Cafe Hayek

Wal-Mart Facts

A few days ago I sent this letter to the New Republic:

Jordan Stancil alleges that "rural Americans have seen their ownership of their communities hollowed out by relentless consolidation in the retail and financial sectors" ("It's the Wal-Marts, Stupid," April 18).  He laments that he and his fellow thirtysomethings from rural America are "the first generation of non-owners."  To support these claims, however, he offers only personal anecdotes and impressions.

Fortunately, economists Andrea Dean and Russell Sobel have investigated this oft-told tale using data.  Their findings cast serious doubt on the veracity of Mr. Stancil's allegations.  For example, Dean and Sobel find that the five U.S. states with the greatest number of Wal-Mart stores per-capita have a self-employment rate identical to the self-employment rate in the five states with the fewest Wal-Mart stores per-capita.  And in those states enjoying a high density of Wal-Marts, the number of businesses with nine or fewer employees is higher per-capita than in those states with a low-density of Wal-Marts.  Dean and Sobel conclude that "Wal-Mart has had no significant impact on the overall size and growth of U.S. small business activity."

Sincerely,
Donald J. Boudreaux

You can find the Dean-Sobel paper here; it's entitled "Has Wal-Mart Buried Mom-and-Pop?"

Always looking out for the little guy

You know how politicians are--always looking out for the little guy. Always ready to protect the little guy from the evil corporation. So why does Chicago only have one Wal-Mart? To protect workers from being exploited. You get two Wal-Marts and they're sure to drive down wages. So the government has to protect the workers. Doubt me? Read this story from the Chicago Tribune. The picture and headline at the top says most of it. But read the whole thing. It's a beautiful example of how politicians only care about the general good:

Sam Walton or Bono?

Michael Strong argues that Wal-Mart is one of the world's great forces for alleviating poverty.  He's correct.

Worstall on Wages in China

If I find time during the next few days, I'll address several of the excellent comments on my recent post on Wal-Mart and Slavery.  In the meantime, I mention also my suspicion that slave-labor is less likely than is free labor to be used according to each worker's comparative advantage.  If my suspicion is correct, the division of labor within industrial factories, and across different manufacturing industries, will be less productive when labor is enslaved than when it is free.

I also draw your attention to the insightful Tim Worstall's blog post that relates directly to this issue: slave owners don't raise their slave-workers' wages so significantly as this!

Wal-Mart and Slavery

In yesterday's New York Times, Andrew Grossman -- Executive Director of Wal-Mart Watch -- wrote the letter below in response to John Tierney's recent (and superb) argument that Wal-Mart lifts countless people out of poverty:

To the Editor:

Did John Tierney write “Shopping for a Nobel” tongue in cheek? Is he really claiming that there is no more effective antipoverty organization than Wal-Mart?

Drawing parallels between Wal-Mart, the corporate giant, and the Grameen Bank is beyond belief. The Grameen Bank creates wealth and capital and is about empowerment. Wal-Mart rents labor at the lowest possible price and discards people when they are done.

Wal-Mart has long tried to portray exploitation as efficiency, and now, according to Mr. Tierney, it deserves the Nobel Prize.

Yes, any wage is better than no wage, but to state that overseas factory workers have been lifted out of poverty is a fallacy.

It has been widely reported that workers abroad in Wal-Mart’s suppliers’ factories routinely experience forced labor, minimum-wage violations, maternity-leave violations, overtime pay violations and more.

We need to understand that suppliers overseas perpetuate inhumane conditions in an attempt to maintain the low prices that Wal-Mart demands.

Andrew Grossman
Exec. Director, Wal-Mart Watch
Washington, Oct. 18, 2006

Perhaps it's true that "[i]t has been widely reported that workers abroad in Wal-Mart’s suppliers’ factories routinely experience forced labor."  But the frequency of these reports no more proves their truth than do the frequency of reports of people being abducted by aliens from outer space prove that people really are frequently abducted by aliens from outer space.  Indeed, the plausibility of slaves producing manufactured goods for sale by Wal-Mart is just as implausible as the wackiest alien-abduction allegation.

