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    Tuesday, November 29, 2005

    Another Valiant Defense of Wal-Mart

    Sebastian Mallaby for the Washington Post:

    There's a comic side to the anti-Wal-Mart campaign brewing in Maryland and across the country. Only by summoning up the most naive view of corporate behavior can the critics be shocked -- shocked! -- by the giant retailer's machinations. Wal-Mart is plotting to contain health costs! But isn't that what every company does in the face of medical inflation? Wal-Mart has a war room to defend its image! Well, yeah, it's up against a hostile campaign featuring billboards, newspaper ads and a critical documentary movie. Wal-Mart aims to enrich shareholders and put rivals out of business! Hello? What business doesn't do that?
    Wal-Mart's critics allege that the retailer is bad for poor Americans. This claim is backward: As Jason Furman of New York University puts it, Wal-Mart is "a progressive success story." Furman advised John "Benedict Arnold" Kerry in the 2004 campaign and has never received any payment from Wal-Mart; he is no corporate apologist. But he points out that Wal-Mart's discounting on food alone boosts the welfare of American shoppers by at least $50 billion a year. The savings are possibly five times that much if you count all of Wal-Mart's products.

    These gains are especially important to poor and moderate-income families. The average Wal-Mart customer earns $35,000 a year, compared with $50,000 at Target and $74,000 at Costco. Moreover, Wal-Mart's "every day low prices" make the biggest difference to the poor, since they spend a higher proportion of income on food and other basics. As a force for poverty relief, Wal-Mart's $200 billion-plus assistance to consumers may rival many federal programs. Those programs are better targeted at the needy, but they are dramatically smaller. Food stamps were worth $33 billion in 2005, and the earned-income tax credit was worth $40 billion.

    Set against these savings for consumers, Wal-Mart's alleged suppression of wages appears trivial. Arindrajit Dube of the University of California at Berkeley, a leading Wal-Mart critic, has calculated that the firm has caused a $4.7 billion annual loss of wages for workers in the retail sector. This number is disputed: Wal-Mart's pay and benefits can be made to look good or bad depending on which other firms you compare them to. When Wal-Mart opened a store in Glendale, Ariz., last year, it received 8,000 applications for 525 jobs, suggesting that not everyone believes the pay and benefits are unattractive.

    But let's say we accept Dube's calculation that retail workers take home $4.7 billion less per year because Wal-Mart has busted unions and generally been ruthless. That loss to workers would still be dwarfed by the $50 billion-plus that Wal-Mart consumers save on food, never mind the much larger sums that they save altogether. Indeed, Furman points out that the wage suppression is so small that even its "victims" may be better off. Retail workers may take home less pay, but their purchasing power probably still grows thanks to Wal-Mart's low prices. ...

    To be fair, the $4.7 billion of wage suppression in the retail sector excludes Wal-Mart's efforts to drive down wages at its suppliers. "Wal-Mart: The High Cost of Low Price," the new anti-Wal-Mart movie that's circulating among activist groups, has the requisite passage about Chinese workers getting pennies per day, sweating to keep Wal-Mart's shelves stocked with cheap clothing. But no study has shown whether Wal-Mart's tactics actually do suppress wages in China or elsewhere, and suppression seems unlikely in poor countries. The Chinese garment workers are mainly migrants from farms, where earnings are even worse than at Wal-Mart's subcontractors and where the labor is still more grueling.

    Wal-Mart's critics also paint the company as a parasite on taxpayers, because 5 percent of its workers are on Medicaid. Actually that's a typical level for large retail firms, and the national average for all firms is 4 percent. Moreover, it's ironic that Wal-Mart's enemies, who are mainly progressives, should even raise this issue. In the 1990s progressives argued loudly for the reform that allowed poor Americans to keep Medicaid benefits even if they had a job. Now that this policy is helping workers at Wal-Mart, progressives shouldn't blame the company. ...

