Thursday, December 1, 2005

previous entry | main | next entry | TrackBack (0)

Wal-Mart is good for the poor

That's the basic conclusion of Jason Furman's essay "Wal-Mart: A Progressive Success Story" posted at the Center for American Progress website:

Productivity is the principal driver of economic progress. It is the only force that can make everyone better off: workers, consumers, and owners of capital. Wal-Mart has indisputably made a tremendous contribution to productivity. From its sophisticated inventory systems to its pricing innovations, Wal-Mart has blazed a path that numerous other retailers are now following, many of them vigorously competing with Wal-Mart. Today, Wal-Mart is the largest private employer in the country, the largest grocery store in the country, and the third largest pharmacy. Eight in ten Americans shop at Wal-Mart.

There is little dispute that Wal-Mart’s price reductions have benefited the 120 million American workers employed outside of the retail sector. Plausible estimates of the magnitude of the savings from Wal-Mart are enormous – a total of $263 billion in 2004, or $2,329 per household. Even if you grant that Wal-Mart hurts workers in the retail sector – and the evidence for this is far from clear – the magnitude of any potential harm is small in comparison. One
study, for example, found that the “Wal-Mart effect” lowered retail wages by $4.7 billion in 2000.

But Wal-Mart, like other retailers and employers of less-skilled workers, does not pay enough for a family to live the dignified life Americans have come to expect and demand. That is where a second progressive success story comes in: the transformation of our social safety net from a support for the indigent to a system to that makes work pay. In the 1990s, President Clinton fought for expansions in support for low-income workers, including a more generous Earned Income Tax Credit (EITC) and efforts to ensure that children did not lose their Medicaid if their parents took a low-paid job. The bulk of the benefits of these expansions go to the workers that receive them, not to the corporations that employ them.

Attempts to limit the spread of Wal-Mart and similar “big box” stores do not just limit the benefits of lower prices to moderate-income consumers, they also limit the job opportunities that Wal-Mart and other retailers provide. More puzzling is that some progressives have described Medicaid, food stamps, the EITC, and public housing assistance as “corporate welfare.” The right response to Wal-Mart is not to scale back these programs but to expand them in order to fulfill the goal of making work pay.

Read the whole thing. One quick cavil -- while Clinton deserves credit for the EITC's passage, I've always thought of the idea behind it as a conservative one.

Furman's analysis is of a piece with Global Insight's study of Wal-Mart's effect on the U.S. economy that was released last month:

Global Insight reviewed a wide range of previous studies that indicated that the efficiencies that Wal-Mart has fostered in the retail sector have led to lower prices for the U.S. consumer. These results were supported by statistical analysis which found that the expansion of Wal-Mart over the 1985 to 2004 period can be associated with a cumulative decline of 9.1% in food-at-home prices, a 4.2% decline in commodities (goods) prices, and a 3.1% decline in overall consumer prices as measured by the Consumer Price Index-All Items, which includes both goods and services.

The main driver of this impact was a 0.75% improvement in the overall efficiency of the economy. Increased capital intensity and lower import prices were secondary drivers. The 3.1% decline in the price level was partially offset by a 2.2% decline in nominal wages, so that the net effect was to increase real disposable income by 0.9% by 2004.

To be fair, Global Insight also invited outside papers, some of which are more critical of the Wal-Mart effect.

Needless to say, having John Kerry's principal economic advisor issue such a pronouncement has roiled other progressives. Matthew Yglesias has posted what looks like the most honest reply -- which is that the danger of Wal-Mart to progressives is not a question of economics but but politics. If Wal-Mart helps to weaken the power of unions, then it degrades one of the chief organzational pillars of the left.

posted by Dan on 12.01.05 at 10:31 AM


The visceral hatred of Walmart from certain quarters always comes across to me as snobbery and a kneejerk, juvenile anti-cooperate mentality.

posted by: Mark Buehner on 12.01.05 at 10:31 AM [permalink]

Some of the hostility to Wal-Mart originates not in any harm it does to workers, but in the harm it does to small-business owners. Many owners of businesses unable to compete with Wal-Mart's low prices and selection are prominent in their towns or neighborhoods. It is only natural that many of them do not take the destruction of their means of livelihood and foundation of their social status philosophically, regardless of whether Wal-Mart is a net positive for the people around them.

