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September 2007 -- Richard Vedder and Wendell Cox, The Wal-Mart Revolution: How Big-Box Stores Benefit Consumers, Workers, and the Economy (Washington, D.C.: The AEI Press, 2006, 210 pp., $20.00.)
Hand it to the Ancient Greeks for understanding what motivates Man to commit acts of good and evil, and for identifying what consequences may befall those who do good. Prometheus, for example, gave Man the gift of fire, and for his troubles he was chained to a rock by Zeus where vultures ate out his liver, only to have it regenerate daily so that he could suffer the same torture over and over. In Judeo-Christian mythology, too, Adam and Eve were banished from Paradise for (God forbid!) eating fruit from the tree of knowledge.
These tragic tales identify a real and disturbing tendency in human history: Men of superior intellect and character are often punished precisely because of their virtues and determination to bring fire and knowledge to Man. Galileo notably comes to mind; but the United States has not been immune to the motives of envy, resentment, and the desire of parasites to obtain the unearned from those who produce wealth and advance the frontiers of innovation and production. In the nineteenth century, the so-called “Robber Barons”—men like Andrew Carnegie and John D. Rockefeller—were roundly vilified for the “crime” of becoming fabulously successful and, ironically, for running their businesses in such a way as to greatly increase the wealth of America and its people, as well.
Fast-forward to present-day America, and we find that another great business innovator is suffering much the same fate as did the great American captains of industry who preceded it by more than a century.
You would have to be living under a rock not to know that Wal-Mart is under determined attack by a phalanx of enemies, enemies that regard the corporate giant as the embodiment of all that is wrong with American capitalism. In response to these assaults, Richard Vedder and Wendell Cox have penned a compelling book that concludes that, for the most part, the opposite is true: Wal-Mart is an example of a capitalistic enterprise at its heroic best.
The authors deftly handle a host of charges laid at Wal-Mart’s feet. These include claims that Wal-Mart forces other stores out of business, drives down wages, creates sweat shops in third-world countries, ships well-paid manufacturing jobs overseas, contributes to the U.S. balance-of-payments deficit, and even fosters suburban sprawl and traffic congestion. In addition to addressing these attacks (and the forces that motivate them), Vedder and Cox also provide comprehensive data on the net benefit that Wal-Mart and its business model have provided to the U.S. and global economies.
Vedder and Cox point out, for example, that “Wal-Mart does not force stores out of business—customers do, by voting with their feet and going to Wal-Mart with its lower prices and greater choices than local alternatives.”
Wal-Mart is under determined attack by a phalanx of enemies.
Responding to the charge that Wal-Mart has destroyed communities by moving business away from downtowns and to the suburbs, they note that this process began well over fifty years ago, when the ascendance of the automobile led consumers to move out of densely populated inner cities into larger homes in the ’burbs that offered greater amenities and a preferable lifestyle. All that Wal-Mart did was to go where the business had gone. In fact, one of the great benefits accruing from the Wal-Mart business model was that it helped to bring an affordable array of goods and services to previously underserved, lower-income, small-to-medium-sized communities. Instead of destroying communities, Wal-Mart has been, quite to the contrary, a catalyst in revitalizing communities that had been languishing.
And speaking of lower-income Americans: No other income group benefits more from Wal-Mart, with its “everyday low prices.” Therefore, it should come as no surprise that more of Wal-Mart’s business comes from lower-income groups than from any other. To demonize a company that provides the poor literally billions of dollars in increased purchasing power is simply an outrageous attempt to mask a more sinister agenda.
The real villains are those who seek, through coercion, to gain economic advantages and incomes that they otherwise would not receive in a free, open, and competitive market. Most prominent and vocal among these Wal-Mart bashers is organized labor, which is losing membership and revenue from businesses that can’t compete effectively with Wal-Mart.
Union leaders claim that Wal-Mart exploits its employees with below-market wages and benefits. But if that were the case, how could Wal-Mart attract and retain workers against competitors offering better conditions of employment? Union organizers also claim that Wal-Mart workers are treated harshly by overbearing managers who are guilty of discriminatory, illegal practices based on age, sex, race, and the like. Of course, since Wal-Mart is the nation’s largest employer, inevitably there are occasional, anecdotal examples of such things happening (which the media and class-action trial lawyers are more than eager to publicize). But the fact remains that Wal-Mart’s workforce has remained one of least-unionized in the industry—by the workers’ own choice. How could that happen if their employer systematically mistreated them?
To the contrary: At Wal-Mart, job tenure is higher and union membership is significantly lower than the retail-industry average because the company treats its workers well, rewards loyalty, and gives employees a stake in its future with company stock. In fact, the writers tell us, there is “a dramatic (over 40 percent) decline in job turnover in retail trade after Wal-Mart enters markets” It is these conditions that so frustrate retail-employee labor unions and account for the shrillness of their attacks.
