December 9th, 2006

ozarque figure

Defending Wal-Mart; part three....

wolfangel78 responded to my post about the Jason Furman article with a six-part comment; I've quoted it below (after a summary of the point being replied to, when it's not obvious), and have added my responses after each section.

"1. People save lots of money buying at Walmart, more than they lose by the low prices. This is arguable. Are they buying things more often, because the stuff is shoddier?"

It's arguable, certainly, as all the points we've been discussing are arguable; it's not like gravity, which I assume we would all agree isn't arguable. However, it seems to me from reading all the comments that although Wal-Mart may carry some shoddy products, many of us have been satisfied with the merchandise we buy there. It seems to me that -- as at almost any store -- the responsibility to choose non-shoddy products rests on the person doing the shopping, and it's possible to make good choices at Wal-Mart. The studies claiming that Wal-Mart saves consumers a lot of money, with the highest percentage of savings going to the people with the lowest incomes, are solid respectable research, and not controversial. The controversy isn't over those claims, but over whether the methods Wal-Mart uses to produce those savings for consumers are right or wrong.

"2. Again, let's compare it to reasonably comparable stores, not "the retail industry as a whole". (The article doesn't seem to discuss what a comparable store is.)"

If you read a substantial number of the studies that have been done on the subject -- not something I'm suggesting that you should do, but something that I have done -- you'll find that the comparisons to "reasonably comparable stores" have been done, thoroughly, and that those comparisons don't introduce any new factors or change the case as a whole.

"3. Yes, indeed Walmart will have a lot of people on Medicaid, just because it employs so many people. But is it the case that they have a lower percentage of people than other, comparable stores?"

Yes; that is the case.

"4. [In response to: Wal-Mart pays at least $5.6 billion in taxes, a much larger sum than the $1.5 billion its employees -- who also pay taxes -- get in federal subsidies; therefore, its "overall fiscal impact" is positive.] That's silly. Seriously, assuming that most of this stuff would have been sold anyhow, some company was paying taxes and some employees were paying taxes. And of course it ignores the push for overseas production."

I'm not competent enough in economics (or its related disciplines) to attempt to counter the claim that these facts are "silly." Perhaps their silliness would be obvious to anyone trained in the field. I can only say that in commonsense layperson terms it seems to me to be a good thing that Wal-Mart's contribution to the federal treasury is larger than the federal treasury's contribution to Wal-Mart's employees.

"5. [In response to the claim that Wal-Mart's profit margin (3.7 percent) is so slim that even a small increase in costs would wipe out its profits completely.] As far as I know, true. The question is, how much of their costs goes to paying the employees at the store?"

I don't have that statistic. The purpose of the claim was to counter the anti-Wal-Mart campaigns' constant statements along the lines of "Wal-Mart could easily afford to raise its hourly rates for every employee by one dollar" and "Wal-Mart could easily afford to reduce its health insurance waiting period to three months instead of six months for every full-time employee" and so on. I am inclined to believe that having more than one million employees and a profit margin of less than 4 percent makes the word "easily" inaccurate. "Easily" presupposes that only selfish greed keeps Wal-Mart from making the suggested changes. [I would also like to mention, just in passing, something that hasn't yet been mentioned: Wal-Mart offers its employees a very generous stock program, which also has to be factored into its costs and its profits.]

"6. [In response to this quotation from the Furman article: 'At worst, to the degree the anti-Wal-Mart campaign slows or halts the spread of Wal-Mart to new areas, it will lead to higher prices that disproportionately harm lower-income families.'] Most of the places I know of this happening are cities, where Walmart is significantly less helpful."

That may be true; certainly the cases that get publicity are the ones in which big cities pass regulations that keep Wal-Mart out. However, we can plausibly extrapolate from the quotation as follows: If the anti-Wal-Mart campaigns are able to seriously curtail Wal-Mart's operations and substantially reduce their profits, it will lead to higher prices that disproportionately harm lower-income famililes. At which point we've come full circle, and the question remains: Can the business practices Wal-Mart uses to produce large savings for low-income people be justified?

Note: I had intended to make this the final post on the topic -- but it's already too long, and there are a few things left over. The huge leftover issues of outsourcing and globalization can't be shoehorned into this post, for example. I do want to explain just one thing, while I'm here: I brought up the problem of the part-time-with-no-benefits academics because my personal perception is that classism is the real reason Wal-Mart gets attacked for such practices and the University of California doesn't. It's easy to whip up sympathy for the downtrodden checkout person or shelf-stocking person or restroom-cleaning person; it's very difficult to whip up sympathy for the downtrodden newbie Ph.D. If you're out to stamp out a particular business practice, it makes sense to do it the easy way.