The Family Business Paradox: How Family Business Groups Create Wealth and Inequality

Abstract

Wealth inequality is one of the most pervasive problems of our times. This article contends that family business groups deserve special examination because they create and control vast amounts of private wealth that are passed through inheritance to future generations. Despite their economic importance, little has been done to investigate to what extent family business groups contribute to wealth inequality. This study offers an economic and legal perspective of the topic and shows that family business groups reify existing power structures that sustain wealth concentration. This article shows that intergenerational transfers (capital and non-capital) and the use of the code of law are powerful mechanisms that help to explain why family business groups reinforce existing wealth inequality, a state of affairs that has persisted over time. However, this article also shows that family business groups can increase the distribution of wealth through philanthropy and ethical business practices that can dismantle class hierarchies and create opportunities for disadvantaged groups. Thus, this article concludes that family business groups play a paradoxical role. They create wealth inequality due to their societal and economic power, but they can also create opportunities for upward social mobility for underprivileged communities.