Exit, Voice, and Loyalty by Albert O Hirschman

Goodreads link here.

Exit, Voice, and Loyalty has been one of the books that I’ve always been aware of, and whose lessons I’ve absorbed second hand through people citing it, talking about it, and using it as a basis for philosophising; but I’ve never read it myself. Last year, slightly ashamed of signing up to a particular politics without having gone to the source texts, I resolved to read them one by one. Hirschman was early on in the queue – which turned out to be a happy coincidence, since EVL is a very slim and readable book – though I still took two weeks (two flights, really) to finish it.

Notable points:

The latter interpretation would immediately raise the question of how the firm’s maximizing energy can be brought up to par. But the usual interpretation is the former one; and in that case, the reversibility of changes in objective demand and supply conditions is much more in doubt. In other words, economists have typically assumed that a firm that falls behind (or gets ahead) does so “for a good reason”; the concept – central to this book – of a random and more or less easily “repairable lapse” has been alien to their reasoning.

In context, this is Hirschman talking about the need to break away from the simplistic worldview of firms already super efficient utility maximisers; and reminds us that firms can be staffed with the lazy or the idiotic. The last ten years of working life have sort of drilled this in myself.

Anyway, as a corollary, we should be more willing to say “Because they’re stupid” in response to “Why is X doing that?”, rather than replying “X is doing the economically rational thing.”

I am not interested here in discussing the merits of the Friedman proposal. Rather, I am citing the above passage as a near perfect example of the economist’s bias in favor of exit and against voice. In the first place, Friedman considers withdrawal or exit as the “direct” way of expressing one’s unfavorable views of an organization. A person less well trained in economics might naively suggest that the direct way of expressing views is to express them! Secondly, the decision to voice one’s views and efforts to make them prevail are contemptuously referred to by Friedman as a resort to “cumbrous political channels.” But what else is the political, and indeed the democratic, process than the digging, the use, and hopefully the slow improvement of these very channels?

Thinking of withdrawal rather than expressing views as a more efficient way of showing I’m disappointed, has been a failing of mine for many years. And while I may now be aware of it, I think that for my life to come, I will always have a tendency to withdraw rather than voice.

I remember that ten years ago, when the outrage over Sabarimalai not allowing in women had first come to the internet’s consciousness, I had felt bewildered, and maybe even contemptuous at somebody (I think it was Neha Vish) who talked about wanting Sabarimalai to include all its worshippers. My thought at the time was “Why not just walk away from such a shitty temple and find religious happiness elsewhere?”

I still feel that, but nowadays I feel that there’s a possibility that the person who wants to change things could be right, and is not a 100% wrong.

The interaction between the exit function and the reaction function can now be described. If there is to be a drop in quality it is desirable that it be of the size which leads to recuperation. Evidently if demand is highly inelastic with respect to quality change, revenue losses will be quite small and the firm will not get the message that something is amiss. But if demand is very elastic, the recuperation process will not take place either, this time because the firm will be wiped out before it will have time to find out what hit it, much less do something about it. This is a case of “too much, too soon.” For the recuperation potential of the firm to come into play, it is therefore desirable that quality elasticity of demand be neither very large nor very small. This proposition, which is intuitively evident, can also be phrased as follows: For competition (exit) to work as a mechanism of recuperation from performance lapses, it is generally best for a firm to have a mix of alert and inert customers. The alert customers provide the firm with a feedback mechanism which starts the effort at recuperation while the inert customers provide it with the time and dollar cushion needed for this effort to come to fruition.

Sort of intuitive, but I appreciated it for going beyond the “curves always slope downward” simplification.

“Needless to say my Falcon is the last of any Ford product I would consider to purchase. I am a young girl of 25, reasonably attractive, who has depleted her bank account buying Falcon transmissions, when there are other things in this world where the money could be put to much better use.”

This didn’t stand out for any economic insight. It’s a footnote citing aggrieved customers complaining to Ford about how terrible their cars were, sometime in the 1950s, I think. I’m just wondering what prompted the letter writer to point out her attractiveness (or pretend that they were a reasonably attractive girl of 25) in the letter; and if or why she thought it would have any impact on Ford’s future quality.

First a few remarks on the working of voice in isolation, as compared to that of exit. As before, the initial assumption is a decline in the performance of a firm or organization which is remediable provided the attention of management is sufficiently focused on the task. If conditions are such that the decline leads to voice rather than to exit on the part of the discontented member-customers, the the effectiveness of voice will increase, up to a certain point, with its volume. But voice is like exit in that it can be overdone: the discontented customers or members could become so harassing that their protests would at some point hinder rather than help whatever efforts at recovery are undertaken. For reasons that will become clear, this is most unlikely to happen in relations between customers and business firms; but in the realm of politics — the more characteristic province of voice — the possibility of negative returns to voice making their appearance at some point is by no means to be excluded.

