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 New measure for the wellbeing of populations could replace Human Development Index
07.11.2018 | International Institute for Applied Systems Analysis (IIASA)

nachricht Because not only arguments count
30.10.2018 | Max-Planck-Institut für Mathematik in den Naturwissenschaften (MPIMIS)

All articles from Social Sciences >>>

The most recent press releases about innovation >>>

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

Im Focus: The taming of the light screw

DESY and MPSD scientists create high-order harmonics from solids with controlled polarization states, taking advantage of both crystal symmetry and attosecond electronic dynamics. The newly demonstrated technique might find intriguing applications in petahertz electronics and for spectroscopic studies of novel quantum materials.

The nonlinear process of high-order harmonic generation (HHG) in gases is one of the cornerstones of attosecond science (an attosecond is a billionth of a...

Im Focus: Magnetic micro-boats

Nano- and microtechnology are promising candidates not only for medical applications such as drug delivery but also for the creation of little robots or flexible integrated sensors. Scientists from the Max Planck Institute for Polymer Research (MPI-P) have created magnetic microparticles, with a newly developed method, that could pave the way for building micro-motors or guiding drugs in the human body to a target, like a tumor. The preparation of such structures as well as their remote-control can be regulated using magnetic fields and therefore can find application in an array of domains.

The magnetic properties of a material control how this material responds to the presence of a magnetic field. Iron oxide is the main component of rust but also...

Im Focus: Self-healing coating made of corn starch makes small scratches disappear through heat

Due to the special arrangement of its molecules, a new coating made of corn starch is able to repair small scratches by itself through heat: The cross-linking via ring-shaped molecules makes the material mobile, so that it compensates for the scratches and these disappear again.

Superficial micro-scratches on the car body or on other high-gloss surfaces are harmless, but annoying. Especially in the luxury segment such surfaces are...

Im Focus: Stellar cartography

The Potsdam Echelle Polarimetric and Spectroscopic Instrument (PEPSI) at the Large Binocular Telescope (LBT) in Arizona released its first image of the surface magnetic field of another star. In a paper in the European journal Astronomy & Astrophysics, the PEPSI team presents a Zeeman- Doppler-Image of the surface of the magnetically active star II Pegasi.

A special technique allows astronomers to resolve the surfaces of faraway stars. Those are otherwise only seen as point sources, even in the largest telescopes...

Im Focus: Heading towards a tsunami of light

Researchers at Chalmers University of Technology and the University of Gothenburg, Sweden, have proposed a way to create a completely new source of radiation. Ultra-intense light pulses consist of the motion of a single wave and can be described as a tsunami of light. The strong wave can be used to study interactions between matter and light in a unique way. Their research is now published in the scientific journal Physical Review Letters.

"This source of radiation lets us look at reality through a new angle - it is like twisting a mirror and discovering something completely different," says...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

International Modelica Conference with 330 visitors from 21 countries at OTH Regensburg

11.03.2019 | Event News

Selection Completed: 580 Young Scientists from 88 Countries at the Lindau Nobel Laureate Meeting

01.03.2019 | Event News

LightMAT 2019 – 3rd International Conference on Light Materials – Science and Technology

28.02.2019 | Event News

 
Latest News

Solving the efficiency of Gram-negative bacteria

22.03.2019 | Life Sciences

Bacteria bide their time when antibiotics attack

22.03.2019 | Life Sciences

Open source software helps researchers extract key insights from huge sensor datasets

22.03.2019 | Information Technology

VideoLinks
Science & Research
Overview of more VideoLinks >>>