Do Old Boys’ Clubs Make The Market More Efficient?

Companies operate in a world of uncertainty. Candidates for employment can only communicate so much information to differentiate themselves, with the result that firms search for innovative ways to identify talented graduates.

Whether you call it networking, cronyism or simply the Old Boys’ Club – using contacts and connections to obtain an edge in the job market seems necessary in today’s competitive world. Should proponents of meritocracy really condemn such mechanisms?

Graduate recruiters spend an awful lot of time and money trying to identify talented prospects, something which is only profitable because it is so difficult to do well. For example, this author has been brought to dinner on more than one occasion by firms simply by virtue of being a scholar.

This uncertainty can be a frustrating curse or fortuitous blessing, depending on your perspective. However, it is certainly something which can be exploited for your interest. How? Since firms are seeking credible demonstrations of talent, students in their penultimate year of university should by all accounts be competing as vociferously for internships as they will for eventual employment – knowing that such a policy will reap dividends the following year. But such action though might not even be enough to land employment with the best firms. Why?

Frustratingly, many positions seem to the outsider stitched up by virtue of connections and contacts. The solution: adapt to market conditions by choosing your references wisely, and considering any possible links that you or your lecturers might have to the organisation in question. Of course, the alternative would be to claim that the market is corrupt and full of nepotism. Does this imply that it’s not meritocratic? Not necessarily.

When your connection make a plea on your behalf, it’s not a costless endeavour for them. If you secure a job for a friend or (say) family member who turns out to be completely useless, it hurts. Your networking contacts will see you as either a poor judge of candidate quality or a more concerned with nepotism than providing reciprocal and mutually beneficial recommendations. Either way, they won’t be listening to your advice in filling future positions.

So if a friend puts in a good word for you, it’s a credible signal of your talent because it costs your friend to put his reputation on the line. It’s a credible signal that you’re determined too. How can we deduce this? Presumably, because otherwise you wouldn’t be getting your friend to do the favour for you. After all, there’s no such thing as a free lunch and you must be offering him something in return for getting you the interview (or whatever).

In the end, employers will only adhere to recommendations from the Old Boys’ Club if they end up being profitable. Otherwise, such companies will lose custom to more efficient competition and perhaps go out of business. There’s still plenty of room for abuse through cronyism – After all, your recommendation need only be slightly better than operating under uncertainty to be worth listening to. But the central conclusion: Old Boys’ Clubs could be contributing to the separation of individuals based on merit.

But there are limits to the extent that it does. If contacts are incredibly important in the actual business of work, then talent may eventually take a back-seat. This is clearly unfair to individuals who are talented but didn’t have the benefit of attending the right school or mixing in the right social circles.

There’s also collateral damage to these same people even if cronyism does make the market more efficient. If employers couldn’t receive advice from networks and connections, they would have to find the most talented recruit using more conventional methods. Unfortunately for some, that would make the company less profitable than under the status quo.

Republished as “No country for old men” in The University Times (10th of March, 2010).

© The Free Marketeer 2010

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