Freakonomics Radio - 130. Why Family and Business Don’t Mix

Episode Date: June 12, 2013

Yet another reason to blame your parents for pretty much everything.

From APM, American Public Media, and WNYC, this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Kai Risdahl. Time now for a little bit of Freakonomics Radio, that moment in the broadcast every couple of weeks where 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? Everything. I'm doing great, Kai. How about you? I'm good. I'm good.

Hey, 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. Marketplace and American public media, dude. Well, excellent guesses. Let me suggest a different one. All right, go ahead. The family. Yes. The family.

Okay, now 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. 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. All right. So let me decipher here for a minute. People with strong family ties being more inward looking, that I get. But what is that, the whole lower level of social capital or political participation thing? What does that mean? Yeah, it's interesting. So

in a country like Italy, let's say, 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. 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? Actually, I am necessarily saying that. So 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. And 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, right? So that said, family business is still very common in many parts of the world, Latin America, parts of Asia, Western Europe, especially where institutions are not as strong. The US actually has a pretty low incidence of family firms and seemingly getting fewer all the time. You've heard of Anheuser-Busch, I assume, yeah?

Yes, they make what they like to call beer, Budweiser, and some other stuff. But, you know, this company was an amazing American success story for five generations of Bushes until the last one, August Bush IV, who was CEO when the company got bought out by InBev. Now, a former company executive named Bill Finney told us just how strong family ties were for the Bushes. And this included a rather peculiar custom that August the 4th participated in. 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's one hour old, he was indoctrinated into the core values and the culture of Anheuser-Busch.

All right. So that's a little weird, dude. I'm just saying. I think that is a sensible response to that. Yeah. I mean, here's the really interesting takeaway for me from this research about how family ties affect broader economic outcomes. And that's this. It's a broad conclusion, which is that how much our lives are shaped by, let's say, an institution or an event that we

really don't have much control over. So we like to tell ourselves, each of us, that every decision we make is our own. But to some degree, I would argue, we're 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. 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. You could just see that world after 300 years of marijuana consumption, right? Whoa. And August Bush would have had to be token a joint when he was born instead then, I guess. Accidents of history. Stephen Dundner, Freakonomics.com is the website. We'll see you in a couple of weeks, man. Thanks for having me.

All right, Bye-bye. Hey, podcast listeners. Listeners, on next week's show, what if you knew there's a 50-50 chance that you're going to get a terrible disease and die and that there's a test today that will tell you, do you take the test? I think what we come down to is the view that, in fact, largely the reason that people don't want to get this test is because while they are untested, they seem to be able to basically pretend everything is fine and that that may be very valuable. We may think we want to know our future, but the data say otherwise. That's next time on Freakonomics Radio. Thank you.