Interesting op-ed piece in the New York Times defending Wal-Mart’s labor practices, suggesting that Wal-Mart actually has improved national productivity figures and has, through its low prices, made it possible for more people to buy more stuff – which is good for the economy in general.
The article’s authors, Pankaj Ghemawat (a Harvard professor of business administration) and Ken A. Mark (a Toronto-based business consultant), argue that the impact on productivity and the economy actually goes beyond Wal-Mart’s walls, because its policies force its competition to be more productive and to have lower prices.
They write: “These kinds of savings to customers far exceed the costs that Wal-Mart supposedly imposes on society by securing subsidies, destroying jobs in competing stores, driving employees toward public welfare systems and creating urban sprawl. Even if these offenses could all be ascribed to Wal-Mart, their costs wouldn't add up to anything like $16 billion.”
And: “The savings to customers also exceed the total surplus the company generates for its shareholders - a surplus that would be wiped out if Wal-Mart's million-plus employees were to receive a $2-per-hour pay increase, modest though that sounds. Such a possibility would be unacceptable to Wal-Mart's shareholders, who include not only Sam Walton's heirs but also the millions of Americans who invest in mutual funds and pension plans. Instead, the more than 100 million Americans who shop at Wal-Mart would most likely just end up paying higher prices.”
And that probably wouldn’t be a good thing for many Wal-Mart shoppers, who “tend to be the Americans who need the most help…without the much-maligned Wal-Mart, the rural poor, in particular, would pay several percentage points more for the food and other merchandise that after housing is their largest household expense.”
The article’s authors, Pankaj Ghemawat (a Harvard professor of business administration) and Ken A. Mark (a Toronto-based business consultant), argue that the impact on productivity and the economy actually goes beyond Wal-Mart’s walls, because its policies force its competition to be more productive and to have lower prices.
They write: “These kinds of savings to customers far exceed the costs that Wal-Mart supposedly imposes on society by securing subsidies, destroying jobs in competing stores, driving employees toward public welfare systems and creating urban sprawl. Even if these offenses could all be ascribed to Wal-Mart, their costs wouldn't add up to anything like $16 billion.”
And: “The savings to customers also exceed the total surplus the company generates for its shareholders - a surplus that would be wiped out if Wal-Mart's million-plus employees were to receive a $2-per-hour pay increase, modest though that sounds. Such a possibility would be unacceptable to Wal-Mart's shareholders, who include not only Sam Walton's heirs but also the millions of Americans who invest in mutual funds and pension plans. Instead, the more than 100 million Americans who shop at Wal-Mart would most likely just end up paying higher prices.”
And that probably wouldn’t be a good thing for many Wal-Mart shoppers, who “tend to be the Americans who need the most help…without the much-maligned Wal-Mart, the rural poor, in particular, would pay several percentage points more for the food and other merchandise that after housing is their largest household expense.”
- KC's View:
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All legitimate points.
The questions we tend to ask about Wal-Mart aren’t about the levels of productivity that it achieves, nor about its ability to sell more stuff cheaper to more people who otherwise might not be able to afford such purchases.
We tend to worry more about the homogenization of American retailing, which is something that Wal-Mart contributes to (though it is hardly the only company that can be accused of lowest-common-denominator retailing). We worry about the cultural impact of one company having so much power and potential sway over what gets published and produced. And sure, we worry about the impact that it has on other, smaller retailers around the country – though we hope we consistently make clear that many of these retailers bear more than a little responsibility for their victimization because they, in fact, have acted like victims.
And despite the arguments made by the guys from Harvard and Toronto (we wonder, by the way, if either has ever received funding from a certain Bentonville-based company), it seems to us that there is an inherent economic problem if Wal-Mart pays people just enough money so that they can only afford to shop at Wal-Mart…and then other companies mimic this approach. There’s probably nothing illegal about it, but we can’t help but think that there could be economic implications down the road that spell prosperity for Wal-Mart and its shareholders, but maybe not for everyone else.
