C. Cohen,
I respect what little I know of Sen's work but I don't think markets are the problem. Most workers are actually prevented from bringing their skills to market and reaping the rewards. I think Sen's work that shows how famines are not necessarily accompanied by nationwide food shortages suggests this. Somehow we get the situation where literally millions of people are on the streets, begging to work for their suppers and there is no work to be had, despite the fact that the supper is available. Who, I believe it's reasonable to ask, does *not* need this labor?. What explains the sudden lack of need for useful labor?
In a very simplistic, but not unreasonable way, we might conclude that an economy that suddenly finds itself "without" the need for that most basic commodity - labor - must be run by those whose needs have already been met and who are therefore indifferent to this excess. If there were millions of people filling the streets of America demanding so little for their work, who among us could not find a little something for them to do in exchange for a big bag of rice, a couple pounds of beans, some clean water and maybe an onion for flavor? (what's that, $5?). It seems to me the problem in these places is that you have huge numbers of people effectively divorced from the market and the economy itself. There is no economy for them to go to. Their countries are alienated from the basic purpose of an economy - to provide for life. I don't think a market does that. I think that the excessive influence of rich people on an economy does that. I don't think an economy where regular people actually had the wherewithal to create commerce and serve the market (which is their fellow workers, after all) would create such madness.
While we need a welfare state for those who cannot provide enough useful labor, I don't think the welfare state is needed to overcome the effects of the market on normal workers. Rather, I think the welfare state is overwhelmingly a compensation for oppression. Absent the oppression, I think the welfare state might not need to be even as large as it is now (that's worldwide, depending on how you define the welfare state).
peace