3 ms·
Someone once told me that "exit is more powerful than voice". I think they meant that the market is a better democracy than voting. Capitalism traditionally gi
by repsilat 8y ago
Someone once told me that "exit is more powerful than voice". I think they meant that the market is a better democracy than voting.
Capitalism traditionally gives power to customers through their ability to choose not to buy the company's products. Works better for Apple than for Google, though we pass laws to mitigate some externalities (privacy).
Workers get a say in a similar way. If a company isn't worth working for, they won't work there. This is truer for companies like Google and Apple than most (even though they are enormous) because the labour market is so tight. Again, though, we pass laws like allowing labour unions (which are a price-fixing mechanism) to address imbalances of power.
Funnily enough, this is kind of on-topic for the article. Ownership in a company usually gives you "voice" and "exit", and these fancy share classes effectively take away voice and just leave the average shareholder with exit -- "If you don't like how we run the company, invest in someone else."
I think the reasonableness of it is a question of effectiveness rather than morality or logic, to be honest, but I do like the idea that Zuckerberg's board proposed to him when considering an additional share class+split that would have entrenched his power: "Your shares will become regular stock when you stop personally being CEO." They wanted him to run the company how he wanted to run it, but didn't want him to hand-pick a successor.
Still, a bit perverse that negotiation. Technically Zuck had the votes, so I guess (?) the legal mechanism of that action was "We won't sue you for not representing our interests if we do it this way." (Voting stock or no, shareholders always have some legal voice.)
- mcv 8y agoVoting with your dollars doesn't work in all cases. Possibly not even in most cases. Markets aren't that transparent, and more importantly, you buy based on the company's past behaviour, whereas if your product requires support, it's their future behaviour that matters to you. You buy based on past product quality, but current product quality is what matters. You may buy a product from a great company with excellent support, and then a hedge fund comes along and fucks up that company for some quick profit, and you're screwed. On top of that: vendor lock-in. Switching to a different platform can be hard and expensive, no matter how much you want to. Of course most smart companies with long-term vision listen to their customers, but plenty of companies don't. Many great companies have been ruined for short-term profit for either their executives or their investors. And the same is true for employees: a lot of people can't afford to leave their job. They've got mouths to feed. And besides, in their next job, they might be just as powerless. Ultimately, the skewed division of power is not always good for companies, and it enables the people holding that power to enrich themselves at the cost of other stakeholders.
- repsilat 8y agoI totally agree that market solutions aren't perfect. I alluded to some legal fixes in place, but there are of course many others, some of which address concerns you raised -- fitness for purpose, abuse of market power, varying levels of employee protection and representation depending on jurisdiction. These things are clearly patches, though. The logic of the system is that companies operate on the behalf of their owners, with some sharp edges filed off to handle perverse incentives. I guess this organisation wasn't chosen for its competitive advantage (probably rather just a legal&historical accident) but it seems to be doing better than anything else we've tried -- worker co-ops, non-profits etc.
- nkurz 8y agoSomeone once told me that "exit is more powerful than voice". Apologies if you were intentionally avoiding the explicit reference, but for others who are interested in this concept, it comes from Albert Hirschman's 1970 work "Exit, Voice, and Loyalty": https://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty https://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty
- repsilat 8y agoHah, thanks. I knew the idea wasn't original to the person who told it to me, but was too lazy to look up the original source. Maybe I should get around to reading it...