Exit, voice and loyalty

26 March 2018 - Wits University

“Go out and experiment, take risks, be an entrepreneur. Better still, be a social entrepreneur,” Professor Eddie Webster tells graduates.

Graduation address by Professor Emeritus Eddie Webster 

Some years ago the American economist and great lateral thinker Albert Hirschman wrote a short book where he drew a basic distinction between two alternative ways of reacting to decline in a firm, an organisation or indeed a country. 

The one way is for the customer to switch to the competing product, or for the citizen to emigrate to another country. He called this option exit. 

The other option was to exercise your voice, to openly protest, to criticize. 

But the problem Hirschman said with exit is that it often undercuts voice while being unable to counteract decline. To overcome this problem he introduced the concept of loyalty ¨C loyalty ¨C or if you prefer brand loyalty or patriotism - retards exit and allows voice to play its proper role , namely to change the organisation from within. 

The interplay of these three concepts ¨C exit, voice and loyalty ¨C turns out to illuminate a wide range of economic, social and political phenomena, not the least the dilemmas we have all faced over the last decade in South Africa. 

How many of us know of a colleague, a friend or even a family member who has opted for exit or others who have exercised ¨C some for the first time ¨C their voice and have taken to the streets to protest in support of the #ZumaMustFall campaign. 

But there are others who have stayed loyal to their organisations ¨C for example the ANC ¨C and now see change taking place from within. Some even speak of a new dawn with the resignation of Zuma and the election of President Cyril Ramaphosa. 

So it is wrong to see exit and voice as two binary opposites ¨C the threat of exit and the exercise of voice can allow loyal members to achieve reform from within. 

In congratulating the graduates this evening on your great achievement ¨C and of course your partners, families and friends ¨C and importantly your lecturers ¨C I would like you to reflect on these three concepts: Exit, voice and loyalty; and how they apply to you. 

We are a deeply unequal society. At the start of the nineties South Africa had the highest Gini coefficient of 57 countries for which there were data at the time, at 0.66. In 2015, 25 years later, our Gini coefficient of income inequality was the same, at 0.66. 

In other words, income inequality has not been reduced in post-apartheid South Africa in spite of a progressive Constitution, a Bill of Rights that provides for a wide range of socio-economic rights and major projects of transformation such as the mining charters. 

If we look at the statistics on wealth inequality, the levels of inequality are even higher. The top 10% of the population own approximately 95% of all wealth in South Africa , while 80% own no wealth at all (Orthofer, 2016). 

In response to this challenge Professor Imraan Valodia, Dean of the Faculty of Commerce, Law and Management, initiated the establishment of a centre for the study of inequality (the Southern Centre for Inequality Studies) ¨C the first of its kind in South Africa and I was appointed its interim director. 

We believe that to understand how inequality continues to be reproduced in South Africa we need to understand power ¨C in particular market power. This approach requires that the distribution of economic power be addressed head-on. It requires a bolder and more integrated approach combining substantial capability development ¨C skills development ¨C with a redistribution of assets in way that triggers growth and the full development of our productive resources. 

At the dawn of our democracy, what turned out in some ways to be a false dawn, a debate took place on how we could break with the unilateral exercise of power in the workplace by introducing a system of shared decision making, what the Germans call co-determination. 

This system is the cornerstone of Germany¡¯s successful economy as it draws employers and employees into a system of joint decision-making at workplace and board level. 

We did introduce a system of employee participation in our new era at the workplace level but it never took off. This is partly because we already had a system of workplace participation through shop stewards. But the main reason why it failed is because we never introduced worker representatives at board level. 

Instead we opted for the Anglo-Saxon model of shareholder rights and wealth Maximisation. 

As my colleague Vishnu Padayachee has written, there has been a shift from the old boys club of board members but it has been to a system of shareholder wealth maximization, not to the stakeholders (Padayachee, 2013). 

The problem with the shareholder primacy model is that it does not take into account the rights of all the stakeholders in the corporation. Not just the employees but the broader interests of society and the environment in particular. 

