Tuesday, December 11, 2012

Remembering Albert Hirschman

Albert Hirschman, among the greatest of social scientists, has died. He was truly one of a kind: always trespassing, relentlessly self-subversive, and never constrained by disciplinary boundaries.

Hirschman's life was as extraordinary as his work. Born in Berlin in 1915, he was educated in French and German. He would later gain fluency in Italian, then Spanish and English. He fled Berlin for Paris in 1933, and joined the French resistance in 1939. Fearful of being shot as a traitor by advancing German forces, he took on a new identity as a Frenchman, Albert Hermant. In 1941 he migrated to the United States, met and married Sarah Hirschman, joined the US Army, and soon found himself back in Europe as part of the war effort. After the end of hostilities he was involved in the development of the Marshall Plan, and subsequently spent four years in Bogotá where many of his ideas on economic development took shape. He and Sarah were married for more than seven decades; she died in January of this year.

Not only did Hirschman write several brilliant books in what was his fourth or fifth language, he also entertained himself with the invention of palindromes. Many of these were collected together in a book, Senile Lines by Dr. Awkward, which he presented to his daughter Katya. Forms of expression mattered to him as much as the ideas themselves. In opposition to Mancur Olson, he believed that collective action was an activity that came naturally to us humans, and was thrilled to find that one could invert a phrase in the declaration of independence to express this inclination as "the happiness of pursuit."

Hirschman's intellectual contributions were varied and many but the jewel in the crown is his masterpiece Exit, Voice and Loyalty. In this one slim volume, he managed to overturn conventional wisdom on one issue after another, and chart several new directions for research. The book is concerned with the mechanisms that can arrest and reverse declines in the performance of firms, organizations, and states. It was the interplay of two such mechanisms - desertion and articulation, or exit and voice - which Hirschman considered to be of central importance.

Exit, for instance through the departure of customers or employees or citizens in favor of a rival, can alert an organization to its own decline and set in motion corrective measures. But so can voice, or the articulation of discontent. Too rapid a rate of exit can undermine voice and result in organizational collapse instead of recovery. But a complete inability to exit can make voice futile, and poor performance can continue indefinitely.

Poorly functioning organizations prefer that an exit option be available to their most strident critics, so that they are left with less demanding customers or members or citizens. Hence a moderate amount of exit can result in the worst of all worlds, "an oppression of the weak by the incompetent and an exploitation of the poor by the lazy which is the more durable and stifling as it is both unambitious and escapable." Near-monopolies with exit options for the most severely discontented can therefore function more poorly than complete monopolies. It is not surprising that many dysfunctional states welcome the voluntary exile of their fiercest internal critics.

The propensity to exit is itself determined by the extent of loyalty to a firm or state. Loyalty slows down the rate of exit and can allow an organization time to recover from lapses in performance. But blind loyalty, which stifles voice even as it prevents exit, can allow poor performance to persist. It is in the interest of organizations to promote loyalty and raise the "price of exit", but the short term gains from doing so can lead to eventual collapse as both mechanisms for recuperation are weakened.

Among Hirschman's many targets were the Downsian model of political competition and the Median Voter Theorem. Since he considered collective action to be an expression of voice, readily adopted in response to dissatisfaction, there was no such thing as a "captive voter." Those on the fringes of a political party could not be taken for granted simply because they had no exit option: the inability to exit  just strengthened their inclination to exercise voice. This they would do with relish, driving parties away from the median voter, as political leaders trade-off the fear of exit by moderates against the threat of voice by extremists.

Albert Hirschman lived a long and eventful life and was a joyfully iconoclastic thinker. His books will be read by generations to come. But he will always remain something of an outsider in the profession; his ideas are just too broad and interdisciplinary to find neat expression in models and textbooks. He was an intellectual rebel throughout his life, and it is only fitting that he remain so in perpetuity. 