This is only an observation, not a prescription. I'm one who believes in adapting to change rather than fighting it, most of the time. But even beneficial economic change usually produces a considerable amount of pain. We would be wrong to look past that or attribute it solely to malevolence of any kind.

posted by: Zathras on 12.01.05 at 10:31 AM [permalink]

The other argument that I would want to look at is how Wal-Mart affects the poor specifically. Global Insight doesn't break out the WalMart effect specifically for that sector, instead looking at overall wages and overall prices of goods.

It seems likely to me that WalMart's strategy and tactics are increasing inequality in the US. Since the erosion of many basic social safety nets for the poor (Republicans right now are talking about cutting EITC, for example, along with food stamps and Medicaid), this seems very bad to me.

I'm willing to give up some amount of productivity for lower inequality, since that seems to be directly related to overall happiness.

posted by: brennan on 12.01.05 at 10:31 AM [permalink]

It is usually impossible to shop at Wal-Mart without a car. The business model of big box stores can only work as long as the price of gasoline does not offset the lower prices in these stores.

posted by: David Billington on 12.01.05 at 10:31 AM [permalink]

I like the commenter who suggests that buying a car made by nonunion workers is only one step up from buying one made by slaves. Actually, "like" isn't really the word; "am floored by the attitude of" captures it better.

posted by: cwp on 12.01.05 at 10:31 AM [permalink]

That the effect on retail wages is small is not surprising as about the only unionized area they have confronted are the supermarkets. While these have been hurt, unions as a whole should welcome them as they have made themselves a ripe target for unionization. It may take a decade, but eventually they will become unionized. It has been the small business person in competing areas that has borne the brunt of Walmart.

posted by: Lord on 12.01.05 at 10:31 AM [permalink]

Regarding the "Wal-Mart is bad for small business" fallacy --

Something like 20% of Wal-Mart's revenues come from small business, especially through its "Sam's Club" stores. How can you be selling to businesses that you've supposedly driven out of business?

posted by: KipEsquire on 12.01.05 at 10:31 AM [permalink]

What respect I had for Wal-Mart diminished when I dealt with their workers comp department (on behalf of health care providers).

Get your shoulder crushed at Wal-Mart? Hit the road, with minimal care.

And a month or so ago the Labor Dept IG announced Wal-mart had a sweetheart deal with Labor inspectors to avoid citation. Who is getting prosecuted for that one? No one.

No ethics, no respect.

posted by: save_the_rustbelt on 12.01.05 at 10:31 AM [permalink]

Sebastian Mallaby's great article in the Wash. Post from a few days back: "Progressive Wal-Mart, Really?"

posted by: P.H. on 12.01.05 at 10:31 AM [permalink]


Dan, I knew you were a DLC Democrat deep down in your heart...

posted by: RL on 12.01.05 at 10:31 AM [permalink]


The idea behind the EITC is a 1980s conservative program, and a new liberal one. Any program that is efficient in helping the poor, and is till work-based, will be one which increases public support for anti-poverty programs. So instead of welfare and public housing, conservatives said how about Section 8 and the EITC, and some nuveau liberals realized they might be good ideas.

Once they were relative success stories, they were a boon for liberals, as they reinforce the idea that the public sector can effectively fight poverty. As Yglesias and others have pointed out, conservatives first made government programs better, but then there was a big problem: people started liking the government, which anti-government conservatives don't like.

posted by: Joel on 12.01.05 at 10:31 AM [permalink]

"It seems likely to me that WalMart's strategy and tactics are increasing inequality in the US."

What does 'inequality' have to do with standard of living? Nothing. Does how many ferraris Bill Gates have change the way a poor individuals nutrition or schooling or healthcare affect him or her? Of course not. This inequality argument as always been about bringing down the rich, not building up the poor.