Why does it neglect broader societal interests? Firstly, it is driven by the quarterly financial report ¨C this, it has been widely argued, leads to short termism.  (Mitche, 2017:6) 

It also leads to the excessive remuneration of top executives.

The implications of this remuneration becomes more dramatic when it is estimated that 60% of children under the age of six show signs of stunted growth and 56% experience hunger either regularly or intermittently. 

It is often argued that we have to pay this high remuneration to our executives as we are competing in a global labour market. But if you compare remuneration globally, taking the PPP as your benchmark, there is only one country that pays slightly higher than South Africa and that is the United States. We are the second highest payers in the world. If you were to emigrate to France or Belgium your salary would be halved and if you chose Australia your salary would drop by 25%.  (Masie, Collins and Crotty, 2017:XXX1) 

This phenomenon ¨C what some have called capitalism unleashed - reigned for over 25 years from the early eighties under the Thatcher/Reagan era through to its creation of the 2007-8 global financial crisis and the 2009 international recession. 

The need now is for diversity of ownership and new business models. There is a need for organisations that assign ownership rights and governance control to stakeholders other than investors. Member owned organisations, whether consumer coops, agricultural and producer or worker coops, or what the Americans prefer to call, employee share owned companies.  (They are called worker controlled when employees own 50% of the stock.) 

Worker co-operatives have not been a great success in South Africa. This is largely, as Kate Philip argues in her recent book markets on the margins, because they are set up in poorly resourced communities that lack a market. 

Ironically however workers coops thrive in the US. There are about 10 000 companies with about 15 million workers having stock ownership plans. 4 000 of these firms are 100% worker owed. (Rosen, 2017; 412-415) 

The evidence is that the employees in these firms are more likely to stay with their firm; they have greater loyalty and pride in working for the firm; express greater willingness to work hard; make more suggestions; have better wages and working conditions; and grow faster. (Blasi, Freeman and Kruse, 2017:213-215) 

To conclude ¨C I am suggesting that we need greater diversity of ownership. If we are to have a sustainable future we need to assign ownership rights and governance rights to stakeholders other than investors. This will require a historic change for the economy and society. 

This is the challenge facing the next 30 year generational epoch. Professor Jonathan Mitche in his recently launched Oxford handbook calls it a Green New Deal. This, he says, can best be done by exercising your voice and loyalty. This does not exclude exit ¨C some of my best friends have settled in Australia ¨C in fact I have two daughters happily settled in Sydney. But if you want to solve the problem then loyalty will ultimately give you the voice you need to change from within. 

So go out and experiment ¨C take risks ¨C be an entrepreneur ¨C better still be a social entrepreneur. Contribute to your career by contributing to your country and indeed to a new era of global economic development. 

ÍøÒ×ÌåÓý Eddie Webster 

Eddie (Edward) Webster is a Research Profesor in the Society, Work and Development Institute and the Interim Director of the Southern Centre for Inequality Studies at Wits University. 

He holds a Masters degree in politics, philosophy and economics from Oxford University and a doctorate from Wits. He is recognised locally and globally for his significant contribution to scholarship, especially in the field of Industrial Sociology. He was rated in 2004 as the top sociologist in South Africa by the National Research Foundation for his scholarly work. 

Webster is the author of nine books and over 100 academic articles. He was a Senior Fulbright Scholar at the University of Wisconsin (Madison) and the first Ela Bhatt Professor at the International Centre for Development and Decent Work at Kassel University in Germany. 

His co-authored volume Grounding Globalisation: Labour in the Age of Insecurity was awarded the American Sociological Association¡¯s award for the best scholarly monograph published on labour. 

He recently published two co-edited volumes: the first titled The Unresolved National Question: left thought under apartheid and the second, Crossing the Divide: Precarious Work and the Future of Labour. 

Webster was awarded an honorary doctorate in literature by the University of Witwatersrand last year for his scholarly contribution, for his commitment and advancement of democracy through labour activism, and for nurturing several generations of leading labour sociologists.