Monday, November 24, 2014

Brexit, Voice, and Loyalty

PRINCETON – Albert Hirschman, who died at the end of last year, was a great economist with a gift for producing striking insights by focusing on an element of observable behavior as a way to transform our view of a whole range of particular problems. One of his most far-ranging insights was his framework of “exit, voice, and loyalty.”

Originally formulated after an experience with poor trains in West Africa, Hirschman realized that if a complex social system allowed people to leave (exit), its efficiency might deteriorate; a better solution would be to retain people (loyalty), which would give them incentives to articulate demands (voice) that would improve the system’s performance.

It is easy to see how this theory can be applied to personal relations. Marriages break down if divorce (exit) is too easy; but also become unbearable if there is no sense of mutuality and discussion (voice). Voice may also decrease if new possibilities emerge: a new potential partner means that there is no longer any pressure to discuss and improve relations within the existing arrangement.

The schema might also be applied to political relations: Hirschman wrote a memorable article showing how the ability to exit East Germany in 1989 produced a sudden breakdown of loyalty.

Europeans might rethink some of their current dilemmas in the light of Hirschman’s theory. The marriage analogy has become a rather over-used metaphor for Europe’s efforts to integrate. But it is clear that both voice and loyalty have become a problem for the European Union. Many citizens and governments believe that they lack influence, or voice, which tends to reduce loyalty.

Now a more radical possibility has been raised. British Prime Minister David Cameron has raised the possibility of a “Brexit,” a British exit from the European Union. The polemics that preceded and followed Cameron’s recent speech on Europe showed that both British Euro-skeptics and Europe’s truest Europhiles – including such iconic figures as former European Commission President Jacques Delors – welcomed the British initiative.

Can the British exit threat shake Europe to its senses and make the United Kingdom’s effort to reform institutions more likely to succeed, or to make Europe a more stable polity? Hirschman’s framework, which is instructive in helping us to think about how loyalty and affection can be generated, suggests that it cannot.

Countries do not like to feel isolated. They want to see their institutions and values mirrored and replicated in their neighbors – a dynamic that builds loyalty. As a result, the EU is constantly expanding, while the US likes to urge the world to democratize.

Democratic states are not alone in seeking to expand their influence. The Soviet Union also wanted to surround itself with a protective buffer of like-minded states, and Italy’s Benito Mussolini was proud that for a time fascism was a competitive export.

The recognition of an exit possibility reverses that basic process of forging bonds of loyalty. Some other attraction may appear.

One of the factors driving the UK’s sense of unease in its relations with an increasingly bureaucratized Europe is the belief that its values and institutions are closer to those of the US, or of other English-speaking former colonies. By the 1990’s, British Euro-skeptics coined the term “Anglosphere” to describe a model that was more successful and more expansionary than that of the EU.

The US has been the “other woman” undermining Britain’s loyalty to the EU as an attractive permanent partner. As a result, Britain has lost much of its ability to make an effective contribution to European reform.

Indeed, the last time Britain had a strong European voice was more than two decades ago. In the mid-1980’s, then-Prime Minister Margaret Thatcher successfully pushed the idea of an integrated internal market. The liberalization of trade and investment implied by the Single European Act was greatly inspired by a British deregulatory vision. At the time, Delors presented the introduction of a single currency as a way to complement or complete the Single Market.

Since then, however, both the American financial model (with powerful financial institutions thriving in lightly regulated markets) and the American model of engagement (in Iraq and Afghanistan) for some time appeared more dynamic and more in accordance with the demands of a globalizing world.

Both elements of the American dream have now lost something of their appeal. The Iraq engagement proved to be built on deception. The financial house of cards collapsed. But Britain remains attracted to something else, and so unwilling to engage in “voice.”

The US is appalled by the consequences of Britain’s flirtation. It wants to remain engaged with the entire world, not just some islands off the European coast. It is easier for the US to deal with Europe as a whole, especially when some European answers to common social dilemmas look as if they might provide solutions for America as well.

The outcome resembles a Shakespeare comedy of confused identity. Europe and Britain are married, but Britain wants to deepen its relationship with America, while America cares more about Europe.

Loyalty-enhancing mechanisms are not easy to establish. The best ones are positive, like rapid economic growth and rising prosperity, which underpinned the European dream in the past. Restoring them is unlikely, at least for now.

There can also be negative incentives to loyalty that induce everyone to keep up appropriate standards of behavior. The risk is that the comedy of misguided affection is resolved by punishing both the tempter and the tempted.

What is the modern equivalent of branding with a scarlet “A,” which was the penalty for adultery in colonial New England? Maybe the credit-ratings agencies have the answer.

Read more from our "London Not Calling" Focal Point.

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    1. CommentedCelt Darnell

      With all due respect to the Americans (particularly ones as ignorant of the UK as Harold James), I'll listen to lectures from you about abandoning national sovereignty after you from a political union with Latin America. Until then, kindly go to hell.

    2. CommentedMarco Cattaneo

      Being part of the EU or not has no to with if and how the European Union will succeed in reforming its monetary system. It can be done but they have not understood yet how, neither in Frankfurt nor in Bruxelles

    3. CommentedZsolt Hermann

      The "exit, loyalty, voice" combination has changed dramatically.
      For it to work there needs to be free space, opportunity to disconnect, or in the marriage example the possibility of divorce.
      In today's global, interconnected world system that option has been closed.
      Each and every individual human being, each and every nation has been locked into this multi dimensional network, where each element depends on every other element.
      We can like this or hate this, there is nothing we can do about it, as part of our evolutionary process humanity has become a single, integrated organism.
      So only the "voice" option remains, and we have to re-learn how to communicate with each other, how to relate to each other so instead of eating each other alive like cancer cells, the dominant behaviour of humans of today, we can start mutually cooperating and working for the benefit of the whole, since if we are all sitting on the same boat it is important for all of us that the boat stays afloat sailing in the right direction.
      The most suitable communication, decision making format for this is round table discussions from the street level up to the executing level, with transparent, independent public representation in a globally aware governing structure.
      Thus first we have to understand that we are chained to each other, we have to fully digest and explore what that means, and then start rebuilding the whole human system to make it work.

    4. CommentedFrank O'Callaghan

      A good theory is testable. It is amenable to being disproved by facts.

      The UK is currently more certain to come apart (Scotland soon, northern Ireland with demographics and even Wales perhaps eventually) than any of Europe's component parts. The Anglo exit from the EU would let the US with only one English speaking nation as it's bridge builder to Europe. Given that Ireland's current economic woes are the direct result of an American style bank-on-bank robbery (with a government promise to enrich all the gamblers who made or lost fortunes at the expense of it's hapless citizens), it is unlikely to replace the UK.

      Europe's ace has been the social model. This has given Europe much greater internal economic strength and a more robust aggregate demand. In the current climate of the apparent failure of Robber-Baron Capitalism to do anything but destroy the societies it infests, there is a very real danger of states jumping from the only lifeboat. A suggestion that the water looks lovely is to be examined very carefully before jumping in (or out!).

    5. CommentedAndré Rebentisch

      Let me disagree, two main misconceptions: 1) First that the British euro sentiment has to do with EU shortcomings or real differences, and 2) that the UK would aim to become a bride of the United States. Britain suffers from severe internal rifts in society and a post-imperial trauma of its political class. The British geist got infected with their own anti-continental war propaganda, just like US anti-French sentiment. Tragedy becomes farce and blurs judgement, here inability of strategic leadership.