The American Interest
Democracy, Development & the Rule of Law
Published on January 6, 2013
Albert O. Hirschman, 1915-2012

2012 saw the passing of a great development economist, Albert O. Hirschman, at the age of 97.

Development economists spend their time these days performing randomized controlled experiments, in which a particular intervention like co-payments for mosquito bed nets are introduced into one group of villages and not into another matched set. This approach establishes causality with a level of certainty approaching that of the randomized trials used in pharmaceutical testing. But while such experiments are useful for evaluating the effectiveness of certain types of public policies, they all operate at a very micro level and don’t aggregate upwards into an understanding of the broader phenomenon of development. It is hard to imagine that all the work being done under this approach will leave anything behind of a conceptual nature that people will remember fifty years from now.

Albert Hirschman operated at the opposite end of the spectrum. He did very little quantitative work, and will be remembered for a series of slender books written in an accessible English that non-economists have no trouble understanding. He did not observe the methodological straightjacket his discipline imposed, but wandered off instead into other fields like politics and philosophy in an attempt to recover some of the unified social theory of the 18th and 19th centuries–hoping to avoid, as he put it, the “specialization-induced intellectual poverty in this field.” His legacy is not data collection or micro results, but rather some very big concepts that continue to shape the way we think about not just development but public policy more generally.

Hirschman’s best known books were Exit, Voice, and Loyalty (1970) and The Passions and the Interests (1977). In the former, he took on an issue central to public administration, namely, the problem of disciplining poor or incompetent managements like those running many American public schools. Milton Friedman had recently introduced the idea of vouchers and competition. He argued that in the private sector, bad management was disciplined by the possibility of exit, either on the part of customers who didn’t want to buy the company’s products, or by shareholders who lost confidence in the company’s management. This discipline didn’t exist in the public sector because it was often a monopoly supplier of the good in question, such as education. If parents were allowed to use a mechanism like vouchers to take their tax dollars away from failing schools and put them into better ones, there would be market-like incentives for both the competitive and failing schools to improve their performance. Since then, an exit option from state-provided public services as been a staple of public sector reform, something that spread widely after the rise of Reagan, Thatcher, and orthodox market economics in the 1980s.

Hirschman outlined the logic of the exit option and how noted how increased competition could improve government performance. But competition didn’t solve all problems, and the exit option had several important drawbacks. The freedom to exit was often used by the most ambitious, educated, or well-to-do users of a particular service, and once they exited, those remaining were even poorer, less educated, and less demanding. Moreover, Hirschman pointed out, the possibility of exit weakened the effectiveness of voice, that is, the ability to directly change the management’s behavior through feedback, discussion, and criticism. Sometimes loyalty was necessary to build the trust necessary to persuade people to change.

There are many examples of these insights playing themselves out: the end of legal segregation in the 1960s led more ambitious African-Americans to leave inner cities, condemning those who remained to even greater poverty and social breakdown. School vouchers have never quite worked as promised, because public schools were mandated to serve those residual students who couldn’t take advantage of exit. And so on.

The Passions and the Interests: Political Arguments for Capitalism before Its Triumph was basically a work of political philosophy, an interpretation of several writers using a humanistic approach that was and is utterly foreign to contemporary rational choice theorists. Hirschman argued that the rise of capitalism could not have occurred simply as a result of changes in underlying material conditions, as both Marxists and contemporary neo-classical economists believe. The very idea that it was morally legitimate to rationally maximize one’s income, far from being a universal postulate of human behavior, was something that took hold only during the 17th and 18th centuries. Earlier aristocratic societies had moral systems grounded in honor rather than gain, that were contemptuous of money-making and the calculating bourgeois way of life. Virtue lay rather in risk and glory in battle. The theorists that Hirschman covered, like Montesquieu, James Steuart, John Millar, and Adam Smith made political rather than economic arguments in favor of capitalism. They maintained that a commercial society would soften manners and morals, and in contrast to warrior societies would lead to greater international peace. Hirschman pointed out that these arguments have triumphed so completely in the modern world that we do not even perceive their historical contingency.

Hirschman was not just a theorist but a practical economist who spent a great deal of time working in the field, particularly in Latin America, advising countries like Colombia and Brazil on economic policy on behalf of various international institutions. Fernando Henrique Cardoso, the former president of Brazil, recounts in his memoirs how as a young academic he accidentally encountered Hirschman in a remote Brazilian village. I believe that some of Hirschman’s greatest insights came from his practical experience and were contained in his lesser-known books, centering around what he called “reform mongering.”

