American Economic Association

Discussion Author(s): Albert O. Hirschman and Richard R. Nelson Reviewed work(s): Source: The American Economic Review, Vol. 66, No. 2, Papers and Proceedings of the Eightyeighth Annual Meeting of the American Economic Association (May, 1976), pp. 386-391 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/1817251 . Accessed: 14/03/2012 17:13
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DISCUSSION
ALBERT 0. HIRSCHMAN, Institute for Advanced Study: In the venerable folklore of traditional economics political action in the economic sphere has typically been considered as noxious interferencewith the totallv beneficent market mechanism The equally venerable opposing point of view castigates the Invisible Hand as the Blind Forces of the Market-note the clever replacement of Adam Smith's metaphor by one that uses a closely related image-and instead advocates planning by a political authority that, in turn, is assumed to be totally beneficent. A principal intent of my work on exit and voice, considerably bolstered by all three papers presented at this session, was to show that there is a wide range of economic processes for the efficient unfolding of which both individual, economic action (via exit) and participatory, political action (via voice) have important constructive roles to play. The novelty of the theory for the economist-apt to infuriate or to disconcert both market and planning enthusiasts-consists in its stress on voice not as a substitute for the market nor as a restraint on it in a few well defined situations, but as another generally available mechanism that, like the market, has its strengths and weaknesses, its successes and failures. There is also a stress on the possibility of unstable equilibria between exit and voice as one drives out the other and on the lack of once-and-for-allsolutions throughoptimal mixes of exit and voice. In other words, the new approachdoes not satisfy our craving for equilibrium, harmony and final repose. If it has met, nevertheless,with the beginning of a response from economists, this is probably because of the new or renewed emphasis on such phenomena as ignorance and the cost of information,transactioncosts, bounded rationality, X-efficiency, and even altruism. The possibility of "market failure" is today no longer limited-as was taught not long ago by receiveddoctrine-to the presence of externalities, and I welcome Dennis Young's proposal to redefinethis concept broadly in terms of situations where exit doesn't do a good job of stirring up management and of restoring

efficiency. In this perspective the availability of another mechanism-voice-should not be viewed as a threateningrival, but as a welcome resource whose potential contribution to a containment of our multiple troubles deserves to be closely studied. For example, while looking at the provision of medical services precisely in this manner, Carl Stevens has recently proposed to complement consumer sovereignty-that is, exit-by consumer participation and to limit professional producer sovereignty by lay management constraints. These terms are useful modulations of the perhaps excessively compact "voice." My comments, including some further thoughts will be in four parts. 1. In all three papers, when voice scores over exit this is primarilybecause it is information-richwhereasexit conveys little beyond the fact of restlessness or restiveness on the part of the consumer, customer, employee or whoever else one has an economic relation with. Take Freeman's paper on labor and the employment relationship: here dissatisfaction arises from a mixture of motives that includes unhappiness about a whole array of working conditions no less than the desire for higher wages and benefits. Unions are more efficient in communicatinginformationabout this complex mixture of complaints than the personnel turnover rate. To make this point even stronger I would add that the content of discontent is apt to change over time: exit always takes the same form no matter what the complaint; but voice can articulate newly arising demands-often, to be sure, with a considerable lag as the union leadership takes its own time to understand and adopt the new "outlandish"grievances of its members. According to Williamson, markets are not working properly whenever the parties are involved in a relationship which it is difficult to specify fully in writing because of uncertainty and complexity or which lends itself peculiarly to the display of bargaining behavior. In these cases the substitution of hierarchy for market relationships between the parties is indicated. In my language hierarchy can be consideredas a special variety of insti-

