Uber In Lagos: Not Enough Capitalism

Let’s start with Hernando de Soto in his recent criticism of Thomas Piketty’s tome on inequality:

Piketty worries about wars in the future and suggests that they will come about in the form of a rebellion against the inequities of capital. Perhaps he hasn’t noticed that the wars over capital have already begun right under Europe’s nose in the Middle East and North Africa. Had he not missed these events, he would have seen that these are not uprisings against capital, as his thesis claims, but for capital.
The Arab spring was triggered by the self-immolation in Tunisia, in December 2010, of Mohamed Bouazizi. Because official Eurocentric statistics classify all people who are not working at formally recognized firms as “unemployed,” it was not surprising that most observers quickly labeled Bouazizi as an “unemployed worker.” But this classification system missed the fact Bouazizi was not a laborer, but a businessman since the age of 12, who very much wanted more capital. A Eurocentric classification system blinded us to the fact that Bouazizi was, in reality, leading an Arab industrial revolution of sorts.
It wasn’t just him. Thereafter, we discovered that within two months, 63 other entrepreneurs, all inspired by Bouazizi, attempted public suicide throughout the region. Over two years, we interviewed about half of the 37 self-immolators who survived and their families: all were driven to suicide for being expropriated of what little capital they have.
Some 300 million Arabs live in the same circumstances as the entrepreneurial self-immolators. We can learn several things from them.
First, capital is not at the root of misery and violence but rather the lack of it. The worst inequality is not to have capital.
Second, for most of us outside the West, not prisoners of European categorizations, capital and labor are not natural enemies but intertwined facets of a continuum.
Third, most important constraints to development of the poor arise from their inability to build and protect capital.

Then let’s go to a 2009 research paper by Rafael di Tella (Harvard) and Robert MacCulloch (Imperial College) titled Why Doesn't Capitalism Flow To Poor Countries?:

Why Doesn't Capitalism Flow To Poor Countries? (2009)

Professor de Soto brings some context to the real causes of the Arab Spring i.e. people wanting to chart their own course in life free of harassment and needless obstacles. The research paper in turn, points out that the things taken for granted as to how capitalism works in the West are almost non-existent in poor(er) countries.

My recent trip to Lagos made me realise these points quite clearly. I used Uber to get around quite a bit and I made a point of starting a conversation with each driver that picked me up (they’re obliged to be polite and friendly as they want you to rate them highly). The response I got from all 4 drivers I spoke to can be summed up simply — what is capital in the West sadly transforms into labour when it makes its way to Nigeria.

Every single one of the drivers was driving for someone else — that is, someone else owned the capital. Typically, someone either owns a car or gets finance to buy one and then decides to deploy it as an Uber taxi. He/she then hires a driver either on a salary or a straightforward commission. What I heard most often was a 20% commission — the driver takes 20% of whatever he makes.

The drivers like the system because, as one of them said to me, ‘cheating no dey there’. Cash is never physically exchanged and as soon as you (the rider) gets down from the car, the driver gets to know how much you were charged via his own app. So at the end of the week, it’s as simple as him working out 20% of all the fares he booked. No story.

If you’re in Nigeria, this arrangement will sound normal to you. It’s a variation of what we’ve always had — someone buys a bus or car for transport and then hires a driver on a commission basis. The difference here with Uber is that it has designed a system that removes a lot of the previous friction and dishonesty.

But if you live in say, London, the driver/owner arrangement in Lagos will be amusing at best and perhaps baffling at worst. It will be practically impossible for me to buy a car here and then get someone to drive it for me as an Uber driver. First of all, the person will need a valid drivers licence. And once you have a valid licence, there are very few things stopping you from walking to a car shop and walking out with a car in your name a few hours later.

In other words, Uber makes it a whole lot easier for anyone to become a capitalist in London (where capitalist is defined as someone who can make capital work for them). But in Lagos, the distance between labour and capital is so wide and often impossible for a lot of people. A guy who is driving an Uber today, is probably doing so because he wasn't doing much previously (this is a generalisation and not necessarily true in all cases). Such a person is unlikely to have any access to capital as those who can access capital in Nigeria are those who already have lots of it or have very stable and relatively well paying jobs. And if you have a stable well paying job, why would you leave that to drive an Uber for long hours?

Who does not want to own their own home and possibly make some money on the side renting it out? Who does not want to own their own car/bus and make money from it? Who doesn't want to have a source of income that allows them to use more of their time to pursue the things that make them happy?

These are the places where the challenges lie. Organising ourselves in ways that make it easy for people to enter into the formal system. Overhauling CAC and making it easier to register businesses is a start. Better identity systems so that people are who they say they are. And as I said in my previous piece, getting banks to move away from doing the easy stuff in the economy — lending money to the government — to doing the hard things like mapping out the risks to lending in Nigeria and working out ways to mitigate them.

In the future, anyone who drives an Uber in Nigeria should also own their car. As we’ve seen from the Arab Spring, the consequences of locking people out of access to capital can be frightening.