Albert Hirschman was a progressive. He believed in the importance of economic development, social change, just distribution of resources, and the welfare state. But he also had a realistic understanding of how difficult social change was to accomplish, and spent a great deal of time dissecting the modalities of bringing it about. A book I have used frequently in teaching was his 1963 work Journeys toward Progress, which chronicled reform efforts in Chile, Brazil, and Colombia. The Colombian story was about the slow efforts of democratic governments there to bring about land reform, beginning with legislation in response to land invasions in the 1930s and culminating in passage of a landmark agrarian law in the 1960s. He notes all of the misperceptions and outright mistakes of the reformers and their international advisors, and the unintended consequences of their well-intentioned actions. But he also shows how slow reform mongering over the years eventually brought about real progress. Colombia even now has not solved this problem. After Hirschman’s book was written the narco-traffickers took over and the current government of Juan Manuel Santos is seeking once again to redistribute their ill-gotten holdings to poor peasants. But the point remains that reform by democratic governments is both possible and necessary.

Hirschman formalized these arguments in one of his last books, The Rhetoric of Reaction (1991). In it he reviews the strategies that conservatives–well, reactionaries is the term he actually uses–have used to criticize progressive reformers who attempt to bring about social change. One is the perversity argument–the case that well-intentioned social engineering always entails unforeseen consequences that ultimately undermine the reformers’ goals and often leave society worse off than before. He notes that a recent example of this was Charles Murray’s 1984 book Losing Ground, in which Murray argued that the Depression-era Families with Dependent Children (AFDC) program was creating new generations of welfare-dependent single parent families and contributing to the collapse of American inner cities. Hirschman doesn’t debate the merits of this particular case, but rather notes that Murray’s argument was nothing new. The French Revolution engendered a wave of arguments–most notably those of Edmund Burke–who warned that revolutionary change would bring about terrible consequences. Similar arguments were made throughout the 19th century in opposition to expanding the franchise and poor laws. Indeed, he notes that the moral hazard argument that is central to the contemporary case against welfare was raised by British critics of the Speenhamland poor relief measure from the 1790s. (Those of you who have read Karl Polanyi’s The Great Transformation will know all about Speenhamland and the unintended moral hazard it created.) The welfare-to-work principle embodied in the 1996 Personal Responsibility and Work Opportunity Act that abolished AFDC during the Clinton administration was actually anticipated in Britain’s 1834 Poor Law Amendment Act. This piece of legislation was so harsh in its effort to stigmatize dependency on public assistance that it engendered its own reaction, and explains, according to Hirschman, why moral hazard and perverse consequences arguments were absent from debates on welfare in Britain for the next several generations.

Hirschman did not try to argue that conservatives were always wrong in calling attention to unanticipated consequences. He simply said that to turn the possibility of unintended negative consequences into a universal principle, and a reason for opposing all deliberate efforts at reform, was wrong. Opening up the vote to all adult citizens did not undermine Western civilization, as Gustave Flaubert and Gaetano Mosca argued. He was the polar opposite of Friedrich Hayek and the latter’s theories of spontaneous order.

Hirschman did not approve of revolutionary change. His preferred course of reform mongering was one of slow but steady gradualism under democratic governments. He advocated this approach to Latin Americans in the 1960s when many were dreaming of further Cuban-style revolutions. His message to revolutionaries was that democratic change and reformism were slow and often disappointing, but that they worked much better in the end. This is a lesson many still need to take to heart.

One of my favorite Hirschmanian concepts was that of the Hiding Hand, a play on Adam Smith’s Hidden Hand, which he laid out in his 1967 book Development Projects Observed. The book analyzed a number of World Bank projects on which he consulted, and noted how a number of them failed to achieve their objectives or else produced unexpected results. But he argued that the failure to anticipate unintended consequences was actually a good thing. If we could foresee all the possible negative consequences of our actions, we would become completely paralyzed–not just as governments seeking social change, but as individuals wanting to try new things in work, love, or life in general. The Hiding Hand that blinded us in this fashion was thus Providential.

They don’t unfortunately make development economists like Albert Hirschman any more.

  • Anthony

    “He did not observe the methodological straightjacket his discipline imposed….”

