Our latest Freakonomics on Marketplace podcast is called “Why Family and Business Don’t Mix.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript.) It’s based on a recent paper by Alberto Alesina and Paola Giuliano called “Family Ties.” It argues that strong family ties bring a lot of benefits, but may also depress economic activity:
We study the role of the most primitive institution in society: the family. Its organization and relationship between generations shape values formation, economic outcomes and influences national institutions. We use a measure of family ties, constructed from the World Values Survey, to review and extend the literature on the effect of family ties on economic behavior and economic attitudes. We show that strong family ties are negatively correlated with generalized trust; they imply more household production and less participation in the labor market of women, young adult and elderly. They are correlated with lower interest and participation in political activities and prefer labor market regulation and welfare systems based upon the family rather than the market or the government. Strong family ties may interfere with activities leading to faster growth, but they may provide relief from stress, support to family members and increased wellbeing. We argue that the value regarding the strength of family relationships are very persistent over time, more so than institutions like labor market regulation or welfare systems.
You’ll hear from Giuliano in the podcast and we also take a quick look back at our “Church of Scionology” podcast, about family-owned businesses, in which we discussed the long history of Anheuser-Busch. If you’re interested in further reading on this topic, check out Dethroning the King: The Hostile Takeover of Anheuser-Busch, an American Icon by Julie MacIntosh and “The Role of Family in Family Firms” by Marianne Bertrand and Antoinette Schoar.
Kai RYSSDAL: Time now for a little bit of Freakonomics Radio, that moment every couple of weeks we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It is -- all together now -- “the hidden side of everything.” Dubner, how are you man?
Stephen J. DUBNER: I’m doing great, Kai. How about you?
RYSSDAL: I’m good. I’m good. I’m good.
DUBNER: Let me ask you this: If I were to ask you to name, let’s say, the most influential institution in society, what would you say? I’m curious.
RYSSDAL: Marketplace and American Public Media, dude. Bar none.
DUBNER: Excellent guesses. Let me suggest a different one: the family. We all know that our families shape each of us. We also know that family differs a lot from culture to culture. So a couple of economists decided to analyze how our family ties affect economic outcomes around the world. Here’s Paola Giuliano at the UCLA Anderson School of Management:
Paola GIULIANO: “People who rely on the family tend to trust, mostly, the family and less the outside world. Therefore, they tend to be more inward-looking and they develop a lower level of social capital or political participation.”
RYSSDAL: All right, let me decipher here for a minute. People with strong family ties being “more inward-looking” -- that I get. But the whole “lower level of social capital or political participation” thing, what does that mean?
DUBNER: In a country like Italy, where Giuliano is from, family ties tend to be very strong. Which brings a lot of good things, to be sure. You get love from your family, support, trust. But relying on your family will make you less likely to trust other institutions – like the government and big companies. And, if you want to do business, you need to trust institutions. So what her research found is that cultures that have strong family ties tend to have weaker economies.
RYSSDAL: Yeah, but what about family-run businesses, right? Are you necessarily saying that a family-run business is less profitable than a non-family business?
DUBNER: Actually, I am necessarily saying that! There’s a lot of research showing that a family firm – let’s say where the founder hands off the reins to a relative – that that firm will do worse than if they bring in an outside CEO. I mean, just think about it for a minute, what are the odds that the best person to run my company happens to be blood-related to me? That said, family business is still very common in many parts of the world -- Latin America, parts of Asia and western Europe. Especially where institutions are not as strong. The U.S. actually has a pretty low incidence of family firms -- and seemingly getting fewer all the time. You’ve heard of Anheuser-Busch, I assume?
RYSSDAL: Yes, they make what they like to call “beer” -- Budweiser and some other stuff.
DUBNER: This company was an amazing American success story for five generations of Busches – until the last one, August Busch IV, who was CEO when the company got bought out by InBev. A former company executive named Bill Finnie told us just how strong family ties were for the Busches. This included a rather peculiar custom that August IV participated in:
Bill FINNIE: “I don’t think August would have become the CEO of the company, but the fact that from day one, from the hour that August was born, and his father puts five drops of Budweiser in his mouth when he was one hour old, he was indoctrinated into the core values and the culture of Anheuser-Busch.”
RYSSDAL: All right. So that’s a little weird, dude. I’m just sayin’.
DUBNER: I think that is a sensible response to that cut. Here’s the real interesting takeaway for me from this new research about how family ties affect broader economic outcomes. And that’s this -- it’s a broad conclusion -- how much our lives are shaped by an institution or an event that we really don’t have much control over. We like to tell ourselves – each of us -- that every decision we make is our own. But, to some degree, we are all accidents of history. I’ll give you an example of this. Anheuser-Busch sells alcohol which, in this country, is legal. Marijuana, meanwhile, is mostly still illegal. Here’s my Freakonomics co-author Steve Levitt talking about that weird state and why that is:
Steven D. LEVITT: If you think about why is it that alcohol and cigarettes are legal and marijuana is not, I think that is mostly accident. If people had been smoking marijuana regularly for the last 300 years and alcohol had just kind of come along and been on the fringes, there’s no way we’d say, you know, alcohol should be freely consumed by everyone all the time. So it’s kind of a historical accident that you live with.
RYSSDAL: You can just see that world, after 300 years of marijuana consumption, right? “Whoa! Duuuuude!”
DUBNER: And August Busch would have had to been tokin’ a joint when he was born instead, then, I guess.
RYSSDAL: (Laughs) Yeah. Accidents of history. Stephen Dubner. Freakonomics.com is the web site.