What's government interference got to do with it?

When I was reporting from the street markets of Lagos, Nigeria, every merchant I spoke with bad-mouthed the government. It was exploitative and corrupt. It was hindering trade. It was threatening to demolish their stalls. They washed their hands of any allegiance to it. "The government has failed," auto parts dealer Sir Israel C. Okonkwo told me. "There is no government as far as Nigeria is concerned."

As I read Shelby Grossman's provocative new book, The Politics of Order in Informal Markets, I wondered how Sir Israel might respond. For Grossman has concluded that government's punitive actions actually benefit street markets. Indeed, she says, the threat of local political interventions in the markets -- no matter how harsh -- improves the work of the merchant associations that control those outposts of trade.

"Informal institutions perform better under the shadow of government, and worse in the absence of government interference," she writes. Indeed, she suggests, this counterintuitive effect happens because market associations need the support of all their members if they are to ward off the unwanted political intrusion. "When the government keeps its hands off the economy, group leaders extort. Yet if the government threatens to intervene, leaders organize."

Her granular work provides a vital snapshot of trade in the Nigerian megacity. More than 1,000 market vendors participated in her surveys and half of them reported that they import goods directly from overseas. The average merchant she interviewed paid more than $2,000 in rent each year. And, remarkably, while much of the country still relies on old-fashioned stick phones, 80 percent of the merchants she queried reported using a smartphone for business.

Among the other intriguing implications Grossman points to:

• specialized markets -- trading zones that gather businesses in one field only -- are less likely to see better governance as as result of government interference (this, she concludes, is likely a result of the difficulty of getting traders to unify when they are in competition with one another.) As some of the biggest Lagos markets are also some of the least diversified -- I'm thinking of Ladipo and ASPAMDA (the Auto Spare Parts and Machine Dealers Association), which deal in auto parts and repair, Computer Village (the name makes its concentration obvious) and Alaba International (which concentrates on consumer electronics and household appliances), there's room here for a solid study on how these mega-markets govern themselves and interact with the political sphere.
• though common sense would suggest that well-run markets would be better for business, Grossman's research shows this is not true. Having better market associations may make life somewhat better, but it doesn't seem to make business better. This, she notes, "is an exciting area for further research."
• And in another fascinating finding, Grossman suggests that the solidarity implicit in ethnic homogeneity -- for instance, when most merchants in a market are from the same tribe -- does not ensure that market associations are transparent and fair, though it is somewhat linked to better policies. "Homogeneity may not be sufficient for good governance," she suggests, but "it is associated with better private governance." 
  

Grossman conducted surveys in street markets identified by LAWMA, the Lagos State Waste Management Authority -- and this initial reach into officialdom might have skewed her findings a bit. 

What's more, as her book is an academic monograph, Grossman seems to want the dividing line between good market associations and bad to be quite strict. "By definition," she writes, "extortion or predatory fee collection is inconsistent with good governance." My experience in the markets of Lagos was a little less binary. I found some market associations that extorted high fees from members also provided services like running arbitration courts to resolve market disputes. The idea that local market associations can both profiteer from and provide service to vendors might bear further study.

Also, perhaps because Grossman wants to keep the focus on government meddling in the markets, she steers clear of a variety of other complicated questions. For instance, though the majority of the vendors Grossman surveyed were Igbo, she avoids considering whether tribal traditions yield different market norms and structures. The Igbo make up at most 20 percent of the population of Nigeria but they are renowned as the country's "market-dominant minority." People from all backgrounds will regale you with stories about how the Igbo are super-sharks. Even Igbos push this storyline. As one friend counseled, citing an old joke: "If you go anywhere in the world and you don't find an Igbo man -- leave, because there's no business to be done." Many Igbo markets operate according to a unique customary apprenticeship system that doubles as a venture capital pool -- and this could explain their relative success in the informal ecosystem. At the same time, as a minority tribe -- the Hausa and Yoruba are the dominant groups in the country -- the Igbo have good reason not to trust government, and this might also explain a tradition of resisting government interference. It would be worth inquiring into Yoruba and Hausa markets to see if there are differences in how they are treated by the government.

In addition, over the past few years, the Lagos State government has demolished a number of markets. What explains the inability of these markets to resist? Were the associations simply too extortionist to turn around and organize? Or were pressures to use the land differently too hard to overcome? Also, I'd love to know if some market associations have started dabbling in politics -- funding parties or even putting up candidates themselves. The merchants have been quick to become savvy in business. I wonder if they can operate similarly in the political world.

Finally, a small stylistic plaint: Grossman sometimes lapses into academic jargon -- for instance using the verb 'predate.' She writes:

• "The government could be interfering in order to predate."
• "Group leaders who share the ethnicity of group members may feel more affinity toward them and be less likely to predate.
• "Private associations will predate without public institutions that force them to behave otherwise."

If you're like me, you understand the verb 'predate' to mean "pre-date," or "to come before." 

But, of course, that's not the meaning here. 'Predate' is a back-formation -- a verb created from the noun 'predation' to produce a word related to the adjective 'predatory.' So 'to predate' means "to behave in a predatory manner."

Making verbs from nouns is common in specialized fields -- workers in high-end restaurants, for instance, talk about 'plating' food -- but there are lots of common words that could have replaced 'predate.' Extort, intervene, meddle, profiteer, interfere, or just "act in a predatory way" all would have been less obscure.

Still, this slim volume is stuffed full of insights into the real life of System D. 

A decade ago or so, when I was writing Stealth of Nations, I concluded that, despite the widespread disdain for government, the street markets had to find a way to work with the politicians in a kind of shotgun wedding. The Politics of Order in Informal Markets shows that, despite the tough words from merchants like Sir Israel, the engagement has already been announced and its impact is being felt in unexpected ways.