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The Social Tax: Why Firms That Ignore Social Engagement Pay A Heavy Price

2014 December 13

Businesses used to be tied to their communities.  Local store owners would know their customers and their families by name.  They would go to the same social and religious events.  Many firms had operations rooted in their communities and so had incentives to invest in them.

Globalization and the rise of professional managers changed all that.  Production was outsourced to faraway places.  Big Box retailers replaced mom and pop shops. Managers, driven by the need to create shareholder value, looked to spreadsheets, rather than their communities, for guidance.

Yet as Marshall McLuhan predicted a half century ago, we are now living in a global village. Corporations and other institutions must relearn to connect with their communities on a personal, rather than a wholesale basis.  Anonymity has become a pipe-dream and a dangerous one at that.  Those who do not effectively engage will pay a hefty social tax.

Ralph Nader On Steroids

Ralph Nader grew up in the priviledge of old, establishment institutions.  He graduated from Princeton, then Harvard Law School, before going to Washington as an aide to Daniel Patrick Moynihan, the Assistant Secretary of Labor at the time.  It was through his government work that he developed an interest in auto safety.

In 1965 he published Unsafe at Any Speed, lambasting the big Detroit firms for putting their consumers’ lives at risk.  He pointed out that while the automakers were happy to spend $700 per car for styling improvements, they spent only twenty-three cents on safety.  Detroit fought back with a smear campaign, but Nader ultimately prevailed and car safety improved.

Ralph Nader is perhaps America’s premier consumer advocate, yet we don’t hear about him very much anymore.  That may be because, today, ordinary consumers can gripe about Dell Hell or bicycle locks that don’t work or poor airline service and have an outsize effect. Hactivist organizations like Anonymous can even bring entire governments to their knees.

50 years ago, only a person of prominence like Nader had access to mass influence.  Now, we all do.  And while Nader was committed, intelligent and effective, he was only one man. There are literally billions of the rest of us.  Today’s social media activism is nothing less than Naderism on steroids.

Why Buzzfeed Doesn’t Do Clickbait

The media version of a shoddy product is clickbait—headlines that scream across our Facebook feeds that we “won’t believe what happens next” or that we’ll be “shocked when we see” what’s in the article or video.  They are intended to trick us into clicking on something we normally wouldn’t.  The site sells ads and makes money, but we end up disappointed.

Yet it seems that this strategy may be too clever by half.  Ben Smith, Editor of uber-viral site Buzzfeed, says that clickbait stopped working around 2009.  He points out that you can trick someone into clicking, but you can’t trick someone into sharing the article with their friends. People only share what they think is valuable.

So while Internet metrics record that lots of people click on a page with a sensational headline, they often fail to register the social tax—people who are disappointed and angry are not only less likely to share, they will be less likely to click next time, which is why clickbait used to work, but no longer does.

What’s more, even if some people actually enjoy the underlying content, many fear the social stigma of sharing something that bears the hallmarks of clickbait, such as an over-optimized headline

Social Subsidies

The social tax presents serious problems for many organizations, but some have learned to turn the problem on its head by actively seeking out social subsidies.  They offer their products for free in the hopes of lowering costs or gaining revenues elsewhere.

For example, when Ryan Holmes needed a tool manage social media for his agency, he built one himself.  It worked so well, he thought he could make a business out of it, but rather than sell it outright, he gave it away for free. Today, although only a small percentage of its 10 million users pay to use the service, Hootsuite is valued at over $1 billion.

The Internet itself runs on open-source software like Linux and Apache, which is developed and maintained by volunteers, as is Wikipedia, the world’s most comprehensive encyclopedia, with millions of entries across dozens of languages.  Even profit seeking corporations are getting into the act, IBM recently pledged to invest $1 billion in open source technologies.

In both cases, there is a social subsidy at work.  It would have cost Ryan Holmes millions to promote Hootsuite.  What he lost in revenues he gained manyfold in free marketing.  It would have probably cost billions to develop Linux, Apache and Wikipedia, yet people were willing to contribute their labor because they believe in the mission of the enterprise.

Strategy Is No Longer A Game Of Chess

Machiavelli famously said that it is better for leaders to be feared than loved and many have taken that lesson to heart.  They believe that good ends often entail hardhearted means, such as laying off thousands of employees in order to save those that remain.  These decisions require cool, rational thought rather than hotheaded emotions.

However, this line of reasoning assumes that the great masses don’t have a vote and, in the digital age, that’s becoming an untenable assumption.  Companies that don’t treat employees well, just like those who provide poor customer service, risk incurring a social tax—a fact that companies like Apple and Nike know all too well.

Even in the rarefied air of geopolitics, cool calculations made in the halls of power must increasingly take into account social taxes and social subsidies.  As Anne Marie Slaughter recently argued in her review of Henry Kissinger’s new book, World Order:


That is the balance that must be struck: not a balance of power between states, but a balance between state-centric and human-centric considerations. Advancing American interests in a world of both states and people means that our security now depends as much on what the people of a particular country think and perceive as on what their government does.


The truth is that strategy is no longer a game of chess because the most important moves happen off the board.  Conventional game theory and business analysis fail to take into account how disruption happens—through small, loosely connected groups that become united by a shared purpose, not the cerebral calculations of a privileged few.

So while we continue to value enterprises in terms of discounted profit and loss, it is no longer financial statements or institutions that determine fates.  Today, we prosper by widening and deepening connections to the communities that have the power to bestow gifts and impose costs.

– Greg

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