Slaves simply are too unlikely to be good factory workers.  Put differently, the cost of monitoring an  enslaved workforce is likely way to high to make slavery an economically efficient means of producing modern consumer goods.

Suppose country X's workforce is enslaved.  The benefit of slavery to producers is the cheapness of the labor.  So with the cost that producers must pay for labor held below what it would be if the workforce were one of free men and women, producers will use relatively labor-intensive means of production.  But because modern manufactured goods generally have countless dimensions of quality, very few of which are cost-effectively observable by factory owners producing large quantities, the opportunities are great for slave workers to shirk in ways that reduce the quality of their output.

One way to reduce the magnitude of this problem is to substitute capital for labor -- to substitute machine power and skill for human power and skill.  With more tasks being done by machine, fewer opportunities exist for slave workers to degrade the outputs' quality through their shirking (or, even, through their intentional sabotage).  But the higher the capital-labor ratio,

(1) the greater is the opportunity for slave workers to sabotage expensive and complex factory machinery, and

(2) the lesser are the benefits to producers of slavery because these producers are using less labor than they would use if monitoring costs weren't so high (and, therefore, producers are buying and using much of the machinery that they would buy and use had they had to pay market wages for their workers).

These theoretical observations, of course, don't prove that Wal-Mart's suppliers aren't using slave labor.  But I find these observations sufficiently compelling so that, when combined with a recognition of how easy and tempting it is for Wal-Mart's enemies to make allegations unsupported by facts, I'm quite confident that Wal-Mart sells no goods produced by slave labor.

And recollecting credible reports of workers from China's countryside, and rural India, streaming into manufacturing centers for the sole purpose of seeking jobs in factories, my confidence that Wal-Mart sells no slave-made goods increases further.

Poor Chicago

Poor Chicago. A Wal-Mart finally opened there, right in the city. The Associate Press story is worth reading.  Here are the two highlights of the article.  The first is this summary from the article:

Self-professed "shopaholic" Julie Edwards arrived at Chicago's first Wal-Mart store two hours before its grand opening Wednesday -- and she wasn't alone.

Lines snaked around the mega-retailer's West Side building long before it opened, filled with residents excited to welcome the store, its bargains and its jobs to the area.

"I love this store," Edwards said. "It's about time we get nice stores in this neighborhood."

Bringing Wal-Mart to Chicago was a four-year journey that pitted unions and small business owners against politicians and activists eager to bring jobs to the city's economically depressed West Side.

Yes, it did pit unions against politicians. But it really pitted unions against consumers and potential employees. That's the unseen struggle that's going in the Wal-Mart debate.

The second highlight is the article's take on Wal-Mart's impact on jobs and wages.

More than 15,000 people applied for the 400 jobs at the new store, where an estimated 98 percent of workers live in the neighborhood, said store manager Ed Smith.

The store's opening comes two weeks to the day after aldermen failed to override Chicago Mayor Richard Daley's veto of the city's so-called "big-box ordinance."

The measure would have required large stores like Wal-Mart to pay workers at least $10 an hour -- plus $3 in fringe benefits -- by mid-2010. The rules would have applied only to companies with more than $1 billion in annual sales and stores of at least 90,000 square feet.

At the time, Wal-Mart officials cheered the measure's defeat, saying the aldermen who voted against it were supporting "valuable job opportunities and increased savings for the working families of Chicago."

On Wednesday, Smith said the lowest paid person at the store makes $7.25 an hour, and only two workers make that.

Daley and other opponents of the ordinance said it would have jeopardized the city's ability to draw and keep large retailers.

Residents like Edwards echoed the sentiments of many Wal-Mart supporters who said a job that pays minimum wage is better than no job at all.

"I want to see them make $10 an hour, but if they can't, at least they can make something," Edwards said. "They're creating jobs for our community."

FIFTEEN THOUSAND people applied for the 400 jobs. Only an econometrician unconstrained by economics could conclude that somehow the increase in demand for workers by Wal-Mart can somehow lower wages in the Chicago area. I'll stick with Julie Edwards's assessment.