    Companies like Wal-Mart are not run by saints. They can treat workers and competitors roughly. They may be poor stewards of the environment. When they break the law they must be punished. Wal-Mart is at the center of the globalized, technology-driven economy that's radically increased American inequality, so it's not surprising that it has critics. But globalization and business innovation are nonetheless the engines of progress; and if that sounds too abstract, think of the $200 billion-plus that Wal-Mart consumers gain annually. If critics prevent the firm from opening new branches, they will prevent ordinary families from sharing in those gains. Poor Americans will be chief among the casualties.


    Do I have to say it again? So-called "big-box" retailers not only employ more people than "mom and pop" businesses, they also tend to pay better wages and offer room for advancement. If you work at Mom N Pop Store, and you do your very best everyday for $5.25/hr, for ten years, you are still a cashier because you're not Mom or Pop. Walmart employees (like Starbucks, Best Buy, and all the other hated-ons) can be promoted: floor manager, shift manager, assistant manager, night manager, day manager, and sometimes up to corporate positions. The valedictorian of my mother's high school class didn't go to college, she started a family. She was divorced with no job experience and living in a tiny Midwestern town. All of a sudden, in comes Walmart, and she is now making a living, kids-raising wage at the Concessions manager. For poor, uneducated people, especially people of color, immigrants, senior citizens, and single mothers, Walmart and other such corporations offer a leg up and, in some cases, provide an opportunity for social mobility.

    From The Little Green Blog:

    What do Americans have against Wal-Mart? First stylized fact, Wal-Mart drives small local retailers (mom-and-pop joints) out of business. What do Americans expect? There are economies of scale in the retailing industry and a larger firm has a competitive advantage that it can and will use to provide goods at a lower price to customers while making higher profits than small, independent firms. If Americans really want the charm of their mom-and-pop stores, they should be willing to pay the premium. There are some markets in the US that have chosen to do that, particularly in New England and California.

    Second accusation of Wal-Mart is that it mistreats employees and blocks unionization. As far as the alleged abuses of the firm against its employees, one can deal with the situation in the appropriate manner, civil courts etc. As far as unionization goes, unions are not unambiguously good. True, they work to maintain certain standards in working conditions for employees etc. However, their affect on employment and productivity is still a much debated topic in the realm of Labor Economics. Most economists generally agree that unions decrease employment, but they often also find that unions are correlated with higher productivity. If unions lead to higher productivity, then Wal-Mart would be fool to block unionization and thus will sooner or later realize the error of its ways, assuming there is one. However, if unions lead to decreased employment, then it would be a loss to society. We could create an insider and outsider effect with union members enjoying higher standards of living, while many suffer from unemployment.


    I'd love people to go in and take a look at the people employed by the big corporations vs. the "mom n pop" operations. Let's take the NY example: Blockbuster vs. Kim's Video.

    I have a great number of friends who think Netflix, Blockbuster, and Hollywood Video are devil's spawn and will go way out of their way to rent movies at Kim's at St. Marks Place. I'll hand it to Kim's- I'm glad they exist because they have a great selection. However, it would certainly appear that Kim's is less likely to hire low-income people of color, favoring local NYU students who can deal with the extremely low hourly rate. Same with Alt.Coffee vs. the Starbucks just blocks away. In an economy like NY, where an estimated half of Black and 40% of Latino men are unemployed, I am happy to see that, when I shop at Kmart, I am being helped by those who might otherwise have no employment, whereas Kim's and Alt.Coffee and such are staffed by young hipsters supplementing their freelance writing and web design or whatever. These folks, when they graduate or get sick of the freelance life or make it big or something, have no reason to continue working for Kim's or Alt.Coffee, whereas retail and service jobs are, believe it or not, lifelong careers for some people. This may seem like a very New York phenomenon, but I have seen the same trend when I go back to Kansas and Colorado each year.

    I'm glad there seems to be this recent trend of sticking up for Walmart and other bastions of corporate power. The problem may be corporatism, but, as with most "-isms", pinning down the ones to blame is a complicated process.

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