Saturday, November 19, 2016

Family Conglomerates and Failed States

Damodaran's latest piece makes me ponder the following: Is there a correlation between the number/prominence of wealthy family conglomerates in a nation and the failure of that nation state? Here's an informative snippet (do read the whole thing though):
In many countries, including populous ones like India, influence is wielded and decisions are made by a surprisingly small group of people who know each other not just through their business networks but also through their social and family connections. These “people of influence” include bankers, rule makers and regulators that determine which businesses get capital, what rules get written (and who gets the exceptions) and the regulations that govern them. Family group companies have historically used these connections as a competitive advantage against upstart competition (both from within and without the country), especially in an environment where you have to pass through a legal, bureaucratic and political thicket to start and run a business.
I would say exactly the same connection-based cronyism applies in Turkey, Russia, Ukraine and Greece.

In fact, such cronyism is so pervasive that if you meet a person from the 3rd world who happens to be from a wealthy family, it may be reasonable to suspect that the person's family benefitted from corruption.

Note that family companies were also prominent in developing Japan and Korea. See this Wikipedia entry and here. It would be good to compare those Japanese and Korean companies with those in India.   

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