A critique of pure exit

In a couple of comment threads lately, I’ve been pummeled with the concept of exit.

Basically, I argued something like: I don’t like being hit in the head, regardless of whether I’m being hit in the head by a person who is employed by government or a person who is not employed by government.

The response has basically been: You have no choice about whether or not you’re going to get hit in the head by the person who is employed by government, so that’s bad. The other sort of getting hit on the head is not bad, because exit from it is easier.

I’m highly unpersuaded by this response.

If you follow the link in the first line of this post, you’ll be directed to my review of the book that introduces the concept of exit. Basically, people have two ways of expressing their frustration with another entity (be it a person, a corporation or a government): 1) voice (e.g. complain, vote, etc.) and 2) exit (e.g. leave, don’t buy a product, etc.). Voice and exit are means for achieving desirable ends (e.g. better government, good products, etc.).

Note that voice and exit are not moral concepts. They are two potential means for achieving desirable results. If such results were obtainable in other ways, voice and exit are not useful or good. If you lived in heaven, voice and exit would be absurd. In other words, there is nothing necessarily moral about voice and exit.

My first problem with the response above is that it turns exit into something moral. It may be true that – all else equal – making exit easier will improve the quality of governance. However, this statement no way implies that if exit is impossible (a highly debatable assertion anyway), an entity’s actions become necessarily immoral. If there was a perfect government but exit was impossible, such a government would not be immoral.

My second problem is that exit – at root – is a cost, and all costs are subjective. It’s therefore impossible to discuss the cost of exit, as it differs for everyone. Let’s say that you really don’t like USG. Can you exit? Of course you can – I’ve known several people who have moved out of the US. To return to my initial argument about being hit in the head, there’s no way for anyone to know whether the cost to me of exiting the USG head-hitting is higher or lower than the cost of exiting the non-USG head-hitting.

I don’t mean to suggest that exit is not a useful concept. I do, however, mean to suggest that it’s not nearly as useful

One Response to A critique of pure exit

  1. Handle says:

    Regulated Utility and Antitrust Law are often justified on the basis that the option of “exit” is often a mirage, even in seemingly “competitive” marketplaces. The classic examples are cell phone plan providers and airlines.

    Theory in ideal conditions says that prices should fall to marginal cost plus the market-rate return on capital. But the Game-Theory analysis of Oligopolies show that it’s often rational and profit-maximizing for them to behave as an informal cartel, especially if there are high barriers to entry, (which is just a distributed Monopoly).

    It’s basically the prisoner’s dilemma game. If your costs and business models are essentially the same, the first company to lower prices to try and capture more market share will immediately result in all competitors just price-matching, which results in lower profits for everyone. If, on the other hand, everyone cooperates and no one makes the first move, they can keep prices high and profits above competitive rates.

    As an petty example, the marginal cost of sending an SMS text message has been declining steadily with technological progress for 15 years – it’s probably the tiniest fraction of a penny – yet the average price charged by all major carriers on a per-message basis is now 50% higher in real terms. How to explain that? Informal Cartel, which means, “no exit” from this particular condition if you want own a cell phone.

    It’s even worse with telephones in Mexico, which is why Carlos Slim (nee “Salim”, Christian Lebanese), is so filthy rich – he’s paid good rent-seeking money to guarantee that the government ensures he’s got no competition.

    In an era where, unless you want to live the hermit’s life, most of our economic activity involves interactions with monopolies (including government) or informal cartels, the only exit is leaving the country – where the same conditions probably exist. Nations can act like cartels too.

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