Naturally, the news of Albert Hirschman’s death sent me back to [amazon_link id=”0674276604″ target=”_blank” ]Exit, Voice and Loyalty[/amazon_link].

[amazon_image id=”0674276604″ link=”true” target=”_blank” size=”medium” ]Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States[/amazon_image]

The book anticipates why Hirschman was so neglected by mainstream economists over the decades after it was published in 1970. He writes that, first, economists assume rational behaviour, so a firm might start to fail for exogenous reasons, and nothing can be done about that. The ‘agents’ are simply maximising in less favourable circumstances. Secondly, in economic models, it doesn’t matter if a firm fails because of tough competition; individual firms or ‘agents’ have no intrinsic value or status. So economists focus almost entirely on the ‘exit’ mechanism. Yet, as Hirschman writes:

“In a whole gamut of human institutions, from the state to the family, voice, however cumbrous, is all their members normally have to work with.”

Mind you, he noted that in politics too the exit mechanism is also often the focus of debate. As Alex Tabarrok noted on Marginal Revolution yesterday, often voice and exit operate together, rather than as alternatives. And Justin Fox on the HBR blog suggested one reason for neglect of Hirschman’s work is perhaps that the answer to the question, what’s the right balance of exit and voice is ‘it depends on the circumstances.’

Although more than 40 years old now, Exit, Voice and Loyalty is well worth a read. Hirschman was a brilliant economist who, along with others like Herbert Simon, never commanded the attention they deserved from the rest of the profession. He was, as the title of Jerry Adelman’s forthcoming biography puts it, truly a [amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher[/amazon_link].

[amazon_image id=”0691155674″ link=”true” target=”_blank” size=”medium” ]Worldly Philosopher: The Odyssey of Albert O. Hirschman[/amazon_image]

Normally I wouldn’t review a technical book on this blog, but I think it’s worth flagging up an excellent set of lectures by John Sutton, just published as [amazon_link id=”0199274533″ target=”_blank” ]Competing in Capabilities: The Globalization Process[/amazon_link]. I’ve always been an admirer of Professor Sutton’s research, bringing the rigour of empirical industrial economics to questions of development and globalisation. He also wrote the excellent [amazon_link id=”0262692791″ target=”_blank” ]Marshall’s Tendencies: What Can Economists Know?[/amazon_link], arguing for the careful intertwining of theory and evidence in economics – if only economists would pay attention.

This new book, based on the Clarendon Lectures, sets out a model of how firms compete with each other in global markets when they have different ‘capabilities’ or sets of competitive advantages and disadvantages and compete on quality. As he argues in the introduction, globalization has gone through different phases, with theory catching up belatedly with the reality. In the 19th century, different factor endowments of land and capital drove trade based on comparative advantage, drawing on Ricardo but codified by Heckscher and Ohlin in the 1920s. Post-World War 2, the growth in trade was intra-industry and clearly not driven by different factor intensities. Paul Krugman and his successors described this in ‘monopolistic competition’ models of horizontally-differentiated goods in the 1980s.

Prof Sutton argues that the current, third, phase of globalisation has seen a growing range of products (including components) traded on international markets and, with the entry of China and similar countries, a transformation of levels of productivity and quality. He links competition on quality to the idea of the ‘capabilities’ of firms. The model is built gradually over the book, each chapter working out the implications of successive assumptions. These are: the high quality product is never driven out of the market completely; scarce capabilities are geographically clustered in specific countries; and there are some costs that are no labour costs eg materials. In later chapters he turns to the question of what determines the capabilities of firms.

Given these assumptions, a simple model generates trade that looks much like real life: some markets have a small number of very large firms; there are variations in the quality of goods traded; there is a catch-up process that is a kind of arms race between competitors. In other work, Prof Sutton has tested his models empirically.

I must add the warning that this is an equation-heavy book, so for professional economists only, but it’s exciting to see the merger of a number of separate literatures: trade theory, industrial organisation, and management. And to see them applied to developing and developed economies alike, rather than the convention that developing economies need a different kind of economics.

The book also reminded me of the excellent recent papers by Richard Baldwin on trade and supply chains – these are less technical, and there is a useful VoxEU summary with links – because he too makes the point that the character of globalisation has changed. Prof Baldwin describes it as successive ‘unbundlings’, the first in the 19th and early 20th centuries as the separation of production and consumption, the second from the second half of the 20th century onwards as the separation geographically of different stages of production. His models introduce a balance between forces of agglomeration and forces of dispersion, and offer insight into the process of offshoring and reshoring – as in this recent example of garment manufacture reviving the US.

All exciting stuff intellectually, and with some rather profound policy implications, I’d have thought, when these are worked through. After all, trade policy is still geared to the economics of trade in the 20th rather than the 21st century.

[amazon_image id=”0199274533″ link=”true” target=”_blank” size=”medium” ]Competing in Capabilities: The Globalization Process (Clarendon Lectures in Economics)[/amazon_image]

Geoff Andrews of the Open University was one of the panellists at the recent Festival of Economics. He and Lynsey Hanley were two non-economists contributing to the Joseph Rowntree Foundation sponsored session on poverty and place, along with economists Paul Gregg and Paul Johnson. It was illuminating, as the recording shows, to have the different disciplinary perspectives. We invited these two people to take part because Lynsey has written a book [amazon_link id=”1847087027″ target=”_blank” ]Estates[/amazon_link] about these types of place where poverty clusters, and Geoff was involved in the wonderful BBC2/OU series, Secret History of Our Streets, many of whose selected locations had been poor decades ago although many were now rapidly gentrifying.

I picked up at the Festival (the second will take place on 22-23 November 2013) Geoff’s (2008) book [amazon_link id=”0745327443″ target=”_blank” ]The Slow Food Story[/amazon_link]. It’s a description of the Slow Food movement which has spread from its origins in Piedmont, in Italy, with the publication of the original Slow Food Manifesto in 1987, to reach many countries and span the production chain from farmers in developing countries to consumers in Italy, the UK, US and elsewhere.

The book is really interesting; there’s a lot in it that I didn’t know about the movement. It’s also impossible not to be sympathetic to concerns about the effect of fast food on human health, on the one hand, and the poverty of small farmers on the other hand. I also wholly agree about the importance of preparing food for family and friends and sharing meals together. Just recently, I came across this American report on the beneficial effect of family meals on young people – highly plausible.

However, [amazon_link id=”0745327443″ target=”_blank” ]Slow Food[/amazon_link], the book, and the Movement, fail to even pose what seem to me some rather obvious and important questions about the political economy of food.

One is about productivity in farming/food processing and price. There are seven billion people now, and feeding us depends on technological revolutions in farming, including the use of fertilisers and pesticides, and genetic modification (the practice is ancient, only the techniques change). Achieving what the Slow Food people call ‘clean’ food production seems to involve abandoning these techniques. What will we eat? Will Slow Food require much higher prices? The book protests that the Slow Food movement is not characterised by nostalgic romanticism. I’m not persuaded of that.

Another is why the only issue for farmers’ livelihoods is consumer habits. Neither the book nor the movement seem to have anything to say about the concentration of the world agricultural commodities markets in the hands of a few huge trading companies, or for that matter retail concentration in specific markets. Nor about the impact of biofuels on agriculture and food prices. Nor about the growth of speculative trading in agricultural commodities in making prices higher and more volatile. While I want to share really good food with the people I love, these are the questions I’d start with in thinking about the economy of what we eat and the fast food business.

[amazon_image id=”0745327443″ link=”true” target=”_blank” size=”medium” ]The Slow Food Story: Politics and Pleasure[/amazon_image]