Saturday, September 17, 2016

Exit, Voice, and Loyalty in the 2016 Election

Donald Trump is a very unusual candidate for president, and as of today, he has a 30 percent chance of winning the White House, according to PredictWise. Why has he garnered so much support?

A lot of ink has been spilled on this question, and I won’t revisit other arguments that are very valid. Instead, I want to focus on one hypothesis: The U.S. is experiencing some signs of institutional decline, at least relative to the severity of its problems. And since voice and loyalty have not proven to be powerful enough to fix institutional decay, exit has become much more appealing. So our political system needs to empower voice and loyalty again in order to address its problems and prevent exit.

I’m referring to Exit, Voice, and Loyalty because of a brilliant 1970 book by the same name by the late Harvard economist Albert Hirschman. He presents exit, voice, and loyalty as the three options available to people in the face of institutional decline.

Empowering Voice and Loyalty

In the context of the election, fully supporting Hillary Clinton (who I support!) represents loyalty for the current political system. Loyalty could even involve developing new policy ideas or organizing for your favorite causes on the local and state level, to show what else is possible. But in general it involves loyal support. Supporting Hillary Clinton (or a right-leaning third-party candidate, since that's still a vote against Trump) but also criticizing her and national policies would represent the exercise of voice, to try to improve the system. And supporting Donald Trump—an unusual candidate promising to upend the status quo—represents exit.

It’s not an exaggeration to say that electing Donald Trump would represent a radical departure from politics as usual. And as forces for change, voice and loyalty are not as strong in America as they need to be.

If you’re just one ordinary person who has a lot of concerns about policy, can you get the government to change course? What if you organize or convince a lot of people—can you still make change happen? A lot of people would say, often not, since the government is too powerful and indifferent to the concerns of the people. This isn’t necessarily a bad thing—the government needs to represent the broad interests of the people rather than just the interests of activists. But it still needs to be responsive to people’s concerns, and instead it arguably pays a lot more attention to special interests, and is prone to inertia and complacency. Government is the ultimate monopoly. So to a large extent, it doesn’t really need to listen.

And so many people have chosen exit instead, since at least broad exit can create the possibility of new policies and institutions. The credible threat of exit can also force institutions to make voice and loyalty more powerful again. In fact, voice and loyalty don’t have nearly as much weight without the possibility of exit. Without the option of exit, loyalty is ultimately by force and not by choice. But when someone is willing to stick with a system and try to change it for the better—even when they can leave, and have very good reason for leaving—that shows a true commitment to making things better.

So I hope that the government can do a lot more to try to give people more of a say in what the government does. We need to empower voice and loyalty to keep the current system going and improve it. People need to feel like they're really being heard. The status quo has a lot of positives we often forget about, and it has mechanisms for internal reform that I hope can be strengthened—especially given that exit is a very real option.

On Exit

Peter Thiel, one of Trump’s most prominent supporters, seems to be a good example of someone who understands the power of exit. As an entrepreneur and investor, he’s rejected the status quo in favor of putting his own ideas, and other people's relatively new ideas, into practice. As a supporter of seasteading, he wants to make it feasible for people to exit government as it’s currently practiced. By creating the Thiel Fellowship for young people who want to start businesses instead of going to college, he wants to create the possibility of exit from higher education. And by supporting Trump, he’s exiting politics as usual.

I’m not weighing in here on these initiatives—I’m only observing that they’re examples of exit. And as controversial as these initiatives are, asserting the right to exit can empower new ideas and projects that are outside the box, and it can help make voice and loyalty more powerful for others. You need to have the freedom to exit in order for voice and loyalty to represent an authentic choice, instead of just something that’s taken for granted and then ignored. In America, we’re so used to using loyalty and voice (hi, Twitter and Facebook) that we can forget how important it is to have exit as an option.

[Update (9/18/16): A reader has sent me a video of this excellent talk by the entrepreneur and investor Balaji Srinivasan, where he delves into the importance of exit, as it's described in Exit, Voice, and Loyalty. He argues that "exit amplifies voice," that exit is going to become more important in the years to come, and that both the U.S. and Silicon Valley are "shaped by exit."]

In Exit, Voice, and Loyalty, Hirschman wrote that exit by “alert” consumers can force companies to change by giving them enough of a heads up that there’s a threat, while they take the time to improve quality while continuing to sell to “inert” customers. However, he wrote that too much exit at once can prove to be devastating, and not give companies enough time to fix their problems. “It is important that other customers remain unaware of, or unperturbed by, quality decline,” he wrote, so that companies still have enough time and money to reform themselves.