I have this feeling about Indian customers bitching about everything. At this point, most complaints would just be sailing over the heads of all customer service execs. To be fair, this is also because India has very few of the quality elastic consumers which Hirschman describes elsewhere. We just love to complain.

I also wonder if every business now being on social media has led to an excess of voice and the point of diminishing and negative returns in that aspect.

Finally, politics is the domain of voice whereas business is the domain of exit; but the recent exhortations by trolls to “Go to Pakistan!” has mixed the two up.

The voice option includes vastly different degrees of activity and leadership in the attempt to achieve change “from within.” But it always involves the decision to “stick” with the deteriorating firm or organization and this decision is in turn based on:

(1) an evaluation of the chances of getting the firm or organization producing A “back on the track,” through one’s own action or that of others; and
(2) a judgment that it is worthwhile, for a variety of reasons, to trade the certainty of B which is available here and now against these chances.

This view of the matter shows the substitutability of B for A as an important element in the decision to resort to voice, but as only one of several elements.

Nothing hugely insightful here, just more appreciation for the attempt to tease out different factors.

While structural constraints (availability of close substitutes, number of buyers, durability and standardization of the article, and so forth) are of undoubted importance in determining the balance of exit and voice for individual commodities, the propensity to resort to the voice option depends also on the general readiness of the population to complain and on the _invention_ of such institutions and mechanisms as can communicate complaints cheaply and effectively. Recent experience even raises some doubts on whether structural constraints deserve to be called “basic” when they can suddenly be overcome by a single individual such as Ralph Nader.

Ties in with Deirdre McCloskey (rhetoric is more important than numbers); EconTalk episodes regarding how entrepreneurs discover what economists dismiss as impossible; and, of course, Terry Pratchett (one in a million chances crop out nine times out of ten).

In the case of “connoisseur goods”–and, as the example of education indicates, this category is by no means limited to quality wines–the consumers who drop out when quality declines are not necessarily the marginal consumers who would drop out if price increased, but may be intramarginal consumers with considerable consumer surplus; or, put more simply, the consumer who is rather insensitive to price increases is often likely to be highly sensitive to quality declines.

Obvious when you read it, but hard to arrive at by yourself.

It can be related to the discussion of education which suggested that 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 “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. This would particularly be the case in societies with upward social mobility. In societies which inhibit passage from one social stratum to another, resort to the voice option is automatically strengthened: everyone has a strong motivation to defend the quality of life at his own station.

How alarming. Dismal science indeed.

The right of asylum, so generously practiced by all Latin American republics, could almost be considered as a “conspiracy in restraint of voice.” An even more straightforward illustration is supplied by a Colombian law that provided for paying former presidents as many US dollars if they resided abroad as they would receive in Colombian pesos if they lived in their own country. With the US dollar being worth from five to ten pesos while the law was in effect, the officially arranged incentive toward exit of these potential “trouble makers” was considerable.

Even without such special incentives, exit for disgruntled or defeated politicians has always been easier in some countries than in others. The following comparison between politics in Japan and Latin America supplies another illustration of the corroding influence exit can have on vigorous and constructive political processes via voice:

The isolation of Japan set rigid boundaries to the possibilities of political opposition. The absence of easy opportunities for tolerable exile was a powerful teacher of the virtues of compromise. The Argentinean newspaper editor in danger of arrest or assassination could slip across the river to Montevideo and still find himself a home, amid familiar sounds and faces and familiar books, easily able to find friends and a new job…. But to all but a tiny fraction of Japanese only one place has ever been home.

Alok Pi and I were talking about a month before I had read this about the Canada and Saudi Arabia spat. I had said that Canada should annoy Saudi Arabia by offering asylum to all the students whom Saudi Arabia had ordered to come home; and letting the acceptances speak as a subtle bitchslap of “Your own subjects picked us.” Alok P pointed out that their relatives back home would be persecuted so that wouldn’t work. These two excerpts add to that discussion.

Loyalty’s… role as a barrier to exit can be constructive when organizations are close substitutes, so that a small deterioration of one of them will send customer-members scurrying to the other…. 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 does not seem to warrant such attachment because it is so much like another one that is also available. Such seemingly irrational loyalties are often encountered, for example, in relation to clubs, football teams, and political parties. Even though it was argued in Chapter 6 that parties in a two-party system are less likely to move toward and resemble each other than has sometimes been predicted, the tendency does assert itself on occasion. The more this is so the more irrational and outright silly does stubborn party loyalty look; yet that is precisely when it is most useful. Loyalty to one’s country, on the other hand, is something we could do without, since countries can ordinarily be considered to be well-differentiated products.

Wow, a Terry Pratchett link crops up again! The bit in Unseen Academicals where Glenda and Ridcully are arguing about how to be a team fan.

Though the soccer violence of Europe and the berserk post-Super Bowl riots in the USA suggests that at some level, football team and political party loyalty can have just as adverse consequences as national loyalty.

