Why Family and Business Don’t Mix (Ep. 130): A New Marketplace Podcast

(Photo: Isabell Schulz)

Our latest Freakonomics Radio podcast 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.


The conclusion in the headline that strong family ties impede economic growth may have gotten it backward,

Could it be instead that societies with poorer economies, less trust, etc. make family members more dependent on each other, promoting stronger family ties.


what's the song playing at the outro?


I also think that strong family ties reduces exploration of other cultures, intellectual curiosity and exposure based on fear of the unknown.


It's always amusing to see on how many topics today's researchers are "discovering" and confirming basic theories laid out by Karl Marx 150 years ago, it seems to happen quite a bit.

But really, this shouldn't be a surprise. In fact, I've been slowing compiling material for a book called "The New American Family" for quite a while that relates to much of this.

Basically, the "family" is one of the oldest economic units. Families were essentially like businesses for thousands of years. The basis of the family is economic, it is an economic structure to begin with.

This is why Marx said that the traditional family structure would be undone by capitalism and industrialization, and be further dissolved via a transition to socialism.

Corporations are the new "family". In capitalist countries, corporations have taken on the role of family and stand as the biggest disruption to traditional family structure.

The family was originally one of the most fundamental units of economic production. This was when production was home based. Much of how and why families existed had to do with business and personal economics. A family was essentially a business unit that held together for economic security, certainly this was true for women. Children prior to industrialization basically became family employees starting around age 5-7. Having children was a way of "increasing productivity" and growing your business in those days. Today, however, having children is a massive economic burden.

Today it costs roughly $250,000 to raise a child to age 18, and there usually is no economic payoff for this, whereas in a pre-industrial economy having a child generally means increased family income and net income gain by around age 10.

In an industrial capitalist economy, the "profit" of raising children goes to corporations, not to the parents that raised them.

Likewise the role of shaping morals and values has been increasingly challenged by corporations over recent generations. By the 1950s corporations were overtly competing with parents to be the sharpers and definers of youth values and morals, both as consumers and future workers.

A lot of this also has to do with "zoning", especially in America. Starting in the early 1900s, in large part due to the effects of industrialization, people began calling for and governments began implementing, zoning rules to separate residential areas from commercial and industrial areas. This accelerated the decline of home based production and contributed to the overall decline of neighborhood and family cohesion.

Under traditional structures people lived and worked together geographically, such that people typically worked with their family members and neighbors, and this collective labor was foundational to community structure and cohesion (much like it still is among the Amish).

With the rise of corporations and industrialization, people no longer worked with their family and neighbors, they traveled from their home to a place far away, where they worked with people from disparate geographic locations, whom they interacted with only at work. They then traveled back to a family that they didn't share labor with, among neighbors that they rarely interacted with, and among whom they didn't share common economic goals.

Under the pre-industrial system, neighborhoods were people who worked together and shared common economic objectives. Capitalism and industrialization eliminated that, and thus atomized the social structure. In other words, under capitalism, corporation became the focus social structure instead of the family and neighborhood.

So, this study's findings make perfect sense and should were easily predictable. Strong family structure increases self sufficiency, and industrialization and capitalism weaken family structure, which leads to less self sufficiency, which, in turn, lead to increased economic "activity".



I can see some truth in it here in the US, The Protestant Ethic makes profit an end in itself and personal relations not to be trusted in the sense of the ethic of trusting only one's self. But the more we know, the more there's a choice one can make. Tradition i.e., the authority of preserving relations as they have been has a side that's free of all encumbrances. In Italy, it has made for rather creative folks (like the Gucci's, the Nervi's...)

Jon Heston

I listened to your podcasts about nation levels correlations between familial structure and economic "status" (a better term is escaping me at the moment). The way it was pitched seemed to imply that facial structure dictates economy rather than the other way around. You are typically pretty cautious about mistaking correlation with causality so I was curious what led to you conclusion rather than the interpretation that economic status dictates familial structure.


Why not just ask your family to remain business like when things get tough?

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