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Friday, 25 July 2014

Someone I can trust

Nepotism is giving way to elite breeding

The role of family ties is changing in modern economies. The U.S. Securities and Exchange Commission is looking at an example of old fashioned nepotism - some JPMorgan hires in China which might amount to bribery under U.S. law. Whatever happens in this case, a new style of family power - “elite breeding” - is flourishing around the world.

The Chinese economy is developing rapidly. Still, despite three generations of management by the bureaucratic Chinese Communist Party and two decades of few-holds-barred capitalism, family connections remain crucial. In an online survey for the China Youth Daily newspaper, 80 percent of the respondents said that professional success depended primarily on winning the “competition of family background”.

The tendency to follow in relatives’ footsteps now looks like unjust nepotism. But before the advent of bureaucratic meritocracies, impersonal institutions and modern individualism, it was standard practice. In pre-industrial economies, children usually took on the land and trades of their parents and merchants often worked only with kith and kin. The economy was like the rest of society; political power and social status were also usually inherited.

In industrial societies, the attitude towards families has become much more ambivalent. Genes don’t appear in job descriptions, and most people are in favour of social mobility - children ending up richer or poorer than their parents. The advent of universal schooling has given everyone a chance, and many have taken it.

This meritocracy has made steady progress. Less than half a century ago, a distinguished lineage or a family fortune was often enough to gain admission to leading universities. That now happens rarely, even if the children of big donors may face lower hurdles for admission than poorer rivals. And these days, in developed countries a phone call from Dad can rarely secure more than a temporary internship anywhere other than at the family firm.

Miles Corak, a Canadian professor, studied what happens to the sons of American men whose incomes were in the bottom 10 percent. One third of them end up in the top half of their generation’s earners.

However, family still matters. Corak also notes that a quarter of the sons of the top 10 percent of best-paid American males end up in the top 10 percent of their own generation’s income rankings. Many studies suggest that social mobility in most developed countries is declining.

There are two distinct worries about the resurgence of family-as-destiny economies. The first is a sort of negative nepotism: the children of the poorest members of society are increasingly likely to follow their parents in lives of economic non-achievement. That’s not just down to social prejudice. Rather, these are children who are most likely to be poorly educated, and education is increasingly a prerequisite for even modest economic success.

The second worry is that the United States, United Kingdom and other developed economies are becoming more like the Chinese young people’s image of China - lands where almost all of the best jobs are reserved for the kids of the elite.

There’s something to that, but in richer countries traditional nepotism - jobs for my kids or for my friend’s kids - is a relatively small part of the story. What successful parents offer instead are the ingredients of success. They put their children in the best, most expensive, schools and push them to do well. The young people travel, learn many skills, socialise with other privileged families and run into members of the elite from around the world. Privilege isn’t inherited directly, but it might as well be.

Indeed, the quasi-nepotism of elite breeding may be more troubling than the simple class prejudice it supplants, because the new meritocratic approach cannot be dismissed as unfair. It is reasonable for companies to want employees who are not only bright and skilled, but have the right connections and a global feel. By those fairly objective standards, hard working young people with every advantage usually beat out equally talented rivals who did not have personalised tutoring and summer camps on another continent. No wonder that in China and elsewhere, privilege is increasingly inherited.

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Context News

The U.S. Securities and Exchange Commission (SEC) is looking at whether the bank’s Hong Kong office hired the children of powerful heads of state-owned companies in China with the express purpose of winning underwriting business and other contracts, a person familiar with the matter said. The SEC is questioning JPMorgan’s relationships with at least two families in China that may have legitimate explanations, the source said.

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