    Self organization (spontaneous order) it appears from Hirschman discounted probability or Bayesian viewpoint; which he obviously found essential to his developmental economic practice (Exit, Voice, and Loyalty).

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  • http://www.project-syndicate.org/contributor/michael-heller Michael G. Heller

    The first and last sentences about development economists. How true. None of the 5 or 6 celebrity development economists have anything really new or truly wise to say, and the rest, however capable, are in professional corsets, hemmed in by the peer group.

    • http://kavanna.blogspot.com Kavanna

      Definitely. The celebrity development economists are, well, celebrities: famous for being famous, as someone famous said. Everything else is academic (in the bad sense), closed off in technical jargon.

      Another great was Norman Borlaug. They don’t make them that way any more. Academia today carefully weeds such people out, and they end up in journalism or working for Goldman Sachs.

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  • J

    Homeschooling, not private school, is the option of those failed by the monopoly school system. –I’m not making a political statement; homeschooling is *the* option for the poorest among us. This isn’t because the poor have no choice (though they don’t), or because they’re the group most in need of benefit from such experiments as Hirshman’s (though they’re that, too), but because they’re the only group in whom results would be visible.

    Vouchers represent the beginning of a second system, another monopoly. Vouchers *are* a political statement.

    When education is the object of the customer’s desire, exit is an option only for the seller, the teacher. He’s lucky to have it.

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  • http://entitledtoanopinion.wordpress.com TGGP

    J, is homeschooling really preferred by the poor? My understanding is that it tends to be adopted by families with a large enough income that at least one spouse can stay home.

    I think “Exit, Voice and Loyalty” is a really interesting idea, but good have benefited from the modern data-centric approach bemoaned above. Is it actually the case that vouchers cause the remaining students in public schools to perform worse? As I pointed out to Rajiv Sethi, studies suggest the opposite (they could be wrong, but I’m not aware of studies coming to the Hirschmann/Buffet conclusion). Of course, I lean toward what Yglesias terms “educational nihilism” and wouldn’t be surprised to find little effect from intervention on school performance even if there is a large effect on parental satisfaction.

    Speaking of parents, the poor that are portrayed as victims above are actually MORE in favor of vouchers than average among non-whites, while among whites they are most popular with high-income Catholics & Evangelicals. See this post at the Monkey Cage.

    So in conclusion, here’s to more data & empiricism!

    • J

      You’ve had three days to enjoy the voucher system, and here you are, back to know more about what I say is homeschooling.

    • http://kavanna.blogspot.com Kavanna

      Definitely. When school choice was first proposed in the late 60s, its main appeal was to middle- and lower-class whites fleeing from imploding urban school systems. But Friedman did make it part of his case, from the start, that school choice could apply to anyone and everyone. And 30-40 years, so it is. It’s clear that it’s minorities and the working poor who benefit the most from it, lacking “exit” in so many other ways.

      Hirschman’s argument for voice and loyalty, when it comes to what Walter Russell Mead calls the “blue social model,” is weak, and the years since have undermined it pretty thoroughly. “Blue” social institutions, in the large cities and elsewhere, exist to perpetuate and expand themselves, not to serve anything external. The cultural gap between the working class and poor being administered by the welfare state, and those who fund and run the welfare state, is very large and gotten larger since the 60s. It’s very different from educated, middle-class parents involved in schools in most suburbs, small towns, and smaller cities. Voice and loyalty make much more rational sense there.

      Hirschman’s criticism of Murray et al. is also unfair. Love or hate him, Murray is relentlessly empirical. He does have blind spots and an interpretative framework that might be wrong. But he’s not bloviating in a speculative fashion.

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  • victoria wilson – mn

    Thank you for highlighting this somewhat uncelebrated economist. His insights are illuminating. That they germinated overseas, away from the biases and assumptions we hold over ourselves, is an endorsement of every college’s study abroad program.

    Like many economists, he wished to use a method, Exit and Voice, from the commercial economy and use it in the public goods economy in order to realize all of its benefits and efficiencies. But I have to agree with his self-acknowledged critic Brian Barry that in his “endeavor to present voice…, (he) understate(s) the difficulties of voice formation.”

    The concept of VOICE offers some understanding of the differences between private goods transactions and public goods transactions. In a commercial transaction the contract is straightforward. A customer goes to the store and purchases the item. If they are dissatisfied with it or the facility or the employee who assisted them they may voice a complaint. The commercial entity may or may not act on the complaint depending on their calculation of their best interest.

