Sen distinguishes between:
Commodities/resources (means),
Functionings (actual doings and beings),
Capabilities (the set of functionings one can choose from).
In short, economic actors should not be judged by what they have, but by what they are effectively able to do.
A. Contribution: Beyond Economic Growth Metrics
The capability approach contributes significantly to layered economic analysis by:
Reframing poverty as deprivation of capabilities, not merely income.
Highlighting how two individuals with the same resources may achieve vastly different outcomes, depending on their environment, education, health, and social context.
Promoting agency over passive welfare---recognizing people as actors, not recipients.
This view critiques economic policies that treat all agents as homogenous or assumes that equal resource distribution yields equal impact. It is particularly relevant when considering economic layers that are structurally excluded from platforms of opportunity.
B. Indonesian Context: High Productivity, Low Capability
In the Indonesian economy---particularly within the first and second layers---there exist millions of economic actors with latent productivity, but severely constrained capabilities:
A tukang kayu in Tangerang may produce furniture with high craftsmanship but has no access to digital marketplaces or design patents.
A small-scale garment home industry may meet export quality standards but lacks supply chain access and financial literacy.
Many warungs and market traders are embedded in hyperlocal economies, where trust and loyalty networks sustain business, but market expansion or modernization is nearly impossible without external intervention.
Even when technology is accessible, many actors lack capability enablers, such as:
Digital training,
Market mapping and networking,
Product innovation support,
Logistical partnerships.
This results in a phenomenon of "productivity without prosperity"---a critical blind spot in many digitalization and industrialization policies.
C. Implications for the 4-Layer Economy
Applying the capability approach to Indonesia's layered economy reveals the necessity of layer-specific capability building, rather than enforcing blanket "upgrading" policies. Rather than pushing small traders to become tech-savvy entrepreneurs overnight, policies should:
