How Markets Are Made and Broken by Social Activists

Autumn 2009 Issue

An interview with Stanford Professor Hayagreeva Rao, author of "Market Rebels"

Market Rebels Book CoverAs a teenager in 1970s India, Hayagreeva "Huggy" Rao was struck by the way his city competed against other cities for jobs. Citizens lobbied the federal government for a steel plant, and later, activists organized residents to stop eating and block trains with their bodies. These protests led to Rao's lifetime fascination with collective action. Today the sociologist, who is a professor of organizational behavior at the Business School, studies rebels who shape new markets and upset old ones, not with "invisible hands" but with highly visible, clasped ones. They define "hot causes" and use "cool techniques of mobilization" that can make or break markets for products and services, he writes in a new book, Market Rebels. Editor Kathleen O'Toole interviewed Rao for this article.

O'Toole: Your book is about rebels who shape markets. Who are they?

Prof. Hayagreeva "Huggy" RaoRao: Normally when we construct an account of any industry, technology, or market, we rely on the great-man theory. So Bill Gates matters. Henry Ford, Sam Walton, Philip Knight matter. These founders of great companies are important, but we don't understand what made their accomplishments possible. That's where collective action plays a big role. A rebel, by definition, is one who defies authority. For me, a market rebel is one who bucks conventional wisdom, who challenges existing norms, who's so committed to a cause that he or she doesn't mind incurring the costs of organizing collective action. In fact, the cost of not acting is what impels many of them. They construct a hot cause, which taps deep-seated emotions of anger or pride, but they also get people to engage in new behaviors through unconventional or cool techniques of mobilization.

Take, for example, the automobile industry in America. Most books give pride of place to Henry Ford, who introduced mass production. But why did he believe there was a mass market when early reactions to the automobile were that it was a devilish contraption—evil, strange, unreliable, and of poor quality? Farmers said it would cause havoc to farmland. Anti-speeding activists said it was a threat to pedestrians. Yet it came to be accepted, and the unsung heroes were automobile enthusiasts, many of them physicians, who formed automobile clubs. They realized they needed state speed limits, not a maze of regulations. They also lobbied for licensing of drivers and the registration of automobiles, which then became a source of tax revenue. They also asked, "How do you show other people that a car is viable?" You don't give 15 speeches. You have 10 cars climb Pike's Peak, 15 cars go on an endurance run, or 20 cars seek to shatter a speed record. These organized events made audiences realize the car could do a bunch of things. When that happened, Henry Ford, who had observed assembly-line techniques in butcher shops, realized he could sell a bunch of cars. So I argue, without the automobile enthusiasts between 1895 and 1912, you wouldn't have had mass production.

Similar arguments could be made about the personal computer industry. There was a priestly class entrusted with the responsibility of managing the computer, and activists said, "Wait a minute. Why do we need that priestly class in between us and the computer?" They came together in hobby clubs. Out of these meetings of tinkerers, we have early products that paved the way for the personal computing industry.

Nike is an iconic American company, and if you asked Philip Knight [MBA '62], I imagine he would acknowledge that the running movement, where running wasn't something five university athletes did but something everybody did, made Nike possible. These are examples of how social movements and market rebels make new industries, new niches, and new markets possible.

O'Toole: Do people driven by a hot cause also block innovations?

Rao: Yes. Let me give an example that is both current and historical. The chain-store revolution in America occurred in the 1920s. Chains allowed for convenience and large product selection, but mom-and-pop stores quickly realized they couldn't compete with the efficiency of chain stores. They organized to pressure legislators, and a number of states passed laws to punitively tax chain stores. The chain stores responded through collective action and established new links with farmers' cooperatives to overcome the threat.

Now to contemporary India: When we visited as part of a GSB program, Indian business journalists extolled chain stores, and we said, "You better worry about social upheaval and an anti-chain-store movement." They looked at us and said, "I think you're being a little bit far-fetched." Fast forward two years later: Quite a few chain stores have been targets of social protest—unfortunately, sometimes violent protest. So you can have hot causes and collective mobilization that supports innovation or rejects it.

O'Toole: Give us examples of how a hot cause can impede adoption of new technology.

Rao: Cochlear ear implants were designed to make deaf children hear. Their manufacturers were completely taken aback when deaf-rights activists said, "You're killing the deaf sign language, and if you're killing the deaf sign language, you're killing our community." Their hot cause was save our language, save our community.