Macaulay on Free Trade

Thomas Babington Macaulay (1800-1859) was a great champion of free markets and free trade.  He is the author of my favorite essay of all time: "Southey's Colloquies on Society."  Although written in 1830, this stunningly insightful essay's lessons remain relevant today.

In another essay ("Corn Laws") -- this one a speech delivered in Edinburgh in December 1845 as debate raged throughout Great Britain on whether or not to free that country's citizens of the tariffs that burdened their purchases of grain -- Macaulay spoke forcefully for free trade:

Two parties are ranged in battle array against each other.  There is the standard of monopoly.  Here is the standard of free trade; and by the standard of free trade I pledge myself to stand firmly.

(Here's a link to a site containing this essay; you have to scroll down about two-thirds of the way to find the essay.)

One of the most interesting passages from this essay is the one I paste below; it's almost as if Macaulay had seen ahead 154 years to the ignoramuses and greedy interest groups who coalesced in Seattle in December 1999 to riot against free trade.

They [the opponents of free trade] constantly tell us that the cry against the corn laws [protectionist tariffs that the British government put on grain in order artificially to increase the wealth of British landowners] has been raised by capitalists; that the capitalist wishes to enrich himself at the expense both of the landed gentry and of the working people; that every reduction of the price of food must be followed by a reduction of the wages of labour; and that, if bread should cost only half what it now costs, the peasant and the artisan would be sunk in wretchedness and degradation, and the only gainers would be the millowners and the money changers. It is not only by landowners, it is not only by Tories, that this nonsense has been talked. We have heard it from men of a very different class, from demagogues who wish to keep up the corn laws, merely in order that the corn laws may make the people miserable, and that misery may make the people turbulent. You know how assiduously those enemies of all order and all property have laboured to deceive the working man into a belief that cheap bread would be a curse to him. Nor have they always laboured in vain. You remember that once, even in this great and enlightened city, a public meeting called to consider the corn laws was disturbed by a deluded populace. Now, for my own part, whenever I hear bigots who are opposed to all reform, and anarchists who are bent on universal destruction, join in the same cry, I feel certain that it is an absurd and mischievous cry; and surely never was there a cry so absurd and mischievous as this cry against cheap loaves  [emphasis added].

Change "cheap loaves" to "cheap goods and services," and Macaulay's argument applies in full against both those who disparage the right of consumers freely to purchase imports and those who today hyperventilate in anger against Wal-Mart.

Wal-Mart and Middle-Class America

Richard Vedder, one of the outstanding economists at Ohio University and now visiting at the American Enterprise Institute, is co-author (with Bryan O'Keefe) of this op-ed in today's Washington Times.  Vedder and O'Keefe argue, sensibly, that Wal-Mart is no enemy of middle-class America; they point out that

there is enormous economic evidence that Wal-Mart's has helped poor and middle class consumers -- in fact, more than anybody else. Our own data analysis shows Wal-Mart is concentrated primarily in smaller, rural counties with a per capita income far lower than other retailers, like Costco. And, unlike the picture painted by labor activists, when the Wal-Mart moves in, good things happen. Looking at 25 small towns where Wal-Mart opened stores in 2002, we found employment growth was much stronger in "Wal-Mart communities" than in other areas.

Other academics have reached similar conclusions about Wal-Mart's positive effects for the poor and middle class. University of Missouri economist Emek Basker shows Wal-Mart's presence tends to lower prices by varying amounts, perhaps nearly 10 percent in the long run.

Respected Massachusetts Institute of Technology economist Jerry Hausman argues that consumer welfare gains are even larger than those estimated by Mr. Basker, probably in excess of 20 percent of sales. Jason Furman, former director of economic policy for John Kerry's presidential campaign, claims Wal-Mart's discounting on food alone boosts the welfare of American shoppers by at least $50 billion a year. These savings help poor and middle-class consumers disproportionately since they spend a greater percentage of their disposable income on food products. Wal-Mart's ability to help poor and middle-class consumers led Mr. Furman to dub the retailer a "progressive success story."

