Stefan Kesting and André Petersen Ystehede introduce a powerful intellectual force in economics who started early and faced his own firepower.

Albert O. Hirschman is a role model as a pluralist economist who combined ideas from a wide range of sources in an ingenious way and creatively bridged economics and political science. He also led an interesting life as a political activist and wandering scholar and since 2007, there has been an annual prize in his honour.

German-born Hirschman fled from the Nazis during their rise to power. He escaped to the US, studied economics at the London School of Economics and became a professor in economics at Yale University (see box).

Prior to Yale, during several years in the 1950s, he worked as an economic development consultant and came to criticise the standard advice given by so-called expert economists from international agencies. Despite being an outside expert himself, his characteristic self-subversion kicked in and he proposed an alternative, bottom up approach to economic development. He demonstrates this outlook in his books A Propensity to Self-Subversion – a collection of critical articles across a diverse range of his interests – and The Essential Hirschman.

He was very sceptical towards grand schemes with one-size-fits-all solutions and central planning. Hirschman placed a lot of emphasis on the wisdom of local experts and was held in high esteem by most of his Latin American colleagues.

He challenged the view of “experts” that industrial development has to start with building heavy industries like steel production. He maintained that development can be initiated by consumption goods sectors that then demand heavy industrial goods like machinery. Moreover, in a later book he described his investigations at cooperatives in Latin America and highlighted locally-based initiatives by people to help themselves, in contrast to foreign aid.

“He was very sceptical towards grand schemes with one-size-fits-all solutions.”

Hirschman was averse to explanations that sought to encompass or streamline the complex social and economic reality into a single scheme. Instead, he proposed what he called “petites idées” – little ideas.  An example was the “tunnel effect” – a label given by Hirschman to the surprising tolerance and patience among poor people to the unequal distribution of wealth in the early phases of economic development. He asks himself why poor people do not revolt earlier and more often, despite deep frustration and envy.

Retreat and Regroup
Hirschman was born and grew up in Berlin during the Weimar Republic. His parents were well-to-do, secular, humanist and highly educated. He showed astute political awareness even as a teenager. He joined the youth organisation of the SAPD – the Socialist Workers’ Party of Germany – a small centrist Marxist party which gathered left social democrats and critical communists. There he worked against Hitler and the National Socialist Workers’ Party of Germany.
His political activities and Jewish heritage meant he faced the risk of deportation to Auschwitz and so fled Germany, but his resistance to fascism endured. He volunteered for three months to fight against the Franco regime in Spain in 1936.
Later having fled fascism in Italy, he helped German political refugees including Hannah Arendt, Franz Werfel, Max Ernst and Rudolf Hilferding to escape. He forged passports, organised accommodation and assisted in the hike across the Pyrenees to Lisbon for the crossing to New York. Eventually Hirschman himself escaped to the US.
In 1942 he became an American citizen and re-joined the fight against Hitler by enlisting in the US Army. After the war he worked until 1952 for the Office of Strategic Services in Germany. One of his assignments was to interpret at the Nuremberg trials.
During this period, he managed to get a PhD in economics – at LSE in 1938 – and subsequently won a professorship at Yale (1956–1958). From there he went to Columbia (1958-1964), then Harvard (1964-1974) and ended this academic career at the Institute for Advanced Study, Princeton, New Jersey (1974-2012).

He suggested an appeasing psychological mechanism based on introspection. He compared the situation of unequal development to someone stuck in traffic in a two-lane, one-way tunnel with the other lane moving.

“He suggested an appeasing psychological mechanism based on introspection.”

People in the stationary lane start off hopeful that their turn will come until they reach a point where hope shifts to discontent and anger. This delayed change in public sentiment and its influence on public or private action to change an unsatisfactory situation is Hirschman’s tunnel effect.

The question of what discontented customers or members of an organisation can do to improve the delivered goods and services or workings of a company, state or political party led Hirschman to write his most famous book: Exit, Voice and Loyalty.

It can be read as an extension or a general theory of monopoly situations. By applying the Mainstream economic explanation of change and improvement under conditions of competition the dissatisfied customer is always free to exit one provider for another. A similar rationale applies to political parties. If you do not like the policies implemented by the conservatives, vote for the progressives during the next election.

However, what if your political ideology is unyielding and you remain a loyal and staunch conservative? Moreover, what if there is only one provider because of a natural monopoly?

Hirschman argued that if disgruntled customers or members of organisations are unable to implement the exit strategy, they will use a voice strategy instead. This means complaining, writing letters of protest, petitions or demonstrating. They can also split into factions to change political parties from within or establish new organisations. Hirschman’s book discussed and conceptualised these two mechanisms of change: exit and voice.

When Hirschman started to work at the Institute for Advanced Study at Princeton, he turned to deriving certain patterns of thought based on a review of the history of ideas. He uncovered that one way to legitimise capitalism and prepare societies to accept it, was to argue that trade between countries was good for preventing them going to war with each other – the doux commerce thesis.

“He turned to deriving certain patterns of thought based on a review of the history of ideas.”

Nevertheless, his propensity for self-subversion kicked in and drove him to come up with an inverse version of doux commerce – the self-destruction thesis: “According to that view which first became prominent in the nineteenth century, capitalist society, far from fostering douceur and other fine attitudes, exhibits a pronounced proclivity towards undermining the moral foundations on which any society, including the capitalist variety must rest”.

In his last major theoretical book: The Rhetoric of Reaction, Hirschman reviewed and interpreted historical debates to demonstrate how the opinionated and often strategic use of language works in practice. He described certain rhetorical figures used in public debates by proponents of conservative political ideas.

He showed that those figures are used to refute and destroy opponents’ arguments without taking them seriously or engaging in rational argument to persuade or convince others. In keeping with his self-subversive inclination, he showed also that proponents of progressive ideas are equally prone to using certain rhetoric figures in a similarly destructive fashion.

Stefan Kesting

Stefan is a Senior Teaching Fellow, at the Economics Division, Leeds University Business School. His main research interests include the interactive and linguistic turn in economic theory, ecological sustainability, gender, …

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André Pedersen Ystehede

André is a PhD Candidate in Economics at Leeds University Business School, University of Leeds. His research is on macroeconomics, institutional economics and agent-based modelling. He has an MSc in …

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