Monday, September 18, 2006

George Will Likes W**-Mart

OK, I admit it. I have hated Wal-Mart for years. I shop there from time to time when it's convenient, but only because the relevant retail stores in my own neighborhood have gone out of business. However, I am conceding here that George Will is a pretty persuasive guy. His paean to the Big W is annoying because it is mostly correct. I was also impressed, as I noted in an earlier post, with Wal-Mart's massive philanthropic efforts to assist people after Katrina and with Wal-Mart's recent green initiatives.

George Will has pointed out that the store creates 100 new, more productive, jobs for every 50 jobs that it erases among the competition. I am certainly in favor of this. Unions are against it, but I am ambivalent about unions as they exist today. I believe that the small and repeated sacrifices that we make in the US, as an economic entity, are our insurance against obsolescence. It might not seem like a small sacrifice to the person who gets laid off, but it would be a lot worse if we delayed such dislocations until a crisis took place. Just look at the old Soviet Union.

Having second thoughts is a good thing, yes? Nevertheless, in the final analysis, I still have big problems with Wal-Mart for two overriding reasons. First, Wal-Mart is too big. It creates havoc regionally, sucking the local money out of every small shop and drug store and bakery and deli and corner grocery for miles around. The jobs it creates are cookie cutter, assembly-like jobs. The dislocation caused destroys local culture, and the jobs it replaces are those of middle-class, neighborhood-oriented people who, in turn, would spend their money locally. I'm sure George Will used reliable calculations, but I'm not sure he accounted for the cultural multiplier of having local people with honored positions.

The competition that Wal-Mart faces, aside from the fast-fading local businesses, is what? Target and Home Depot, maybe? As long as these remain viable I suppose Wal-Mart won't become a monopoly. That's some comfort, I suppose. However, I don't really trust a Republican administration to watch for the price-fixing shenanigans that will begin to occur when economic power becomes too concentrated.

The second objection that remains is that Wal-Mart is unnatural. Plainly it depends on the suburban automobile culture. The physical footprint is huge and environmentally disastrous, but the bigger problem is that the dependence on cheap oil makes us much more vulnerable to oil shocks. Congested traffic and global warming are part of the externalities generated. Wal-Mart also gains its productivity by putting all its customers to work. What work is that? -- The untold hours spent behind the wheel.

I am in favor of any tax structure that puts a penalty on unsustainable trends, particularly unnecessary transportation. I don't think we should ban such things, but I do think we should have a forward-looking national policy that discourages sprawl, dependence on individual travel and the use of fossil fuels. The amount of discouragement should be determined with an eye toward facilitating the development of sensible economic alternatives. If we had a high fuel tax and Wal-Mart were still able to prosper, then I would be willing to agree that its productivity advantages were real.

Thanks to Jane Galt for the George Will reference. I'm sorry that I must continue to disagree with such a distinguished triumvirate.

9/18/2006 6:07 PM

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At Monday, September 18, 2006 8:23:00 PM, Blogger mal said...

as you are aware, I am not a Wal-Mart fan. I despise their culture and the way they jerk around the employees so that benefits are not paid, simple things like breaks are not taken and overtime is not paid. I also despise the systematic abuse of vendors and the arrogance that permits it.

One of the best business stories I have seen is the one about Simplicity Mfg telling Wal-Mart they did not want their business and then walked away. Simplicity was wise

At Monday, September 18, 2006 10:28:00 PM, Blogger jj mollo said...

Here's a link on the Simplicity story.

The way that Wal-Mart torments vendors is not new to them. Other companies, like PepBoys as one that I know about, have a reputation for putting small vendors out of business. Part of the problem is that these small companies are gambling for a big payoff. They accept huge orders that they are barely capable of meeting. Then they alienate all their other customers in order to fill the big ticket. Next year, after they've geared up to handle an expected, possibly promised, reorder, they are told to cut their prices again, and they either do it or close the doors.

Size matters. Excessive size does long-term damage to the business ecology. The government has a responsibility to rein in the biggest of these monsters, but in fact, industry influence in Congress insures that just the opposite happens.

Here's another link in Business Week for an article from 2003 which addresses the Wal-Mart problem directly.

At Tuesday, September 19, 2006 5:05:00 PM, Blogger mal said...

JJ- thanks for the links. Simplicity was customer of my then employer when the Wal-Mart decision was going down. They really did make an effort to see if they there was any way they could accomodate the Wal-Mart opportunity, make money and keep their dealer network viable. It was a difficult process and one I wish I could have done a paper on in Grad School.

I think Deere has made a bad mistake working with Home Depot for all the reasons that Simplicity walked away from Wal-Mart. They were marketing the "Scotts" line thru Home Depot but Home Depot really wanted the Deere brand. It will be interesting to see what happens to Deere's consumer line in the next 5 years.

Home Depot was partially responsible for putting Sunbeam home products into bankruptcy when they reverse auctioned the Grill business in 2002. I am not condemning Home Depot, but Sunbeam allowed themselves to become dependent on one retailer


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