Wal-Mart as Red Herring
It's not surprising that, as the New York Times reports, leading Democratic politicians have latched on to bashing Wal-Mart as a "new rallying cry" that "could prove powerful in the midterm elections and in 2008." America's political culture routinely demands at least one hideous corporate villain. In recent decades that role has fallen to General Motors, IBM, Exxon Mobil and Microsoft; now Wal-Mart has assumed the mantle. But these wishy-washy politicians have missed the obvious solution to the Wal-Mart problem: nationalization.
Congress should just buy the company and then legislate good behavior. Wal-Mart executives "talk about paying [workers] $10 an hour," Sen. Joseph Biden told a rally in Iowa, according to the Times. "How can you live a middle-class life on that?"
Well, if $10 is too little, the government could order the Department of Wal-Mart to pay more. How about $15 or $20? Similarly, if Wal-Mart's health insurance is inadequate, Congress could command more coverage. (I asked Wal-Mart for coverage figures, which it declined to provide. All a spokesperson said is that more than half of its 1.3 million U.S. employees are full-time, enjoying higher coverage rates, and that 75 percent of all workers have some coverage through the company, the government or spouses' plans.)
Okay, I jest. Congress isn't going to buy Wal-Mart -- which would cost roughly $183 billion at its current stock price of about $44 a share -- and I don't think it should. Still, pretending to nationalize Wal-Mart is a useful thought exercise. It shows why Wal-Mart as a government agency would actually provide fewer public benefits than it would as a grubby, profit-seeking colossus. The company's incentives would shift. Instead of trying to lower costs, improve efficiency and raise its profits, it would focus on pleasing its political patrons and complying with their demands.
These would doubtlessly burgeon beyond wages and benefits. Politicians would find unending opportunities for grandstanding and meddling. Does Wal-Mart import too much from China? Order it to cut back. Does it treat suppliers brutally? Require it to be nicer. Are its stores ugly? Appoint architectural advisers.
Wal-Mart would deliver more political benefits to favored constituencies -- workers, suppliers, competitors -- and fewer to the public. Retail prices would be the biggest casualty. Scholarly studies show Wal-Mart's price reductions to be sizable. Economist Emek Basker of the University of Missouri found long-term reductions of 7 to 13 percent on items such as toothpaste, shampoo and detergent. Other companies are forced to reduce their prices. On food, Wal-Mart produces consumer savings that average 20 percent, estimate Jerry Hausman of the Massachusetts Institute of Technology and Ephraim Leibtag of the Agriculture Department.
All told, these cuts have significantly raised living standards. How much is unclear. A study by the economic consulting firm Global Insight found that from 1985 to 2004, Wal-Mart's expansion lowered the consumer price index by a cumulative 3.1 percent from what it would have been. That produced savings of $263 billion in 2004, equal to $2,329 for each U.S. household. Because Wal-Mart financed this study, its results have been criticized as too high. But even if price savings are only half as much ($132 billion and $1,165 per household), they'd dwarf the benefits of all but the biggest government programs.
A collateral benefit is less understood. By restraining inflation, intense competition of the sort that Wal-Mart provides eases pressure on the Federal Reserve to do the job with higher interest rates. Note the paradox: At one level, intense competition destroys jobs, as some companies can't compete, but the larger effect is to increase total job creation by fostering favorable economic conditions.
No company should be above public scrutiny. But much of the political criticism of Wal-Mart is shallow and, if followed, undesirable. Wal-Mart doesn't pay high wages and benefits mainly because it's in an industry (retailing) where those are rare. In 2005 average hourly wages were $10.85 for food stores, $10.63 for clothing stores and $10.84 for department stores. As General Motors and Ford are discovering, companies that pay above-market labor costs ultimately shrink and destroy jobs. The efforts of some local governments -- notably the Maryland General Assembly and the Chicago City Council -- to mandate higher labor costs on Wal-Mart are shortsighted.
There may even be political pitfalls to this crusade. By Wal-Mart's estimate, 85 percent of Americans shop during the year at the chain; in opinion polls it generally receives high ratings. People are voting with their pocketbooks. On any list of major national concerns, the "Wal-Mart problem" would not rank in the first 50. Why, then, are some leading Democratic politicians spending so much time talking about it? People who ask that question may conclude that Wal-Mart, though a tempting target as a symbol, is mostly a diversion from weightier issues where what politicians do really matters.