settings farmers capable of combining conventional farming activities with innovative rural enterprises enjoy higher income and safer livelihoods than farmers deriving their income from conventional farming alone or from a combination of conventional farming and wage labor.

Notwithstanding, small enterprise development can become a viable pathway towards sustainable livelihoods only if some basic conditions are made available to rural households. These include:

• availability of (or access to) a reasonable start-up capital, which depending on the nature of the enterprise may comprehend natural (land), human (labor, know-how), financial (saving, credit), physical (infrastructure) and social (cooperative networks) assets;

• some degree of protection against shocks and negative trends such as social welfare and insurance schemes, etc.;

• supportive structures and processes including rural enterprise enabling policies, business development services, credit, transport and communication infrastructures, etc. (e.g. Escobal 2001);

• access to a well developed market capable of providing both a steady supply of inputs, food and other consumption commodities and an outlet to enterprise outputs;

• access to marketing information, including information on contracting and other vertical integration opportunities;

• resilience against market failure and capacity to change the enterprise according to changes in demand and market contingencies.

As lack of these conditions is also the outstanding immediate cause of extreme rural poverty, it must be acknowledged that diversification through enterprise development is generally more feasible (and interesting) for relatively better off social sectors, than for the “poorest of the poor”. This is indeed a solid finding of livelihood diversification research. (Woldehanna and Oskam 2001; Barret, Bezuneh and Aboud 2001; Rider Smith and others 2001; Abdulai and Crole Rees 2001). Significant external investments in enhancing access to natural resources, credit, education and training, services, and infrastructure and fair market outlets are thus needed to make rural enterprise development a viable and effective component of rural livelihood security and poverty alleviation policies.