Albert Hirschman: an exceptional economist

By Brian Easton In Economy

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The boys from Berlin: from left, Wolfgang Rosenberg, Helmut Mühsam, Albert Hirschman and Peter Franck, photo/Bill Rosenberg Collection.

ALBERT HIRSCHMAN (1915-2012)

Miraculously, all four Jewish schoolboys in this picture taken in Berlin in about 1930 escaped the Holocaust, which killed six million of their compatriots. Marvellously, all became significant social scientists.

On the left is a youthful Wolfgang Rosenberg (1914-2007), much loved in the New Zealand economics profession for his Old World courtesy and charm, despite taking a different view of how economies worked.

Next to Wolf is Helmut Mühsam (1914-1997), who became a prominent Israeli demographer; on the far right is Peter Franck (1914-1989), an American trade economist. Between the two is the even more exceptional Albert Hirschman.

It is said social scientists don’t live dangerously, but Hirschman did. Escaping Germany, he fought in the Spanish Civil War, smuggled refugees out of Vichy France (including artists Marc Chagall, Marcel Duchamp and Max Ernst), worked in the Office of Strategic Services (the wartime precursor to the CIA) and was an interpreter in early war-crimes trials. Then to the board of the Federal Reserve (the US reserve bank) and a stint in Latin America (later he supported social scientists in peril from dictatorships). In 1956, at 41, he settled down to appointments at Yale, Columbia and Harvard universities and, from 1974, at Princeton’s Institute for Advanced Study.

But his thinking never stagnated. I first encountered him in his 1958 book The Strategy of Economic Development. In those days, conventional wisdom favoured balanced economic growth (which typically meant stimulating import-substituting industrialisation). Hirschman’s unbalanced economic growth had a dynamic leading sector that dragged the rest of the economy along. That is closer to today’s conventional wisdom.

Then I came across the Herfindahl-Hirschman Index, an elegant way of measuring an industry’s structure (and other things; I’ve used it for ethnicity).

His seventh book, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (1970), argued that people respond to institutional failure either by exiting and “voting with their feet”, or by staying on and voicing their dissatisfaction. Loyalty to the institution may determine the choice. Too much disloyalty can result in inferior outcomes. If dissidents in an oppressive dictatorship leave, those left behind will be even worse off. The exit option works where there are competitive markets; the failing firm goes bust (or raises its game).

Between these extremes are sectors – such as the education and health systems – that require a judicious balance of exit and voice. If there is no exit and little voice, they are likely to perform badly. Too much exit and they lose the voice of the articulate complainers and fail, even when they have a central role in the welfare of society.

Hirschman published his 16th book at 76 in 1991. Another tour de force, The Rhetoric of Reaction: Perversity, Futility, Jeopardy argues that the conservative opposition to social change – the narratives of perversity, futility and jeopardy – is simplistic and flawed, and cut off debate. But in its last chapter, he switches to arguing that the progressive narratives – the synergy illusion, the imminent danger and that “history is on our side” – are equally simplistic and flawed.

As well as 18 books, he wrote dozens of illuminating essays providing critical commentary on economic change and growth in Latin America and the shifting landscape of the social sciences. (He could write better in his third language than most economists can in their first.)

Among his awards was the prestigious Leontieff Prize for advancing the frontiers of economic thought. (New Zealand economist Robert Wade has also received it.) The American Social Science Research Council’s highest award – for academic excellence in international, interdisciplinary social science research, theory and public communication – is named after him.

Why was he never awarded the economics prize in honour of Alfred Nobel? Sadly, its selections have been confined to a narrow notion of economics. Hirschman’s vision was so much broader. Throughout his life, he was fiercely loyal to the idea of a reasoned, reform-minded yet humble social science committed to improving the human lot. When necessary he publicly defended this cause. Wolf would have agreed.

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