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tutionalizedvoice and here is thereforeanother case where voice wins out over exit because of the fullness and frankness of information which it carries. Finally, Dennis Young uses the same criterionin favoringa large admixtureof voice for the organizationof certain public services. He mentions primarilysituations in which exit is costly and disruptiveto the consumersof the services, as in the case of day-care centers or nursing homes. In my view, these are also frequently situations in which the producers themselves are still groping for satisfactory ways of doing a job which they have taken on because there was a demand for it. In such increasingly important cases of producer ignorance, information-richvoice on the part of consumersor of Young's "proxy consumers" is far more helpful than the blankness of exit. 2. That voice conveys more information than exit is one facet of the polarity which is highly important for economic applications, and which I had neglected in my book. Another is the fact that voice, to the extent that it is political action or action in the public interest, is liable to escape from the fetters of the benefit-cost calculus and can therefore suddenly gain an unexpected edge over silent, self-regardingexit. Young notes quite correctly one dilemma in the design of local government: the larger the territorial unit encompassedby municipal government,or by a subdivision of that government such as a school district, the less feasible will it be for the individual citizen to practice exit and the more important is it therefore for voice to function actively and intelligently; yet voice is presumably more apt to become mobilized when the area to which it extends is none too large. Decentralizationof public schools and of public services has been advocated precisely for the purpose of facilitating and activating citizen participation. It may be questioned, however, whether the propensity to voice is likely to increase indefinitely as the territorialunit within which voice is raised shrinks in size. Voice can become an end in itself, and its exercise can become confused with the attainment of its objective. As soon as that happens its cost

(in time spent, for example) can measure

instead the satisfaction or benefit received

from its exercise or "consumption." For this mutation of cost into benefit to occur it is necessary that the exercise of voice be felt as something beyond the many activities that are primarily self-regarding. Though originally promptedby personal concerns, voice becomes an enjoyable, exhilarating experience when it is also action in the public interest, sometimes just because it is felt as a release from the unremitting pursuit of purely self-regarding activity. But voice stands to lose this public interest dimension if the area within and on behalf of which it is raised shrinks unduly: it then becomes essentially self-regarding like exit and at that point its cost will once again be rigidly computed. Here is perhaps a simple explanation of the consistently higher voter turnout in national as compared to local elections. In local elections, the public interest dimensionis less obvious and the cost of voting tends to be computed and related to its conceivable benefits; national elections, on the other hand, partake of the character of public celebrations and even of the traditional "feast of fools": the lowly citizen is transformed into the sovereign-though only for one day as Rousseau lamented-and he enjoys himself thoroughly in the process. 3. What has just been said explains much about the economist's preference for exit: voice is a far more complex, less predictable mechanism. In my book I stressed the similarities between the ways in which exit and voice operate. I overlooked or failed to stress sufficiently certain characteristic differences. He who voices remains within the organization, maintains a relationship with it. Hence the organization and its management can do things to him and in particular can treat him, because he voices, differently from the way in which it treats the other members. It can treat him worse, punish him for daring to voice. There may be retaliation and reprisals against someone who criticizes an organization,but remains within its reach. For that reason, it has been argued by Birch that the availability of a fast getaway (exit) is a precondition for a good volume of voice. I agree but would also point out that a number

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of social mechanisms have been evolved to make voice retaliation-proof even in the absence of exit. Examples are the secret vote, the Ombudsman institution which make it possible for individuals in a bureaucraticorganization to complain outside of hierarchial channels, and trade union bargaining as describedby Freeman. Another hazard that exists for voice far more than for exit is the exact opposite of retaliation: instead of being penalized, he who voices is singled out for special favors. By giving the complainant preferential treatment the delinquent organization seeks to still his voice and to buy him off: in this manner, it may once again avoid having to improve the general quality of its performance.This managerial strategy is present when firms extend "goldplated service" to their more important customers; it is also often practicedby administrative agencies rationing out goods and services to applicants according to nonmarket criteria. This strategy of countering voice is employed not only for the purpose of appeasing important individual customers; it can be particularly useful to management in dealing with voice that takes collective form, as in the case of trade unions, consumer organizations and the like. Special treatment and favors extended to the leaders of such organizations could have results that range all the way from a slight reductionin militancy to outright corruption. This is one of the major risks to which the effectiveness of collective organized voice is exposed. 4. It was a general underlying assumption of my book that both forms of activism, voice and exit, would, if successful, achieve a benefit (a positive externality) for the nonactivists. This assumption would hold whenever a firm turns out a product (or the governmenta policy) the tastes for which are so constrained that any improvement in quality or performanceundertakenby management in response to exit and voice is sensed as a positive event by everyone, activists as well as nonactivists. What happens when this constraint is relaxed? Suppose that different have different ideas about consumer-members what sort of improvements are needed and