More recently in the Barolo and Barbaresco wine-growing districts of Italy, a group of rebels said, "We need to stop using age-old botti." These are huge casks that contain thousands of liters of wine. They wanted to use smaller French casks that contain 100 to 300 liters of wine. Their idea was to reduce the tannins in Barolo and Barbaresco wines to make them more palatable to an international audience.

When they did that, the traditionalists launched a counter-movement. They said, "Wait a minute. You're actually erasing our identity, our uniqueness. You're removing local diversity. Why should you have a wine that tastes the same the world over? Why should Barolo wines taste like California wines?"

If you make wines in an international way, you get better ratings from the critics, which means you can charge higher prices. So the obvious thing for a rational person to do is to make international wine, but instead you have this movement to preserve diversity, uniqueness, local identity. My colleague Mike Hannan and I at the GSB and Giacomo Negro of Emory University are trying to understand it.

For too long, in my view, we have been enamored of the invisible hand of the market or the visible hand of large enterprise. What we need to pay attention to is the joined hands of activists. Market rebels play a big role in our lives. When you and I buy organic food in a grocery store, that is possible because we had an organic food movement that got the big cereal companies to say, "We better buy these specialty organic companies or introduce our own kind of organic product lines on the market."

O'Toole: In your book, you write that rebels tend to take advantage of unexpected events, such as the public outcry over Robert Nardelli's large severance pay from Home Depot. Do you think the scandal in financial services will lead to more collective action?

Rao: I think that is a real likelihood. Historically, more regulation has been the outcome of collective pressure. One area where we've already seen an upsurge of collective action is in student loans. Campaigns were organized where the hot cause was predatory lending to students. The pressure led to laws governing disclosure, but soon, I would expect pressure to regulate the conduct of firms, not just force them to disclose.

The investor-rights movement seeks to establish constraints on executive compensation and so forth. People are realizing we live in an organizational society where large global corporations play very important roles and sometimes are formidable. They can lobby government through their political action committees and influence regulation. So what's the option for consumers and other stakeholders? One option is to organize social movements that target corporate bodies.

O'Toole: Should managers take advantage of collective action or guard against it?

Rao: It varies by company. Some firms rely on collective action. Look at all the companies that use Linux software. The cadres of programmers for the Mozillas of the world are coming from the anti-Microsoft Windows movement. One of the arguments of the open software movement is, hey, we need to exchange programs very much like you exchange cookie recipes.

On the other hand, if you were a company that's going to be targeted by urban sprawl activists, you do everything possible to defuse that. Walmart is seeking to do that by saying, "We'll put our dollars behind the green cause."

If you're an oil company, you're faced with a movement for renewable energy. How can you channel that to your benefit at the same time there may be an anti-gasoline movement that will put substantial pressure on you? Should you be worried about activism in Nigeria? Of course. You've got to realize both the potential opportunities and potential risks.

O'Toole: What advice do you have for leaders of social change organizations?

Rao: I think many of them already know this. Everybody can learn from individuals involved in social enterprises by looking at the challenges they surmount. They deal with disinterested audiences. They have no authority. They have very few resources. Yet they're able to attract a base through a hot cause and mobilize action.

One example is a small nonprofit organization called the Institute for Healthcare Improvement. We have a Stanford GSB case study on them. This organization with a nucleus of 100 people, based in the Boston area, wanted to deal with the problem of deaths caused by preventable medical errors in American hospitals. Conservative estimates suggest that 95,000 people a year die from medical errors. Now if an ordinary person went to a hospital to speak to someone about deaths caused by preventable medical errors, they would be put in touch with legal counsel.

This organization did something wonderful: They named their hot cause—saving lives. The enemy was quality defects. They used many cool techniques of mobilization but two come to mind. One is that they organized a campaign relying on unconventional techniques such as a radio show that allowed people to share ideas. In each state they identified catalysts in hospitals, and these catalysts got other hospitals interested. They also came up with a battery of six ideas for intervention, each evidence-based, easy-to-do things, and they said, "Use any of these ideas." One intervention was to reduce infections by making sure people wash their hands. Another was to reduce death counts by pneumonia due to ventilator-based problems by inclining the bed at a 45-degree angle. These were simple things that involved daily changes in behavior.

