Tuesday, December 12, 2017

Does Georgia's Reliance on Family Hinder the Economy?

This post was inspired by Freakonomics Radio on Marketplace, the episode "Why Family and Business Don't Mix," broadcast 13 June, 2013.

Family is the foundation of Georgian society. For the vast majority of society, family is much more influential than even religion - I say this largely because most Georgians rarely attend church regularly, and Orthodox churches don't really have a Sunday school equivalent where children learn the tenents of the religion. Children are taught religious principles, or at least the general social conceptions of what religious principles are (mainly chastity, obedience, and the virtues of poverty and suffering), by their family. 

Anyone who has spent time in Georgia has likely noticed the intense influence of family. For example:
  • Young people generally live with their parents until they get married
  • Usually, a young married couple will move in with the husband's family, affording them no privacy, no honeymoon period, no independence from birth until death...this also means that several generations usually live in the same apartment
  • Parents call their adult children constantly on the phone, even when they live together
  • Family obligations come before everything 
  • It is completely off limits to date the family member of a friend, including family members not by blood or marriage but by the church, which includes godparents, and best man/maid of honor
  • Parents have a significant influence on their children's choice of partner

A 2010 study by Alberto Alesina and Paola Giuliano at the UCLA Anderson School of Management analyzed how family ties in different cultures affect economic outcomes. The study determined that "cultures that have strong family ties tend to have weaker economies." Giuliano summarized the two main reasons for this correlation for Marketplace:

"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."

Relying on close family structures is associated with less reliance on and trust in external institutions, such as the court system, the legislature, and civil society. What direction does the correlation, flow, though? Perhaps it's a chicken and egg question. Is it the case that family structures once dominated the world, and in industrialized, large economies reliable democratic institutions replaced the family as the foundation of life and business? Or is it that in economies where public institutions have failed, families pick up the burden?

Consider, if you will, the concept of blood feuds. This series of cyclic, vengeful violence was common practice in many cultures worldwide (including, famously, Georgia's Svaneti region until relatively recently) until societies became more centralized and law enforcement developed to the point where it more or less reliably and predictably punished those who broke the social contract. With the ability to rely on the government (police), people no longer needed to rely on their families (Uncle Joe going after the kid in the next town over for besmirching his niece's virtue) in this particular realm.

Defensive towers in Svaneti, Georgia; Kuriositas

Wikipedia claims that "Blood feuds were common in societies with a weak rule of law (or where the state does not consider itself responsible for mediating this kind of dispute), where family and kinship ties are the main source of authority." It's easy to see how this relationship between family and government transfers to other sectors - banking, property, contract enforcement. When you can't count on the government, you can trust your family to help get the job done, and when you can trust your family, you have less incentive to push the government to take on those roles.
There are some sectors where even family would have a hard time filling the gaps, like copyright or taxes. Still, in less centralized, less democratic, societies these sectors are not very well developed. In Georgia, Saakashvili post-Rose Revolution (2003) introduced what every western news outlet calls "sweeping reforms" which cut through corruption and bribery. Georgia, however, still suffers quite significantly from crony capitalism, and the relation to close family ties is quite obvious.

As noted on Freakonomics, family business are necessarily less profitable, on average, than other business.

"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" - Stephen J Dubner (emphasis added).
"family business"

Georgia isn't exactly crawling with family businesses, but I think that's mainly because the entrepreneurial spirit is somewhat lacking. You do see the pattern play out, however, in rampant nepotism. If you're looking for a job, you can count on a relative (by blood, marriage, or church) to find something for you. If you have a job and you hear of an opening, you are sure to recommend a relative for it. Even in government ministries you can find the minister's nieces, nephews, and godsons...as Dubner noted - what are the odds that the best person for the job is your relative? I wonder how things would look in Georgia if it were a more merit based system.

Another significant problem in Georgia's development is the transparency and efficacy of the judiciary. This is an area where, I think it's relatively clear, due to the inability of the judiciary to provide for its citizens, family relationships pick up the slack. If you want to take an issue to the courts for a civil case, you will be faced with unbelievably long wait times, high fees, and judgements that are often questioned by international watchdog organizations.

During the 2016 US Presidential election, and the recent Alabama special election for the Senate, a recurring theme has been family - family values, family-led policy, support for family businesses. Many conservatives have decried the loss of family as the primary institution in American society. But with this new evidence, you have to ask, has America's post-WWII economic growth, political leadership, and social development been spurred on by a less family-focused structure? Has America's success allowed Americans to center their lives on the institutions of their choosing, rather than being left with family as the only choice?

Ultimately, I think if you ask Georgians whether they would trade their strong family ties for a better economy, the answer will be a resounding no.

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