Hirschman also wrote that there aren’t enough exit options for government. In particular, he wrote: “The decision to exit from the government of the most powerful country is particularly and deplorably infrequent” (that is, emigrating from the U.S.), since “exit has an essential role to play in restoring quality performance of government.” He similarly criticized how public officials were no longer willing to resign out of principle, because of the lack of a meaningful exit option.

He's right. That said, I think exit from government is different from exit from a consumer-facing business, since laws need to apply to everyone in order to have full force. Laws are the common rules that enable countries to function. And countries are now having trouble asserting their sovereignty in a number of ways, including as big companies choose exit when it comes to paying their taxes. So even as we seek better policies and institutions, we need to be cautious when it comes to competition in government. People should be free to immigrate or emigrate as they'd like, and businesses deserve that freedom too -- the freedom to exit is important. You just want to make sure that the privileges of citizenship go hand in hand with its responsibilities.

Hirschman also noted that America is what it is today because millions of immigrants chose to exit their home countries for something new. “The United States owes its very existence and growth to millions of decisions favoring exit over voice,” he wrote. Exit is part of the American dream. Exit within the U.S. (for instance, through entrepreneurship) has helped drive American innovation, and the freedom to exit is a crucial component of liberty.

However, our ancestors’ choice to exit meant that they could not exit again—they had made so many sacrifices to come to America that they couldn’t leave again. So then they were forced to use voice to the best of their ability, and that’s a big reason why America thrived, according to Hirschman.

But that also means that when you choose to exit, what you’re choosing in favor of what you’re leaving behind better be pretty good, because you may never be able to go back.

As Hirschman wrote in Exit, Voice, and Loyalty:

“Yet, as love may suddenly turn into hate, so can the national infatuation with exit give way in certain crucial areas to its utter proscription. To some extent, exit is itself responsible for the emergence of its opposite. In leaving his country the emigrant makes a difficult decision and usually pays a high price in severing many strong affective ties. Additional payment is extracted as he is being initiated into a new environment and adjusting to it. The result is a strong psychological compulsion to like that for which so large a payment has been made. In retrospect, the ‘old country’ will appear more abominable than ever while the new country will be declared to be the greatest, ‘the last best hope of mankind,’ and all manner of other superlatives. And one must be happy.”

So whenever you choose to exit, make sure it’s to a place where you think you can be truly happy, or at least happier than before. Also make sure it's somewhere where voice and loyalty will still count. Because you may not be able to exit again.


[If you have other thoughts on Exit, Voice, and Loyalty, feel free to send them my way, and I may incorporate them into this post.]

Friday, September 16, 2016

Tradeoffs

Every choice involves tradeoffs, and it would be great if people thought more in terms of tradeoffs and opportunity costs. It would help not just for public policy debates and business decisions, but also for our own lives.

If you spend time or money on one thing, that’s less time or money to spend on something else.

If the government spends time or money on one thing, it has less time or money to spend on something else.

If you fight for one cause, you now have less time to fight for a different cause.

Your right to something may conflict with my right to something else. For instance, if we’re neighbors, your right to play loud and annoying music conflicts with my right to peace and quiet. Many other rights similarly can come into conflict.

Many choices are not zero-sum. But with every choice, there are still tradeoffs. Time, money, and energy are limited resources. So it’s good to weigh all the costs and benefits before deciding whether something is really worth it.

Every choice has both benefits and costs. This includes the opportunity cost—the best possible alternative to that decision. Moreover, some actions can hurt some people while helping others, or help in some ways while hurting in others. So don’t just look at the benefits—look at everything.

But make sure to ignore the sunk costs; they’ve already been incurred, whether you pursue that choice or not. And don’t be afraid to change your mind while you’re making a decision.

If you’re looking at non-monetary costs and benefits, how you measure them depends a lot on your own value judgments. So cost-benefit analysis isn’t just a distant, spreadsheet-like exercise just for economists—it’s good practice for everyone.

Ultimately, cost-benefit analysis is about taking into account the full impact of your decisions. It’s about rational decision-making. And it’s about choosing to live the best possible life for yourself.

I also think our public policy debates would be improved if politicians had more freedom to talk about costs as well as benefits. For instance, politicians seem too hesitant to propose broad-based tax increases, and the shared responsibility that goes along with that. Instead, some conservative politicians promise tax cuts for everyone (and especially the rich), and some liberal politicians promise to raise taxes only for a handful of distant rich people. In other words, benefits for us and costs for them. This may be partly because too many voters want to think only about benefits and not about the costs that go along with those benefits.

But if we want better government, we all need to take responsibility for it. And that includes participating more in government and society, helping hold the government accountable, and yes, being open to paying higher taxes when it makes sense. Ultimately, we won’t get the benefits of better public services without paying for it.

Tradeoffs are everywhere. They’re embedded in every decision, and the sooner they become a bigger part of everyday discourse, the better.