The Hindu Business Line : Do genes score over merit in economic future?

The belief that education, and not environment, is key to moulding a person may be have to be revised, says D. Murali, quoting from Unequal Chances. In another revelation, Rajesh Jain writes in Chains that Liberate, that there seems to be high attrition in family businesses, with less than 10 per cent of inherited firms lasting beyond the third generation.

MERIT gets due recognition in a competitive world, doesn't it? Not always, says Unequal Chances, a new book edited by Samuel Bowles, Herbert Gintis, Melissa Osborne Groves, from Princeton University Press (www.russellsage.org).

"There are quite strong tendencies for children of those at the bottom of the income distribution to find their children at the bottom, with a parallel tendency for those at the top of the income distribution to find their children also at the top," informs the intro, driving a nail through the equality charade.

Though the data used for research reported in the book is from other countries, the methodology and findings have universal relevance, because the study is about inter-generational economic mobility, even as it seeks to explain why some families succeed, and others fail, in ensuring their children `an auspicious economic future.'

In chapter 1, titled `The apple does not fall far from the tree' by Greg Duncan et al. begins with documented correlations such as that "children of highly educated and economically successful parents tend themselves to complete more schooling and earn more". The authors crunch numbers on aspects as varied as substance use, delinquent behaviour, math test score, attendance at religious services, depression scale, shyness at age 6, sex before age 15, and participation in school clubs. They find "little support for the idea that parental socio-economic status is the key cause of similarities in parents and children."

Do parenting styles and the home environment have any effect? To answer this, the study uses five measures — `parental involvement, monitoring, autonomy-granting, emotional warmth, and cognitive stimulation' — and find, to their surprise, that these did not explain the inter-generational correlation. The authors find indirect evidence in genetic influence and role-modelling as influencing the economic trajectory.

"The apple falls even closer to the tree than we thought," says Bhashkar Mazumder in his essay on `the intergenerational inheritance of earnings'. Earnings gaps in society may persist for many decades more than previously thought, says Mazumder, in the light of high intergenerational elasticity. "New results using transition matrices also point to an especially high degree of rigidity at the bottom and top of the earnings distribution."

Alarmingly, "the vast majority of children born to parents in the lowest decile are likely to remain in the lower half of the earnings distribution." Borrowing constraints might be an important causal channel for the transmission of inequality, says the author. Policy interventions may, therefore, continue to be relevant.

David J. Harding, et al explore the effect of family background on the incomes of American adults. They note how the US and Europe began trying to equalise children's educational opportunities in the 19th century by making public education free. However, "Except for the US, most affluent nations also make children's medical care almost costless." How heartening to know that "some European nations try to provide high-quality childcare for all children with working mothers"!

An interesting insight is that "rich democracies are alike in that families with above-average incomes pay most of the taxes, while families with below-average incomes have most of the children". So, when the costs of childrearing are shifted from families to the government, there is "a large redistribution of resources from the top to the bottom of the income distribution."

Yet, equalising parents' incomes, providing more social services and so forth cannot fully compensate children "for being short-changed at home," conclude the authors.

Environment vs genes

Another chapter by Andres Björklund et al uses `new evidence from Sweden' about siblings to shed light on the influences of nature and nurture. They cite prior research, such as that of Taubman, who "attempted to disentangle the roles of nature and nurture on the assumption that the greater correlation typically observed for monozygotic twins occurs mainly because monozygotic twins (so-called identical twins who come from one fertilised egg that splits in two) have identical genes, whereas the genes of dizygotic twins (fraternal twins, who come from two different eggs fertilised by different sperm) are correlated only in the same way as the genes of non-twin siblings."

A striking finding is that the non-shared environment is important; because, in brothers with identical genes, "an estimated 64 per cent of their earnings variation is explained by neither genetic nor environmental resemblance." Tom Hertz's chapter titled `Rags, riches, and race' focuses on the black vs the white divide, and says that much of the currently measurable intergenerational persistence of poverty in the US is due to "the significantly higher rate of persistence among poor African-American as opposed to poor white households." Race is inherited, remember, and "race has important economic correlates."

From a pool of "1,279 correlations between a parent and a child on some measured personality trait or attitude," drawn from around the world, John C. Loehlin concludes that it is unlikely that there will be a large genetic contribution to the intergenerational transmission of status via personality. Marcus W. Feldman et al write on `Son preference, marriage, and intergenerational transfer in China'.

Marriage forms they discuss are both virilocal (that is, wife moving to husband's family) and uxorilocal (where the husband moves to wife's place). "The increasing proportion of son-less couples resulting from low fertility indicates a greater potential demand for uxorilocal marriage through which to provide old-age support," they write.

The final chapter, by Adam Swift, is on `Justice, luck, and the family', where he prescribes `bedtime stories' as the medium through which parents can ensure that their children can realise family values. Unpacking the family black box, Swift says that the constraints it imposes are less strict than widely believed.

"We might still find ourselves compromising equality of opportunity, on efficiency grounds, to accommodate the favouritism of excessively partial parents."

Family firms

THOUGH economic status persists, as Unequal Chances argues, there seems to be high attrition in family businesses. Rajesh Jain writes in Chains that Liberate, from Macmillan (www.macmillanindia.com) that less than 10 per cent of these inherited firms last beyond the third generation. Globally, 80-90 per cent of all businesses are family-owned businesses (FOBs), and they contribute 60-70 per cent of GDP.

"Given the complexity and paradox of family business environment, how is that some firms manage to survive beyond centuries?" asks Jain, and answers that their secrets are awareness, adaptability, and intimacy. "Family businesses are under threat from both the sides, family as well as business," writes Jain, matter-of-factly. Haven't we seen that happening more than once?

A chapter on `understanding the complexity' informs how, in the joint family system, women members wield much influence. "They cannot handle the situation of unequal rewards to their spouses due to another level of competition prevailing amongst them."

Towards the end of the book is a valuable compilation of 22 `best practices' for FOBs. "Establish mechanism to provoke the firm out of comfort zone," reads the first. Other valuable tips speak about the need for independent directors, separation of the role of chairman from that of the CEO, regular family council meetings for continuity of the practice, documenting policies, evaluation process for entry and promotion, allowing youngsters to work for a few years outside the family business, developing a succession plan, and never telling the youngsters `It's all yours'.

Let your family be a source of strength, not of weakness, exhorts Jain. "Manage the family as keenly as you manage your business."

Suggested `family' reading for the weekend!

Economics@TheHindu.co.in

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