Blog

What Research Reveals

“A long-held tenet of free market capitalism, is wrong,” writes Eduardo Porter, business reporter for The New York Times. Economists have long held to the belief was that income disparities in a market economy would eventually level out.

That did seem to happen in the mid 20th century, leading the economist Simon Kuznets to postulate a curve of income distribution. The “Kuznets curve,” showed a “widening in the early phases of economic growth . . . becoming stabilized for a while; and then narrowing in the later phases.”

Kuznets get it wrong because he focused on a period when, as Porter put it: “a depression, two world wars and high inflation destroyed a large chunk of the world’s capital stock.” Then, “fast growth after World War II and high taxes on the rich . . . flattened the distribution of income until the 1970s.” Kuznets generalized from these historical anomalies.

Porter noted that his “conclusion provided a huge moral lift to capitalism as the United States faced off with the Soviet Union. It suggested that the market economy could distribute its fruits equitably, without any heavy-handed intervention of the state.”

The Kuznets curve became a tenet of “economic orthodoxy that prevailed throughout the second half of the 20th century.” Holding sway today, “it more or less put an end to economists’ interest in the topic.”

It helped undermine the case for inheritance taxes, progressive income taxes and other ways governments had sought to help those at the lower end of the income scale. Clearly those policies served the interests of the wealthy, but because they were presented as economic laws, not political decisions, they seemed indispensible to managing the economy. As such, they could even be seen as benefitting the poor in the long run. They just had to wait longer.

Now, however, impressive scholarship by the French economist, Thomas Piketty, based on painstaking examination of income tax returns, suggests that “the dynamics of capitalism will not help.” Piketty’s conclusion: “income from wealth usually grows faster than wages.” As a result, “inherited wealth will grow faster than the economy, concentrating more and more into the hands of few.”

Porter concludes: “future inequality in the United States will be driven by two forces. A growing share of national income will go to the owners of capital. Of the remaining labor income, a growing share will also go to the top executives and highly compensated stars at the pinnacle of the earnings scale.” (See, “A Relentless Widening of Disparity in Wealth.”)

Back in the 50’s, Kuznets told investors what they wanted to hear. Piketty is now telling us what we have long suspected. The richest 10 percent of Americans take a larger slice of the economic pie than they did in 1913, at the peak of the Gilded Age.

Porter writes: “Progressive wealth taxes could reduce the after-tax return to capital so that it equaled the rate of economic growth.” But “holders of wealth, hardly a powerless bunch, will oppose any such move, even if that’s what is needed to preserve capitalism against the populist impulses of those left behind.”

My question: Are our minds free to think outside the boxes of what was conventional wisdom for so long, and is still embraced as economic law. How long will it take for Picketty’s discoveries to replace the old norms?

The Perspective of Porn

In the wake of the revelations that the NSA has been hacking our phones and collecting massive amounts of personal data, can we still think privacy is possible in our world? More and more our lives are open books.

For the most part, we seem to like it that way, constantly offering information about ourselves through social media sites. We register for professional networks. Information about our purchases are communicated instantly to anyone willing to pay for it. Google knows everything we have done. We want to be found.

Airport security routinely x-rays our bags and our persons. Cameras on the street photograph our every move. We may not always intend to “Send to All,” but we do. And it’s just because we have not bothered to learn how to hack, assuming you haven’t, we don’t yet “Receive All.”

So it is interesting to have the thoughts of a porn star who lives without a shield, constantly “out.” She quoted from a guideline for Adult Performers: “You cannot expect your legal name to remain a secret, and a stage name will not fool people who recognize you.”

She notes a seeming paradox: “I willingly engage in work that reduces me to a few sexual facets of myself but expect to be seen as a multifaceted person outside of that work. . . . But this same lack of context is something any of us can experience. It’s what happens when any ill-advised tweet or embarrassing Facebook picture goes viral.” To know anyone, then, you need multiple encounters. “Ten years ago, I would have judged people over the course of several conversations. Now I evaluate them based on a few snippets of their social media presence.”

Her solution, in other words, is to embrace transience and multiplicity. No one knows who you really are, including you, so try to accept that you are more than any one version of yourself. Whatever gets uncovered or exposed is just part of the truth. (See her comments in The New York Times, “Can We Learn About Privacy From Porn Stars?”)

