The nations that are
Western, Educated, Industrialized, Rich, and Developed (WEIRD) have long
experience with markets and democracy and are rightly proud of these. They hold
the world’s oldest joint stock company (established in 1288 in Sweden), stock
market (1602, in the Netherlands), and democracy (930, in Iceland). But they
also started the world’s greatest economic downturn (1929, in the U.S.) and greatest
war and genocide (1939, in Germany). Now that we have entered an era with
significant threats to markets and democracy, it may be time for the WEIRD
nations to learn something from Kenya.
Kenya is a complex nation
with markets threatened by distrust and corruption and democracy threatened by
ethnic divisions and conflict. This makes it ideal for studying the formation
of trust in the form of stock market participation spreading beyond the
well-connected elite, creating a market for investment that includes many
ethnic groups and income levels. An article by Christopher B. Yenkey in Administrative Science Quarterly looks at how this was done and has many useful
lessons for those who want to maintain and grow trust in markets and societies
across the world.
Let me take just one
example of what we can learn from Kenya. Investments require some level of
trust, which is difficult in a society in which some banks are corrupt and
people worry about what other ethnic groups might do to them. How is this trust
created? As the figure to the right shows, it spreads from many starting points as citizens hear about
others nearby making investments and gaining profits from them. The decision to
invest is determined by the balance between fear and hope, and both are influenced
by what happens to other people. Importantly, people pay attention both to
their own ethnic group and other ethnic groups, and they can learn from the
experiences of those they do not fully trust.
What if the distrust is
so strong that it amounts to rivalry? Some of Kenya’s ethnic groups saw each
other not only as different and untrustworthy but also as rivals for economic
and political power, so we know the answer to that too. The figure below shows
that more-successful rivals pushed people away from the stock market,
suggesting that potential investors came to see the profits of the rival ethnic
group as a sign that the rival controlled the market, so that they could not
profit from it. The figure also shows some easy ways of making this effect go
away. Religious integration in the communities also integrated markets.
Advertising that emphasized nation over ethnic group (by using the shared
language) also integrated markets. Finally, spatial integration – having neighbors
who were of the rival group – had the same effect. All of these mechanisms
helped spread participation in the stock market for low-income Kenyans, helping
their income and the economic growth of the nation.
Democracy means contests
for power, and these contests can be done in many ways. Tribalism and distrust may
help someone gain loyal followers, but at the cost of tearing up the trust that
underlies markets and the democracy. Kenya teaches us how the torn fabric of
trust can be mended, as one of the many steps needed for a society in which
everyone is welcome to contribute and gain rewards.
