Webdiary - Independent, Ethical, Accountable and Transparent
header_02 home about login header_06
sidebar-top content-top

Wall-to-wall Wal-Mart?

Kenneth RogoffKenneth Rogoff is Professor of Economics and Public Policy at Harvard University, and was formerly chief economist at the IMF. Kenneth Rogoff has had a number of articles on Webdiary, via Project Syndicate. The last one was A time to build.

by Kenneth Rogoff

Do you want to know which video clip will soon be scaring the daylights out of policymakers throughout the world? In a scenario that looks uncannily like the spread of a global pandemic, the economist Thomas Holmes has prepared a dynamic map simulation showing the spread of Wal-Mart stores throughout the United States. Starting at the epicenter in Bentonville, Arkansas, where Sam Walton opened his first store in 1962, giant boxy Wal-Mart stores have now multiplied to the point where the average American lives less than seven kilometers from an outlet.

Interestingly, the video shows how the stores spread out like pedals of a flower, ever thickening and expanding. Rather than jumping out to the coasts – 80% of all Americans live within 80 kilometers of the Pacific or Atlantic oceans – Wal-Marts have spread organically through an ever-expanding supply chain. Even though each new store takes away business from Wal-Mart stores established nearby, ever-improving supply efficiencies help maintain the chain’s overall growth.

Love them or hate them, what is undeniable is that Wal-Mart is the quintessential example of the costs and benefits of modern globalisation. Consumers pay significantly less than at traditional outlets. For example, economists estimate that the food section of Wal-Mart charges 25% less than a typical large supermarket chain. The differences in price for many other consumer goods is even larger.

Consider the following stunning fact: together with a few sister “big box” stores (Target, Best Buy, and Home Depot), Wal-Mart accounts for roughly 50% of America’s much vaunted productivity growth edge over Europe during the last decade. Fifty percent! Similar advances in wholesaling supply chains account for another 25%! The notion that Americans have gotten better at everything while other rich countries have stood still is thus wildly misleading. The US productivity miracle and the emergence of Wal-Mart-style retailing are virtually synonymous.

I have nothing against big box stores. They are an enormous boon to low-income consumers, partly compensating for the tepid wage growth that many of them have suffered during the past two decades. And I don’t agree with friends of mine who turn their noses down at Wal-Mart stores, and claim never to have visited one. As a consumer, I think big-box stores are great. They have certainly been great for America’s trading partners; Wal-Mart alone accounts for over 10% of all US imports from China.

But I do have some reservations about the Wal-Mart model as a blueprint for global growth. First, there is the matter of its effect on low-wage workers and smaller-scale retailers. While completely legal, studies suggest that Wal-Mart’s labor policies exploit regulatory loopholes that, for example, allow it to sidestep the burden of healthcare costs for many workers (Wal-Mart provides healthcare coverage to less than half its workers). And the entry of big-box stores into a community crushes long-established retailers, often traumatically transforming their character.

Yes, to some extent, such is the price of progress. But the loss of aesthetics and community is not easily captured in simple income and price statistics. Big-box stores are not exactly attractive – hence their name. If they continue their explosive growth over the next 20 years, will Americans someday come to regard their proliferation as a spectacular example of the failure to adopt region-wide blueprints for balanced growth?

Indeed, many Europeans, and others, will view Holmes’s video simulation of Wal-Mart’s spread as a horror film. The French may have invented the hyper mart – the forerunner of the big-box store – but they never intended to let their growth go unchecked. The big question for Europeans is whether they can find ways to exploit some of the efficiency gains embodied by the Wal-Mart model without being overrun by it.

For Americans, there is the additional question of what to do when the big-box store phenomenon has run its course. If so much of the US productivity edge really amounts to letting Wal-Mart and its big-box cousins run amok, what will happen after this source of growth tapers off? The US economy has many other strengths, including its superior financial system and leading position in high-tech capital goods, but the fact remains that America’s advantage in these areas has so far not been nearly as striking as the Wal-Mart phenomenon. It is curious how many people seem to think that the US will grow faster than Europe and Japan over the next ten years simply because it has done so for the past ten years.