As far as the mom and pop argument goes: go check out you average mom and pop shop in an urban area. No I dont mean kischy little boutique next to Bloomingdales. Mom and pops places almost always suck. People dont abandon the place across the street to drive down to Walmart just for the .15 cents off a jar of peanut butter. They go because Walmart will actually have what they need, and probably a variety of choices. It will be nice and clean and orderly. The service will be good. Next time you need a bulb for a certain light fixture or a spark plug wrench or your favorite brand of salsa, boogie down to the mom and pops instead of Walmart of Home Depot. After half an hour of frustration the megastores will quickly seem like heaven.
It is worse than snobbery, it is paternalistic and authoritarian to presume to tell urbanites (especially poor ones) where they should and shouldnt be able to shop. Particularly when it inevitably well off busybodies who can afford to shop anywhere on the planet doing it.

posted by: Mark Buehner on 12.01.05 at 10:31 AM [permalink]

Walmart driving mom and pop shops out of business does have an effect beyond simple economics. At the same time, Walmart is simply the culmination of a decades long trend towards chains and larger stores. The mom and pop shops had been languishing for a long time.
I grew up in 70's and 80's in the midwest seven miles outside of a town of 5000. For kindergarden through fourth grade, I went to school in a tiny, unincorporated town even further out in the boonies that nonetheless had a butcher shop, a small grocery store, a post office, and an elementary school. They all closed in the 80's as people stopped thinking twice about driving ten miles into the town of 5000 to shop. In the past 15 years, the same trend has hit the town of 5000, first because people started driving 60 miles into a city of 200,000 for major shopping, and to a shopping center outside of town for groceries, clothes and hardware. Walmart came in 7 years ago and completed this trend.
There is no doubt that Walmart saves people money and offers them better variety as Mark says. But the community suffers. The mayor, the city council, the heads of the local civic organizations used to be small business owners, all of whom formed a tight community because all of their shops were on main street. There are fewer such business owners today and the sons and daughters of some of these former shop owners can only aspire to manage a fast food joint, a kwiki mart or a Walmart. Managing a chain store is not the same as being an entrepreneur and the town is deprived of talent. There has been a loss in sense of community and civic spirit.
Again, Walmart did not start this trend, the trend has its positive side, and there is no point in trying to turn back the tide in any case. But there is no reason either to scoff at mom and pop and refuse to recognize that something has been lost along the way.

posted by: Ken on 12.01.05 at 10:31 AM [permalink]

>The visceral hatred of Walmart from certain quarters always comes across to me as snobbery and a
>kneejerk, juvenile anti-cooperate mentality.

But you didn't counter that the haters were wrong.

Just kneejerking.

Since you didn't address why there is so much hate,
the folks doing the hate must have some damn good reasons.

ANY business that does not pay it's workers a living
wage should be shut down.

Why should one human get a living wage from another's
work who don't get a living wage?

Sounds like slavey to me. Slavery comes in all kinds
of shape and sizes.

But since market-force concepts are zero-sum, there's
no way in hell to have a fairly waged work force.

posted by: James on 12.01.05 at 10:31 AM [permalink]

When I read Barbara Ehenereich's book 'Nickel and Dimed', she spent one third of the book writing about her experiences at Wal Mart and largely attacking it. In another part of the story, she complains how expensive everything is and how hard it is survive on a minimum wage job. The possibility that Wal mart goods made items cheaper for poorer people seems to have escaped her.

I understand some of the reasons behind the attacks on Wal Mart (concern about globalization, a nostalgic view of mom-and-pol stores), yet overall (excluding some of the reports of hiring illegals, or discriminating against women) I find little to criticize. They are simply a business, a very efficient one, but a business nonetheless.