Going to the Wal-Mart for China

FLOW's Michael Strong explains Wal-Mart's role in lifting hundreds of thousands of Chinese people out of poverty.

Between 1990 and 2002 more than 174 million people escaped poverty in China, about 1.2 million per month. With an estimated $23 billion in Chinese exports in 2005 (out of a total of $713 billion in manufacturing exports), Wal-Mart might well be single-handedly responsible for bringing about 38,000 people out of poverty in China each month, about 460,000 per year.

There are estimates that 70 percent of Wal-Mart's products are made in China. One writer vividly suggests that "One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market."  Even without considering the $263 billion in consumer savings that Wal-Mart provides for low-income Americans, or the millions lifted out of poverty by Wal-Mart in other developing nations, it is unlikely that there is any single organization on the planet that alleviates poverty so effectively for so many people. Moreover, insofar as China's rapid manufacturing growth has been associated with a decline in its status as a global arms dealer, Wal-Mart has also done more than its share in contributing to global peace.

Morality vs. Reality

The Chicago City Council wants companies that operate in the Chicago area with more that a billion in sales and stores greater than 90,000 square feet to pay workers in those stores at least $10 an hour and provide $3 in benefits. The Chicago Sun-Times reports:

Target is putting plans to build three South Side stores "on hold" -- and making veiled threats to close existing Chicago stores -- if the City Council mandates wage and benefit standards for "big-box" retailers, African-American aldermen warned Thursday.

The saber-rattling is intensifying as the clock winds down toward a July 26 showdown vote on plans to make Chicago the nation's first major city to establish a "living wage" for stores with at least 90,000 square feet of space operated by retailers with $1 billion in sales.

Minneapolis-based Target becomes the second retailing giant to threaten to pull out of the lucrative Chicago market in a last-ditch effort to stop an ordinance championed by organized labor that breezed through the City Council's Finance Committee 15-6 and has attracted support from 33 aldermen.

Wal-Mart has threatened to cancel plans to build as many as 20 Chicago stores over the next five years if retailers are required to pay employees at least $10 an hour and $3 in benefits by July 1, 2010.

I like the words "threats" and "saber-rattling." They imply the whole thing is a morality play. The greedy retailers want to get away with low wages. The City Council stands up for the workers. They spar. They threaten. They counterpunch.

But that is not what is really happening. If the law passes, the question for Target and Wal-Mart will not be whether to carry out the "threats" they made. They will look and see whether it is still profitable to operate in the Chicago area. If it is not, it will appear as if they are carrying out their threat. If it is still profitable, it will appear as if they "backed down" and the Council called their bluff. But companies try and make profits. That's what they do. If you make it unprofitable for them to operate a store, they will close it down.

The best part of this story comes here:

Ald. Leslie Hairston (5th) said she has a letter of intent from Target to build a new store at Marquette and Stony Island in her ward. But the developer has told her the store is "on hold" and that Target may close existing Chicago stores if the big-box ordinance goes through.

Hairston called it little more than a scare tactic. And even if the threat turns out to be real, she's standing firm in support of organized labor.

"Wal-Mart and Target could pay their people a living wage. Then we wouldn't have this problem, and people could actually live on the money they made," Hairston said.

To Ald. Hairston, it's a question of morality, of blame. Hairston seems oblivious to the possibility that the opening and closing of stores depends on profitability.

Imagine a different world. A world where the City Council was blamed for the failure of Wal-Mart and Target to pay a decent wage. Here's how the story might read:

After years of disastrous decisions in running the public schools, it has become clear that Chicago's City Council has failed the children of the Chicago area. After attending these mediocre schools, many children of the city have inadequate skills to be successful in the labor market.

"Something must be done," declared Ald. Johnson. "If we had decent schools, we wouldn't have this problem and people could live on the money they made."

Johnson has proposed a bill that would require all Chicago City Council members and teachers and administrators in the Chicago school system to pay a special tax. The proceeds of the tax would help provide workers in the member's district with a living wage.