Years ago, a friend asked, “Why do you need privacy if you have nothing to hide?” It’s a question worth pondering. You might want to be in control of intimate disclosures. You might want to spare yourself embarrassments. You might want to be able to deceive others, or just engineer your image. All celebrities – not just porn stars – face these tradeoffs. They get fame and money in exchange for being spied on and chased by swarms of paparazzi. What do we get?

Obviously we don’t want others to gain access to our banking codes, steal our money and our identities. Those are crimes, not insults or awkward facts. If a friend reports embarrassing information to another friend, that’s an ethical lapse, a reason to mistrust your “friend.” But, in that case, don’t you want to know it has happened?

Privacy hasn’t completely died, yet, but think about it! As we inexorably move closer to a world in which there are no secrets, it’s worth pondering how you feel about this relentless surveillance and the fact that there’s not much you can do about it.

A New Study Raises Questions

The CEOs of family businesses “worked 8% fewer hours than managers without genetic ties to their companies.” This conclusion was reached by a study of CEOs in India, but it “found similar disparities in Brazil, Britain, France, Germany, Italy and the U.S.,” according to an article in The Wall Street Journal.

But what to make of it? The incentives and risks that motivate professional CEOs to burn the midnight oil just might not be a factor for family CEOs, said Raffaella Sadun, a Harvard strategy professor and one of the study’s authors. But is that a problem? An advantage? Is it good for business or bad?

The conventional wisdom, of course, is that working less in a highly competitive world is bad. One CEO of a family business, who claimed he worked just as hard as any other CEO, noted that “a really unhealthy situation” is created when family members “are raised with the mind-set that they are entitled because of [what] their last name is.” Yes, but is that always true?

It can be that family CEOs find it easier to balance work and their personal lives: “Wesley Sine, a researcher at Cornell’s Graduate School of Management who studies entrepreneurship, said that executives who are more oriented toward family and establishing a legacy are more likely to favor leisure.”

“You have a perspective that life is more than money,” he said.

At the same time, such executives are often pressured by the fact that their success or failure impacts family members dependent on them. Moreover, they can be anxious or insecure about being judged by their parents.

The study conducted by professors at the Harvard and Columbia business schools as well as the London School of Economics, acknowledged that hours worked is a “very crude measure of effort.” A lot of work occurs informally, and family time is often rich with opportunities to communicate concerns and share ideas. (See, “Do CEOs of Family-Owned Businesses Work Less?”)

Can we conclude anything meaningful from the study? The Journal writes: “the jury is still out on whether family-owned businesses perform better or worse than firms with outside CEOs.” Given the complexity and variety of family dynamics, perhaps all the differences wash out in the end.

McKinsey has found: “Fewer than 30% of family businesses are still standing by the third generation of leadership.” On the other hand, a paper in the journal Family Business Review noted similar survival rates in nonfamily firms. Businesses don’t last, whether or not they are family owned.

But why do people expect family businesses to be any better or any worse? And what accounts for the variety of opinions on the subject?

I suspect it is because family businesses are insulated from the more virulent pressures of investor capitalism. Not owned by strangers who focus exclusively on “shareholder value,” they elicit envy on the part of executives often judged by market factors over which they have little control. On the other hand, they can elicit contempt from executives who believe family CEOs have an easier job.

Objective measures of comparative success are hard to find, but that hardly stops people from having strong opinions on the subject.

Are the Rich Essentially Better Than the Poor?

Over the past year, we have awakened to the reality of income inequality. “Occupy Wall Street” did not really change anything, but it did make it harder to deny the growing disparity of wealth in this country, and it got us thinking of its impact on our social fabric.

How to explain it? What to do about it? It is an uncomfortable fact, the kind of fact we tend to soft pedal if not ignore. That’s not just because it’s hard to know what to do about it, even if we could agree politically. The difficulty is that people prefer to believe they are entitled to their advantages, just as the poor tend to blame themselves for being poor.

In times past, we often referred to the wealthier as the “better” classes, automatically ascribing to the privileged greater intelligence, refinement, and drive. To be sure, they were arguably better educated, better mannered, more worldly and sophisticated, because they had the advantage of being richer. But, today, research shows that the rich think that there is something about them that is essentially superior. They are rich because they are better to begin with.

