Collective Action

How Traffic in Africa is due to Market Failure : How Lagos, Nairobi and Dakar traffic is due to micro-economics problems of collection action like prisoner's dilemmas, tragedy of the commons, information asymmetry, externality, monopoly and public goods.

When I was 18, visiting Senegal on my own for the first time, my father’s home country, where his mother and siblings still lived and where I had an entire community of people who I didn’t know, I recall saying to one of my newly acquainted cousins, that I wanted to be an entrepreneur. This culture rich, coastal and beautiful country, where both the rich and poor are African, and where a sense of community seemed to prevail, had an unemployment problem. I thought, the remedy to the jobs problem would be entrepreneurship. Since that point, entrepreneurial development has been my main career focus. One of the earliest post-independence entrepreneurial heros in Senegal, named Diaga Ndiaye, was an importer of transportation vehicles, which today carry his name. Bringing hundreds of these minibuses to Senegal, operating alongside the famous Car Rapide, another brightly colored, windowless, minibus from the 1960’s, which also are still around today, this form of informal transport is responsible for millions of trips by Senegalese each day. Like the other famous pirogues and traditional boats that fishing communities maintain on the traditional fishing ports, and which circulate each day pulling in their catch of fish, the Car Rapide and Diaga Ndiaye circulate around Dakar and the other major cities of Senegal, pulling in customers, packing them in like sardines, and delivering them to their destinations. Unfortunately, unlike the sea, where fish are seemingly unlimited and where navigation of the small boats is unrestricted, the Senegalese minibuses operate within the restrained confines of the available public infrastructure, habitually inadequate for the demand of vehicles in this growing capital city. Often, during periods of high traffic, they drive along the soft shoulder, or on the sandy shoulders cutting in line to finish their route and to collect more passengers. Each of these minibuses compete to collect more passengers and to arrive at their destination sooner than the rest. And they are willing to sacrifice the greater good to do so. Externalities describe situations where businesses and individuals produce by-products impacting the greater economy. Externalities are typified by air, water and noise pollution generated by factories and other business seeking their own interests. In the case of the Senegalese mini-buses, traffic is often caused by the externalities imposed on other drivers, as a result of their jousting for customers. You will often see queues of minibuses, at times lining up two rows deep on a three lane street, waiting along the side of the road, parked just in front of the carved out bus stops where they are supposed to pick up and drop off. Seemingly, the drivers of these minibuses avoid the actual bus stops, fearing they would somehow put them at a competitive disadvantage relative to the other buses. Behind them, hundreds of cars pile up on the road upstream, in useless traffic as the minibuses joust to pick up customers, causing at times hours of useless, suffocating and un-productive traffic. Suffering through some of these bouts of traffic myself, holding my breath to avoid inhaling the noxious, black fumes from these ancient vehicles, and expressing fruitless road rage as I finally drive past the minibus blockade, I would come to realize that this was some form of micro-economics at work. It is not just selfishness that produces these outcomes, in fact, economics, which is the study of how incentives can influence behavior, says this is a necessary outcome of the market. Externalities are a necessary byproduct of business. In some market failures, such as the externalities produced by indisciplined drivers, polluting cement factories, and unrestricted water use, technology innovation may have a more limited role. In these instances government regulation may be the best and optimal solution. In other situations, when both governments and markets fail, solutions can be found in innovation. Our focus, as investors, is in this particular intersection. Collective Action The most present conceptual model people have for the economy is Adam Smith's invisible hand, where competition amongst independent agents in a free market leads to greater overall welfare in the form of lower prices for superior goods and services. Unfortunately, in some instances, the pursuit of individual interest does not lead to the best overall outcome. These are called market failures stemming from Collective Action, and I believe they are at the root of much of the disfunction in African economies. The Nobel committee has awarded several economists for their work on market failure, including Joseph Stiglitz and George Akerloff on Information Assymetries, John Nash and Robert Schilling on Game