The Sociology of Jared Kushner

 

    

 

 

The mass media doesn’t know what to make of Jared Kushner. Neither do most traditional students of public administration. Jared Kushner does far more than would a typical public servant serving in the administration of a normal president. He is managing the opening of the economy from coronavirus, the Middle East Peace process, the Federal Emergency Management Administration, the construction of the border wall, diplomatic relations with Lebanon, the reform of the criminal justice system, diplomatic relations with both China and Mexico, restructuring the internal structure of Federal Government, and running President Trump’s re-election campaign. Any of those portfolios would require the full time efforts of large teams of people, never mind the part-time attention of one individual. Yet Jared Kushner is the point person on all of these key issues.

    

Jared Kushner may be unprecedented in the history of the American Presidency. However, he is not unprecedented in history. The use of a family member to cover a broad swathe of high level responsibilities was standard operating procedure in most European firms before the Industrial Revolution. To NOT put a family member in such a position of central responsibility would have been reckless.

    

The leading historian on this point is Sydney Pollard. His Genesis of Modern Management traces the history of large firms in Great Britain before 1800. The circumstances of Georgian era commercial life were completely different from those involving government today. But it is useful to consider why what worked in the 1720’s worked then and think about what lessons we could take from the eighteenth century.

    

In the eighteenth century, the primary cause of firm failure was embezzlement. More firms died of embezzlement than from any other natural cause.

    

There were few banks, and money was generally kept in a strongbox by the company founder or the firm treasurer. Whenever the prospects of a company began to look rocky, some company official with access to the strongbox would simply empty out the cash and disappear beyond the reach of the law. (Often all that would be needed would be a one-way boat ticket to Jamaica and a willingness to wait out the statute of limitations.) Workers and vendors would not be paid, and the company would go under quickly.

    

There was no solution to this problem if the defalcator was the company founder.

    

However, if the company founder wanted to play things straight, he had to make sure his treasurer and top officers could not take the money and run. The general solution to this problem was nepotism. One made one’s son or one’s brother the treasurer. This took away the social support system of anyone who wanted to make a treasury-box grab. Competence was not the key issue in picking an executive officer. What mattered above all else was loyalty.

    

It is tempting to think that only very small firms can operate in this manner. If one has to depend on family members to do the important business of the firm, then the firm can only grow to the extent that a small number of individuals can still do everything that matters.

   

In the Western case, this generally is true. Pollard documents that the key to the creation of the mega-corporation in Britain and the West was the rise of impersonal systems of control that could substitute for ties of executive personal loyalty. For Pollard, the key issue was the rise of accounting. The presence of a paper trail allowed auditors to see problems before they could develop. Often in cases of embezzlement, small thefts precede the grand theft; reducing vulnerability to small thefts prevents bad habits from forming. I would add that the rise of large-scale commercial banking and the improvement of international enforcement of business law would have reduced the risk of grab-and-go as well. Pollard does argue, and I concur, that the rise of accounting also reduced the relevance of personal-trust-based management. Administration became technical because executives now had access to reams and reams of numerical data on their operation which could be studied and analyzed. Sales figures and cost figures allowed for both marketing and production design to be scientific rather than instinctual. Cost accounting increased the skill requirements required to be a corporate executive. Business schools arose as a response to the need for a new technocratic breed of manager.

   

So is Trump’s decision to hire a son-in-law to do everything a strategy that only works for small firms?

    

Not so fast.

    

The great overseas Chinese firms have also used family members as jacks-of-all-trades to deal with very broad portfolios of organizational responsibilities. The great Chinese overseas businesses have traditionally been family firms. Small Chinese family firms look like small family firms everywhere. However, there are great Chinese dynastic firms which are large multinational empires with highly complex internal structures. Many involve over a hundred nested subsidiaries spread out among many industries and many nations. The great Chinese family firms were the dominant economic players in Southeastern Asian development, and have only been partially supplanted recently with the rise of both local industrialists and the incursion of mainland China based multinationals.

    

One would be hard put to argue that the great traditional Chinese firms are run irrationally or that they represent a model for failure.

Why does management by family members work for large overseas Chinese commercial empires?

1. The individual component businesses are fairly simple. Trading. Construction. Selling of agricultural output. Simple finance in the form of straightforward loans. Trading often dominates. Most family members have the basic skills to run any one of the constituent businesses.

