We like to think that family businesses also tend to be more loyal to their employees and their communities. But the reality is that Italy’s family-focused business culture is economically limiting. A business-sector-based nepotism over time leads to mediocre management and prevents the best talent from rising to the top. And the refusal to accept risk capital from public shareholders or outside investors limits the ability of the best firms to expand rapidly or achieve globally competitive scale.
The reluctance to distinguish between the firm and the family dampens the ambition of Italian firms. In the mind of many business owners, once they have provided jobs and houses for all the children, bought a family house on Capri or the Dolomites and put away a few million in a Swiss bank account, why take on the risks or hassles of further expansion? In the Italian imagination, skilled and experienced professional managers are likely to put their own ideas or interests ahead of those of the family. And taking on public shareholders requires a loss of privacy and absolute control that most Italian entrepreneurs find unacceptable.
It’s no wonder, then, that the size of the Italian stock market, relative to the size of the country’s economy, is among the smallest in the industrialized world, while neither private equity or venture capital have made many inroads into the Italian market. Most of the country’s considerable savings flow through a clubby network of banks that is as inefficient as it is risk averse, with a decided preference for lending to the government or well-known firms with hard collateral and relationships to bank managers and directors.
In Italy, however, nepotism is hardly confined to family firms. It is the natural order of things that sons go into the same line of work as their fathers, while fathers are expected to secure them a job, whether it is in the Fiat factory or the ministry or any other profession.
Marco Pagano, an economist in Naples, told me that to this day when he runs into many of his parents’ friends, they ask him how things are at the law firm. Pagano has never been a lawyer — his father was, though. Now 60, Pagano says he’s given up trying to convince them that he charted his own path.
Another economist at Bocconi, Tito Boeri, recalls that when a major bank wanted to downsize recently, employees finally relented but only if the bank agreed to hire their children when future slots opened up. “The cultural message of that is terrible,” Boeri says.
Strong family ties also inhibit the flexibility of the country’s labor markets. While Italy has one of the world’s higher home-ownership rates at 80 percent, the way it has worked up to now is that parents tend to buy them for their grown children. That tends to keep children and grandchildren close by, but it also means Italian workers are extremely reluctant to move to those parts of the country where the jobs are.