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Studies in Comparative International Development
Published in: Studies in Comparative International Development 3/2021

21-07-2021

Trust and Envy: the Political Economy of Business Groups in Developing Countries

Authors: Nathaniel H. Leff, Rachael Behr, Jeffry Frieden, Shelby Grossman

Published in: Studies in Comparative International Development | Issue 3/2021

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Abstract

Diversified business groups play a major role in the economies of many developing countries. Business group members, often from the same communal, ethnic, or tribal group, have or develop interpersonal relations that make it easier to obtain information and monitor compliance related to transactions that require a strong measure of trust. This in-group cohesion facilitates profitable and productive economic activity. However, it can create resentment among other members of society who are barred from membership in a group that is, of necessity, exclusive. This envy can fuel a self-reinforcing cycle of societal hostility and group protectiveness that can deprive society of the economic benefits the groups can provide. There are several possible reactions such as “affirmative action” programs that can slow or stop the cycle of envy and group vulnerability.
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Footnotes
1
See Montgomery (1994) for an overview of the determinants of firm diversification.
 
2
Platteau looks beyond this, examining the conditions under which limited-group morality can give way to generalized morality. He cites Kennedy, who argues that business networks can impede the emergence of a generalized morality by reducing the circle of people whom with one will engage in business transactions (1988, cited in Platteau 1994, p. 796). For Platteau, though, the prevalence of Islam in parts of West Africa can help, “build up trust within large transaction spaces and therefore mitigates [these] difficulties” (1994, 796).
 
4
Yet both of these strategies decrease vulnerability as well. The strategies have opposing effects, and it is not always clear in which direction the effect would be strongest.
 
5
Concerning the rationality of such behavior at the individual level, see Frank (1985, especially pp. 103–106).
 
7
The relationship between Suharto and Liem and the Salim Group went further than just business deals. Two of Suharto’s daughters owned stakes in Bank Central Asia, and one of Mr. Suharto’s cousins, Sudwikatmono, is a member of a group of businessmen who invested in many of the Salim Group’s ventures (Landler 1999).
 
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Metadata
Title
Trust and Envy: the Political Economy of Business Groups in Developing Countries
Authors
Nathaniel H. Leff
Rachael Behr
Jeffry Frieden
Shelby Grossman
Publication date
21-07-2021
Publisher
Springer US
Published in
Studies in Comparative International Development / Issue 3/2021
Print ISSN: 0039-3606
Electronic ISSN: 1936-6167
DOI
https://doi.org/10.1007/s12116-021-09339-4

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