A high level official from Moody’s was on C-span’s Washington Journal this morning. The subject was the banking system. He told the story of when he started a business 30 years ago. He couldn’t get a loan from a large bank, but got one from a smaller, local bank, provided he give the bank a personal guarantee and a mortgage on his house.

OK, so far, so good. But then he said “I knew the banker because his daughter and my daughter were on the same soccer team.” I assume he said this to demonstrate that local bankers were members of the community, although those who operate national banks’ regional offices live within a community. But I took his remarks a different way: it isn’t what you know, but who you know. Would that local bank have given a loan to someone that the banker did not know, particularly if the borrower were someone of another color? Obviously, I don’t know, but I am pretty sure that statistics would show that such borrowers had a harder time getting this type of start up business loans.

How did get into Harvard? I think it was because I knew the high school guidance counselor pretty well, and I am not sure that my “competitors” knew her that well. How did I get my excellent job at HUD as a Special Assistant to an Assistant Secretary? I got it because I knew someone at HUD who had a similar position, and who shopped around for me to see if any such jobs may be vacant. How did I move from HUD to a law firm? I did it because I knew a partner at that law firm, and he contacted me at a time that I was not even looking.

These may all be small examples. But they tell a story. And it shows how affirmative action might help those who don’t have a clear path to helpful contacts. Now, I have recently read a proposal by someone that affirmative action based on race alone no longer makes the most sense, particularly as it has been used to assist those who may not need assistance irrespective of their race. But rather that there should be some economic or sociological test for affirmative action. I think that makes some sense – but how would it be designed and implemented in a way that would minimize abuses? And, of course the majority of the recipients under such a program would probably, in many or maybe most places, still be members of minority groups.

I guess you could say that schools do this all the time when they offer scholarships. This is true and perhaps most of the schools do provide scholarships to those who really need it most. But when I was on the scholarship committee of a local private school, I had no assurance that we were doing that. Of course, we reviewed not only applications from parents, but also federal and state income tax records. But there were families who had sizeable incomes, but equally sizeable mortgages, second homes and fancy automobiles, and who had no savings. And families with less income who lived in a small house and had been able to save some money simply by being more frugal. There were families with little income or assets, but who had grandparents who were ready to cover any amount that scholarships would not provide. And so on. And then there non-financial issues – “I really like that family”, “He’s such a cute kid”, and the opposite. I resigned from the committee after two years.

Is any of this avoidable? Or, perhaps the question is whether we should even try to avoid any of this. Maybe factors like this are necessary to grease the wheels of society.

It all reminds me of Joseph Henrich, and my post of a few days ago related to his findings that the non-Western world works more on connections and family relationships than the Western world does. It occurs to me that maybe Henrich is wrong. That the West relies as much on connections and contacts, but that the connections and contact on which the West relies are just different from those that fuel Asia and Africa.