Theory. Nonetheless, Adam Smith's model continues to predominate in our collective thinking, ultimately to the detriment of our economies. The economist who best characterized market failure, in his work called The Logic of Collective action, was an economist named Mancur Olson. Olson described the notion of Public Goods, whereby within groups of people, individuals in large groups may not have an incentive to pursue the group’s best interest. This collective best interest is called a Public Good, which are defined as goods that cannot be excluded and sold privately and where consumption of the good does not reduce availability for other users. Unfortunately in situations of Public Goods, they cannot be delivered by individuals in the group. To be clear, the wealth of any individual makes no difference in the case of Public Goods. It even happens to rich people. I believe that many problems related to collective action and other market failures can find solutions in innovation. Tragedies of the commons, predicted in Game Theory can be addressed by coordination platforms and mapping algorithms. Information asymmetries can be lowered by websites bringing greater transparency and establishing identity, and problems of collective action and public goods can be solved by tech platforms bringing coordination within complex systems. As an investor focusing on Africa, I am particularly interested in situations where market failure problems, particularly those related to complex systems and collective action, can be solved through innovation and technology. Prisoner's Dilemma I lived in Lagos from 2007 to 2009. The epic-ness of the traffic in this mega-city of over 20 million people was shocking. I recall one day leaving for the airport 5 hours before the flight having to abandon my car and driver, leaving my bags in the car, and taking a motorcycle taxi okada to arrive at the airport just in time for the flight, strolling onto the plane with no bags and just my ticket and the clothes on my back! Living in Lekki, traffic would bottle up at each round-about, where disputes about right of way, caused by a few people unable to agree on who should go first, led to endless upstream traffic. Our driver, Tony, was clever enough to take the side roads, where we drove over mini sand dunes, to surpass the round about, and arrive at our house in Phase I. I remember getting stuck in the sand and having to pay area boys to push us free. Since the time I lived there, the traffic in Lagos has improved. New infrastructure investments such as the Lekki toll-road have greatly improved the situation. Nonetheless the feature that stuck out in my mind was how each person thought they could outsmart the other in traffic. Horn honking, cutting in line and other efforts to beat the other to a better spot in the traffic seemed to exacerbate the situation for everyone. I could see that this was a prisoner's dilemma at work. The Prisoner's Dilemma, articulated famously by Nobel Prize winning economist John Nash, describes a situation where each person pursing their own best interest leads to a worse outcome overall. In traffic in Lagos, each driver trying to outdo the other, leads to overall worse traffic. In fact, a recent study (Youn, Jeong, and Gastner; Santa Fe Institute and the University of Korea) has shown that within road networks congestion arises due to people's pursuit of personally optimal solutions instead of the greater good. In their example, drivers are given the option of two roads to arrive at the same destination. The first road takes 30 minutes to arrive and the second takes 45 minutes. When all drivers go after the road that usually takes 30 minutes, that road reaches saturation reducing the flow rate, and causing the overall travel time to increase to 1 hour. In this scenario they calculate a Nash equilibrium where, given the choice between two roads, everyone chooses the road they perceive will take the least amount of time. Under this scenario everyone experiences longer wait times than if they had used both roads. In fact, the study shows that this phenomenon is present even in major cities. In London, Boston and New York this phenomenon, they call the Price of Anarchy, leads to 24%, 30% and 28% time losses for all travelers. The solution to this form of Prisoner's Dilemma, where each person pursing their best interest does not lead to optimal social outcomes, is coordination. The best example of coordination with respect to road traffic is the standard adopted by countries regarding which side of the road to drive on. In Nigeria and Senegal, we drive on the right side of the road. In Kenya and South Africa, we drive on the left. The choice, which at its root stems from a desire to protect domestic auto industries in automobile producing countries, such as the UK, is essentially arbitrary. There is no distinct advantage of driving on one side relative to the other. But this standard is put in place officially to ensure coordination of drivers. In absence of the standard, it is quite possible