NCPA - National Center for Policy Analysis

Productivity and The Wal-Mart Connection

February 28, 2002

Wal-Mart's impact on the overall U.S. economy goes farther than most people ever imagine, according to the McKinsey Global Institute. Wal-Mart's managerial innovations contributed mightily to the big increase in American productivity in the late 1990s -- an increase most observers attributed to high-technology companies.

"Rather, managerial and technological innovations in only six highly competitive industries -- wholesale trade, retail trade, securities, semiconductors, computer manufacturing and telecommunications -- were the most important causes," according to the McKinsey Quarterly study.

  • From 1987 to 1995, labor productivity grew an average of only 1 percent a year.
  • But from 1995 to 1999, it grew 2.3 percent a year.
  • This big jump, combined with increased employment, meant that real output per capita grew nearly 4 percent a year -- an extraordinarily fast rate.
  • A quarter of that increased productivity came from retailing -- and about one-sixth the improvement in retail productivity came from general merchandise, most of it directly or indirectly from Wal-Mart.

Business analysts admire Wal-Mart's logistics management -- the moving and stocking of goods -- and tracking how busy cashiers are, so they can be used elsewhere during slack times. As competitors adopt these innovations, overall productivity is further enhanced.

European analysts still see productivity gains here as having been high-tech driven -- and gear their policies to encourage high-tech development. But once they realize how important innovations are in the retail sector, they may want to rethink their anticompetitive retail policies -- such as restrictions on real estate use, store hours and what can be sold by whom.

Source: Virginia Postrel (author of "The Future and Its Enemies), "Economic Scene: Lessons in Keeping Business Humming, Courtesy of Wal-Mart U.," New York Times, February 28, 2002; U.S. Productivity Growth, 1995-2000, October 2001, McKinsey Global Institute.


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