Within a span of a couple of months, more than 3,000 hospitals signed on to the cause. They started their campaign in, I think, 2004. It ended in 2006. By then, the estimates were more than 100,000 lives had been saved. Now, of course, this movement didn't directly save the lives. People in hospitals saved the lives, but the interesting thing to me is what made them fired up.

O'Toole: In our culture, "hot" can mean romantic or emotional and "cold" means rational or hard-headed. What is cool about mobilization?

Rao: Cool has a lineage that starts with jazz in the American vernacular. Cool jazz is improvisational, edgy, unconventional. Marshall McLuhan uses the term cool media to actually talk about the fact that they engage not one sense but many senses, which are your eyes and ears, with something like television.

So for me, cool techniques of mobilization are unconventional and engage many of the senses, but most important, they get people to do things. Cool doesn't mean cold. Cold means rational, impersonal, boring, fact-based. Cool means insurgent.

Let me give you an example. Many organizations have town-hall meetings with their employees. What happens in a town-hall meeting? Usually the boss comes in and says a bunch of things. Everybody listens and goes away. It's one-way communication. Now, what would a cool technique of mobilization be? The boss would say, "Let's have an upside-down town-hall meeting." The bosses listen and the audience asks questions. What are you doing when you get them to ask questions? First, you're engaging them. Second, you're empowering them. Third, you're saying, "Hey, we're upending the existing order." And that's the way you actually hook employees and get them to do things.

Associations are the wellspring of collective action. East German churches synchronized their services so all of a sudden 2,000 people flooded the town square.

There are lots of ways of doing cool techniques of mobilization. The point is, you've got to actually be insurgent, unconventional, and a little bit edgy. You've got to be a little bit different. If you're not all of that, if you do more of the same, people are going to say, "More of the same." They're actually going to be turned off.

O'Toole: That's an everyday example most of us can relate to. Give us your coolest example of mobilization.

Rao: I go back to Mahatma Gandhi and his cause of Indian independence. His challenge wasn't to get the urban elite out on the street. They're too small in number and also probably too keen to go to England to study. He needed to hook rural Indians into the cause when they don't read newspapers or have access to radio. And in any case, what does independence mean to them?

He brilliantly used a symbol—the salt tax levied by the British on Indians. He took a bunch of people to the seashore at Dandi, where he said, "You know, why can't we make our own salt? It's coming from the ocean. Why should we pay tax to anybody else? It's free." When he got people to make the salt using water from the sea, he was able to very crisply communicate the nature of the injustice. And he said, "That's what independence is. You can make your own salt." If you look at any language, you will find salt is part of every proverb, every piece of wisdom that's transmitted from one generation to another. That's what I mean by a cool technique of mobilization.

A lot of the things that we take for granted are the outcomes of collective action. Think of Sinclair Lewis' novels that became a lightning rod and led to the Food and Drug Administration or the way Rachel Carson set the stage for the environmental movement. When we buy a car or a TV we look at Consumer Reports. How was it created? The consumer movement. If you go back to the early 1910s, 1920s, housewives played a central role in collective action about the prices of butter, of meat. Until then, we never had a political category called consumer.

O'Toole: Is collective action more possible in democratic countries?

Rao: It's easier to organize because associations are the wellspring of collective action. In America, everybody is a member of some club or whatever. But in a repressed society, the incentives to organize are very high, because that's how you're going to change the regime. In East Germany under Communism, if you gathered in a public meeting you would be jailed, but one way people got around that was that churches synchronized services, so you have four or five ending at 11:30, and all of a sudden, 2,000 people flood the town square.

O'Toole: How do you fit your theory with economic theory about people behaving in their own self-interest?

Rao: In most economic accounts, collective action is a matter of your interests shaping your incentives. The way sociologists look at collective action, interests are important but identity is much more important. Who you are shapes your understanding of your interests.

To be fair to economists, they are getting interested in the study of identity. I think the real issue is how identities are the building block of collective action. Because if you don't identify with a particular group, it's very hard for you to actually join in that collective action. In the anti-chain-store movement, it was in the interest of every mom-and-pop store, irrespective of whether they owned a grocery or a drugstore, to band together. But it turned out they couldn't actually join together. Why? The identity of the druggist is different from the identity of the mom-and-pop person who owns a grocery. That's what I mean by identity.

--Photo by Peter Stember