Mathew Hutson, writing in Slate, reported on research to confirm the existence of this illusion: “the higher people perceived their social class to be, the more strongly they endorsed . . . beliefs [in a just world] . . . . Apparently if you feel that you’re doing well, you want to believe success comes to those who deserve it, and therefore those of lower status must not deserve it.”

One way of explaining this is to see it as bias: “Privilege is often invisible, especially one’s own.” But the researchers were interested in a more fundamental and pernicious explanation. Was the perception akin to race or gender, something that people accepted as fundamentally true about themselves, essential to their identity? They “wanted to know if we see social class as an essential category.” (See Slate, “Social Darwinism Isn’t Dead.”)

And that is exactly what they discovered: “upper-class people are more likely to explain other people’s behavior by appealing to internal traits and abilities, whereas lower-class individuals note circumstances and environmental forces.”

Hutson notes: “There is a grain of truth to social class essentialism; the few studies on the subject estimate that income, educational attainment, and occupational status are perhaps at least 10 percent genetic (and maybe much more). It makes sense that talent and drive, some portion of which are related to genetic variation, contribute to success.”

But the really interesting and troubling side of this is that it doesn’t work the other way: “One repercussion of social class essentialism is a lack of forgiveness for criminals and cheaters.” In other words, we take credit when we can. Otherwise we gladly seek out excuses, and protect our self-esteem from reproach and blame.

In short, the rich see themselves as better because they are rich, and the poor see themselves as victims, poor because there were derived of opportunities to become rich.

That’s not a good place to start if you want to change things.

Do We Want Real Ones?

Business leaders, politicians, and celebrities have learned the importance of offering apologies. But guided by their publicists and spin-doctors, their words have become routine and unconvincing. “It has become . . . an almost reflexive response among leaders to a mistake or, worse, a true crisis,” wrote Andrew Ross Sorkin in The New York Times.

How can we tell if an apology is sincere or reliable? What makes it real?

To be believable, an apology has to be grounded in true remorse. That means, in effect, that the mistakes that occasioned them caused too much embarrassment or guilt for the persons who committed them for them to want to make those mistakes again. If we feel that about the persons apologizing, we might be ready to believe them. As we like to sat, they have learned their lessons.

But in order to be convinced of that, we also have to be convinced the guilty parties understand why they did it. We need to know that the pain has led to soul searching and understanding of not only why it was wrong but how they allowed it to happen. What warnings were ignored? What motivations were too strong to be contained? What distracted them — or why didn’t they care enough in the first place to allow it to happen?

The third ingredient of a true apology is willingness to offer reparations. The guilty parties need to try to fix the effects of their bad behavior on their victims, and not just because they are shamed into doing it. They must want to do it but because they believe it is the right thing to do.

Not every apology measures up to these standards, of course. And not every apology can measure up. Some consequences can’t be undone. Violence and trauma leave indelible scars. Children can’t get back their childhoods, and those betrayed may not be able to regain the trust that was destroyed.

But these are the ingredients of a serious apology, the standards of sincerity against which we measure them.

On the other hand, we often don’t want true apologies. The darker side of the rush of public figures to confess their sins is that they simply want to get it over with, to move on. They want us to forgive and forget — and often we are only too willing to do that. Sometimes the appearance of contrition will suffice because we care more that they uphold the standards of honesty and fairness than that they are actually contrite.

Sorkin cites Dov Seidman, an advisor on organizational culture, who calls this “apology theater.” Speaking at Davos recently, noting that “the act regurgitates a social norm rather than launching an emotional process,” he called for an “apology cease-fire.” (See, “Too Many Sorry Excuses for Apology.”)

But, perhaps, the problem is even deeper. Many of us like our public figures tainted with guilt. That can bring them down to size, reassuring us that they are less grand than they like to seem, and more fallible. But also it can reinforce our cynicism, our tendency to believe in the superficiality and pervasive corruption of the governments and corporations that dominate our lives.

We can complain about this, to be sure, but complaining can also amplify our sense of being victims and, paradoxically, amplify their power.