How much money would such a tax raise? Its main impact would be to discourage people from being members of the City Council and teachers and administrators in the Chicago school system. If somehow the revenue from this tax outweighed the higher taxes necessary to pay the salaries necessary to continue to staff the schools and the City Council, this would be a better way to help poor workers than taxing the employers who provide the jobs.

We could debate whether it's Wal-Mart's fault or Target's fault or the City Council's fault (or someone else's fault) as to why some workers in Chicago make less than $13 an hour including benefits. But the real question is how to help those workers, not how to punish the people you might think are at fault. Punishing retailers who then leave town is a very strange way to help the working poor.

Mayor Dailey seems to understand the dynamics:

Mayor Daley is taking the threat seriously. He has challenged aldermen who oppose Wal-Mart's 20-store expansion to describe how they would replace the 8,000 lost jobs.

Ah, a dose of reality. Much simpler to assume no jobs will be lost and that the impact of the law is to help workers at the expense of profits.

For the sake of the workers, I hope the ordinance gets overturned.

Who Can I Blame?

I've been out of town with limited computer access. Many thanks to Don for his active fingers and active mind.  One of my travels took me to Boston and Cambridge. To my disappointment, one of my favorite stores in Cambridge had closed after years of delightful shopping. Gone, I asked an employee of a nearby store? Yes, he said, gone. Who can I blame for this loss? So I composed the following haiku, no doubt influenced by the miasmas of the Boston area:

On Creative Destruction

My favorite store closed
Must be Wal-Mart's fault or due
To global warming

One of the virtues of this construction is its versatility. The first line could be any five syllable complaint: My knee is aching or Red Sox lose again or My basement's leaking or Wish I had more hair.

Can you feel the consolation?

What determines wages

What determines wages? Some say that a nation should strive to acquire high-paying jobs if it wants a high standard of living. In this view of the world, jobs are boxes that workers jump in and out of. Each box has a bar code that determines how much the job pays. The goal is to get a good box with a high wage attached to it.

An alternative view of the world is that the bar code is on the worker's forehead.  The worker gets scanned not the job.The wage depends not on the job title but on the skills of the worker.

This sounds like an irrelevant semantic distinction—after all, workers with lots of skills are in high-paying jobs. But I think the distinction keeps you from making errors of reasoning about the source of prosperity.

For example, the bar code-on-the-box view of wages worries about outsourcing and technological change because these often destroy high-paying jobs. The bar code-on-the-forehead view of wages (the one I think is correct) embraces outsourcing and technological change because they create wealth. The workers that are displaced will use their skills somewhere else.

In the box view of the world, Haiti can get rich by creating its own pharmaceutical industry because chemists are well-paid. In the forehead of the world, Haiti gets rich when its people acquire knowledge.

I was thinking about this listening to a podcast by Douglas Baird on Coase's theory of the firm. (I'm halfway through it and really enjoying it other than Baird's aside  describing the Coase Theorem.)

Baird points out that one of the obsessions of Henry Ford was to improve the precision of the parts of a car sufficiently so that unskilled people could assemble a car. When the parts were not machined precisely, there was a highly skilled highly paid worker called a fitter who was able to get the imperfect pieces to mesh. 

So was better precision a good thing or a bad thing? In the box view of the world, it was bad. America lost the high-paying jobs, the jobs for fitters. But in the forehead view of the world, the world where wages depend on human capital (skill, knowledge and knowhow), Ford's improvement was good for the world. By finding a more efficient way to make cars, wealth was created. The people who were once fitters went on to do new things, new things that were possible partly because people now had more resources available that were once spent on assembling cars.

In the box view of the world, another reason that Ford's innovation was bad was that it created a lot of unskilled jobs, the jobs on the assembly line that paid less than the fitter jobs. But in fact, Ford increased the demand for low-skilled workers, so if anything, those workers also benefited.

The box view of the world thinks the existence of Wal-Mart impoverishes America because it causes the creation of low-paying jobs. In fact, Wal-Mart is good for low-skilled workers because Wal-Mart, just like Ford, has found a way for low-skilled workers to be productive in a profit-making enterprise. That increases the demand for low-skilled workers and makes them better off.

