The New Humanities

responses to decline in firms, organizations, and states
(Harvard University Press: 1970)

“The presence of a ready alternative to rail transport makes it less, rather than more, likely that the weaknesses of the railways will be fought rather than indulged. With truck and bus transportation available, a deterioration in the rail service is not nearly so serious a matter as if the railways held a monopoly for long-distance transport - it can be lived with for a long time, without arousing strong public pressures for the basic and politically-difficult or even explosive reforms in administration and management that would be required. This may be the reason public enterprise, not only in Nigeria but in many other countries, has strangely been at its weakest in sectors such as transportation and education, where it is subjected to competition: instead of stimulating improved or top performance, the presence of a ready and satisfactory substitute for the services public enterprise offers merely deprives it of a precious feedback mechanism that operates at its best when customers are securely locked in. For the management of public enterprise, always fairly confident that it will not be let down by the national treasury, may be less sensitive to the loss of revenue due to the switch of customers to a competing mode, than to the protests of an aroused public that has a vital stake in the service, has no alternative, and will therefore raise hell.”

(Hirschman, pp.44-5)

This observation, repeated from Albert Hirschman’s earlier work on development economics, formed the kernel around which Exit, Voice, and Loyalty grew. Which then was, and still remains, an extremely unusual book to be written by a professional economist. Economists, particularly in the last half century, have been noted for their intellectual imperialism - their export of economic assumptions/methodology into surrounding disciplinary terrain...most specifically, political science, and legal studies. However, this particular work hardly fits this description at all as, in it, we can see something of a counter-reformation, with Hirschman importing central mechanisms from political science - voice and loyalty - to demonstrate how these considerably complicate the overly-narrow assumptions of economic theory, as well as help properly reunite political and economic studies. For what this slim volume is, in essence, is a highly successful attempt to begin rebuilding the oldest discipline in the Western human sciences...that of political economy.

“The two contrasting, though not mutually exclusive, categories of exit and voice would be suspiciously neat, if it did not faithfully reflect a more fundamental schism: that between economics and politics. Exit belongs to the former realm, voice to the latter. The customer who, dissatisfied by the product of one firm, shifts to that of another, uses the market to defend his welfare or to improve his position, and he also sets in motion market forces which may induce recovery on the part of the firm that has declined in comparative performance. This is the sort of mechanism economics thrives on. It is neat - one either exits or one does not; it is impersonal - any face-to-face confrontation between customer and firm with its imponderable and unpredictable elements is avoided, and success and failure of the organization are communicated to it by a set of statistics; and it is indirect - any recovery on the part of the declining firm comes by courtesy of the Invisible Hand, as an unintended by-product of the customer’s decision to shift. In all these respects, voice is just the opposite of exit. It is a far more ‘messy’ concept because it can be graduated, all the way from faint grumbling to violent protest; it implies articulation of one’s critical opinions, rather than a private, ‘secret’ vote in the anonymity of a supermarket; and finally, it is direct and straightforward, rather than roundabout. Voice is political action par excellence. The economist tends, naturally, to think that his mechanism is far more efficient, and is in fact the only one to be taken seriously.... But the economist is by no means alone in having a blindspot, a ‘trained incapacity’ (as Veblen called it) for perceiving the usefulness of one of our two mechanisms. In fact, in the political realm, exit has fared much worse.... Rather than as merely ineffective or ‘cumbrous’, exit has often been branded as criminal, for it has been labelled desertion, defection, and treason. Clearly, passions and preconceptions must be reduced on both sides if advantage is to be taken of an exceptional opportunity to observe how a typical market mechanism and a typical nonmarket, political mechanism work side by side, possibly in harmony and mutual support, possibly also in such a fashion that one gets into the other’s way and undercuts its effectiveness... Even more important, the analysis of their interplay will lead to a more complete understanding of social processes than can be afforded by economic or political analysis in isolation.”

(Hirschman, pp.15-18)

It may be partly an artefact of my reading habits, but I’ve always felt that this book was something of an answer to Mancur Olson’s Logic of Collective Action (1965)...just as I then see The Rise and Decline of Nations (1982) as, in certain ways, Olson’s reply. I’m not talking about crude polemics, here...Olson’s first was the highpoint and summation of that early move by economists into political theory and - within its assumptions - largely unanswerable. Hirschman, therefore, turned directly to those assumptions - shared across this literature - and swiftly demonstrated how they needed to be supplemented by ideas drawn from political science, if they were to account for a wide variety of empirical evidence. Interestingly, Olson’s next was also a flank manoeuvre...abandoning the most restrictive/unrealistic rational choice assumptions - to the great disgust of the ideologues - he showed how many of the pessimistic conclusions re collective action still held, and explored the way these played out in history.