further that the ideas and tastes of the activists differ systematically from those of the nonactivists. To the extent that it is successful, the voice of the activists will then cause the quality of the product or policy to vary in such a fashion that benefits are bestowed primarily or exclusively on them. The reason is simple: voice is information-richand is able to give precise instructions to management. Note that those who voice will here receive special benefits without any conscious buyingoff activity on the part of the organization. This constellation has implications that differ considerably from my previous model. I had argued that, when exit is available and loyalty weak, deterioration would make for rapid desertion of the potentially most influential carriers of voice and would thereby cause further deterioration of organizations that are so constituted as to respond more to voice than to exit. I still hold that this model correspondsto one set of important situations in the real world. But to the extent that the just noted conditions prevail, the outlines of another set with almost opposite characteristics appear. It can happen that an institution originally or nominally set up to service a wide group comes to cater predominantly to the wishes and tastes of an articulate minority or oligarchy within that group. If exit is available at all under these circumstances, it could then become the weapon that will typically be wielded by the "silent majority." In this perspective, the articulate few would develop a preference for voice whereas the comparative advantage of the underarticulate mass would lie in exit; exit might in fact be the only means of defense of the voiceless not so much against deteriorationas against voiceinduced quality changes that are not in their own interest. (I am indebted to Pierre Bourdieu and David Riesman for raising this point.) Actually examples of this reversal of roles of exit and voice are not easy to find. While it is commonplace for voice to function as an instrument of the privileged and for the privileged, exit has not often been used to provide an avenue of self-defense for the voiceless. An important case in which exit did approximate this function was during the

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nineteenth and early twentieth centuries in connection with mass emigration from Europe to the New World. But, on the whole, exit has not been readily available to the voiceless masses-they have had to assert themselves the hard way through passive resistance, revolts, and other attempts at voice. It has not often been the case that the advantage of the privilegedwith respect to voice is offset by a similar advantage the underprivilegedmight have with respect to exit. To the contrary, becauseof a numberof technologicaland institutional innovations, the privileged have in recent times compounded their traditional superiorityin voice with a remarkableprowess in exit-witness the flight to the suburbs, capital flight, the multinational corporation and the brain drain. In emphasizing the disruptive consequences of such exits and in looking to more voice for a remedy, I may well not have given enough attention to the possibility that by using voice instead of exit the articulate might just feather their own nest. I still believe, nevertheless, that, once in a while, they will do a bit better than that, if only because they cannot help it, that is, because the constraints I originally assumed do in fact apply. R. NELSON, Yale University: RICHARD Exit, Voice and Loyalty is a book that has excited many people. One reason is that there are a lot of good ideas in the book. Let me propose that the ideas are at at least three differentlevels. At the most general level, Exit, Voice and Loyalty is a complaint about the narrownessof much economic thinking regarding ways to control economic activity and a proposal that we broaden and enrich our thinking. There is a suggestionthat economists can learn something by reading in other disciplines, particularlypolitical science. At another level, Exit, Voice and Loyalty is a proposal for dividing up the ways in which control can be exercised into two broad categories-exit and voice. Once one recognizes diversity, one is tempted to provide some useful categories of control. Exit-and-voice is a particular categorization. At still another level there are a number of analytic propositions about the relationship of exit and voice to various

variables, and the interactionbetween the two. For example, it is proposed that the use of exit erodes the power of voice, that in many cases the exit of demanders of high quality leads to an organization that provides shoddy quality and hence that exit imposes a negative externality on those who remain, etc. Clearly, different people have found different aspects about the book compelling. I am among the people who have found Exit, Voice and Loyalty an exciting book. However, regarding the book as general complaint and proposal for richer thinking, I was persuaded of these points before. I think Exit, Voice and Loyalty should be regardedas one of a number of books that have been making the same general point. But its unique contribution certainly does not lie there. At the middle level of ideas, I have found the exit, voice dichotomizationimportant and useful. Earlier, I thought that it had a very wide range of useful applicability. More recently, I have become convinced that the range of useful application is limited. For example, when I think about questions like the extent to which collective demand machinery should be substituted for private demand machinery, I have not found that the exit-voice language has helped very much. In some cases it has provided synonyms for words and concepts found elsewhere in the literature, like demand aggregation, collective choice machinery, etc., but seems to have no real advantages over other terms. And in some cases the exit, voice seems to be simply more cumbersome langtuage than more traditionallanguage. But for certain arenas of my interest, like my work on the organization of day care, the exit-voice language was extremely helpful, and some of Hirschman's particular propositions quite apt. It is in arenas like this that I think Exit, Voice and Loyalty has made a unique contribution. I make these remarks neither to extol nor to diminish the book. Rather, my intent is to focus attention on where I think the real contribution of the book lies. The Williamson paper develops some themes roughly similar to those I have presented above. He too is concerned that the world view aspects of Exit, Voice and Loyalty may be less widely fruitful than some of the