McGovern on Corporate Responsibility

In this LA Times op-ed (HT: It Shines For All), George McGovern takes labor union leaders to task for demonizing Wal-Mart and other unproductive strategies:

I understand the attraction of asking business — the perceived "deep pockets" — to shoulder more of the responsibility for social welfare. But there are plenty of businesses that don't have deep pockets. And many large corporations operate with razor-thin profit margins as competitors, both foreign and domestic, strive to attract consumers by offering lower prices.

The current frenzy over Wal-Mart is instructive. Its size is unprecedented. Yet for all its billions in profit, it still amounts to less than four cents on the dollar. Raise the cost of employing people, and the company will eliminate jobs. Its business model only works on low prices, which require low labor costs. Whether that is fair or not is a debate for another time. It is instructive, however, that consumers continue to enjoy these low prices and that thousands of applicants continue to apply for those jobs.

Maryland recently passed a law aimed at requiring Wal-Mart to spend more on health insurance. This is an extremely flawed path to healthcare reform. We need universal coverage, not piecemeal legislation designed to punish companies because they operate differently than their competitors.

The fact is, demanding more from business based on sales or the number of employees is not always the best way to achieve a just result.

I would have said "never" instead of "not always" in that last sentence. But who's complaining. This is the second "pro-business" piece I've seen by McGovern. The first was written years ago after he had been running a business and found the regulatory requirements to be rather onerous. And of course it's not really "pro-business," a label I despise when applied to thing I write. It's just anti-anti-business, which is really not the same thing at all.

Wal-Mart's Benefits

This new NBER paper, by Jerry Hausman and Ephriam Leibtag, finds that big-box retailers such as Wal-Mart bring enormous benefits to consumers -- and especially to low-income consumers.  Here's the abstract:

Consumers often benefit from increased competition in differentiated product settings. In this paper we consider consumer benefits from increased competition in a differentiated product setting: the spread of non-traditional retail outlets. In this paper we estimate consumer benefits from supercenter entry and expansion into markets for food. We estimate a discrete choice model for household shopping choice of supercenters and traditional outlets for food. We have panel data for households so we can follow their shopping patterns over time and allow for a fixed effect in their shopping behavior. We find the benefits to be substantial, both in terms of food expenditure and in terms of overall consumer expenditure. Low income households benefit the most.

Who'd a'thunk it?

(Hat tip to Karol.)

The Wages of Wal-Mart

Julian Simon taught me the importance of putting your money where your mouth is.  Anyone who does so is much more likely than are those who don’t really to believe what he or she says.

Consider the current antipathy for Wal-Mart.  A typical example is this letter in today’s New York Times:

"The Good Goliath" (column, Nov. 29), John Tierney's defense of Wal-Mart, misses the point. Nobody denies that Wal-Mart offers low prices to consumers. What opponents of Wal-Mart's practices argue is that the social good of low prices must be balanced against other important values.

Putting our children to work in factories would cut costs to consumers, but we all believe that this is morally unacceptable and would hurt our country in the long run.

In the same way, many of us believe that Americans working hard at full-time jobs should not be receiving wages that keep them living in poverty without health care.

James Dawes

Careful reading of this letter reveals all manner of implicit assumptions – such as that employers (rather, than, say, neighbors or charitable institutions) have the chief moral responsibility of providing philanthropic assistance to people who have jobs.

But the most interesting assumption is that Wal-Mart can afford to pay higher wages.  This assumption, in turn, implies one of two deeper assumptions.

The most likely deeper assumption is that Wal-Mart’s failure to pay higher wages and fringes is born of that company’s greed.  This assumption, in turn, implies that Wal-Mart is earning profits that it doesn’t need (“rents”) – returns that it or its shareholders can do without.  It would be out of these super-normal profits that higher wages and fringe benefits are paid.

The alternative deeper assumption is that Wal-Mart is charging consumers prices that are too low – prices that, if they were raised, would increase Wal-Mart’s profits and, thereby, enable it to pay higher wages.

