Nepotism? No, Family Business.
Today's economy prioritizes skills, but a true "meritocracy" (valuing purely based on qualifications) is now a myth. A closely comparable analysis by Perez-Gonzalez (2006) demonstrates that new CEOs are frequently the offspring of former CEOs. Other studies, conducted by Hellerstein and Morrill (2008), demonstrated that in order to prosper the businesses, trust is required, explaining why father lends to the son. The question is, can a company thrive in the long run if talent is second to nepotism?
Nepotism fosters a breeding ground, an economic theory, as known as adverse selection. By prioritizing family connections over merit, companies attract less qualified individuals, pushing out talented babies out there. This creates a talent pool that may not be the best fit, leading to a domino effect: lower productivity, demotivation among deserving employees who see advancement based on connections, and ultimately, stagnation due to a lack of fresh perspectives and innovation (Investopedia, 2024).
The Labor Market Signaling theory by Micheal Spence (1973) suggests that a worker's potential and skill set are communicated to employers through their education. Formal education, degrees, and certifications can signify a person's skill level and reduce the information gap for employers. In the labor market, hiring companies often cannot assess a worker's ability level, leading to knowledge imbalance between the two sides. If employment is filled mostly on the basis of family ties rather than qualifications, nepotism can skew this signal (University of Katowice, 2021) This mirrors "adverse selection" in negotiations, which refers to a scenario where one party (Nepo Babies) has less information than the other (information asymmetry) and disrupts market operations by causing ineffective outcomes, or in other words, bringing down the prosperity of daddy’s company.
In a troubling first for the Forbes list, none of their young under-30 billionaires are self-made. This breaks a 15-year streak where at least one young entrepreneur built their own fortune. The reason? Past self-made stars are simply aging out, but no new young innovators are taking their place (Breaking Point, 2024). Forget "self-made success story," the youngest Irish billionaire, was positioned as a billionaire through a small stake in her family's company— worried that our economy is in the hands of actual babies.
A thought-provoking trend emerges, famously known as the "third-generation curse" suggests many young billionaires inherited wealth directly from grandparents is doomed to fail. This phenomenon highlights a magnified effect of nepotism, meaning Nepotism has run for third generations. This trend’s long-term effects of nepotism on corporate leadership has led to mismanagement and ultimately, business failure, impacting not only the company's financial health but also the livelihoods of its employees. This trend builds on a longstanding issue: companies clinging to family traditions can stagnate without fresh perspectives and talent.  Instead, the market prioritizes financial maneuvers, cost-cutting, and even anti-worker tactics – behaving like a Wall Street stock trader instead of a real company (NSG Consulting Inc, 2016). This shift is a sign of a sluggish economy.
How Indonesia Elected a (Nepo) Baby
In January 2024, the former president of Indonesia, Jokowi was thrown into the State Administrative Court (PTUN) on charges of nepotism. His son, the new vice president of Indonesia, Gibran Rakabuming Raka answered briefly regarding the lawsuit filed against his family. "Sure, go ahead" (Kompas, 2024).
Despite Gibran's limited political experience, stemming from his two-year stint as Mayor of Solo, a position once held by his father, President Jokowi, Gibran boldly stepped forward as a vice-presidential candidate, facing off against the best seasoned politicians– somehow managed to win. Emphasizing that Gibran's candidacy was facilitated by a controversial Constitutional Court ruling in October, which relaxed the minimum age requirement for presidential and vice-presidential candidates. The judges created an exception allowing officials who are at least 35 years old to run for office if they have prior experience (What a Privilege!) As it turns out, Nepotism is the main lead to administrative corruption in Indonesia by developing a culture of favoritism and abuse of authority. These behaviors are not limited to particular countries or sectors of the economy. (European University of Tirana, 2017).
Crucially, nepotism makes nation forget the vital principle of professionalism within government. The practice of appointing relatives to manage a country, often without regard for merit or qualifications, will have detrimental consequences for both the institutions themselves and for the nation. This can lead to a decline in performance across various sectors, including economic development and growth. Paradoxically nepotism allows politicians to establish political dynasties— as who knows until how long.
Ironically, despite all the dirt, laws broken, rigged system, and political bribery, these politician Nepo Babies has a whole fandom of die-hard fans who worship them, as if his father is god (Familiar with that, Indonesia?)