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enthusiasts seem to claim. I find that I have difficulty discussing the Williamson paper without getting drawn into a detailed discussion of the Markets and Hierarchies proposal along the same lines that I have sketched above regardingExit, Voice and Loyalty: the book as a sweeping complaint and proposal for broader thinking, as a particular set of categoriesset forth as a useful general purpose organizer,and a number of particularanalytic propositions that go beyond the categories aspect of the book. But I must avoid getting drawn in that direction. I only shall stress my agreement with Williamson's concluding comment-that Markets and Hierarchies and Exit, Voice and Loyalty may be complementary rather than competitive. I think that is true, and because each is most productive in different limited arenas. For my purposesit is more useful to focus on the Freeman and Young papers as examples of what two scholars have made out of Exit, Voice and Loyalty. Reading Freeman's paper reinforces my impressions that the exit-voice language is useful in a number of cases, but also in many instances that the use of language is forced and other terms are better. Freeman focuses on the problem of an employer of getting information regarding the trade-offs, from the point of view of the workers, among various dimensions of the job offer. He points out, sensibly, that it might be far better to talk about these matters with worker representatives than to try to find out about them merely by looking at success or failure in hiring and holding workers. Voice here has a particularmeaning, and rings right in that use, although the notion that voice is a richer communicationchannel than exit was not one of the central themes in Hirschman's book. Freeman stresses that union negotiations which he says are the main voice mechanism, are particularly important in deciding upon certain atmospheric or public aspects of the work condition. In a sense, the union is a mechanism whereby workers can decide on how much of various public goods (which must be paid for by lower money wages) they want. Here after the first quick point is made and Freeman gets down to discussing mechanism, I think the use of the voice

langtuageis a bit strained, and more standard terms and concepts, drawn from the literature on public goods decision making, seem more appropriate. Indeed Freeman falls back upon these. Freeman says Exit, Voice and Loyalty has been useful to him in enabling him to think back to an earlier, more institutional literature. But I wonder if it is the specifics of Exit, Voice and Loyalty that are helpful here, or whether what Freeman really is welcoming is the general climate that is conducive now to institutional exploration. Hirschman'sbook helped to build that climate, but so did a lot of others. Young's paper shows the same mix of fruitful and cumbersome uses of concepts from Exit, Voice and Loyalty. The most fruitful use is where Young focuses on situations where exit is costly (moving) and there are opportunities to influence governmental action by greater involvement. The voice concept is a good one for connoting aggressive action from within. However, when Young begins to discuss the range of considerations bearing on whether or not one should try to establish governmental machinery to try to aggregate demands for certain kinds of goods, or to take into account diffuse externalities, I am not sure that he gains much by use of the term "voice." The problem is well-described by the more traditional language of the anatomy of market failure. The issues of the appropriate organization of governmental machinery are complex, discussed in many places in the literature, and it does not help very much to have the issue posed in terms of "voice." One problem of mechanisms that aggregate diverse interests is that the voice is babble. In other words, jointly with me, and independently, Young has made more fruitful use of the exit-voice language. It seems to me that Hirschman'sconcepts, and many of his specific analytic propositions, are right on the mark regardingclasses of product or service with the following attributes. Experience, rather than shopping, is where the key information comes from. The services or goods can be and often should be specially tailored to the demander by the supplier. It takes time and experience for the supplier to learn about the demander's

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tastes or problems. The provider has some interest in retaining his customers. The day care study that Dennis Young and I did exploits Hirschman's ideas. I think they are applicable and underusedin the study of professional services more generally, for example, in the content of the patient-doctor relationship. Of course there are many other uses in which the exit-voice language is useful. Many of these are discussed in Hirschman's book. Some new arenas where exit and voice concepts can be used fruitfully are contained in the Young and Freeman papers.

I can sum up my feelings this way. The ideas in Exit, Voice and Loyalty are important and useful. However, the scope and generality of the big ideas sometimes have been overstated. I believe that the power of the categories, when applied to a limited but important arena, is very considerable. And some of the detailed analytic propositions in the book are very useful in certain special cases. It is a book, very useful in a circumscribed arena, like Chamberlin'swork on monopolistic competition, rather than a widely embracingworld view. That is reason enough for praise.