Because Wal-Mart is not protected by government from the competition of other retailers for its customers, or from the competition of other firms for its workers, the throngs of people who complain that Wal-Mart is paying its workers too little should also believe that an enormous profit opportunity is theirs for the taking.  Here’s why.

Suppose that deeper-assumption one is true – that is, Wal-Mart is earning above-normal profits, principally by underpaying its workers.  Well wow!  What an opportunity to enter the market in competition with Wal-Mart.  A new, rival retailer can match Wal-Mart’s low prices while at the same time offer higher pay-packages to workers.  Wal-Mart will have to raise its employees' pay to avoid losing its entire work force, or it’ll go bankrupt.  (For a somewhat different angle on what he calls "the fallacy of affordability," see Russ Roberts's post here.)

Alternatively, suppose that deeper-assumption two is true – that is, Wal-Mart could, if it would only do so, raise its prices, earn higher profits, and use some of these higher profits to fund the payment of higher wages.  Were this situation in fact the case, it would imply that Wal-Mart is currently failing to maximize its profits.

Here, too, entry by a new rival would be profitable, for Wal-Mart is here assumed to be an especially inept operation.  Such a buffoon of a business surely can be out-competed by persons of even moderate intelligence and perception.  (Of course, Wal-Mart is correctly and widely regarded as a profit-hungry, highly skilled operation that quickly and fully exploits all available opportunities for profit open to it.  Thus, this deeper-assumption two would, quite sensibly, be rejected by everyone upon realizing its full implications.)

Regardless of which of these two deeper assumptions motivates the allegation that Wal-Mart “can afford” to pay higher wages and fringes, those who make this allegation – if they genuinely believe it to be true – should immediately open their own retail stores in competition with Wal-Mart.  If they are correct, they’ll improve not only workers’ welfare and raise their own net worth; their involvement in running a commercial enterprise will spare us all their shrill complaints about Wal-Mart.

Sad Day

We have a lot of work to do.  More than half of those polled in a Zogby International poll think Wal-Mart is bad for America.  Reuters reports:

Some 56 percent of U.S. consumers think Wal-Mart Stores Inc. is bad for America, according to a Zogby International poll released on Thursday by one of the retailer's most vocal critics.

The national poll -- commissioned by WakeUpWalMart.com, a union-funded group that has been pressuring Wal-Mart to raise employee wages and benefits -- surveyed 1,012 randomly chosen adults on their attitudes toward the world biggest retailer.

Respondents were asked to choose which of two statements more closely fit their personal opinions.

The majority, or 56 percent, picked: "I believe that Wal-Mart is bad for America. It may provide low prices, but these prices come with a high moral and economic cost for consumers." Thirty-nine percent agreed that "Wal-Mart is good for America. It provides low prices and saves consumers money every day."

My hat is off to the unions and Wal-Mart's competitors.  Through a relentless media campaign, they have achieved something I would have thought nearly impossible.  They have managed to convince a majority of Americans (assuming the poll is well done) that a company that has lowered prices throughout the retail sector, employs a million people and that has created tremendous wealth through the innovative use of technology is actually a bad thing.  Lenin must be laughing in his grave.  Bastiat and the rest of us can only cry.

(HT: Drudge)

The Wal-Mart Tip Jar

I've been writing recently (here and here) about how we don't want Wal-Mart and Exxon and other corporations to share the burden during a catastrophe by holding prices below the market price or by paying employees more than the market wage.  As appealing as it is for businesses to act with kindness by altering prices and wages, it is actually destructive to ask buisinesses to be loving.  It is better for businesses to do what they do best (use information, creativity and capital to create wealth) and leave families and charities to do what they do best.  Asking businesses to be loving makes no more sense than charging my brother rent when he comes to visit for Thanksgiving.

But what can we do to help the underpaid Wal-Mart worker?  So many people are telling us how underpaid and overworked they are.  How strange that those who would help the Wal-Mart worker do so by NOT shopping there!  How strange it is that those who would help the Wal-Mart worker want fewer Wal-Marts built, reducing the demand for such workers temporarily or for even longer!  Is there a better way?