EITC: Despite attacks by right-wingers and the likes of Limbaugh calling him a socialist and a commie, Bill Clinton was generally a pretty centrist, fiscally conservative Democrat. He was generally pro-free trade, he disliked deficits, and he was willing to take up essentially conservative ideas (EITC or welfare reform) either out of political expediency or because he genuinely thought they would help.

posted by: erg on 12.01.05 at 10:31 AM [permalink]

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.

posted by: P.H. on 12.01.05 at 10:31 AM [permalink]

Wait just a minute before annointing Bill Clinton as the EITC savior. EITC enacted in 1975 was in reality a Nixon program along with the Community Development Block Grant program. How soon we forget!

posted by: j.perulfi on 12.01.05 at 10:31 AM [permalink]

For those interested a new NBER paper explores the impact of Walmart on local labor markets.

posted by: nmj on 12.01.05 at 10:31 AM [permalink]

"ANY business that does not pay it's workers a living
wage should be shut down."

Any business? Newspaper delivery boy? What pray is a living wage? Thats always been one of those silly nebulous phrases that sounds great in sound bites but could mean anything. Living, like survival? 1000 calories a day? Living as in 3 squares and a cot? Living as in a playstation and a Geo?

"Why should one human get a living wage from another's work who don't get a living wage?"

I dont understand what this means or what scenario you are talking about. Like why pay a 16 year old to bag groceries for gas money when instead you could leave him unemployed and have customers bag their own because its, er, stupid to pay a 16 year old 10$ an hour to put cans in a bag?

"Sounds like slavey to me. Slavery comes in all kinds of shape and sizes."

I agree. Anything less than 100k a year plus bennies is slavery. Lots of shapes and sizes. Power to the people. Lets set the minimum wage at 100k/year, surely that wont affect our unemployment rate. Right?

"But since market-force concepts are zero-sum, there's no way in hell to have a fairly waged work force."

Thats just plain idiotic. Were that remotely the case our economy wouldnt be growing at 4% now would it? How do you think jobs are created exactly? Government fiat? Tell you what, have a look at how European economies are fairing which are more in line with your ideals compared to the US. Germany and France in particular.

posted by: Mark Buehner on 12.01.05 at 10:31 AM [permalink]

Your homework is to go watch the Wal Mart movie and see if you can still support the Chinese sweatshop labor and 40% of employees on public assistance company....

posted by: donna on 12.01.05 at 10:31 AM [permalink]

WalMart hatred is an instinctive, visceral, reptilian-brain reaction against BIG. It's akin to US hatred or Yankee hatred. Big is bad. It's so damn predictable and mundane.

posted by: ckreiz on 12.01.05 at 10:31 AM [permalink]


In response to you question: "What does 'inequality' have to do with standard of living?"

You're right that standards of living don't mean much in terms of inequality. The latest sociology seems to suggest that the level of inequality is inversely proportional to happiness in society.

Since not many people are starving in the US, and basic needs for almost everybody are met, why not focus our policies on happiness rather than soulless consumption. After all, the founders talked about "Pursuit of happiness" not the pursuit of the possibility of ever bigger and better toys.

And I'm not arguing that we choke off all innovation, and give everyone the exact same amount of money, or anything else like that. Lets just pursue policies that will tend to make people happier, and keep the social safety net intact. Lowering inequality will do that.

posted by: brennan on 12.01.05 at 10:31 AM [permalink]

"Since not many people are starving in the US, and basic needs for almost everybody are met, why not focus our policies on happiness rather than soulless consumption."

Interesting thought, but it occurs to me you will be hard pressed to convince most Americans that there is a difference between happiness and soulless consumption. Most people think happiness is plasma screens and expensive cars.

"After all, the founders talked about "Pursuit of happiness" not the pursuit of the possibility of ever bigger and better toys."

Again, telling the two apart is problematic in our culture. What you are suggesting seems to require 'telling' people what should make them happy, by forcing it on them in a sense. Clearly that isnt what the founders intended. Recall that it is the 'pursuit' of happiness that is guaranteed, not its aquisition. From that point of view letting the market reign is the only viable solution, as no two people are likely to define happiness the same way.

posted by: Mark Buehner on 12.01.05 at 10:31 AM [permalink]

Let me get this straight. When companies (e.g., a gas station or Halliburton) charges too much, it's "price gouging." When they charge too little, (e.g. Wal-Mart) they're destroying the American Way of Life (AWL). Is that right?

posted by: adr on 12.01.05 at 10:31 AM [permalink]

How can you be selling to businesses that you've supposedly driven out of business?

