The economics of boycotts

 

There are many instances when boycotts have brought positive changes.

A classic example is the bus boycott by the civil rights movement in the US that ended racist discrimination on public transport in Montgomery, Alabama, in 1955-56.

An African-American passenger named Rosa Parks bravely refused to sit in racially segregated seats on the bus and eventually there was a widespread boycott of the bus companies, causing them to change the policy.

In the 1980s there was a widespread boycott around the world of products from South Africa and companies working there during the apartheid era.

This was effective in changing corporate policies and investment which helped bring down the apartheid regime, leading to the election of Nelson Mandela.

Consumers are free to buy products from whoever they want. Ethical consumers will buy from companies that share their values and avoid companies that offend their values.

They are free to make their choices. Since boycotts are not mandatory, they are a question of personal judgement.

Raising awareness and encouraging boycotts are justified in helping people understand what companies are doing so consumers can make their choices in an informed way.

As long as the information is true and no violence or malevolence is involved, it is a legitimate market activity. In fact this is a core driver of corporate social responsibility and the sustainability movement.

Businesses that lose customers must change their approach or lose sales and profits. Their market share will be lost to socially responsible companies but there will be no net loss in general, only a loss to the specific company or product.

Having said that, the potential economic consequences of a widespread boycott of businesses, particularly in Malaysia, needs careful and objective evaluation.

In general there are no significant economic impacts on the local economy if a boycott simply shifts customers from one business to another. Those with a bad reputation lose customers, those with a good reputation gain customers.

This can affect their suppliers who will also lose business but there is a demand for suppliers in all but the most specialised markets so sales can recover despite the disruption.

Employees are also affected. They may even lose their jobs but in the current environment in Malaysia they would likely find jobs elsewhere because there is demand for workers in many sectors.

A boycott of a specific company or group of companies will not have a big impact on growth and overall economic activity in Malaysia if it is simply a shift in consumer preferences and purchases.

If it is more widespread and prolonged, the potential repercussions on local businesses, especially in terms of revenue, employment and sustainability are greater. Those involved in activity that customers, investors and other stakeholders disapprove of will lose business.

When violence rears its ugly head such boycotts harm everyone. Violence is unjustified in economic terms and damages Malaysia’s reputation.

This will reduce revenue, profits and investment and may lead to job losses, thus affecting the long-term sustainability of local businesses.

In the case of South Africa in the 1980s this had a huge economic impact on trade, investment and access to finance which damaged investor and consumer confidence.

This forced local and foreign companies to change or close, which eventually improved the overall quality of the business environment from the perspective of wider stakeholders.

To mitigate the negative effects of a boycott on businesses and the general public, policymakers and other stakeholders can play a role in encouraging companies to change their business approach and adopt more responsible and acceptable business models ahead of time rather than face the costs and risks of boycotts. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.