2. Business is heavily based on trust and interpersonal relationships with vendors, lenders and clients. Close ties between the patriarchs of interacting firms are a fundamental of success. No one can better represent the patriarch than a son or a brother.

3. Decisions are highly centralized and personalized. Or to speak more plainly, the patriarch of the family makes all the key decisions. The patriarch may take advice from family members, but the final call is with the great old man. Once decisions are made, it is expected that they will be carried out loyally with no dissent.

4. There is massive non-transparency in the operation of the business. There may or may not be tax evasion. There may or may not be smuggling. There may or may not be non-compliance with particular local laws. Components of the company may or may not be the beneficiary of large corrupt transfers from well-connected allies holding political office.  Organizational structures are kept baroque with firms nested within subsidiaries nested within shell companies to shield financial transfers, political dealings and economic operations from the eyes of prying outsiders. Secrecy is essential for some of the firm’s most important transactions. Family members are excellent choices for keeping secrets.

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So when might it make sense for a President to run a government using a trusted family member to do everything?

A. In the eighteenth century, using family members was good protection against embezzlement. It is hard to see the relevance of that to a modern Presidency.

B. In Chinese businesses, using family members made sense when underlying operations were fairly simple. It is hard to see Middle Eastern Diplomacy, management of pandemics, reform of the criminal justice system or even the running of a presidential campaign as being simple affairs.

C. Trust could be the basis of using family members. If a President believed that everyone in the military, the intelligence community, and the federal bureaucracy was a member of a Deep State that wanted to unseat him, he would want to rely on loyal family members. Because many full-time professionals in the military, the intelligence community and the federal bureaucracy disagree vehemently with both the President’s policies and his perceptions of geopolitical realities, trust is a matter of grave concern for this President. Using family members solves a real problem.

D. In the Trump administration, decisions are highly centralized and personalized. Using family members is wholly consistent with this style of administration.

E. The Trump administration has been anything but transparent in its operating style,  particularly in regard to the inter-relationship between government policy and the Trump family business.

 

When decisions are made to raise or lower tariffs, do Trump family businesses find out about this early in order to get information for arbitrage?

 

When arrangements are made with foreign leaders, are there clauses affecting Trump businesses in that country?

 

When tax laws are written or differentially enforced, is there any link to the tax consideration of Trump family businesses?

 

We do not know that any of this happens. We do not know that any of this does not happen. Having a policy associate who is also integral to the running of the family business would certainly facilitate government-family-business interrelations. And naturally, all such transactions would have to be kept profoundly secret.

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I am not writing this as a partisan political document. While it is common knowledge that I am a liberal Democrat, this is not a discussion of Trump government policies. Having family members take super-responsibility for multiple organizational responsibilities is not pathological per se. Too many successful Chinese firms use this form of administration to write it off entirely.

However, it is my principled position that strong technocratic government is an essential prerequisite for societal functioning. Governments have to have the skilled personnel at the top to be able to make competent well-conceived decisions. If Jared Kushner turns out to be that skilled person, then all power to him – and I would mean that literally.

    

Generally, however, the affairs of state of major geopolitical powers are extremely complex, and involve dealing with multiple, multiple issues that require large amounts of highly technical information in a extremely wide range of fields. The internal political and social dynamics of every nation with which we do diplomacy, the properties of all of our weapons systems, the management of a complex and information-intense economy, the geological and biological dynamics of environmental change, the epidemiological dynamics of pandemics, the determinants of crime and recidivism, the regulation of financial markets, the actuarial management of Social Security and Medicare, and the provision of health care at reasonable cost without depriving the vulnerable are all highly complicated and skill-intense issues.

    

Most governments deal with this by the division of labor and the use of specialized expertise in a wide variety of fields.

    

Let us hope that the technical capacity of our government remains strong.

For More Information

The essay already mentioned, Sydney Pollard’s Genesis of Modern Management.

 

There are many fine books on Chinese overseas firms. Two good ones are

 

George Haley et al.’s New Asian Emperors: Business Strategies of the Overseas Chinese and K.S. Jomo and Brian

Folk’s edited collection Ethnic Business: Chinese Capitalism in Southeast Asia.