“Family Business, Regional Development and Public Policy”

By Rodrigo Basco, Ph. D.

New Regional DevelopmentA few years ago during a conference I was asked about the reasons why family firm is important to be considered for the policy-makers. Due to the fact that I did not want to give a traditional answer that family firm is the most predominant form of organization in developing and developed economies (this stylized fact does not say too much about the phenomenon and its importance), I preferred to tell the truth that there is no clear answer to this question. Moreover, I responded that the relationship between the family business and the regional development is blurred and more research is needed to better understand the role of family business in the regional development. But, in order to prolong the debate, I re-framed the question by answering why this debate is important. I gave several reasons.

1. The first reason that I framed was based on the contradiction that already exists in the historical perspective. The socio-economic importance of the interaction between the family and the firm has its roots in the pre-condition of industrial revolution. Even more, during the industrial revolution the firm was an extension of the craftsman, inventor, or entrepreneur where family system and firm system were integrated in one indistinguishable unit. However, after the first quarter of the 20th century large corporations, based on the mass production economy, monopolized the economic landscape. Consequently, until the end of the 20th century, the dissociation between ownership and management became the topic in academic circles, and the “managerial economy” emerged. Under this context, for instance, it was attributed that the decline of some national economies such as the United Kingdom and France in the late 19th and early 20th centuries was due to the prevalence of family firms and the lack of separation between ownership and management. However, this negative view of family firm changed when “knowledge economy” overcame “managerial economy”. For instance, it has been shown that family firms are the backbone of the success of German economy, the main actor of Italian industrial district, and one of the main responsible for China development. I think that this contradiction requires much work in order to understand, looking at the past, the conditions and to what extent family firm is an important social and economic actor.

This historical perspective is intrinsically connected with family business research and regional development research. The main paradox is that both fields of study have been decoupling from each other and, consequently, this affected the regional policies (creation and implementation). Let me explain.

2. Family business research has been more focused on distinguishing family firms and non-family firms as well as on defining family business specificities (firm-familiness) as a way to gain legitimacy rather than to explore the importance of the family firm in their regional context. The behavioural perspective of the firm has influenced the family business research by focusing on those elements that make family unique. Family brings and special bounded rationality to the firm. Family firms are not a homogenous group of firms and their decision-making matter: in the way family firms strategically compete, allocate and use their resources. This may have significant consequences for regional development.

3. But the regional development research has avoided considering the micro-foundations of different types of firm behaviour (firms, as economic and social actor, are not a homogenous group), for instance, the family business behaviour. Regional-familiness, understanding it as the embeddedness of family firms within the spatial context and the type of connections that emerge interacting with the regional factors (tangible and intangible factors) and the regional processes (such as spill-overs, information exchange, learning process, social interaction, competition dynamic, and institutional dynamic) though proximity dimensions (relational, institutional, organizational, social, and cognitive proximity) may condition regional economic growth and development. Regional-familiness has not been completely explored in the regional studies.

4. The fourth reason is based on the need to improve the public interventions by considering policy-maker perspective. Due to the fact the social and economic disparity among regions, policy-makers are more interested in intervening in those regional factors that may affect economic growth and development. Even though family firm is a predominant form of organization, the policy-makers have not been paying much attention to family firms as a potential dimension (firm-familiness and regional-familiness) to be intervened and through which affects employment rate, wealth generation, entrepreneurial behaviour, and innovation. Including firm-familiness and regional-familiness within the regional public policy may help recognize the specificities of the firm as well as the region to improve the efficiency of the public interventions.

These general reasons synthesize different perspectives to approach the phenomenon. That is, different intellectual disciplines (are needed to better understand the relationship between family business and regional development. Maybe, the most general research question that emerges with theoretical and practical roots is: how and to what extent family firms are able to participate in the wealth creation or wealth destruction at regional level. Needless to say, how and to what extent family firms are responsible for economic growth and development.

Call for Papers – Special Issue

Journal of Family Business Strategy

“Family Business and Regional Development”

Guest Editors:

Roger Stough (George Mason University)
Friederike Welter (Institut für Mittelstandsforschung Bonn and University Siegen)
Joern Block (Universität Trier and Erasmus University Rotterdam)
Karl Wennberg (Stockholm School of Economics)
Rodrigo Basco (Witten/Herdecke University)

Submission Deadline: September 15, 2014

For submission click Here – Family Business & Regional Development

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