9 comments:

  1. I don't understand why economist would view self subversive as a *good* thing - I mean, why is it good if much of your earlier work is wrong ?
    That is the difference between science (physics, chemistry, genetics) and argumentation (english lit)

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  2. Most orthodox economists, especially those who view the discipline as a science, would probably not view self-subversion as a good thing. But Hirschman denied the existence of universal economic laws:

    "I know well that the social world is most variable, in continuous change, that there are no permanent laws. Unexpected events constantly happen, new causality relations are being installed... with age one's new ideas are predominantly those that contradict the old... I have always been against that methodology of certain social scientists... who study what has happened in some fifty or so countries and then proceed to draw deductions from there on what is likely to happen in the future. Of course, they find themselves without instruments in the face of "important exceptions," such as the case of Hitler in Germany. This is the reason that I have always disliked certain types of social research. I am always more interested in widening the area of the possible, of what may happen, rather than in prediction, on the basis of statistical reasoning, of what will actually happen. The inquiry into the statistical probability that certain social events will actually take place interests me little... I have always found that when something good happens, it occurs as a result of a conjunction of extraordinary circumstances."

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  3. I found "Exit, Voice and Loyalty" a very interesting book, but I did not find his argument about monopolies encouraging exit to be convincing at all. He was unable to find examples of businesses that behave in such a manner, and his example of encouraging former Presidents to leave sounds more like trying to avoid competition for political power. A contrarian theory with interesting implications, but doesn't seem to be borne out empirically.

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  4. There are really two points here: (i) do monopolies prefer that some of their customers have an exit option, and (ii) do they perform worse when such an exit option is available? I think the second question is the more important one, and on this point I find his examples quite compelling. He claims that a public school system will perform worse if the most quality conscious parents can move their children out to private or parochial schools, and that a national railway system will perform worse if other transportation options (road or air) are available to some degree. Does this mean monopolies will welcome competition? Not necessarily, because too much competition will destroy them. But will they be better able to survive despite poor performance if there is a limited exit option for those most inclined to exercise voice? I think so.

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  5. "But will they be better able to survive despite poor performance if there is a limited exit option for those most inclined to exercise voice? I think so."
    Is there any evidence for that? The worst outcome I am aware of for the introduction of school choice is no change. More studies that I've heard of of find that public schools improve when their funding starts getting diverted to students attending charter/voucher schools. I haven't heard of any studies on your transportation question.

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  6. On transportation, Hirschman cited the case of Nigerian railroads and competition from trucks for example (see the post by Justin Fox for details). On public schools, the current system even without vouchers and charters involves a fair amount of selective exit in large cities; I would have thought that the relevant comparison would be with a public school monopoly. It does seem that smaller towns with limited exit options have better performing public schools but there are too many confounding factors to draw firm conclusions. On exit from states, Alex Tabarrok cites the case of Cuba. Justin Fox also discusses Hirschman's example of shareholder exit displacing voice. But the evidence is anecdotal and historical rather than econometric, you are right about that. It's hard to construct proper counterfactuals for many of these issues.

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  7. Cuba doesn't seem that great of an example, because my understanding is that for the longest time they prohibited exit. The boat lift was a one time thing, largely consisting of prisoners (who would have had fairly limited capacities for voice!). You might compare East Germany to countries further behind the Iron Curtain (and/or speaking languages less common on the other side), where defection was more difficult.

    When you mentioned confounding factors and Alex Tabarrok, I thought you were going to link to his post on the bias caused by smaller sample sizes. Larger samples are subject to the "law of large numbers" and tend toward the average, there will be more extremes in smaller samples.

    I don't think it's very common to prohibit private schooling, but in the U.S nativists like the Ku Klux Klan did start pushing for something like that in response to immigrants who were Catholic and/or German. That could provide a source of exogenous change, but I don't think we have access to very good data from back then. Of course, it's a misconception that our public schools are especially terrible. If you exclude non-asian minorities, the measured performance is typically better than in western european countries.

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