Protesters outside a Target store in Miami on June 1.Joe Raedle/Getty Images
Todd Hirsch is a former Calgary-based chief economist of ATB Financial and the author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.
There’s been endless commentary on the swelling social divide we’re seeing in our culture. Almost daily we witness the chasm grow wider, often to the point where sensible and reasonable debate can no longer take place. We fear for social order and even the health of our democracy.
But what about the economic fallout? Are we witnessing our economy bifurcating into almost parallel economies? One for consumers with progressive social and political values (let’s call them “the woke”) and one for those who feel things have gone a bit too far (the “anti-woke”)?
The issue is particularly polarizing around LGBTQ issues. During Pride month, many businesses and storefronts festoon themselves in rainbow flags and banners, showing support for the queer community. And increasingly, some customers are pushing back. Claiming religious objections, or that the issue has strayed far beyond just same-sex marriage, some are purposely shunning businesses with Pride decorations.
Black Lives Matter, recognition of the Truth and Reconciliation Commission’s recommendations (such as land acknowledgment), and other issues related to visible minorities are also becoming divisive. Companies are being forced to either double down on their support for the social cause, or back away for fear of being labelled “too woke.”
It goes beyond retailers flying a flag or bank employees wearing an orange shirt. Take the high-profile case of Sir Elton John. The performer has ruled out a single-venue residency in the United States because of what he believes are disgraceful laws against the LGBTQ community. Or the recent hullabaloo around a few NHL hockey players who opted to not wear Pride team sweaters during warm-ups; the league has now banned teams from warm-up sweaters promoting any social issue.
These socially divisive issues are more than political. They threaten the health of our economy on several fronts.
The first is the reduced potential market size for all companies advocating a social cause, resulting in smaller economies of scale. It’s a gamble for companies. They may think that publicly supporting a queer issue, for example, will attract more customers. It might – but it might also prompt boycotts (just ask Bud Light), or even incite vandalism.
It works both ways: companies with a clear and purposeful “anti-woke” message (think Jeremy’s Razors or Patriot Mobile, both in the United States) hope to pick up customers with similar values. Undoubtedly they will, but they’ll also leave behind millions of other customers who don’t see the world the same way. Smaller markets will result in poorer economies of scale for those companies.
A second economic impact will be a loss of focus on the actual product or service itself. Increased amounts of time, attention and marketing dollars spent on appealing to customers’ social values (be they “woke” or “anti-woke”) means less effort and focus on the product itself. This seems to be NHL commissioner Gary Bettman’s point in banning teams wearing socially themed warm-up sweaters, calling it “a distraction.”
But a third and potentially more toxic impact is lost economic efficiency. Economists identify this efficiency when all goods and factors of production are allocated to their most valuable uses, and waste is eliminated or minimized. Things that distort this distribution – such as poor regulation, discriminatory taxation or politically motivated subsidies – produce poorer economic results. (This is why economists universally prefer a consumption tax over an income tax; it’s less distortionary to individuals’ decisions.)
Pulling money out of one bank and plugging it into another because of a Pride flag (or lack of one) is distortionary. Sure, customers might feel better supporting a business whose values more closely reflect their own. But if the changed behaviour is not based on price or a better product, it is – economically speaking – a distortion. In the same way, a baker turning away a customer requesting a special Pride-decorated cake is also an economic distortion (not to mention poor manners).
The social divides among us are growing. Politicians are capitalizing on it. Social scientists are wringing their hands trying to figure out what it all means. But economists need to pay attention as well. Smaller markets, a deterioration in the product itself, and reduced economic efficiency – these are economic problems. Solving them may be one of the biggest challenges that lie ahead.