The relationship between voice and exit has now become more complex. So far it has been shown how easy availability of the exit option makes the recourse to voice less likely. Now it appears that the effectiveness of the voice mechanism is strengthened by the possibility of exit. The willingness to develop and use the voice mechanism is reduced by exit, but the ability to use it with effect is increased by it.

Not counter intuitive or anything, but nicely expressed, and important to record to remember every now and then.

Boycott is often a weapon of customers who do not have, at least at the time of the boycott, an alternative source of supply for the goods or service they are ordinarily buying from the boycotted firm or organization, but who can do temporarily without them. It is thus a temporary exit without corresponding entry elsewhere and is costly to both sides, much like a strike.

The “costly to both sides” is why I usually roll my eyes at boycotts. And perhaps I should stop.

While feedback through exit and voice is in the long-run interest of organization managers, their short-run interest is to entrench themselves and to enhance their freedom to act as they wish, unmolested as far as possible by either desertions _or_ complaints of members. Hence management can be relied on to think of a variety of institutional devices aiming at anything but the combination of exit and voice which may be ideal from the point of view of society.

This links up to my favourite Anna Karenina quote, about how peasants don’t want to work efficiently; but want to work in a way that doesn’t require them to do anything new. Hirschman’s firm managers are just as bad as Tolstoi’s peasants, clearly.

There often is no clear dividing line between these two types of behavior, because the customer or member of the organization may have a considerable role in self-deception, that is, in fighting the realization that the organization he belongs to or the product he bought are deteriorating or defective. He will particularly tend to repress this sort of awareness if he has invested a great deal in his purchase or membership. In organizations entry into which is expensive or requires severe initiation, recognition by members of any deterioration will therefore be delayed and so will the onset of voice. By the same token, however, it may be expected that once deterioration is adverted to, members of an organization that requires severe initiation will fight hard to prove that they were right after all in paying that high entrance fee. Thus while the onset of voice will be delayed by severe initiation, resort to it is likely to be more active than is ordinarily the case.

Again, recording this so that I can keep reminding myself of it,

Organizations able to exact these high penalties for exit are the most traditional human groups, such as the family, the tribe, the religious community, and the nations, as well as such more modern inventions as the gang and the totalitarian party.

I am slightly amused that families have been placed in the same category as mafias. Of course, it’s accurate and slightly sad, and horrific when it comes to things like honour killings, but the fact that the link is made almost as an afterthought is picquant.

Loyalist behavior may, however, be motivated in a less conventional way. In deciding whether the time has come to leave an organization, members, especially the more influential ones, will sometimes be held back not so much by the moral and material sufferings they would themselves have to go through as a result of exit, but by the anticipation that the organization to which they belong would go from bad to worse if they left.

Hirschman doesn’t very explicitly talk about how much of this is motivated by loyalty / altruism towards the organisation; and how much about the damage to reputation from being associated with a terrible organisation even after you’ve left. I wish he had. I wonder if somebody else has.

Usually this sort of reasoning is an ex-post (or ex-nunc) justification of opportunism. But it must be reluctantly admitted that loyalist behavior of this type–the worse it gets the less I can afford to leave–can serve an all-important purpose when an organization is capable of dispensing public evils of truly ultimate proportions, a situation particularly characteristic of the more powerful states on the world scene. The more wrongheaded and dangerous the course of these states the more we need a measure of spinelessness among the more enlightened policy makers so that some of them will still be “inside” and influential when that potentially disastrous crisis breaks out. It will be argued later that in these situations we are likely to suffer from an excess rather than a shortage of spinelessness. It is nevertheless worth noting that the magnitude of public evils that can today be visited upon all of us by the centers of world power has bestowed “functionality” or social usefulness on protracted spinelessness (failure to exit) provided it turns into spine (voice) at the decisive moment.

This was written many years ago, about the Vietnam war. It has a resonance today with the debate over the propriety of the anonymous NYT op-ed by the Trump White House staff member.

The present day “cop-out” movement of groups like the hippies is very much in the American tradition; once again dissatisfaction with the surrounding social order leads to flight rather than fight, to withdrawal of the dissatisfied group and to its setting up a separate “scene.” Perhaps, the reason for which these groups are felt to be “un-American” is not at all their act of withdrawal, but, on the contrary, their demonstrative “otherness” which is sensed as an attempt to influence the square society which they are rejecting. By making their exit so spectacular, by oddly combining deviance with defiance, they are actually closer to voice than was the case for their pilgrim, immigrant, and pioneer forebears.

This combination of exit and voice in one amazing package is something I want to write about in my main blog.

 

Things which I wish EVL had also covered:

  • The relationship of loyalty with endowment bias
  • Talking about voice as a spectrum – does violence also count as voice? Trickery and guile? The petitions and letter writing of the early Indian National Congress vs the civil disobedience of the Mahatma Gandhi era were both voice; but get treated very differently.

Start Date: 2018-09-14

Finish Date: 2018-09-24

Format: Paperback, purchased from Amazon US and shipped to Singapore

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