By refraining from cheap point scoring - and through their very real willingness to learn from arguments outside “their” traditions of thought - I think the work of this period by Hirschman and Olson offers us all a wonderful lesson in the genuine intellectual development...and Hirschman - in particular - deserves special credit for establishing the tone of the interplay. That is rigorously argued - albeit playful at points - but refrains from polemic excess...perfectly content with merely establishing its points. Here, for example, is Hirschman on exit & voice - carefully moving the ground under his fellow economists’ feet...

“In a first approximation...voice can be regarded as a residual. Whoever does not exit is a candidate for voice, and voice depends, like exit, on quality elasticity of demand. But the direction of the relationship is turned around: with a given potential for articulation, the actual level of voice feeds on inelastic demand, or on the lack of opportunity for exit.... However, the decision to whether to exit will often be taken in the light of the prospects for the effective use of voice, [and] if customers are sufficiently convinced that voice will be effective, then they may well postpone exit...[until] after voice has failed. It appears, therefore, that voice can be a substitute for exit, as well as a complement to it....[However,] voice will depend also on the willingness to take the chances of the voice option, against the certainty of the exit option, and on the probability with which a consumer expects improvements....[Moreover, beyond] foregoing of the exit option...account must be taken of the direct cost of voice which is incurred...in the attempt to achieve changes in the policies and practices of the firm from which they buy, or the organization to which they belong.... Hence, in comparison to exit, voice is costly, and conditioned on the influence and bargaining power customers and members can bring to bear.... [Thus,] voice plays a more important role with respect to organizations of which an individual is a member, than with respect to firms whose products he buys...[and] while exit requires nothing but a clearcut either-or decision, voice is essentially an art, constantly evolving in new directions. This situation makes for an important bias in favor of exit when both options are present: customer-members will ordinarily base their decisions on past experience with the cost and effectiveness of voice, even though the possible discovery of lower cost and greater effectiveness is of the very essence of voice. The presence of the exit alternative can therefore tend to atrophy the development of the art of voice. This is a central point.”

(Hirschman, pp.34-43)

Now...it’s well worth unpacking this argument - for the benefit of those unfamiliar w/economic assumptions/jargon. First note that Hirschman begins with exit (the economists’ standard) as the default option, only to then turn the argument round...and make the point that - at least in some circumstances - people only exit when they are convinced voice will not work. He then outlines the various costs of voice, and links this to the situations - typically, membership in an organization - where such costs can be seen as worth bearing. As the analysis continues, it becomes clearer and clearer just how complex voice is - compared to exit - thus suggesting just how unlikely it would be that this could be adequately mathematically modelled. In this way, Hirschman both draws economists into accepting the importance of the voice option, and understanding that this severely undercuts the general applicability of the economic models they had so blithely imported into political theory.

However, once we get past such general points, the key value of the book lies in Hirschman’s rigorous analyses of the complex interactions of exit and voice...which help us understand exactly why successful institutional design is such a rarely practised art. He also, in passing, offers us a valuable explanation as to why exit is so highly valued in the USA, and why those disillusioned w/it express themselves so strongly...

“The ideology of exit has been powerful in America. With the country having been founded on exit, and having thrived on it, the belief in exit as a fundamental and beneficial social mechanism has been unquestioning. It may account for the strength of the national faith in the virtues of such institutions as the two-party system and competitive enterprise; and, in the latter case, for the national disbelief in the economist’s notion that a market dominated by two or three giant firms departs substantially from the ideal competitive model. As long as one can transfer his allegiance from the product of firm A to the competing product of firm B, the basic symbolism of the national love affair with exit is satisfied. Yet, as love may suddenly turn to hate, so can the national infatuation with exit give way...if the country is too obviously at fault, [then] it has to be made into that ideal place which one wants it so passionately to be.”

