Regional familiness for policy-makers

This is the third piece in a three-part series on family business and regional development. Read part one: “in search of the missing link” and part two “Regional Familiness – The missing link

Part 3: What can policy-makers and family owner-manager do for regional development?

By Rodrigo Basco, Ph.D.

We are arriving at our last stop in this trip arguing that it is not thewordle 2 number of family firms within the geographical space which makes them important, but the quality of their behaviour. The economic participation of family firms can be seen through aggregate numbers such as contribution to GDP or participation on employment rate, but these numbers are just the consequences of what is happening within the region.

Nevertheless, do we know how family firm behaviour affects regional economic development?

To answer this question, in the previous post, I sustained that family firms may alter soft issues such as proximity (physical, cognitive, social, organizational and institutional proximity) that enable regional processes to boost or to hinder economic and social development.

And! So what?

This new lens, regional familiness perspective, to approach the understanding and analysing of family firm and regional development could have two main stakeholders as recipients. First, for policy-makers who are interested in promoting regional policy for economic growth and development and, second, for family firms themselves which are interested in their own image within the geographical space.

Policy-makers are strongly convinced that they can intervene in economic and social spheres to reduce regional inequality. Policies at the local, regional, national, or supranational level have targeted phenomena such as entrepreneurship, innovation, and internationalization among others without considering the composition of firms within their local productive structures. Familiness characteristics have been omitted from the analysis for tailoring regional policies. Without knowing who receives support and how they interact within the environment, there is an increase in the likelihood that political interventions may fail. Family and non-family firms react differently to political incentives because family firms have different underlying motivations, goals, and aspirations affecting their decision making.

But supporting family firms is not about reducing taxes as a consequence of lobby actions of huge family firms and wealthy families as the main European political policy is doing to favour family businesses. Policy-makers, by doing their job, have to recognize the family business role in the economic and social environment to tailor policies to increase the positive side of family businesses while reducing the negative ones. What regions and family businesses need in Bavaria, Andalucía, Central America and Bangalore is completely different and it is not related to reducing taxes. For instance, Can the long tradition of family firms recover the economic dynamic of North Rhine-Westphalia (Germany) beyond the coal and steel industry and the complacency of having hidden champions? Can the new generation of family members in the North Rhine-Westphalia region maintain the leadership of their firms as their fathers and mothers have been able to do so far? Are members or wealthy family firms agents of innovation or just mere wealth managers of their fortune?

On the other hand, family members cannot avoid their link between family name and firm as an identity footprint that requires caring for the family business image. It is not the philanthropic actions which make family firms socially responsible, but how family firms economically and socially interact with other actors within geographic places to leverage regional processes such as social interactions, learning processes, and information exchange. By doing this, family firms contribute to the improvement of the economic and social conditions favouring positive externalities such as innovation, entrepreneurship, efficiency and internationalization. Therefore, the best family firms can do for sustaining regional development is playing their linking role among family, market, and society. When one of these links is broken, family firms lose their intrinsic sense as it happened in some Latino American countries where family businesses extend their network into the political arena with the intention to sustain monopolies avoiding free market, competence, and innovation.

There is no magic recipe for owner-managers and policy-makers to tell them what to do to foster economic growth and development, but we start knowing that we have to be aware of who family firms are, what they are doing in our close environment, and how they are interacting with other players and institutions. Family firms are not the next miracle for economic growth but they have been and they will continue to be part of our economic and social life.

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