WAL-MART AS RED HERRING

August 30, 2006

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, says columnist Robert J. Samuelson. 

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.
  • 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, says Samuelson:

  • 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.

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. 

Source: Robert J. Samuelson, "Wal-Mart as Red Herring," Washington Post, August 30, 2006.

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