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Commentary

Saying “No” to Wal-Mart and Hurting Shoppers


     
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As the holiday shopping season begins, the San Diego City Council has unfortunately decided to play the role of the Grinch, adopting an ordinance last week that will vastly reduce consumer choice and greatly increase retail prices. Joining several other large cities, the City Council took the first steps in approving an ordinance specifically targeted at Wal-Mart. If adopted, it would have the practical effect of banning America's largest retail enterprise from the city.

While the ordinance will be vetoed by Mayor Jerry Sanders, there is an excellent chance the City Council will override the veto. This is a continuation of a national campaign led by a variety of groups, including several labor unions that have been unable to organize Wal-Mart workers.

Why are policies like those in San Diego being adopted? We are told that Wal-Mart pays its workers substandard wages and fails to provide health care benefits. Additionally, we learn from the critics that Wal-Mart costs jobs, directly by adversely affecting competing stores, and indirectly by aggressively purchasing foreign-made (especially Chinese) goods. Others add it destroys downtowns, enhances urban sprawl, promotes poverty and uproots communities. Wal-Mart workers often are welfare recipients, we learn, burdening taxpayers. Recently, at a forum on Wal-Mart at the University of Connecticut, I even heard a San Diego law professor claim that Wal-Mart is bad for women's health.

We have spent the last year researching these claims, and say: bah, humbug. It just is not true. Indeed, we go further and say that Wal-Mart founder Sam Walton was the quintessential American success story, and, with the help of many associates and investors, the company he founded has arguably done more to help ordinary Americans, especially the poor and disadvantaged, than any other institution in our society.

A few cases in point:

  • Wal-Mart's “every day low prices” have meant gains in consumer welfare to Americans, valued conservatively in the tens of billions of dollars annually;
  • Wal-Mart has raised the real income of Americans significantly, largely because of its major positive impact on labor productivity;
  • Wal-Mart has particularly served the poor, locating stores mostly in below-average income areas and providing jobs to unskilled workers of modest means;
  • Wal-Mart's wages are in line with those prevailing in retail trade; high levels of stock ownership distinguish Wal-Mart workers from those at competitive firms;
  • While slightly less than one-half of employees directly receive company-subsidized health insurance, the overwhelming proportion have some form of insurance protection (e.g., through spousal plans, Medicare);
  • Employment in communities is far more likely to rise than fall after Wal-Mart comes to town;
  • Wal-Mart is not a dominant reason for the growth in American imports, but globalization has been accompanied by rising income and employment for Americans.

Wal-Mart is big because people like it. Sam Walton found a better way to control inventory and distribution costs, pioneered bringing so-called big-box stores to small-town America, motivated employees to excel with stock ownership, eliminated expensive wholesaling intermediaries, and created other innovations reducing the margin between the manufacturer's price and what consumers pay. His competitors have imitated these innovations and added some of their own, improving lives of millions of Americans.

The criticism of Wal-Mart follows a rich American tradition of attacking new retail innovations. More than a century ago, some people were concerned that the mail-order catalogs of Sears, Roebuck & Co. and Montgomery Ward were destroying local retailing, and in the 1930s small store owners lobbied successfully in many states and nationally for legislation ostensibly outlawing price discrimination, but in reality trying to remove the advantages that chain grocery stores such as A&P had over inefficient small neighborhood groceries.

The “creative destruction” that Joseph Schumpeter said was an engine of capitalism has led to constant rises and falls of modes of retailing. Woolworth and W.T. Grant variety stores lost out to Kmart and Wal-Mart. Perhaps Wal-Mart is starting to lose market share to Internet retailers such as Amazon.com and eBay. Change is progress.

As the San Diego action shows, the critics want to regulate and legislate Wal-Mart out of business – by, among other things, imposing anti-big-box zoning laws or high minimum wage or insurance requirements on very large retailers. While some of these critics are sincere, others are self-interested groups trying to stifle competition, most notably, unions representing grocery workers.

Productivity per worker rose nearly 8 percent annually from 1987 to 2004 in the big-box retail segment represented by Wal-Mart, compared with a paltry 0.2 percent in grocery stores. It's no wonder that Wal-Mart is now America's largest seller of groceries.

Shop until you drop this Christmas at the store of your choice, and be thankful that Americans outside San Diego have Wal-Mart as one of their options.


Richard K. Vedder is a Senior Fellow at the Independent Institute in Oakland, Calif., Distinguished Professor of Economics at Ohio University, and co-author (with Lowell Gallaway) of the award-winning Institute book, Out of Work: Unemployment and Government in Twentieth-Century America.

Can Teachers Own Their Own Schools?From Richard K. Vedder
CAN TEACHERS OWN THEIR OWN SCHOOLS? New Strategies for Educational Excellence
In Can Teachers Own Their Own Schools?, Richard Vedder examines the economics, history, and politics of education and argues that public schools should be privatized. Privatized public schools would benefit from competition, market discipline, and the incentives essential to produce cost-effective, educational quality, and attract the additional funding and expertise needed to revolutionize school systems. Learn More »»






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