anti-social behaviour such as cheating on contracts. Caste groups can enforce
bilateral contracts among members, and provide group-level insurance or
defence based on a network of reciprocal obligations. The dark side of this is
that caste membership can hinder relations of trust between caste groups.
Caste membership can facilitate exploitation as individuals may be deprived of
the option to leave the caste and its hereditary occupation for a more lucrative
occupation; this can also be prevented by higher-caste groups using their own
caste membership.
Other types of horizontal associations (such as professional associations or
trade unions) can hurt growth by acting as special-interest groups that seek to
capture private benefits, prevent outsiders entering and so protect their monop-
oly benefits (Olson, 1982). Trade unions in Britain, for example, were often
criticized for insisting on very long apprenticeships in various professions, not
just because it facilitated more learning by new members but also because it
slowed entry to the occupation and preserved the wages of insiders. There is
little sign of a general relation between membership of associational groups
and economic growth (Knack and Keefer, 1997). A particular problem with
any such statistical testing is that it is difficult to account for the intensity of
participation in such groups which would be obviously important.
A related example is that of the family business. Some of the biggest and
most successful corporations in the world have been of this type, including the
Murdochs at News Corporation and the Waltons at Walmart. Nearly three-
quarters of firms in Hong Kong have at least a 20 per cent stake that is family
owned. We can ask whether family firms evolve as an efficient response to
market failures or are an outcome of cultural norms that might hinder corpo-
rate success. Family ties may, like caste or trust, substitute for either weak legal
systems or the need to negotiate expensive contracts in countries without
strong legal systems. A business may be able to trade over long distances
through well-placed family members. As with the example of caste above, a
family business may facilitate the exchange of skills and sharing of contacts
among members. An important advantage of a family farm (and the often-cited
reason why their productivity tends to be higher) is that fewer resources need
to be spent on monitoring the effort of labour, though it makes it more difficult
to dismiss a family member should they fail to perform efficiently.
An alternative cultural explanation for the existence of family in business is
that the structure may be the result of norms of behaviour rather than a
response to market incentives. Profit, for example, may be sacrificed to
preserve other values such as nepotism through appointing a relative rather
than the best-qualified manager. The growth of a family firm may be restricted
to enable the existing pool of family members to cope with the managerial
functions and avoid appointing any outsiders. Non-managerial employees may
find that their aspirations for promotion are blocked so will be either less likely
to exert effort or the most productive among them will seek promotion else-
where. Evidence from the World Values Surveys from 1980 to 2000, which
contain specific questions about the importance of family life, respect for
266 Patterns and Determinants of Economic Growth