The Market Was Always Inside Something

Abstract

In the middle of the 1960s an economist travelling for a study of development projects watched a railway decline. The Nigerian Railway Corporation was losing freight to lorries on the roads that ran beside its lines. That much was ordinary. What held the economist's attention was what did not happen next. In the textbook, a firm that loses customers to a competitor feels the loss and improves. The railway lost customers and stayed as it was. The economist was Albert O. Hirschman, and the puzzle stayed with him for several years. The answer he arrived at, published by Harvard University Press in 1970 as Exit, Voice, and Loyalty , was that the customers who left were the very customers whose complaints the railway most needed. The shippers who cared most about speed and reliability, and who had the means to switch, switched. The ones who remained were the least able to leave and the least likely to make a fuss. Competition had not disciplined the railway. It had removed its most informative critics and left it a quieter, easier decline.