What about the charge that Wal-Mart destroys jobs in the communities that they serve? Wrong again. The data overwhelmingly show that wherever Wal-Mart sets up shop, it is a net creator of jobs, and this is especially true where unemployment is relatively high. If this is a bad economic actor, then we could use a lot more of them. Yes, less-efficient retailers do lose business and jobs to Wal-Mart, but what of it? It’s called competition, and without it, consumers could look forward to the Soviet retail model.
Wherever Wal-Mart sets up shop, it is a net creator of jobs.
Another front where war is being waged against Wal-Mart is the environment. Increased commerce and business generated by Wal-Mart stores is alleged to increase traffic congestion and air pollution. In actuality, especially with the advent of its super-store centers, Wal-Mart’s presence in a community allows consumers to drive shorter distances by encouraging them to purchase everything they need in one place. Readers old enough to remember the retail landscape prior to the Wal-Mart revolution can also remember making trips to many different stores to get what they can now obtain in one location, and at significant savings of cost and time.
Critics also challenge Wal-Mart with the old canard that the company promotes “sweatshops” in developing countries. This charge implies coercive work practices, when in fact foreign manufacturers who sell to Wal-Mart quality products at competitive prices are providing jobs eagerly sought by locals—people who, in many cases, would have to survive on subsistence agriculture. Standards of living actually go up dramatically for foreign factory workers who produce goods for the U.S. domestic market. Besides, given the lower productivity of their work forces, currently it would be impossible for third-world manufacturers to offer better pay and working conditions relative to the developed world and still hope to remain in business.
Vedder and Cox draw an analogy with working conditions in New England at the advent of the industrial revolution. They were deplorable compared with conditions today; but as the economy evolved and became more productive, working conditions and pay improved significantly. Likewise, as an underdeveloped country’s economy becomes more productive, labor conditions improve. After World War II, nations like Japan and Korea were in positions comparable with those of China and India today. To its credit, Wal-Mart and other big-box stores are playing a crucial role in this evolution.
Protectionism is another banner around which the legions of Wal-Mart detractors rally. They argue that by purchasing cheaper foreign-made goods, Wal-Mart drives domestic manufacturers out of business. What this argument fails to take into account is that the profits generated by foreign manufacturers selling to U.S. markets result in increased foreign investment in the U.S. economy. This process goes a long way toward explaining our robust economy, with high levels of job creation and historically low levels of unemployment. In effect, we are trading low-tech jobs making low-tech products for high-tech jobs producing the high-tech products that are demanded the world over. Is it any wonder that American companies are scrambling to import the best and brightest minds from all over the world to fuel their economic growth?
In addition to compiling comprehensive examples and data that document the many benefits that big-box retailers like Wal-Mart bring to the U.S. and world economies, The Wal-Mart Revolution provides a fascinating history of the evolution of retail trade—how and why the industry got to where it is today, and where it might be heading. It also explains the genius and vision of Wal-Mart founder Sam Walton, who is credited by the authors as being “arguably the greatest entrepreneur of the late 20th century.”
As with all industry leaders in a dynamic market economy, no one company can maintain its predominance forever. Innovation is a process of creative destruction, predicated on the human impulse to “go where no man has gone before.” This is the healthy counterbalance to the destructive impulse to keep Prometheus chained.
Already there are signs that Wal-Mart may have peaked as a business model, and that it may go the way of Standard Oil and IBM, firms which, while remaining big players in their respective industries, no longer enjoy their once-dominant positions. The Internet, for example, is posing a serious challenge to Wal-Mart sales, and the company has also reached a saturation point in many markets, dampening plans and expectations for future growth.
To their credit, the authors do not give Wal-Mart a completely clean bill of health as far as corporate conduct and policy is concerned. While they clearly recognize Wal-Mart as a corporate good guy, especially in comparison with its detractors, they rightly fault the company when it has sought and received taxpayer subsidies to locate in certain areas. Their point of view, which I wholeheartedly share, is that Wal-Mart should be required to compete on a level playing field and not use its market clout and the enticement of increased local tax revenues to gain unfair legal and political advantages over its competitors—or to compel taxpayers to finance its growth. That is an egregious ethical breach, and it’s a damned shame that Wal-Mart, with its prominence and reputation, does not consistently use that status to become a role model for fiscal and corporate policy. The company could be a powerful force for a free-market business ethic; instead, it too often acquiesces to today’s conventional ethic, which says it’s not okay to gouge me, but it’s okay for me to gouge you, if I can get away with it.
Another area of concern for the authors is that Wal-Mart is beginning to employ appeasement tactics when dealing with its adversaries. History has told us time and again that malevolent enemies will always recognize appeasement for what it is—weakness and moral bankruptcy—and that appeasement will only encourage them to press their advantage in order to gain more and more concessions. That would not be good for Wal-Mart, for its employees, for the economy, or for the millions of customers who are so well served by this innovative company.
One can only hope that Wal-Mart’s corporate leadership reads this book and heeds its warnings.
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