Beware Extended Family

In the last few weeks I’ve come across many sources emphasizing the same big theme that I hadn’t sufficiently appreciated: our industrial world was enabled and has become rich in large part because we’ve reduced the power and importance of extended families. This post ends with a long list of quotes, but I’ll summarize here.

In most farmer-era cultures extended families, or clans, were the main unit of social organization, for production, marriage, politics, war, law, and insurance. People trusted their clans, but not outsiders, and felt little obligation to treat outsiders fairly. Our industrial economy, in contrast, relies on our trusting and playing fair in new kinds of organizations: firms, cities, and nations, and on our changing our activities and locations to support them.

The first places where clans were weak, like northern Europe, had bigger stronger firms, cities, and nations, and are richer today. Today people with stronger family cultures are happier and healthier, all else equal, but are less willing to move or intermarry, and are nepotistical in firms and politics. Family firms do well worldwide, but by having a single family dominate, and by being smaller, younger, and less innovative.

Thus it seems that strong families tend to be good for people individually, but bad for the world as a whole. Family clans tend to bring personal benefits, but social harms, such as less sorting, specialization, agglomeration, innovation, trust, fairness, and rule of law.

All those promised quotes:

Alex:

0.2% of all marriages are [cousin marriages] in the United States but in India 26.6% marriages are [cousin marriages], in Saudi Arabia the figure is 38.4% and in Niger, Pakistan and Sudan a majority of marriages are [cousin marriages]. Cousin marriage used to be more common in the West. … [Family] wealth becomes more dilute more quickly with outside marriage. Cousin marriage may also increase cooperation within the extended family and help to fight off parasites. (more)

He linked this paper:

Cousin marriages create extended families that are much more closely related than is the case where such marriages are not practiced. … kin groupings may be extremely nepotistic and distrusting of non-family members in the larger society. … Societies having high levels of familism tend to have low levels of generalized trust and civic engagement, two important correlates of democracy. Moreover, to people in closely related kin groups, individualism and the recognition of individual rights … are perceived as strange and counterintuitive ideological abstractions. (more)

And this by Steve Sailer:

In Islamic countries, loyalty to extended (as opposed to nuclear) families is often at war with loyalty to nation. Civic virtues, military effectiveness, and economic performance all suffer. … Alliances of family override any consideration of fairness to people in the larger society. … The well-known lack of trust among Arabs for anyone outside their own family adversely affects offensive [military] operations. .. The Catholic Church’s long war against cousin marriage, even out to fourth cousins or higher … weakened the extended family in Europe, thus lessening the advantages of arranged marriages. It also strengthened broader institutions like the Church and the nation-state… inbreeding “does not overextend the number of persons whose deaths an honorable man must avenge.” … Nepotistic corruption is rampant in countries such as Iraq. (more)

A friend emailed me links to three nice posts by hbdchick all about how Europe got rid of family clans especially early. She quotes Mcfarlane on problems with extended families:

The separation between the household and the economy … has not occurred. … ownership is not individualized. … The present occupants of the land are managers of an estate; they cannot disinherit their heirs, the father is merely the leader of a production team…. Land is not viewed as a commodity which can be easily bought and sold. There is a strong emotional identification with a particular geographical area. Consequently, there is rather little geographical mobility; any movement to the towns is one-way, with few people returning to the countryside. … The society is also divided into many self-contained, though identical, local communities, with their own customs, dialect and beliefs.” (more)

Arnold Kling on The Rule of the Clan:

Our complex economic system requires that strangers deal honestly with one another when they exchange goods and services. Such a system functions more naturally in a Society of Contract than in a Society of Status. In the former, commercial obligations are inherently binding, regardless of the identity of the party with which one deals. In the latter, there is little sense of obligation in dealing with members of a different kinship group. What we think of as the rule of law does not exist in clan-based society. …. Weiner’s thesis [is that] … in the absence of a strong central state, the rule of the clan is the inevitable result. (more)

Some results on family firm performance:

Risk taking …in family firms … is positively associated with proactiveness and innovation. .. Even if family firms do take risks while engaged in entrepreneurial activities, they take risk to a lesser extent than nonfamily firms. … Risk taking in family firms is negatively related to performance. (more)

Controlling for size, industry, and managerial ownership, the results suggest that firms controlled by the founding family have greater value, are operated more efficiently, and carry less debt than other firms. (more)

This paper examines the immediate and long-term impacts on financial performance of 124 management successions within Canadian family controlled firms. When family successors are appointed, stock prices decline by 3.20% during the 3-day (−1 to +1) event window, whereas there is no significant decrease when either non-family insiders or outsiders are appointed. (more)

A study of 1,141 small privately held U.S. family and non-family firms that suggest the overall agency problem in family firms could be less serious than that in non-family firms. (more)

The most valuable public firms are those in which independent directors balance family board representation. In contrast, in firms with continued founding-family ownership and relatively few independent directors, firm performance is significantly worse than in non-family firms. … Family firms … exhibit better performance than non-family firms. Traditional governance devices such as institutional investor ownership and CEOs’ equity-based pay are significantly less prevalent in family firms than in non-family firms. [Family firms tend to be smaller and younger.] (more)

Last but not at all least, an NBER paper by Alesina & Giuliano on Family Ties:

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. …

Weber (1904) who argues that strong family values do not allow the development of individual forms of entrepreneurship, which are fundamental to the formation of capitalistic societies. … In studying differences between the Southern and Northern part of Italy, [Banfield] suggested that “amoral familism” was at the core of the lower level of development of the South. …

In an experimental setting … trust game, played by a representative sample of the British population, … people with strong family ties have a lower level of trust in strangers. … To explain contemporary outcomes of European regions, [researchers] identify important links between family types and regional disparities in household size, educational attainment, social capital, labor force participation, sectoral structure, wealth and inequality. .. Nuclear families encourage both flexibility and independence; corporations substitute for kinship groups and provide safety net, therefore complementing the nuclear family. …

Historical patterns of urbanization within Europe reflect these different family traditions, with early urbanization being much more diffused in the European regions, where families with weaker ties were more prevalent. … Strong family ties are positively correlated with home production, lower labor force participation of women and young adults, and negatively with geographical mobility. ..

[There is] an inverse relationship between family ties, generalized trust and political participation. … Family ties … help explain living arrangements and geographical mobility of young generations, larger fractions of family firms across countries and cross-country heterogeneity in employment rates. … Societies dominated by absolute nuclear families (or weak family ties, such as for example the Anglo-Saxon countries) facilitate the emergence of a pension system which acts as a flat safety net entailing the largest within-cohort redistribution. …

A one standard deviation in growing season variability corresponds to a 0.40 standard deviation decrease in the strength of family ties, for precipitation, and a 0.38 standard deviation decrease for temperature. …

Countries with stronger family ties have lower economic development on average, measured by GDP per capita. … the strength of family ties is associated with lower quality of institutions. … There is a strong correlation between the inherited family ties of the children of immigrants born before 1940 and current family ties in the countries of origin of their parents. …

[Compared to] Great Britain and the US, … an increase in the duration of unemployment spells of male household heads is associated with smaller consumption losses in Spanish and Italian households. … In Spain and Italy, the family appears to supplement for the lack of generosity of the welfare system and for the imperfection of capital markets. …

Strong family ties … have positive effects in an individual’s life, as measured by happiness and self-reported measures of health. The magnitude of the effect is also sizeable: the beta coefficients of family ties on the three measures of wellbeing are equal to 0.08, 0.06 and 0.03 respectively (for a comparison, the impact of the highest level of education is equal to 0.09, 0.04 and 0.08).