Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Family-dominated business sectors bad omens for economic health

16.08.2004


Family businesses can be dynamic engines of local economic growth in rich economies, but if a few wealthy families control many of the large businesses in the country where you live, chances are the economy is in the dumps.

Using statistical measures, a University of Alberta business professor and his colleague have shown a correlation between extensive family control of the large business sector and struggling economies in the countries where they are based. Their research has been published in the latest edition of Entrepreneurship – Theory and Practice.

"Much empirical evidence supports the view that certain large shareholders, especially powerful oligarchic families, manage firms and corporate groups to extract private benefits and to preserve their own control," said Dr. Randall Morck, the Stephen A. Jarislowsky Distinguished Professor of Finance at the U of A School of Business, and lead author of the paper.



According to the study, family control of the largest businesses is rare in industrialized countries, such as the United Kingdom and the United States. However, in others such as Sweden, most large firms are controlled by a handful of wealthy families. Most countries range somewhere between the two extremes, with large businesses controlled by a few families being most prevalent in developing countries, such as those in Latin America.

"This research shows there are two different flavours of capitalism in the world," Morck said. "There’s democratic capitalism in the developed world and oligarchic capitalism in the developing world, and this is an important distinction to make, especially for groups like the World Bank or the International Monetary Foundation (IMF), who in the past have seen capitalism in one form only, and that causes problems."

Morck believes the study is important because it shows wealthy countries and organizations such as the World Bank and IMF that helping poorer nations is not simply a matter of loaning them money or changing their tax system and then expecting things to work out as they do in democratic capitalist societies.

"The World Bank and IMF looked at a country such as Venezuela as being just like the United States, only poorer, but that’s not the case at all. To really help these countries, you need to see how their political economies really work, and then address the problems at their roots," he said.

Morck and his colleague, Dr. Bernard Yeung, the Abraham Krasnoff professor of International Business at New York University, suggest the trouble with oligarchic capitalism lies in political rent-seeking, a term used to describe corporations investing in politicians, bureaucrats, and judges rather than in employees, innovation, or capital assets.

"Where a government is beholden to a small elite as it is in an oligarchic capitalist society, it serves the interests of that elite. In a democratic capitalist society, the government must appeal to the middle class to get elected, and so it builds schools, hospitals, and other infrastructure," Morck said.

"This is not to suggest that all members of a small elite in an oligarchic capitalist society are evil, it just means that this is how that society is run, and if you want to get by there you have to play by the rules," Morck said.

"Every country, even rich countries, runs into problems if too few tycoons wield too much power over the government and cause mischief," Morck added. "How effective a country is at checking special interests and preventing elite groups from pressuring the government is a good predictor of how fast an economy will grow."

Ryan Smith | EurekAlert!
Further information:
http://www.ualberta.ca

More articles from Social Sciences:

nachricht Geographers provide new insight into commuter megaregions of the US
01.12.2016 | Dartmouth College

nachricht Sustainable Development Goals lead to lower population growth
30.11.2016 | International Institute for Applied Systems Analysis (IIASA)

All articles from Social Sciences >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Significantly more productivity in USP lasers

In recent years, lasers with ultrashort pulses (USP) down to the femtosecond range have become established on an industrial scale. They could advance some applications with the much-lauded “cold ablation” – if that meant they would then achieve more throughput. A new generation of process engineering that will address this issue in particular will be discussed at the “4th UKP Workshop – Ultrafast Laser Technology” in April 2017.

Even back in the 1990s, scientists were comparing materials processing with nanosecond, picosecond and femtosesecond pulses. The result was surprising:...

Im Focus: Shape matters when light meets atom

Mapping the interaction of a single atom with a single photon may inform design of quantum devices

Have you ever wondered how you see the world? Vision is about photons of light, which are packets of energy, interacting with the atoms or molecules in what...

Im Focus: Novel silicon etching technique crafts 3-D gradient refractive index micro-optics

A multi-institutional research collaboration has created a novel approach for fabricating three-dimensional micro-optics through the shape-defined formation of porous silicon (PSi), with broad impacts in integrated optoelectronics, imaging, and photovoltaics.

Working with colleagues at Stanford and The Dow Chemical Company, researchers at the University of Illinois at Urbana-Champaign fabricated 3-D birefringent...

Im Focus: Quantum Particles Form Droplets

In experiments with magnetic atoms conducted at extremely low temperatures, scientists have demonstrated a unique phase of matter: The atoms form a new type of quantum liquid or quantum droplet state. These so called quantum droplets may preserve their form in absence of external confinement because of quantum effects. The joint team of experimental physicists from Innsbruck and theoretical physicists from Hannover report on their findings in the journal Physical Review X.

“Our Quantum droplets are in the gas phase but they still drop like a rock,” explains experimental physicist Francesca Ferlaino when talking about the...

Im Focus: MADMAX: Max Planck Institute for Physics takes up axion research

The Max Planck Institute for Physics (MPP) is opening up a new research field. A workshop from November 21 - 22, 2016 will mark the start of activities for an innovative axion experiment. Axions are still only purely hypothetical particles. Their detection could solve two fundamental problems in particle physics: What dark matter consists of and why it has not yet been possible to directly observe a CP violation for the strong interaction.

The “MADMAX” project is the MPP’s commitment to axion research. Axions are so far only a theoretical prediction and are difficult to detect: on the one hand,...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

ICTM Conference 2017: Production technology for turbomachine manufacturing of the future

16.11.2016 | Event News

Innovation Day Laser Technology – Laser Additive Manufacturing

01.11.2016 | Event News

#IC2S2: When Social Science meets Computer Science - GESIS will host the IC2S2 conference 2017

14.10.2016 | Event News

 
Latest News

Simple processing technique could cut cost of organic PV and wearable electronics

06.12.2016 | Materials Sciences

3-D printed kidney phantoms aid nuclear medicine dosing calibration

06.12.2016 | Medical Engineering

Robot on demand: Mobile machining of aircraft components with high precision

06.12.2016 | Power and Electrical Engineering

VideoLinks
B2B-VideoLinks
More VideoLinks >>>