that spontaneous coordination would arise; it is also possible that there would be chaos, lots of traffic and many accidents. In the traffic study afore mentioned, the authors suggested the elimination of certain central routes, essentially preventing drivers from all choosing the same roads as a solution. It is ironic that a solution to congestion can actually be the reduction of infrastructure. How can innovation be used to help with the coordination problem? Platforms coordinating independent actors, such as booking platforms, mapping algorithms and timing rules can help to avoid the emergent phenomenon of traffic congestion amongst independent actors, mapping redirecting traffic to underused roads to ensure an optimal solution for everyone. Technologies such as these could solve the problems of congestion we experience on a daily basis in many cities in Africa. One Cape Town based startup, called WhereIsMyTransport (Full disclosure: Wuri Ventures is an investor), maps informal public transportation networks, collecting the data on transit time taking informal minibuses and other informal transportation routes and helps governments, NGOs and end users better discern optimal transportation routes and required additional infrastructure. This data, which neither the World Bank nor any of the Internet Giants has at their disposal, can help to optimally plan transportation routes to help avoid users choosing the most popular routes leading to greater congestion for all. Absent efficient government regulation, with strong enforcement of rules designed to ensure optimal use of public resources, innovative solutions are required to provide these collective goods. Public Goods Nairobi has its own traffic horror stories. From the high rise where we took our seminar, overlooking the stagnant rows of cars along the overpass, a friend observed that it looked more like a parking lot than a highway. Rows and rows of cars, Toyota mini-buses, and Matatus lined the two-lane overpass, scarcely moving at all. Such scenes typify large growing cities, where public infrastructure investment lags economic and vehicular growth. In downtown areas, where traffic sometimes seems the worst, the roads just seem to be too small or too few for this scale of a city. Making matters worse, many roads in Nairobi are in bad condition. Asking my Uber chap chap drivers, most cite corruption as the reason for the cavernous pot holes, where half of the road seems to have washed away with the seasonal rains, forcing single-lane standoffs and long delays. One of my drivers said that the corruption manifests through government contracts, handed off through opaque processes, to politically connected business people who sub-contract out the work, skimming just enough off the top to require the road builder to reduce the asphalt layer by a few centimeters, thus leaving the road weakened and exposed to rains, heavy trucks and fluctuating temperatures. What is clear, however, is that besides complaining, there is nothing anyone can do about it. A single, concerned citizen cannot fill every pothole, and no altruistic pothole fillers will ever be reimbursed by the authorities. In fact, poor roads in that sense cannot be associated with poverty. Roads and other Public Goods are the responsibility of the Government. It is striking that even in the most wealthy neighborhoods in Nairobi, the roads are bad. This is an example of a Public Good, which, by economists definition, are non-rival, meaning my use does not reduce your use and non-excludable, meaning they are open to everyone. But the key feature of Public Goods,as described in particular by Mancur Olson, in his book The Logic of Collective Action, is that no-one within a group of people has an incentive to provide collective goods where they cannot recoup the cost. This describes a classic market failure, where private citizens or groups will not be able to solve the problem. Where the market fails to provide, the government should step in. In fact, only an independent third party with the coercive ability to demand compliance via a public tax, can provide this type of good. Unfortunately, as we all know, and to the Uber driver's suspicions of corruption, governments can also fail. I have often noticed, living in various African cities, that the roads start to get better just before elections. Between election period, however, bad roads can tend to remain bad. Even governments it seems do not have the incentive to provide Public Goods. So what role is there for innovation with respect to Public Goods? Firstly, there are the work arounds. The proliferation of motorcycle mobility apps, delivery apps, and other ways for consumers to avoid costly traffic, is essentially due to the market failure related to Public Goods and the resultant traffic. Riding with a friend to dinner who needed to stop at a pharmacy, someone suggested that she just use Glovo, which I later discovered is a Spain based delivery app for food and even pharmaceuticals, that also operates in Kenya. Now