Wal-Mart and its ilk are a central feature of the modern era of globalisation. They are not quite the pandemic that their explosive growth pattern resembles, but nor is their emergence completely benign. Those who would aim to emulate US productivity trends must come to grips with how they feel about big-box stores sprouting across their countrysides, driving down wages and plowing under smaller-scale retailers. Americans, in turn, must think about where the proper balance lies between aesthetics, community, and low prices.

Copyright: Project Syndicate, 2006.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

Howard's IR policy would suit Wal-Mart

Radio National’s counterpoint program interviewed Charles Fishman, today. See here:

“Author Charles Fishman in his book the Wal-Mart Effect calls the giant US retailer Wal-Mart the World's most powerful company. He argues that has had a profound effect on America - it has transformed the economy, working lives and the way they see the world.”

Some of the things Charles Fishman mentioned in the interview.

Employees are forced to work for No Pay. Office employees must work a 60 hour week, including Saturday mornings. Reps working for Wal-Mart are asked to bring back hotel pens to reduce expenses. Suppliers are encouraged to move their production overseas to keep prices down.

Sounds like Howard’s IR policy would suit Wal-Mart to a tee.

Transfer pricing

The latest edition of Dissent has a review of Beyond Right and Left: New politics and the culture wars by David McKnight. It has this quote:

Assume that you are a US seller of sports clothing, with a pair of sneakers selling for US$99 at retail, $66 at wholesale, and $5 at the factory gate in Vietnam or Indonesia.

The act of landing the shoes in the USA generates $60 profit and takes one minute of clerical time per pair, proving that US clerks are hundreds of times more productive than Vietnamese manufacturing workers. Your only additional expense is the cost of lobbying to ensure that the tax paid in the USA is based on an imputed landed cost of US$60 with the difference safely banked in a tax haven. For US tax purposes, the shoes are imported from Bermuda or another small country with similar laws, even though the container carrying them never went near the place.

The much quoted productivity is smoke and mirrors. It is similar to claiming that if you are seen to scratch yourself in public then you are gainfully employed. Big business like Wal-Mart do not play on a level playing field as they have avenues to avoiding and minimising tax that are unavailable to 'mom & pop' businesses. The whole jargon of economic theory is abused by using terms such as 'investment' to describe foreign takeover of successful local businesses then sacking the staff, shifting the production overseas and just keeping the brand name. We are importing known brand name ice blocks from China. When you loose the ability to freeze cordial because the economic structure is skewed towards big business cost shifting then something needs to change.

When politicians stand up and tell us how great the economy is going we should be able to trust that the figures aren't skewed with false produtivity and growth produced on paper only.

some aspects not raised

Kenneth Rogoff hasn't addresed the real problems of the spread of Wal Marts - the killing off of town centres in the US, the rapid loss of small business and jobs. Wal Mart is one of those corporate thugs that love to say they are creating jobs when nothing of the kind is happening. There are plenty of studies that show for every job Wal Mart creates, two or three are lost in the towns where they are established or in US industry. They may well provide cheap goods for low paid workers or the poor but they are a downward's spiral that could reduce the working poor to China style conditions or pay.

At least we have an economist talking of a subject he knows about rather than wanting to string people up.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
© 2005-2011, Webdiary Pty Ltd
Disclaimer: This site is home to many debates, and the views expressed on this site are not necessarily those of the site editors.
Contributors submit comments on their own responsibility: if you believe that a comment is incorrect or offensive in any way,
please submit a comment to that effect and we will make corrections or deletions as necessary.
Margo Kingston Photo © Elaine Campaner

Recent Comments

David Roffey: {whimper} in Not with a bang ... 12 weeks 6 days ago
Jenny Hume: So long mate in Not with a bang ... 12 weeks 6 days ago
Fiona Reynolds: Reds (under beds?) in Not with a bang ... 13 weeks 1 day ago
Justin Obodie: Why not, with a bang? in Not with a bang ... 13 weeks 1 day ago
Fiona Reynolds: Dear Albatross in Not with a bang ... 13 weeks 1 day ago
Michael Talbot-Wilson: Good luck in Not with a bang ... 13 weeks 1 day ago
Fiona Reynolds: Goodnight and good luck in Not with a bang ... 13 weeks 3 days ago
Margo Kingston: bye, babe in Not with a bang ... 13 weeks 6 days ago