My idea is to create an organization that would go around the country putting special tip-jars by the cash registers at the check-out stations of every Wal-Mart.  In front of these jars would be a sign, saying something like this:

Hello!  We are the employees of Wal-Mart.  We earn less than the national average and only about half of us have health insurance.  Can you do your part to help us make ends meet?  Especially if you make more than we do, please consider a generous donation.  Thank you!  And thank you for shopping at Wal-Mart!

Would you give?  Many would, just as they give now to charities at the cash register that collect money for the poor and hungry.  Why not give something to the poor wretch standing right there before you, kindly ringing up your order?

Do you see the beauty of the tip jar?  Instead of asking the stockholders of Wal-Mart to give something back of those profits they could be sharing more lovingly, ask the customers!  After all, it is we the customers who foolishly think we're getting a bargain and not realizing all the hardship such selfishness creates.  The tip jar allows the customers to give something back.  Surely, with such low prices, we can afford to give something back.

It'll probably never happen.  But just thinking about the tip jar gets at the heart of the flaw behind all those who villify Wal-Mart for exploiting its workers.

The people who work at Wal-Mart show up for work of their own free will.

I know it's hard to believe.   But Wal-Mart employees work there voluntarily.  About a million every day.  A million every day!  Incredible.  And when Wal-Mart opens a new store, people throng the doors for the opportunity to work there.

Why?  Why would people line up to be exploited?  Two answers come to mind.  The first is these pitiful fools don't know any better.  They actually think it's a good idea to work at a large, profitable corporation that exploits them paying them low wages with meager benefits.  The second possibility is that for most or all of the people who work at Wal-Mart, working there is actually a good deal.  Working there is as good or better than their next best alternative.  There may actually be a few who actually believe that it's a good idea to work at a  profitable corporation because it raises the odds that your job will still be there tomorrow.

How would these workers feel about the tip jar?  Would they be grateful for the helping hand?  Or is it possible that they might find it a tad insulting, a tad condescending, a tad patronizing?  How many of those million Wal-Mart employees are actually proud to work there?

A reporter once told me how sorry she felt for Wal-Mart workers because they were treated like slaves.  Yes, I agreed, the hardest part of the job is lugging the ball and chain out to the car at the end of the day.

But it turns out that they actually choose to work there.  There is no ball and chain.  How can this be?

When Sam Walton was alive, whenever I shopped at Wal-Mart, I'd ask the cashier if she liked her job.  Invariably, she would say yes and I would marvel at Walton's ability to create enthusiasm through such a large organization.

Now where I live, the Wal-Mart is far away.  (Thank you Montgomery County politicians for making it so hard for me to exploit those poor workers at Super Wal-Mart!)  So I don't get there often.  The next time you're in a Wal-Mart, ask the cashier if she likes her job.  And whether she says yes or no, give her a ten or twenty-dollar bill as your way of giving something back, your way of saying you're sorry for shopping where the prices are low as a result of her sweat and sweatshop wages, your way of brightening her day until the tip jar shows up.  How do you think she would respond?

For economics students:  If the tip jar actually did happen and people gave generously, would Wal-Mart employees be better off?

Progressive Wal-Mart

In a quest for truth, the Washington Post's Sebastian Mallaby becomes persona non grata at chic Washington Dinner parties by making the case (rr)  that Wal-Mart is actually good for poor people:

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.

Mallaby also gives a lovely answer to those who complain that Wal-Mart encourages its employees to apply for government health care programs.  First, he explains that this is what you'd expect of a business:

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?

But then, having teed up the ball, Mallaby proceeds to drive it out of sight:

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. Besides, many progressives favor a national health system. In other words, they attack Wal-Mart for having 5 percent of its workers receive health care courtesy of taxpayers when the policy that they support would increase that share to 100 percent.

Brilliant.  I will try and track down the source for his claims about the percentage of workers on Medicaid.

Here is an earlier post on whether Wal-Mart should treat its workers better.

Here's another on Wal-Mart wages.