(Hirschman, pp.112-14)

“A special difficulty in combining exit and voice [lies in situations where]...those customers who care most about the quality of the product, and who, therefore, are those who would be the most active, reliable, and creative agents of voice are, for that very reason, also those who are apparently likely to exit first in case of deterioration. One interest in this observation is that it could define a whole class of economic structures where a tight monopoly would be preferable...to competition. But, before jumping to this conclusion we must take a closer look at the observation, by translating it into the ordinary language of economic analysis...[as] the situations just described have more than a faint odor of paradox. We all know that when the price of a commodity goes up, it is the marginal customer, the one with the smallest consumer surplus, the one, that is, who cares least, who drops out first. How is it that with a decline in quality the opposite seems quite plausible? ...For any one individual, a quality change can be translated into an equivalent price change. But this equivalence is frequently different for different customers of the article, because appreciation of quality differs widely amongst them...[while] the consumer who is rather insensitive to price increases is often likely to be highly sensitive to quality declines.... The rapid exit of highly quality-conscious customers - a situation which paralyzes voice, by depriving it of its principle agents - is tied to the availability of better-quality substitutes at higher prices.... [Unfortunately,] the role of voice in fending off deterioration is particularly important for a number of essential services largely defining what has come to be called the ‘quality of life’. Hence, a disconcerting, though far from unrealistic conclusion emerges: since, in the case of these services, resistance to deterioration requires voice and since voice will be forthcoming more readily at the upper than at the lower quality ranges, the cleavage between the quality of life at the top and at the middle or lower levels will tend to become more marked...[especially] in societies with upward social mobility.”

(Hirschman, pp.47-53)

“Voice...will be resorted to and...bids fair to be [most] effective [when] there should be the possibility of exit, but exit should not be too easy or too attractive as soon as deterioration of one’s own organization sets in...[for] it is useful to note that the greater the opportunities for exit, the easier it appears for organizations to resist, evade, and postpone the introduction of internal democracy, even though they function in a democratic environment.”

(Hirschman, pp.83-4)

“The realization that a tight monopoly is preferable under certain circumstances...comes hard to a Western economist. Nevertheless, the preceding argument compels recognition that a no-exit situation will be superior to a situation with limited exit on two conditions: (1) if exit is ineffective as a recuperation mechanism, but does succeed in draining from the firm or organization its more quality-conscious, alert, and potentially activist customers or members; and (2) if voice could be made into an effective mechanism once these customers or members are securely locked-in.... [Note that] one important way of bringing influence to bear on an organization is to threaten exit to a rival organization. But this threat cannot be made when there is no rival, so that voice is not only handicapped when exit is possible, but also, though quite in a different way, when it is not.... Perhaps the best way of looking at the matter is to recognize that we face here a choice of two evils. Next to the traditional full-fledged monopoly, whose dangers and possible abuses have long been exposed, attention should also be paid to those organizations whose monopoly powers are less complete, but...where competition does not restrain monopoly, as it is supposed to, but comforts and bolsters it by unburdening it of its more troublesome customers. As a result, one can define an important and too little noticed type of monopoly-tyranny: a limited type, an oppression of the poor by the lazy, which is the more durable and stifling as it is both unambitious and escapable...[and is most] frequently encountered when monopoly power rests on location, and where mobility differs strongly from one group of local customers to another.”

(Hirschman, pp.55-9)

And a similar outcome is even feasible under full competition...assuming, that is, a comparably low level of quality across an industry. Much of the software industry, for example, immediately springs to mind...

“A competitively produced new product might reveal only through use some of its faults and noxious side-effects. In this case, the claims of various competing producers are likely to make for prolonged experimenting of consumers with alternate brands, all equally faulty, and hence for delay in bringing pressure on manufacturers for effective improvements in the product. Competition in this situation is a considerable convenience to the manufacturers, because....it diverts [consumers’] energy to hunting for the inexistent improved products that might possibly have been turned out by the competition.”

(Hirschman, pp.26-7)

For those of us familiar w/the history of political science, one of the most fascinating sections of the book comes w/Hirschman’s historical discussion of Hotelling’s duopoly modelling - familiar to most as the thought experiment of two ice-cream sellers on a beach...whose rational attempts to re-position themselves so as to increase market share end up w/both side-by-side in the very middle...which suggests a serious problem w/two-party systems in politics. Hirschman’s outline of the reception of this model - its successive re-formulations as history (disobligingly) continued to falsify it - serves to prove the necessity of the “voice” concept, since no other modification of the model sufficiently corrects it. As Hirschman points out, the key weakness in Hotelling’s assumptions is that outlying customers are powerless...whereas, for a variety of reasons, the party faithful in two-party systems can exert considerable force via participation levels, as well as voice:

“The mobilization of the indifferent voters and the winning over of the undecided ones [can be] seen to depend to a considerable extent on the enthusiasm which each of the parties can inspire among activist party workers and volunteers. Since the activists are far from being middle-of-the-roaders, their enthusiasm can be dampened by...the adoption of a platform which is designed to gain votes at the center.... It is as though those who are located at the end of a linear market were in charge of advertising the firm’s products to those in the middle; naturally, their advertising zeal is likely to go down as the firm moves its site farther and farther away from them.”

