Boycotts Over Immigration Law Could Hurt Arizona's Shaky Economy

There aren't a lot of people outside of Arizona who seem to support what is likely the nation's toughest immigration law. The outrage over the legislation, which allows state police to check the immigration status of any suspicious-looking resident, has been widespread. Already, cities across the nation are calling for boycotts of Arizona after the law was passed on Friday. It's possible the Grand Canyon State may have done irreparable damage to both its reputation and the tourism industry, one of its largest revenue sources.

Criticism of the law has been both loud and resounding. President Barack Obama called it "misguided." Meghan McCain, daughter of Arizona Republican Senator John McCain, said the law is a "license to discriminate." Karl Rove, the political strategist behind former President George W. Bush, conceded that there could be "constitutional problems with the bill." And as another political strategist noted, the law makes "Arizona of 2010" look like "Alabama of 1963."

But it's not just public humiliation that Arizona could suffer. There are several boycotts underway, including one proposed in San Francisco, another in Los Angeles and one in Washington D.C. (Who knows how many more may be in the works.) Over the last 40 years, special interest groups have often mobilized to organize large boycotts. But the Arizona boycotts have the potential to deliver a serious financial blow to the state, partly because of Arizona's economic vulnerabilities and partly because of the scale and organization of the boycotts.

San Francisco May Cancel Contracts with Firms

In the case of the proposed boycott in San Francisco, the city's board of supervisors is reportedly planning on canceling any contracts with Arizona-based companies and prohibiting city employees from conducting business there.

"We know that we won't be sending any city employees to conferences in Arizona," San Francisco supervisor David Campos told the San Francisco Chronicle.

The chances of a boycott succeeding are greater when the buying decisions are in the hands of institutions as opposed to consumers, according to Brayden King, an assistant professor at the Kellogg School of Management, who has studied the effectiveness of boycotts.

"Consumers have a hard time changing their behavior," King says. "In as much as large-scale organizations are able to boycott, then it could impact the state's revenue because it doesn't leave anything up to consumers. If an association that planned to hold a convention in Phoenix or Scottsdale decides to cancel that convention, then that decision is being made for consumers."

Arizona Isn't in a Position to Lose Business

In general, though, King says consumer boycotts tend to be more harmful to the images of targeted organizations, but they can still have an indirect, long-term effect on sales.

And Arizona isn't really in a position to lose any business. The real estate market in Phoenix was among the hardest hit in the wake of the housing bubble. Not to mention, two of its most significant revenue sources -- income taxes and sales taxes -- are down by one-third since they peaked in 2007. And they aren't expected to return to 2007 levels until 2015. After the economy cratered a couple years ago, Arizona also saw a steep decline in its hospitality business as corporations cut back on conventions and trade shows.

"Right now our messaging is pretty simple: We're encouraging people not to boycott Arizona," says Debbie Johnson, president and CEO of Arizona Hotel & Lodging Association. "It's going to harm the 200,000 people who work in the hospitality industry in the state. Arizona has already been hit very hard over the last two years. We're just trying to protect the workers in the middle of this political decision."

If the boycotts don't work, the state still may be vulnerable to a labor drain if immigrants leave as a result of the new law. As recently as 2008, the state was estimated to generate $2.4 billion in tax revenue from immigrants.

Impact of Hispanic Residents on State Could Be 'Huge'

"You have to imagine the impact of Hispanic residents on that state is huge," says Larry Chavis, an economist and assistant professor of strategy and entrepreneurship at the University of North Carolina Kenan-Flagler Business School. "If people decide to up and move that could be serious."

So what can Arizona to do to repair the damage?

"I'm not sure they can," says King. "It's hard to imagine how they can do effective PR given that so many people disagree with the policy and the perceived wrong is so clear."