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Ken Opalo's avatar

Good post.

But I think “trust” is overrated as an explanatory variable. Trust beyond closed groups is endogenous to the capacity to enforce contracts at scale - so you need scalable social institutions (religion) or states. Notice that early modern corporations often has explicit sovereign backing. They didn’t just spontaneously spring from social trust.

Another important point is that there are indeed a lot of firms in Africa that operate at scale. The point of ny piece is that the region needs more of these, and that they should be bigger.

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Ebenezer's avatar

Another factor I wonder about is population density. The population of Manchester in 1700 was about 10,000 people. The modern population of Lagos is over 10 million. With 10,000 people, "everyone knows everyone" and there are meaningful consequences for unfair dealing. With 10 million+, you've got urban anonymity.

This is highly speculative, but: Perhaps cities can exist in an equilibrium of either low-trust or high-trust. In the high-trust equilibrium, enforcement mechanisms work. In the low-trust equilibrium, they don't. It's easier to achieve the high-trust equilibrium with a small population, and if population grows gradually, it's possible to maintain a high-trust culture where norm violations stay rare enough that enforcement mechanisms aren't overwhelmed.

Anyways, I suppose this suggests that Africa could benefit from the formation of professional societies of businesspeople, with rules for who gets to become a member, who stays a member, and how disputes between businesspeople are adjudicated. The Y Combinator startup network in the United States could be an interesting case study. Y Combinator is a VC which funds many hundreds of startups in Silicon Valley, and they're known to maintain a blacklist of investors which engage in practices they deem to be unethical.

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Performative Bafflement's avatar

Shouldn't some sprawling rich families be able to make conglomerates that are still kin network affairs, but employ lots of people?

Thinking of the Ayala family in the Philippines (Ayala malls, San Miguel corp and much more), or the chaebols in Korea (Samsung, LG, Hyundai) and zaibatsu in Japan (Sumitomo, Mitsubishi). I believe similar dynamics have happened in a large number of other countries (without a ton of additional research, I'd guess that Tata, Vingroup, and Thaibev all fit the pattern too).

All of those families employ hundreds of thousands of people through their businesses, but they're still kin network affairs at the top to a pretty large degree, even today, and moreso in the past. I don't see why this model couldn't also work in Africa?

It's the common pattern in a lot of developing countries, even those lower on capital and specialization and "rule of law" when the companies got started.

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Siebe Rozendal's avatar

Those family businesses still require impartial enforcement of contracts to make deals with suppliers, contractors etc

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Performative Bafflement's avatar

> Those family businesses still require impartial enforcement of contracts to make deals with suppliers, contractors etc

They really don't, that's why I called them out. Pretty much all of them started in a time / environment when "rule of law" was much less a factor than today.

And even today, in Philippines, Vietnam, and Thailand - three of the countries mentioned - rule of law is iffy at best, and rich families have large systemic advantages in any legal dispute.

You also don't need rule of law to sign contracts with suppliers, contractors, and clients - look at China. I've been doing business in China for a decade plus.

Do you know what recourse you have when a chinese company / factory knocks your stuff off, or messes up a million dollar order and tries to make you pay for it? "Lol." That's not an interjection, that's literally the recourse you have, people will laugh at you, including the formal legal system if you tried to go that route.

And this isn't just a "Chinese vs foreign company" thing - internally within China, people do all they can to avoid formal legal disputes with their clients, suppliers, etc, because the formal system takes a long time and is pretty arbitrary, even if both sides are Chinese.

The Chinese have lifted ~800M people out of $2 a day poverty over the last 60 years, and they did it with essentially zero social trust between non-kin, and with very little "impartial rule of law."

But don't take my word for it - ask other people who have been doing business there, ideally actual Chinese people.

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9A's avatar

Great article. When I worked in Mozambique, the difference in social trust of non-kin was striking. As you probably know, Henrich also asserts that western European social trust was the result of hundreds of years of the church enforcing anti-incest rules by condemning people to hell and seizing inherited assets, among other things. Because the church shattered kin loyalty, people had to find new social groupings, and those had to include non-kin. As much as many Africans love going to church, I don't see any church that is centralized or powerful enough to enact that sort of social change. (The Catholic Church inherited the bureaucracy of the Roman Empire after all.) In fact, the religious sector in Sub-Saharan Africa has a lot of informality to it, much like the labor and business sector....

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Michael Beach's avatar

Postcolonial African governments are not only unable to enforce contract law across the whole of their territories, but have very good reason to be unwilling to grow the formal sector. The unionized formal sectors in African capital cities were behind many of the coups and power centers in the post-independence years, and carved out special privileges and favors for themselves at the expense of economic stability. Rawlings in Ghana was only able to hold to IMF targets partly by replacing independence-era unions with his own party infrastructure, preventing their political pressure as he redirected investment to the cacao sector.

For the formal sector to grow, African nations will need to follow de Soto in formalizing their informal economies, then better equalize the conditions between informal and formal employment. More formal jobs should not become a death wish for the government in power, but the African middle class will not accept this loss of power unless governments can show real growth in return.

You'll find that "social trust" goes up a lot once it's actually safe to trust your society again.

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Chasing Oliver's avatar

Perhaps modern tech can solve the problem. Electronic self-executing contracts?

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Andrew Hastie's avatar

It just doesn't feel like there's a strong desire in developing countries to enforce contract law. They continuously vote for tribe over nation and it feels like there needs to be a great collapse in Africa and the ME where countries split up and reform into something more stable than the post-WW2 European designated arrangements before anyone will take an interest in real nationhood there.

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