It is the small businesses in competing areas, wholesale/retail largely, that have been driven out of business. It has been good for ones that don't compete with them such as entertainment and many service businesses.

posted by: Lord on 12.01.05 at 10:31 AM [permalink]


I'm referring to an increasingly strong economic/sociological research body.


for Max Sawicky's take on it. As for your comment that

"What you are suggesting seems to require 'telling' people what should make them happy, by forcing it on them in a sense."

I'm not telling people what they want to be happy, I'm referring to evaluating public policy explicitly by whether it will make people happier, not whether it will increase productivity and economic efficiency.

Right now people like Wal Mart because it is efficient and productive. As a disinterested observer (i.e. not owning stock), why should I care if Walmart is efficient and productive?

I do care whether its business models make people happier in an overall policy sense. It may be that its models of bringing cheaper goods may flatten inequality by making goods more available to poor people. I tend to be skeptical that that would offset the low wages. But I'm open to evidence.

That's why I phrased my post in the sense of seeking more information.

posted by: brennan on 12.01.05 at 10:31 AM [permalink]

I had always heard that the intellectual credit for EITC should go to Milton Friedman, who proposed it (under the name Negative Income Tax) back in the late 1960's.

posted by: dave on 12.01.05 at 10:31 AM [permalink]

Interesting, but i still have to go back to the root issue of whether it is governments job to craft policies to make people happy, or whether its governments job to ensure a fair playing field in which people can pursue happiness. Its a nontrivial distinction.
Knowing what we know about government in general, im deeply suspicious that it would be effective (much less efficient) at this goal, even if it should. That article refrencing Kahnemann doesnt mention some of the problems inherint in that quest, such as how the media and trends affect our perception of happiness, the fickleness of human beings in general, and perhaps most importantly whether government is at all suited to provide policy based on happiness in the first place. Government of all entities is most subject to the law of unintended consequences. Easterlin claims Americans were happiest in the mid-50s. Of course that was when divorce rates were low, most households had a parent at home, etc. It has largely been the driving force of increasing tax rates that have forced both parents from the home to work to maintain a similar style of living that have produced a great many social ills that certainly contribute to unhappiness. In other words, if we are working twice as much to remain where we were 50 years ago in order to pay the taxes the government raises to provide for our happiness, is that wise social policy?

posted by: Mark Buehner on 12.01.05 at 10:31 AM [permalink]

Corporate apologists are as equally annoying as the anti-corporate mob. I have little respect for any person who attacks or defends issues purely based upon their ideological point of view. Too often their arguments are much too pat. Our economy is based upon competition and competition is cutthroat, but our corporate, commercial, and labor laws demonstrate that competition and business practices have limits. In the context of WalMart, this issue is exceptionally complex.

WalMart does benefit the market place in certain sectors, and it can bring much needed capital to economically depressed communities through construction, employment and contractual obligations. At the same time, WalMart is a supremely negative force in other areas of the market place. WalMart poor compensation to its entry level employees and tax deals with local governments often results in taxpayers subsidizing the enterprise. The sheer volume of goods sold in WalMart give it leverage to force suppliers to lower their wholesale prices to WalMart as compared to other retailers. Suppliers will be blacklisted without a second thought if they do not agree to unfavorable terms.

The issues then are whether WalMart prices are true reflections of the costs of the goods, and whether these prices are related to corporate malfeasance. I do not know the answer to these questions but I suspect that the prices of the goods are not an accurate reflection of the true costs of the goods and I suspect corporate conduct is at the root of those prices. Whether the corporate conduct is illegal is a technical analysis that would require an extreme insight into information I do not have, but I will go so far as to say that it rises to unethical behavior and I choose to shop elsewhere until WalMart cleans up its act.

I also do not shop at WalMart for another reason. Even if I thought the corporate behavior was within the spectrum of reasonable and standard business practices, it is fundamentally a crap store.