global startups are attracted to Africa, where endemic problems become sources of opportunity. The power of the internet and computing power can also be used to mitigate the market foiling power of Public Goods, potentially by mobilizing awareness or increasing the level of road quality surveillance. Finally, e-gov tools can help the government to mobilize the funding required to actually fix the roads. It always amazed me that in the US, states raise hundreds of millions of dollars from parking tickets. In many places in Africa, police officers pocket what could in aggregate represent quite a substantial road repair fund. Perhaps the Uber drivers were right about the impact of corruption after all. Complex Systems In this age of computational efficiency, it may be tempting to believe that simulations of massive data sets can predict real world outcomes. In fact, even the strongest computers, like those which have beaten chess, go and wuri grand masters, cannot predict the future. Many examples of complex, chaotic systems, including weather, turbulent water, the brain and traffic involve trillions of interactions between an equally large number of variables. The brain has hundreds of trillions of synapses, far beyond the reach of todays limited neural nets. Under these conditions, predicting outcomes beyond a certain time horizon is theoretically impossible. We are surrounded by complex systems, which can be as powerful seeming as the weather, and as mundane as traffic. For anyone who has experienced traffic in Lagos, Nigeria, which is some of the worst traffic in the world, it is safe to assume it is highly chaotic. Traffic congestion in many cities in Africa is due to highly heterogenous factors such as motorcycle taxis, rickshaws, minibuses, armored police escorts for billionaires, horse and buggies, pedestrians, police blockades and available road networks. Complex systems are characterized by emergent phenomena arising from the network. Mathematically, the Mandlebrot set, producing highly intricate fractal patterns endlessly reproducing the same visual patterns at all levels of scale, exemplifies emergent properties of a complex system. In the case of roads in Lagos, traffic is an emergent property of this complex system. While in some instances, traffic seems almost a certainty, in other cases it is unpredictable. A sudden flat tire can cause congestion at any point. Unforeseeable events such as funeral convoys can exacerbate traffic. A national televised football match can lead to the presence or absence of traffic. The change in flow of vehicles on any particular road can lead to traffic congestion. In essence, when and where congestion appears is highly unpredictable. This challenge is also present in logistics where Informal transit networks often inform the demand for available roads at any point in time. These networks are characterized by large numbers of independent logistics companies. Unfortunately, true of market failures and prisoners dilemmas, each transit operator pursuing its own best interest can lead to worse outcomes for all. Centralized platforms such as Lori Systems (Wuri is an investor), which coordinates amongst informal trucking operators helping to reduce ports delays in Africa from two weeks to the global standard of four days, can help to provide quasi public goods within private industries. Where no individual company has an incentive to create a centralized coordination platform, innovative tech companies can step in a provide this valuable service. Conclusion We chose the name Wuri Ventures because this mathematical game, which is called Bao in East Africa, Ayo in Nigeria, Oware in Ghana, Awele in ivory coast, Tsoro in Zimbabwe and Mancala in Cape Verde, has properties similar to those found in the study of complex systems, fractals and deterministic chaos. This name echoes what we believe are key underlying factors challenging African society and economics. We hope there will be greater attention paid to the role of complex systems and collective action in African economies. Adam Smith, the well known British Economist, and the power of free markets does indeed inform how we understand economics. However, that may not be the only way to think about it. Notwithstanding the inherent communitarianism of many African cultures, and the very human value system recognizing the worth of each individual as a part of a larger collective, these collective action problems, stemming from the fragmentation of our cultures, challenges adapting to inherited modern systems, and the unequal distribution of capitalist structures, make these problems in Africa especially pronounced. We believe that Africa will benefit from a greater attention paid to the collective well being of each person living on the continent and a realization that greater cooperation and coordination can lead to optimal solutions for all. We hope that investment in and support of innovative startups addressing these challenges can help solve these previously intractable problems.