Becky and I went to see Michael Moore’s Capitalism: A Love Story last night. What was most valuable for me was that in our fairly extensive post-movie discussion, I found myself coming back again and again to the ideas I’ve been trying to develop in our posts. The movie discussion led me to a series of questions about the impact of social movements on organizational behavior. How do private sector organizations typically react when they are in the path of a successful social movement? A better understanding of that process might be beneficial to participants in those movements and the organizations that are directly and indirectly affected by movement activities.
Back in March, I posted the following as part of a reaction to Malcolm Gladwell’s Outliers:
“The key to understanding entrepreneurial success, then, has less to do with the success of the newcomers than it does with the failure of established firms to preserve what they have…An interesting insight on this came to me from Robert W. McChesney’s Communication Revolution. While not a new idea, I was moved by how concisely he put it. McChesney warns his readers to beware of firms who obtain a disproportionate amount of their profit margin from the currying of political advantage rather than the inherent value of their products. He is speaking about media conglomerates, but the same notion applies to any other established ventures as well. Those who have will fight to keep – if they succeed, newcomers will be thwarted. If they fail, newcomers will step in. Failure of the old does as much (if not more) to explain entrepreneurial success than the victories of the new. Perhaps some of the more interesting entrepreneurial opportunities can be found in areas where established firms have to rely on political advantage to maintain their success.”
Inherent in this discussion was the notion that pressure on existing firms looking to maintain their current advantage was coming from other economic actors (both direct and indirect “competitors”) seeking to carve out a niche of their own that may impinge on the territory of established concerns. What I had not seriously considered at the time was the impact of largely non-economic actors seeking to impinge on the territory of established concerns on behalf of the “public good”. How do preservation strategies differ given the different types of pressure?
There are a couple of ways that pressure from social movements differs from that provided by other economic actors. First, it is usually indirect. In most instances, movements target governments to make policy changes that affect the terms within which the established concerns can operate rather than go after the firms directly. Direct attacks on firms from social movements are usually more episodic and in search of more concrete, short-term concessions. I suspect most firms find these easier to placate or ignore. The more serious, longer-term threats are aimed at the public sector to change the conditions in which the firms are allowed to operate.
Second, social movement pressure usually focuses on questioning whether established concerns have the rights or proper justification to conduct business as they do. Other economic actors rarely have any interest in such fundamental questions. They are merely seeking a piece of the action. Hence, the stakes of social movement pressure are usually significantly higher. They can go as far as questioning the rights of specific firms to exist. The game in this arena has to be at least a bit different, though I suspect that outcomes are not that different when both or either of these types of pressure are successful.
I guess the question is how do firms divest from core businesses when public forces make it clear that the time to conduct those businesses is clearly limited? I suspect that the path is largely:
1. Utilize all lobbying and public relations resources available to delay public action against the business activities for as long as possible.
2. Once political momentum has built to the point where lobbying and public relations efforts are no longer effective, shift marketing to areas or countries where regulations or restrictions have yet to be enacted or seriously considered.
3. Shift the assets accumulated from the questioned practices to other firms or activities such that the impact on future wealth creation activities is minimal. A number of the more recent posts have been concerned with this particular step.
For social movements to be truly effective, their goal should probably be to force questioned businesses to move exclusively to step 3 as quickly as possible, and perhaps even focus on removing barriers to doing so. This is probably a tough step for most garden-variety lefties, thought perhaps essential to the achievement of stated goals.
There are a number of examples of this process currently in play. One that is further along the path is tobacco. Utility companies are clearly beginning this journey. The days of centralized electricity grids are clearly numbered. It is only a matter of time before decentralized production and storage is a fact of life. The path that utilities take to adapt to that reality is at the crux of the process that needs to be delineated. It’s also looking like the health insurance industry may soon be facing this road.
This process is also capable of playing itself out in shorter cycles with alarming implications. A recent book on health care economics by Shannon Brownlee entitled Overtreated (highly recommended if you’re at all interested in this topic) does a brief chronicle of the life cycle of the pain medication known as Vioxx. It’s astounding. Well before the drug was ever introduced, Merck knew full well that the FDA would be eventually be forced to pull it from the market because it would be incapable of withstanding clinical scrutiny. But they figured if they could build a way to keep it on the market for a few years, they could make a killing. And that’s exactly what they did. They used this process effectively in open defiance of the public interest.
It seems to me that this is another important piece of the puzzle laid out in previous posts that needs to be better understood to get a fuller picture of organizational permeability and dynamics. This also introduces a slant on public policy implications that may not have been clear from previous discussions. The framework here is patchy, but I wanted to at least note the highlights of this movie conversation in case it could be used in further development of some of the ideas with which I’ve been recently preoccupied.
Thanks as always for indulging me…