Albert Hirschman—Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States
In this work, the late Albert Hirschman expounds, “Under any economic, social, or political system, individuals, business firms, and organizations in general are subject to lapses from efficient, rational, law-abiding, virtuous, or otherwise functional behavior.” These lapses occur regardless of the construction of a society’s basic institutions and a certain amount of dysfunction is tolerated. But, society is obligated to revert the behavior back to proper functioning through its internal forces. Hirschman declares that major mechanisms of recuperation are readily available through competition.
When the quality of products or services provided by organizations deteriorate, management becomes aware of its shortcomings through the consumers who exercise their options. The exit option is when they withdraw from the organization or refuse its products, resulting in a drop in revenues and membership. In the second option customers or organization members express their dissatisfaction to managerial authority. This is the voice option. As the result of either option the client utilizes, management must search for causes and solutions for the dissatisfaction.
The power of the exit option is that it inflicts revenue losses on delinquent management that associates deterioration with loss in sales. For competition or exit to work as a mechanism of recuperation, from performance lapses, a firm needs a mixture of alert customers to provide feedback, and inert customers to provide monetary cushions to make it feasible.
Voice is defined as, “Any attempt at all to change, rather than to escape from, an objectionable state of affairs, whether through appeal to a higher authority or collective petition to the management directly in charge . . . with the intention of forcing a change in management . . . including mobilizing public opinion.” Dissatisfied customers or members of an organization will remonstrate and force improved quality or service upon delinquent management.
The voice option can complement exit or it can be a substitute for it. In any firm or organization in deterioration, either exit or voice will normally have dominance. The voice option is the only way in which dissatisfied customers or members can react whenever the exit option is unavailable. This is especially true with the family, the state, or the church. Often the decision to exit will be influenced by the prospect of the effectiveness of voice. But, once exit is in operation, the opportunity is lost for voice. In some situations exit will be the last resort after voice has failed.
There are customers who stay with firms or organizations out of loyalty. Many of these loyalists will actively participate in actions designed to change the deteriorating institution’s policies and practices to get them back on track. Hirschman’s theory of loyalty is a key factor in understanding the relationship between exit and voice. The likelihood of voice increases with loyalty. Generally speaking, loyalty holds exit at bay and activates voice.
In this small but insightful book, Hirschman managed to speak to interrelationships between economic, social, and cultural themes in society. The following themes caught my attention because they are seldom addressed or acknowledged.
Private vs public education
I can certainly resonate with Hirschman’s observations on the transitions that the public school systems have undergone. I have witnessed the decline and deterioration of schools in the Los Angeles Unified School District for decades. The net result being Hirschman’s scenario that “increasing numbers of quality-education-conscious parents will send their children to private schools.” He felt those exits produced a void in the school system and contributed to further decline. The public schools lost those “member-customers who would be most motivated and determined to put up a fight against the deterioration if they did not have the alternative of private schools.” He maintains that parents and their children will still have to deal with the public school’s impact in their community.
According to Hirschman, ”Situations in which exit is the predominant reaction to decline while voice might be more efficacious in arresting it can also be observed in the sphere of private business enterprise.” The common denominator regarding the private-public school situation and private enterprise is that “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.”  I do not think Hirschman was interested in begrudging anyone the ability to experience quality of life wherever they found it, but rather impressing upon his readers that these are not just personal problems, they are societal problems that need to be handled on a societal level as a whole. They won’t go away if not addressed appropriately. Could this be an example of a failure of nerve—resorting to a quick fix?
Price of Exit
Hirschman indicates an aberration in the loyalist model has occurred when an organization has the capability to exact a high price for exit. The price can be realized in loss of association, loss of livelihood, excommunication, or loss of life. The family, tribe, religious community, nation, as well as, gangs and totalitarian groups are entities that are able to exact high penalties for exit. In the case of the family or nation, the price of entry is zero because persons are born into them. In gangs and totalitarian groups, there is a high price for entry and exit. “If an organization has the ability to exact a high price for exit, it thereby acquires a powerful defense against one of the member’s most potent weapons: the threat of exit.” Since the high price of exit negates the threat of exit as an effective instrument of voice, gangs and totalitarian groups will often be able to repress both voice and exit. This may lead to some complications and extra challenges for Christian leaders of spiritual transformation serving this population.
- Albert Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (Cambridge: Harvard University Press, 1970), 1.
- Ibid., 30.
- Ibid., 45.
- Ibid., 47.
- Ibid., 97.
- Ibid., 100.
- Ibid., 102.