(Hirschman, pp.72-3)

My reservations w/Hirschman’s arguments mainly come in connection w/the (short) analysis of the third term in his title - loyalty. Although this discussion is useful, he basically sees loyalty as an auxiliary to voice, neglecting a proper examination of this behaviour as such...

“As a rule...loyalty holds exit at bay, and activates voice. It is true that, in the face of discontent with the way things are going in an organization, an individual member can remain loyal without being influential himself, but hardly without the expectation that someone will act, or something will happen to improve matters.... [However,] the importance of loyalty from our point of view is that it can neutralize within certain limits the tendency of the most quality-conscious customers or members to be the first to exit.... The usefulness of loyalty also depends on the closeness of the available substitute. When the outposts of two competing organizations are miles apart with respect to price or quality, there is much scope for voice to come into play...[and] thus, loyalty is hardly needed here.... This conclusion is a little unexpected. Expressed as a paradox, it asserts that loyalty is at its most functional when it looks most irrational, when loyalty means strong attachment to an organization that...is so much like another one that is also available.... [Thus,] if organizations can be ranked, then...those at the densely occupied lower end of the scale will need loyalty, and cohesive ideology, to a greater extent than those at the top.”

(Hirschman, pp.78-82)

However, this weakness is understandable when the book’s purpose is taken into account. After all, as a “response to decline”, loyalty does appear to be somewhat lacking. On the other hand, when mapped against Mary Douglas’ grid/group cultural theory matrix, it becomes clear that it can be seen as equally important. If individualists clearly rank exit as the most important option re group involvement, and enclavists similarly value voice, then hierarchists make a perfect match w/loyalty...which makes Hirschman’s book one of the many independent corroborations of the value - not to mention the consilience - of Douglas’ framework. And that framework can offer us strong understandings, even of the most extreme choices...

“Exit is not usually undertaken for the purpose of gaining more influence than one had as a member. That is nevertheless the way it often works out, especially when exit is a highly unusual event...[for] exit is unsettling to those who stay behind, as there can be no ‘talking back’ to those who have exited. By exiting, one renders his arguments unanswerable. The remarkable influence wielded by martyrs throughout history can be understood in those terms, for the martyr’s death is exit at its most irreversible, and argument at its most irrefutable.”

(Hirschman, p.126)

Albert O. Hirschman’s slim volume of 1970, Exit , Voice and Loyalty, remains to this day highly influential, in that its terminology - and basic framing of the question of reform - is used right across the social sciences almost forty years later. Whether in conjunction w/the work of Mancur Olson, or as part of the ramifying theory we can see developed from the framework(s) of Mary Douglas & W.G. Runciman - w/help from the likes of Edward T. Hall & Jane Jacobs - Exit, Voice, and Loyalty provides us with crucial clarification as to how these fundamental options re involvement function together...as they almost always do in real human societies. Any social science worthy of the name needs to incorporate these insights, as well as Hirschman’s acknowledgement of their necessary limitations, with which we shall now conclude:

“A word of caution is now needed, about what our approach cannot yield: it does not come with a firm prescription for some optimal mix of exit or voice, nor does it wish to accredit the notion that each institution requires its own mix, that could be gradually approached through trial and error...[and then] would be stable over time. The reason is simple: each recovery mechanism is itself subject to the forces of decay...[as] management...strain to strip the members-customers of the weapons they can wield, be they exit or voice, and to convert, as it were, what should be a feedback into a safety valve...[while] we will underestimate the effectiveness of voice when exit is dominant, and vice versa.... The critique of the optimal mix concept...leads to a triple suggestion. In order to retain their ability to fight deterioration, those organizations that rely primarily on one of the two reaction mechanisms need an occasional injection of the other. Other organizations may have to go through regular cycles, in which exit and voice alternate as the principle actors. Finally, an awareness of the inborn tendencies toward instability of any optimal mix may be helpful in improving the design of institutions that need both exit and voice to be maintained in good health.”

(Hirschman, pp.124-6)