Mark--I seriously question if you regularly shop at WalMart. WalMart does not have selection. It has volume. You may pick one of 3,000 bottles of salsa but generally it is one of two brands. They carry busloads of AA batteries but in fact do not carry a good assortment of specialized batteries for things like watches, calculators, and the like. You will certainly find a bike carrier for your car, but it will be the cheapest piece of crap you can find on the market.

Workers there do not have specialized knowledge of the products they service. My personal observation (and therefore not objective) is that the workers show low or indifferent morale. The same employee never helps me twice so I never develop relationships with them.

Produce, meat and dairy are more expensive at WalMart and WalMart does not try to compete in prices in its fresh food. They know you come for other items and will pay more just for the convenience of not making a second stop.

It is not orderly because I end up walking across the store to pick up items that are related to the goods I bought at the opposite end of the warehouse

It’s a crap store with lots and lots of crap. This is the reason, though, I am not concerned that WalMart will take over the world. Consumers are the most powerful force in the country; activists and corporate officers always underestimate them. I trust WalMart will be a less and less of a force for no other reason than it sucks.

posted by: travis on 12.01.05 at 10:31 AM [permalink]

Most people I know, save more money at Cosco (with better labor practices) than WalMart. And the money I have saved at Walmart was not much different than Target or K-Mart.

What kind of savings are people willing to sell their souls for? It seems that the savings are still pennies.

posted by: NeoDude on 12.01.05 at 10:31 AM [permalink]

I'm an upper middle-class 60-year-old male who grew up in the America of the corner drugstore, etc. I recall that the folks running those places always made lots more money than everybody else and had the biggest houses around. I also recall that a lot of them were serious assholes. Nobody ever talks about that. The kindly old druggist or dime-store owner is a myth. They were mostly nasty old money-grubbers, if the truth be known.

That's OK. It was capitalism in action. But now times have changed. I welcomed the spread of the first guys—the chain drugstores—and then all of the rest. If you're an American, how can you do otherwise? Choice! And at better prices. How can that be bad?

I rarely shop at Walmart. But I support them anywhere and everywhere they may turn up. Because we have a lot of lower-income people who need to save some bucks instead of donating their money to the Mercedes-driving "small town" businessman. Because it's the American way. Because it's un-American to pass laws in restraint of free trade, especially when they favor a special class.

I don't want shop-keepers to be a protected class in my country. If you think they should be, then change the Constitution. If you can't change the Constitution, then please refrain from passing stupid laws that will get laughed out of court, once legally tested. Don't spend my money trying to chase an idealized past. All you're doing is protecting the right of your kindly old shop-keeper to charge me twice what a chain store will for the same product.

If you don't like the way Walmart workers are treated, get out there and organize them. I will sympathize with you and support you. But while you're doing it, don't interfere with your fellow Americans' rights.

posted by: nixon did it on 12.01.05 at 10:31 AM [permalink]

The reason I don't like walmart is that they obstruct unionization so maliciously. By this date, I would have like to have imagined that forming a union was a pretty basic american right. That walmart doesn't respect that, gives consumers a pretty good reason to blacklist them.

posted by: peter on 12.01.05 at 10:31 AM [permalink]

Travis: "It’s a crap store with lots and lots of crap. This is the reason, though, I am not concerned that WalMart will take over the world."

WalMart parking lots are always full, Travis. Apparently a hundred million Americans disagree with you.

posted by: JohnDewey on 12.01.05 at 10:31 AM [permalink]

ATTENTION WAL-MART SHOPPERS!!!... Shame on you for trying to buy at lower prices!...
Hmmmmm? That just doesn't sound quite right??? The last I heard shopping was one of those things that Americans enjoy and if we find a bargain or two? That is all the better!...

posted by: Zsa Zsa on 12.01.05 at 10:31 AM [permalink]

MARTY (on tape) best web casinos agreed with him.

posted by: Kamryn Mattie on 12.01.05 at 10:31 AM [permalink]

Post a Comment:


Email Address:



Remember your info?