[Vision2020] WalMart... you all got me going!

Tue Jun 14 14:53:06 PDT 2005

Mean while back at the WalMart war...

Steve Cooke

  _____  

From: Stephan J. Goetz [mailto:sgoetz at psu.edu] 
Sent: Tuesday, June 14, 2005 12:11 PM
To: cenet at aaealist.org
Subject: Re: [cenet] Re: WalMart... you all got me going!

The PBS show is actually available (or was at one time) on the PBS web-site.

I think there are a number of reasons why Wal-Mart is being targeted in the
media and elsewhere.  In addition to the direct employment impacts (possibly
replacing full-time with part-time jobs, although we do not know for sure)
on the moms-and-pops, Wal-Mart also displaces those service providers who
supplied the moms-and-pops with legal advice, accounting services,
logistics, transportation, advertising, wholesaling, etc.  These functions
are all handled out of Bentonville, AR, with tremendous economies of scale.
Some of the latter jobs may have been better-paying and also have provided
benefits.  From our colleagues in sociology we learn that owners of  these
firms tend to represent the "leadership class," and when that is destroyed,
so is the civic capacity (social capital) to solve local problems that are
of a public nature.  Of course, in some declining rural communities that
capacity had disappeared long before Wal-Mart came to town.

Wal-Mart's PR folks point out that the chain gets 1,000s of applicants for
100 or 200 jobs in some communities.  No one is forcing these individuals to
apply for and take the jobs.  As community economic developers, we might
wonder about the opportunity costs of these local workers, and whether we
can deliver programs (such as entrepreneurship training), that might raise
the returns to their labor. [George Gilder's 1981 (updated in1993) book
Wealth and Poverty is an interesting read in that regard].  Things will get
really interesting once Wal-Mart fully implements Radio Frequency
Identification (RFID) tags; as I understand it, a single cashier will be
able to check out 10 customers simultaneously once this system is fully
implemented (you won't even have to place your goods on a check-out
conveyer).

My own work with Hema Swaminathan shows that the presence of Wal-Mart is
associated with higher family poverty rates, after controlling for
endogeneity--i.e., the WM location decision (the chain actually avoids
counties with higher poverty rates -- and with higher shares of
self-employed, all else equal).  The paper is available at (comments are
welcome): http://cecd.aers.psu.edu/pubs/PovertyResearchWM.pdf  The Readers'
Digest version is here:
http://cecd.aers.psu.edu/pubs/WalMart%20Brief.Oct25.pdf  A back-of-the
envelope calculation suggests that an additional 20,000 families fell below
the poverty line between 1989 and 1999, as a ceteris paribus by-product of
Wal-Mart.  Note that the poverty line was adjusted for inflation between
1989 and 1999, so this number should take into account the fact that
Wal-Mart reduced the CPI by 1 percentage point annually during the decade. 

If Wal-Mart creates externalities (e.g., shifting health care costs and
other welfare costs to taxpayers), then that could be one reason why people
are upset.  Wal-Mart is also masterful at extracting direct subsidies from
communities (e.g., for infrastructure improvements) even though, as a
retailer, we may not think of it as part of the economic base in the
traditional sense.  This can be debated; David D.--you can insert your
rebuttal here, but keep in mind that what happens locally may not be
comparable to what happens nationally.  These subsidies are transferred
dollar for dollar to the corporation's bottom line, and WM extracts them by
promising 150-200 jobs for the community per store (see, however, the note
about RFID tags above).  It is probably not surprising that Emek Basker's (U
Missouri) 2005 REStat paper indicates that WM has no effect on overall
employment in a county (her data are already a few years old).

As an aside, WM has phenomenal amounts of information, because every single
transaction is recorded; one can only marvel at what a clever marketing
economist might be able to do with the billions of transactions
(price-quantity) data points that are collected every month by Wal-Mart.
Information is power, after all (and in this case we are not talking about
consumer power).

Some individuals may take issue with the fact that the $20 billion or so of
wealth held by each of the five Wal-Mart heirs translates into more income
on a single day (of leisure), even at a conservative rate of return of 1%,
than the average Wal-Mart worker would earn over a lifetime of working at
the chain, appropriately discounted.  As WM spokespersons have pointed out
in other contexts, when you are at the top of any list, you are likely to
become a target.  

In terms of the globalization debate, it has been suggested that there may
be a link between abandoned local manufacturing plants and the "made in
China" label of products sold at local Wal-Mart stores.   While Wal-Mart is
not the only firm sourcing from overseas, it is clearly viewed as a leader.
The moms-and-pops (and their wholesalers) that previously supplied Main
Street with retail goods are not likely to have developed the expertise and
knowledge needed to develop China into the main supplier--or at least not as
rapidly (which might have given local stores more time to adjust).

Despite all of the negative press, it is not clear that anything should or
could be done about Wal-Mart.  Our job as academics interested in regional
and local economic development, it seems to me, is to point out that the
consumer savings produced by the chain must be balanced against some of the
other considerations listed above, and that community leaders should think
carefully about redirecting public subsidies to the chain and away from
public schools, for example, as they were "encouraged" to do recently in a
nearby county here in Pennsylvania.

SJG 

At 12:42 PM 6/14/2005, you wrote:

Since the discussion is presently on WalMart, folks might want to catch the
Frontline show on PBS tonight.  It is called "Is Walmart good for America?"
It is on Iowa Public TV (CDT) at 9 pm this evening (Tuesday).  As they say,
check your local listings.
Best wishes,
Jan

At 09:59 AM 6/14/2005, you wrote:

I've sometimes wondered about the apparent inconsistency of economists.
Most of us support free trade, and will argue at the suggestion of a trade
restriction that consumers, collectively, benefit more from getting goods at
lower prices through free trade than workers, collectively, lose.  Yet
benefits from lower prices to consumers seem to be forgotten when Wal Mart
threatens to move in to a new community.

Granted, some part of Wal Mart's price advantage is due to monopsony, but
even there, we have become so accepting of monopoly power in our present-day
economy that I suspect in substantial part they are merely bargaining away
monopoly profits of their suppliers.

Tom

Tom Hady
thady at att.net

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Jan L. Flora
Professor and Community Extension Specialist
Dept. of Sociology
317D East Hall
Iowa State University
Ames, IA 50011-1070
Phone: (515) 294-4295
Fax: (515) 294-0592
E-mail: floraj at iastate.edu  

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Stephan J. Goetz, Ph.D.
Director, The Northeast Regional Center for Rural Development
Professor of Agricultural and Regional Economics
7E Armsby Building
The Pennsylvania State University
University Park, PA 16802-5602

Phone: 814/863-4656  Cell: 814/777-4656  FAX 814/863-0586 
e-mail: sgoetz at psu.edu;  http://www.cas.nercrd.psu.edu
<http://www.cas.nercrd.psu.edu/>  

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