Exit, Voice, and Loyalty and Technology
A book that’s worth reading is Exit, Voice, and Loyalty by the late Harvard economist Albert Hirschman. Peter Thiel and Balaji Srinivasan have discussed it, and it provides an important framework for better understanding technology, politics, and how change happens.
The book, published in 1970, contrasts two ways to respond to decline: exit and voice. If you exit, you leave for a different alternative, and if you use voice, you speak up to try to get the organization to change its ways. Exit is generally in the realm of business, or markets, and voice is in the realm of politics, or democracy. Buying a different product or starting a new business is an example of exit, and voting or writing a petition is an example of voice.
Peter Thiel and Balaji Srinivasan have acknowledged the importance of both voice and exit. But Thiel has said that exit is particularly important when it’s not feasible, and Srinivasan has said that exit is crucial for innovation.
They have a point. No one needs to listen to you if you can’t leave. Exit has the potential to transform your life quickly. Exit also gives you the freedom to try something new, which can lead to new inventions.
“All progress is really the process of: You exit, you build something up, and then it gets ossified, and the next generation exits again,” Srinivasan told Reason in February.
Every institution has a different balance of exit and voice. It’s easy to exit from an app, but it’s harder to exit from your job, and it’s even harder to exit from marriage or citizenship. The harder that exit is, the more important voice becomes. Each balance of exit and voice is there for a reason. Some relationships are meant to be long-term, and some aren’t.
The debate around exit and voice can become as fundamental as which is more effective: markets or government, new products or debate, Silicon Valley or Capitol Hill. But the great thing is that we can have both.
America has succeeded for so long because it has combined both exit and voice so well. America is a nation of immigrants, and it was founded after a revolution — examples of exit. At the same time, the Founding Fathers made voice a critical component of the U.S. Constitution: They implemented a system of checks and balances, incorporated voting, and protected freedom of speech.
“Exit is actually an extremely important force in complement to voice, and it’s something that gives voice its strength,” Balaji Srinivasan, an entrepreneur, board partner at Andreessen Horowitz, and the CTO of Coinbase, said in a 2013 talk. “Voice gains much more attention when people are leaving in droves.”
Srinivasan said that Silicon Valley is now displacing the “Paper Belt” — East Coast institutions like politics and media — through exit, by founding new companies. (You can watch the video here and read a transcript here.) He pointed to a slide showing iTunes, Netflix, and YouTube disrupting the entertainment industry; Google and Twitter disrupting the media industry; Khan Academy and Coursera disrupting higher education; and Uber, Airbnb, and Bitcoin disrupting politics and regulation.
These are all examples of innovation that couldn’t have been accomplished through voice within existing institutions alone. Srinivasan noted that Google co-founders Larry Page and Sergey Brin couldn’t have created Google within Microsoft; they had to exit and found their own company to be able to innovate.
In 2012, Peter Thiel, the entrepreneur and investor, suggested that voice is sometimes overrated, and exit is especially important when it’s not feasible. He said: “What’s more important: voice or exit? In most companies, you have no voice, but you have exit. So if you go to Starbucks, you don’t actually run the company, but if you don’t like the coffee, you can go across the street to a different coffee shop. If you go to the Department of Motor Vehicles, the people work for you. They’re appointed by people who are appointed by people who are appointed by people who you elected. But you have no exit. You have voice but no exit with the DMV; you have exit but no voice with Starbucks.”
Thiel continued: “Our sort of general pro-political bias is that voice is much more important than exit, and the question I think that’s always worth raising is: Is there a point where exit is more important than voice? And certainly the state governments and municipal governments in the U.S. are much less screwed up than the federal government because people can move to different states; there’s still a decent amount of competition that happens on a state-by-state or city-by-city basis — much less on the federal basis. So I think the idea of creating some competition between governments is one of the most critical things that one can do.”
Thiel has a point — it’s good to be able to choose between different laws in different cities and states. And America’s exit through revolution and writing a new constitution led to crucial innovation in governance. There isn’t a lot of innovation happening in governance now, and one might argue that a reason for that is lack of exit opportunities.
But too much exit can be destabilizing. In Exit, Voice, and Loyalty, Albert Hirschman writes that if everyone read Consumer Reports closely, “disastrous instability might result and firms would miss out on chances to recover from their occasional lapses.” And Hirschman writes in “Exit, Voice, and Loyalty: Further Reflections and a Survey of Recent Contributions” that voice conveys more information than exit. America’s founding is an important example of exit leading to innovation, but it was the debate and use of voice throughout the Enlightenment that led to those ideas being implemented.
Exit provides the freedom to innovate, and innovation is crucial if we want a better world. But voice is also important for maintaining stability and being able to have an impact without having to uproot your life.
Technology is now lowering the costs of both exit and voice. You can now comparison shop online, more easily launch your own product or company, and publish your thoughts instantly to the world. By democratizing exit and voice, technology is helping free the world. But let us hope that exit doesn’t outpace voice so quickly that voice stops being relevant, since exit and voice work best together.