Is Walmart a Good Thing?

Walmart has come up a few times on this blog, and as I browse other blogs, I occasionally see logos with links to sites that either oppose or defend Walmart. I admit that I have not spent considerable time digging into all the controversies surrounding the company.

However, I was "Krusing" blogs yesterday when I found some interesting stuff on Harvard economist Greg Mankiw's blog. (Warning: Three posts earlier than the one linked, he writes about receiving an e-mail from Milton Friedman and describes it as like hearing from Moses. Thus, the unnatural yet holy glow emanating from his blog.) He has a friend named Jason Furman, who identifies himself as a progressive Democrat and wrote a paper called Wal-Mart: A Progressive Success Story last year. One of the people commenting on Mankiw's blog gave a link to a Slate article called Is Wal-Mart Good for the American Working Class? that summarizes some of his key claims.

Here are some quotes from the Slate article.

A range of studies has found that Wal-Mart's prices are 8 percent to 39 percent below the prices of its competitors. The single most careful economic study, co-authored by the well-respected MIT economist Jerry Hausman, found that grocery sales by Wal-Mart and other big-box stores made consumers better off to the tune of 25 percent of food consumption. That doesn't mean much for those of us in the top fifth of the income distribution—we spend only about 3.5 percent of our income on food at home and, at least in my case, most of that shopping is done at high-priced supermarkets like Whole Foods. But that's a huge savings for households in the bottom quintile, which, on average, spend 26 percent of their income on food. In fact, it is equivalent to a 6.5 percent boost in household income—unless the family lives in New York City or one of the other places that have successfully kept Wal-Mart and its ilk away.

Quoting Harvard Economist Ken Rogoff, Furman writes:

[T]ogether with a few sister "big box" stores (Target, Best Buy, and Home Depot), Wal-Mart accounts for roughly 50% of America's much vaunted productivity growth edge over Europe during the last decade. Fifty percent! Similar advances in wholesaling supply chains account for another 25%! The notion that Americans have gotten better at everything while other rich countries have stood still is thus wildly misleading. The US productivity miracle and the emergence of Wal-Mart-style retailing are virtually synonymous.

In the paper I linked above, Furman writes:

There is little dispute that Wal-Mart’s price reductions have benefited the 120 million American workers employed outside 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.

Back to the Slate article:

Maybe you're ready to grant my point that Wal-Mart's low prices are great for the 298 million Americans who don't work there. But what about the 1.3 million Americans who do work for Wal-Mart? Here the evidence is murkier, in part because Wal-Mart refuses to release the data on its wages and benefits that could clear up a number of questions. What we do know is that its wages and benefits are about average for the retail sector—which is to say, not so great. It is harder to quantify other aspects of the job, like the quality of the work, the number of breaks, the prospects for advancement.

It seems the upshot of his analysis is that Wal-Mart has been a huge factor in the increase of American productivity and cost-of-living savings. Yet it has left the plight of workers in retail sales stagnate regarding income, healthcare, and other benefits.

Is it possible that "Wal-Martiniztion" has created a better economic model for inexpensively bringing goods to market, and we need to, as a society, find a way to upgrade the skills of retail workers for other jobs? Or should we be fighting the Wal-Mart model based on a sense of worker justice? The latter runs the risk of making life more expensive more millions of families and might be like trying to protect the horse and buggy industry in 1906.

I am not coming to any conclusion here. I just thought this analysis raised some interesting real-world public policy complexities that are interesting to consider from an economic justice perspective. 

Comments

[dlw]

I'd want to get a notion of the extent that the cost-savings of Walmart are due to their pushing of costs off onto others.

One of the key policy reforms I'd like to see is a $.60/hour global min wage for all goods/services for final US(and EU and other Developed Country) consumption or intermediary goods.

That ought to be manageable and make a difference...

dlw

[Michael Kruse]

I am curious about $.60 wage. Why this amount?

It seems this might have an impact where something is manufactured and then sold directly to the US. However, when something is a component, of a component, of still another component, that is assembled elsewhere and then sold to the US, it seems like enforcement might get a little complex.

[dlw]

$.60 is what is needed for someone working 3000 hours a year to make about 5 dollars a day. The goal is to put some pressure on PRoChina, but not too much. Their GNI per capita: US $1,740.

I agree enforcement on intermediaries would be more complicated. We'll need some rules of thumb and, of course, randomization for enforcement and temporary tariff penalties.

dlw

[Michael Kruse]

Gotcha. That makes sense. I remember reading somewhere recently that when GNI gets to about $2,000 is when people begin to turn there attention toward issues like property rights and rule of law. The big question is when this happens in China will we see postive reform or totalitarian crackdown?

I fear that China may be allowing some freedom (Hong Kong, Beijing, etc.) in some areas in order to generate economic growth for the state while still keeping a large majority in totalitarian domination. I think China is as big or bigger worry in the future as Islamic fanaticism.

Thanks.

[Benjamin P. Glaser]

As someone who grew up in small towns Wal-Mart more than anything has made an immeasurable impact on the way people live in those small towns. They have been "urbanized" in a sense by Wal-Mart. Before Wal-Mart (early to mid-90's in WV) if you wanted most products you either had to drive to Charleston or buy it from a JC Penney Catalog Store or pay twice as much at a mom and pop store. With the advent of Wal-Mart you could now buy twice the product you could at the mom and pop store with half the cost. Not to mention wages for a part-time or even full-time worker at Wal-Mart was more than at a mom and pop store. So not only did it bring steady and available employment but it brought mass materialism to areas that had never been able to afford it before.

[Michael Kruse]

Thanks Benjamin. I have heard countless others tell the same story. I think the issue for many is that Wal-Mart often means the end for a way of life that included mom and pop retail stores. The set of reltionships lost is often real and deeply felt. Yet the economics of it aren't practical and will likely cause the community to fade if perpetuated. My sense is similar to yours, at least for rural areas, that Wal-Mart, on balance, has been a major plus.

[Denis Hancock]

I don't know if this is a significant observation or not, but it seems that the anti-walmart signs are far more common in the affluent sections of town than in the middle class areas, and very difficult to find in the poorer sections. Odd...

The Slate article you reference (Is Wal-Mart Good for the American Working Class?) gives a clue when it states:

The single most careful economic study, co-authored by the well-respected MIT economist Jerry Hausman, found that grocery sales by Wal-Mart and other big-box stores made consumers better off to the tune of 25 percent of food consumption. That doesn't mean much for those of us in the top fifth of the income distribution—we spend only about 3.5 percent of our income on food at home and, at least in my case, most of that shopping is done at high-priced supermarkets like Whole Foods. But that's a huge savings for households in the bottom quintile, which, on average, spend 26 percent of their income on food.

[Michael Kruse]

I think it is very significant Denis. My observations are the same. I see anti-Wal-Mart stickers on cars in the more avantgarde neighborhoods where I live in Kansas City, MO. However, I see very little of this in more blue-collar Democrat areas like Independence or Kansas City, KS.

[dlw]

Yeah, well, if we had the global min wage, it would cut down on our deficit with PRoChina and give us another policy lever to use against them....

It would subvert some of their ability to divide and conquer in their country that you described. I think we need to get a bandwagon going on this matter.

dlw

[Michael Kruse]

dlw, you take the reins on the bandwagon. I'll ride shotgun. :)