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

Tue Jun 14 21:50:37 PDT 2005

there is also an interesting article in Christianity Today about Wal mart. Last month I belive.
PK
  ----- Original Message ----- 
  From: Stephen Cooke 
  To: Vision2020 Listserver List 
  Sent: Tuesday, June 14, 2005 2:53 PM
  Subject: [Vision2020] WalMart... you all got me going!

  Mean while back at the WalMart war...

  Steve Cooke

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  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 

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