HENRICH R. GREVE
  • Home
  • Research
  • Journals
  • Media
  • Blog
  • Q&A

Organizational musings

What Can the West Learn from Kenya’s Stock Market?

11/27/2018

 
Picture
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.

Picture
Yenkey, C. B.
2015 "Mobilizing a Market: Ethnic Segmentation and Investor Recruitment into the Nairobi Securities Exchange." Administrative Science Quarterly, 60: 561-595.

Comments are closed.

    Blog's objective

    This blog is devoted to discussions of how events in the news illustrate organizational research and can be explained by organizational theory. It is only updated when I have time to spare.

    Archives

    September 2024
    July 2024
    June 2024
    May 2024
    April 2024
    March 2024
    February 2024
    January 2024
    October 2023
    August 2023
    July 2023
    May 2023
    April 2023
    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    August 2022
    July 2022
    May 2022
    March 2022
    February 2022
    January 2022
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    August 2020
    July 2020
    June 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    October 2019
    September 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    December 2017
    November 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    March 2016
    August 2015
    July 2015
    December 2014

    Categories

    All

    RSS Feed

Proudly powered by Weebly
Photo from pixelmattic
  • Home
  • Research
  • Journals
  • Media
  • Blog
  • Q&A