Saturday, November 05, 2005

DUELLING STUDIES ON WAL-MART

AND THE RACE TO THE BOTTOM

We have two reports on the economic impacts of Wal-Mart today, one from AP via Breitbart and another treatment from FoxNews:

http://www.breitbart.com/news/2005/11/04/051104175027.waok0hd4.html

http://www.foxnews.com/story/0,2933,174592,00.html

The reports rely on studies from both admirers and detractors of the gigantic retailer and its business model. No one can dispute the success of that model: The first Wal-Mart opened in Rogers, Arkansas 43 years ago. Today, Wal-Mart employs almost a full percent of America's workforce.

What's debated is whether this is good or bad. Wal-Mart's model matches rock-bottom prices with a bare-bones atmosphere and a compensation package some think irresponsibly paltry. Critics claim, as Fox reports, "that its devotion to low prices ends up hurting the economy as profit-pinched suppliers shift jobs overseas to meet Wal-Mart's rigorous pricing requirements."

Macroeconomically, it's agreed Wal-Mart has depressed overall prices approximately 3.1%, whereas it has similarly depressed wages 2.2%. At the same time, Wal-Mart is thought to put considerable strain on public services. According to Tracy Sefl, spokeswoman for Wal-Mart Watch, a leading critic of the company, her group's research, based on data from congressional reports, concludes that Wal-Mart benefits from at least 1.5 billion dollars in public subsidies each year. Additionally, Sefl noted other reports showing that nearly half of the children of Wal-Mart employees qualify for the government's Medicaid health program for the needy.

What does it mean to Joe Averageman?

That 1.5 billion in "subsidies," unspecified, could be anything: Boeing got subsidies to NOT MOVE the Dreamliner project out of the Puget Sound region... Corporate welfare is an equal opportunity pork barrel. And how many of those "Medicaid kids" would be in the same boat without Wal-Mart we cannot say.

Fox related last week the average wage in the US is around $16.40 an hour. If we assume $16, Wal-Mart has cost that average worker about 35 cents an hour.

On the other hand, there is that 3.1% price decrease. Common sense says that effect will be more pronounced in markets where Wal-Mart is competitive: You should expect a greater retardation of the price of cookware than lumber. Broad category data provided by AP is supportative:

"over the 1985-2004 period, Wal-Mart led to to 9.1 percent decline in food prices, a 4.2 percent decline in prices of other goods and a 3.1 percent decline in overall consumer prices."

So it probably depends on how you spend your money.

I live in a Wal-Mart town, and I'll keep personal anectdotes out of the discussion. I don't shop there much, but their parking lot is usually busy. When they first came to My Little Town, they told the Town Fathers that 125 million dollars in retail sales were leaving the county and they could "keep" 75 million of it "at home." Smaller businesses, already on thin ice, feared the worst, and some are gone now.

Still, there is one kind of race even the winner loses: The race to the bottom. Just as you can't conserve your way to plenty or save your way to riches, there is an end to how far the cost-cutter's tricks can stretch. You must have resources to conserve and money to save.

When everyone reaches the bottom, there will be neither. I just wonder if Wal-Mart will see the bottom before they hit it.

Comments:
Both articles have one thing in common. A string of stats with no real conclusion possible. The question in my mind is whether or not an economy that seems to only work by perpetuating the under class is moral or even workable in the long run. I tend to think that sacrificing the many for the comfort of the few is inexusable.
 
I admit to having several conflicting views on this issue. The first, is that Nature (and Economics) abhors a vacuum, and if Sam Walton hadn't invented Wal-Mart, someone else would have.
As far as forcing suppliers to move off-shore to meet their low price demands, you can hardly blame Walmart for that. Most, if not all, of the suppliers would have done that with or without W.
My own employer moved manufacturing to Asia in the late 90's. We found that while labor costs were lower, cost of transport were higher, and the two washed. Where we saved an increadible amount of money was the taxes we used to pay for importing components. In Asia we pay not import taxes, one export tax on the finished good, and one tax to import it into the states. We cut our total per unit cost in HALF. This has enabled us to constatnly improve out product, without raising the price, even with inflation. Not Walmarts doing, it was the Federal Government that forced us out.
As far as a rush to the bottom, KMart was fighting Walmart for that, and lost. Dollar Stores (and their style) go one better. Liquidation stores are fairly common. And Ebay does HUGE business. At the other end, Nordstroms, for instance does very well with a high end model.
We do live in an increasingly stratified society, with an increasingly shrinking middle class, which is unsustainable in a free society. Walmart is not the cause, they are an effect.
 
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