    In a public goods transaction, VOICE means to get involved. If you are not satisfied with your school you can join the PTA, hound your local representative, start an advocacy group for hearing impaired children, tutor disadvantaged teens, petition the neighbors to collect school supplies for those who are without, and so on. You have to work at producing a public good. At no time did the store ask you to participate in the manufacturing or delivery of the item you purchased.

    So families evaluate whether they are better off devoting time to a struggling school district, time which may require foregoing a paying wage in the commercial job market; or paying for private school; or moving to another school district that will not demand as much of their time, energy and resources.

    EXIT achieved by moving to another public school or paying for private school is fair game; it is a freedom and implies other consequences. EXIT through cashing out on a voucher system is a breach of the social contract, a revered American social contract: educating the entire public to support a free democracy. One might even say that those who use school vouchers are free riding. They enjoy the status of America’s reputation of promoting an open and civil society through universal education, without doing the work.

  • George Orwell

    I am not an expert on school vouchers, but I would hardly call those that advocate for them or use them as “free riders.”
    The concept of “voice” and “loyalty” are all well and good. However, they are based on a very unrealistic view of the world.
    First, the entrenched interests of teachers unions and administrators will never allow significant change, or improvement, of public education. “Voice” is irrelevant if no one is listening (or not acting upon what they hear).
    “Loyalty” requires parents to put the good of other people’s children ahead of their own. Good parents will focus on finding the best place for their children to be educated, be it home schooling, private schooling, or moving to a better school district. To ask them to loyally remain and fight the good fight while allowing their own children to receive a poorer education is unreasonable. It smacks of expecting parents to not place their children on a life boat to flee the sinking ship so they can show solidarity with the other drowning victims.
    Looking out for your children and doing whatever is best for them, regardless of what other parents do, is not selfishness, it is the definition of a good parent (and it is exactly what the “progressives” that scream most loudly about equality and collective responsibility do for their children). I don’t fault them for putting their child’s education first, but the hypocrisy of fighting school vouchers for other people’s children while sending their children to Sidwell Friends School is a little sickening.

  • victoria wilson – mn

    George – your opinion of teachers’ unions and administrators betrays your lack of faith in America’s contract to educate all its citizens. This could be why you are sympathetic to those who choose to completely opt out of the arrangement through vouchers.

    And you are not alone. There are many that share your view. But I am not interested in free riders or the outliers. I am interested in all those folks under the bell curve. I am interested in the interplay of their choices for the social arrangements they hold dear.

    If most Americans choose to opt out of public education with vouchers, then we are seeing a change in the education-for-all creed. Their action is signaling that they no longer want to participate in this exchange. As you say, their calculation of benefit to the larger group is not enough in comparison to the benefit of their immediate group – their children. This is the nature of all collective arrangements; it is neither progressive nor conservative.

    Some compacts should change; some should go away. Ultimately the bell curve folks will make their adjustments, everyday, with their choices. If politicians keep up with them, the transition can be facilitated efficiently. If they don’t, there will be cynicism and grift, skepticism and corruption.

    • http://kavanna.blogspot.com Kavanna

      This is nonsense. Vouchers are precisely a way for many who not being educated, to get educated. *We’ve abandoned education-for-all ALREADY.* Vouchers are one way to get it back.

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  • victoria wilson – mn

    The 2010 census tallied 53,980,000 children in the US between the ages of 5-17. The National Center of Education Statistics reports that nearly 50 million children headed off to public school (elementary and secondary) in the fall of 2012. The action of Americans seems to overwhelming support public schools at a 92.3% rate of participation.

    • mannning

      I wonder what percentage of parents had little choice in the matter; they live in a school district, pay their taxes, and hope that their public schools are up to par. Private schools are far too expensive for by far the majority of families. Only a few can slip their kids into the good public school in the next district by some means or another. So it is not support being expressed so much as it is resignation, disgust, and anger at the terrible systems that they encounter. Moving to another district where the schools are better is open to far too few families, since many are tied to their home, mortgage, and job, and cannot afford any significant losses. Trying to infiltrate the PTA and the school burocracy to effect changes is a noble and useless effort, if only because it is mainly the caliber of the student body that dictates the end results.

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