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March 05, 2005
Retail Stories
Don Boudreaux
What’s the best case that can be made that Wal-Mart destroys downtown – destroys Main Street – in ways that no one really likes?
The fact that people work and shop at Wal-Mart voluntarily makes this case a difficult one to argue. (I put aside here any abuses by Wal-Mart of eminent-domain or government regulatory powers. Such abuses are not central to the standard case repeated ad nauseam against Wal-Mart.) After all, if each consumer – having the choice between mom’n’pop stores on Main Street and Wal-Mart – chooses to shop at Wal-Mart, isn’t the demise of Main Street retailers the result of voluntary consumer choice and, hence, sufficient-enough evidence that consumers prefer Wal-Mart to Main Street mom’n’pops?
It’s a tempting conclusion – and probably a correct one. Nevertheless, this conclusion isn’t as unavoidable as it at first appears. Writing recently in the New York Times, Robert Reich explains why Wal-Mart’s success isn’t proof of Wal-Mart’s desirability. Here’s Reich:
The problem is, the choices we make in the market don't fully reflect our values as workers or as citizens. I didn't want our community bookstore in Cambridge, Mass., to close (as it did last fall) yet I still bought lots of books from Amazon.com. In addition, we may not see the larger bargain when our own job or community isn't directly at stake. I don't like what's happening to airline workers, but I still try for the cheapest fare I can get.
In other words, because our individual choices result in unintended consequences, we cannot conclude that these unintended consequences are ipso facto desirable. Being 'the results of human action but not of human design,' they are themselves, of course, unchosen.
Think of the prisoners’ dilemma. In that case, making the choice that is individually optimal produces an outcome that is undesirable – an outcome that, although produced by individuals’ voluntary and rational choices, would never itself be chosen by the individuals who made those choices.
So, too, with free-riding and public goods – which is what I think Reich hints at in his op-ed. It might be that every consumer in town prefers maintaining Main Street as it is even if doing so means paying higher prices for retail items. But no one person’s actions – either to continue patronizing higher-priced mom’n’pops or to take advantage of Wal-Mart’s lower prices – will have a significant effect in determining if Wal-Mart succeeds and Main Street is changed forever. So each person tries to free-ride off of the efforts of other consumers; each person shops at Wal-Mart hoping that enough other consumers will continue shopping on Main Street. Because every consumer reasons and acts this way, an undesirable outcome (the demise of Main Street mom’n’pops and the success of Wal-Mart) results from each of these same consumers’ individually rational, voluntary choices.
This possibility cannot be denied as a matter of logic.
But it can and should be dismissed as a basis for making policy. The reason is that it’s practically untestable, unverifiable. Note how easily this same argument can be made to reach the opposite conclusion about Wal-Mart and Main Street.
Suppose that Wal-Mart today is the only retailer in town, situated (as it typically is) on a large plot of land a few miles from downtown. Tomorrow, smaller rivals open up on Main Street. Further suppose that each consumer truly wants the Wal-Mart to remain open. (Perhaps consumers have become familiar and grown comfortable with Wal-Mart.) But although each consumer truly prefers that Wal-Mart survive, each consumer also chooses to patronize the more conveniently located downtown retailers. That is, each consumer tries to free-ride on what he hopes will be other consumers’ continued shopping at Wal-Mart. But with each consumer acting in this way – with almost all of them opting to enjoy the greater personal convenience of patronizing the close-in Main Street retailers rather than suffering the inconvenience of driving out to the Wal-Mart – the Main Street retailers prosper and the beloved Wal-Mart shuts down.
....
The fact is, it’s child’s play to tell such tales. Unless an outcomes is consciously chosen, it will always be possible to spin stories about how that unintended outcome is undesirable even to those people whose voluntary choices brought it about.
Of course, the sentiment of many people (including, I suspect, Robert Reich) is precisely to have outcomes chosen consciously – which means, chosen through the political process. But for a variety of reasons spelled out by public-choice scholars, choices made within political settings are far more likely than choices made in private-property-rights settings to result in outcomes that are generally undesirable.
Work by my brilliant young colleague Bryan Caplan is especially relevant here.
Posted by Don Boudreaux in The Economy | Permalink
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