Saturday, December 27, 2008

Is Wal-Mart Good for America

This question keeps creeping up in the news and op-ed articles. People often vehemently argue for or against wal-mart and it is becoming difficult for the average American to understand the economic complexities underpinning this debate. I will therefore share with you here my take on this according to my understanding of the matter.

The Union argument, to put it succinctly, is that Wal-Mart takes away jobs from Americans and shifts them overseas to China and it is therefore bad for America. This is a short-sighted and flawed argument for several reasons.

1 - The very same low-income group of people who are most negatively affected by such job loss also constitute the largest group of the overall Wal-Mart consumer market. In other words, they may be losing jobs but in return they are getting cheap, affordable products, (albeit of somewhat lower quality). How do we determine which is of greater importance, the job loss or the affordable goods gain?

2 - Wal-Mart does hurt the lower working class but how does that equate with what is "bad for America"? Clearly, there are people who make large profits from running a Wal-mart operation and some of those profits are ultimately redistributed to many other people via taxes, legal settlements and such and so what is "good" or "bad" for America is not simply what creates the most jobs; it's more complicated than this. Some American national interests seem to be served better by the mass marketing of cheap Chinese goods despite the cost to American blue-collar workers.

3 - Why are "jobs" so important? If the government were to force many lower-working-class people out of their job but continue to pay them an equivalent wage for doing nothing (as the federal "welfare" program does) wouldn't that be great for those people? They would no doubt be elated! Do nothing and still make money?! Well, that's too good to be true; so let's revise that. How about the government make them do something slightly less tedious and pay them the same amount? Or, how about the government put them to work on a different, but equally tedious job and pay them more? Certainly, such a proposition is sensible, realistic and an offer they can't refuse.

4 - A job's value is not measured by the mere level of work to be done. Rather, the definition of "job" is "purchasing power". By producing something essential to society, one is entitled to a reciprocal right to something of equal value from society. If a company puts people to work continuosly building structures and destroying them without accomplishing any end result, then this company is not providing "work" to those people. Even if it could artificially afford to pay them somehow in the short-term, in ther long run such a business model and such "work" is unsustainable. Thus, the loss of a job is only regrettable if there's a corresponding loss of "accomplishment", a loss of purchasing power.

In the case of Wal-Mart, there certainly would be a loss of purchasing power to Wal-Mart employees if they were to be laid off and did nothing else. But the real reason they are being laid off is to make room for higher-paying jobs in more sophisticated industries. In other words, in the long run we're not taking away their purchasing power. On the contrary, we're increasing it by elevating those employees to a higher employment level.

We should never lose sight of the fact that the reason we prefer Wal-Mart over the Mom and Pop shops is that Wal-Mart has the better business model. It can afford to provide better prices, better selection and better service. It is more efficient, more robust and more sensible. Opposing Wal-Mart is like taking a circuitous route to a destination when a shorter and cheaper route is available. It makes absolutely no sense to pay more and waste more time on the road by taking the circuitous route; even if that would result in profits for a friend of the traveler whereas the shorter route won't. A better alternative would --no doubt-- be to take the cheaper, shorter and more efficient route and then to forward some of the savings to the friend who operates the other route. Heck, if that route really is so circuitous and inefficient for so many people, why don't we pay our good friend to close shop and retrain to do something that society would better appreciate.

In our case, the right solution to the Wal-Mart problem is NOT to prevent Wal-Mart from creating a more efficient retail operation than the mom-and-pop shops. The right solution is also NOT to sit idly by and watch all those jobs being lost and do nothing (as the Bush administration has done for the past 8 years). The correct solution is simple: Forward the savings to our friend and/or pay our friend to close shop. We need to take aside these mom-and-pop people who are losing their business to Wal-Mart and have a talk with them. First and foremost we must assure them that the government won't let them starve. They are and will continue to be fully elligible for unemployment compensation. Secondly, we invest in a better education for them so that they can move on to the next level. We have them do something that society appreciates more and therefore pays more for. Granted, it does take a huge investment of funds to provide for such a retraining program but I don't see any reason why Wal-Mart (or the government coffers that are being stuffed with taxes from Wal-Mart) would be unwilling to invest the huge profits that would result from unfettered operation of Wal-Mart stores, in the task of retraining lower-working-class people. Also, consumers should be willing to foot the retraining bill as well. After all, they are the ones saving so much by shopping at Wal-Mart as opposed to the local, dingy, inefficient mom-and-pop shop.

A practical solution would be for the government to grant Wal-mart the license to set up shop in New York and elsewhere and levy a special "education" tax on them which will be earmarked for the express purpose of providing free or subsidized vocational training for anyone who is either laid off from a retail job, is in the market for a retail job or would have been in the market for a retail job (a criteria which is of course hard to define, but I'll let legislators and attorneys work out the rest). Other sources for the education fund could be a higher sales tax or a redirection of some of the sales tax proceeds towards the education fund. In summary, all the beneficiaries of the Wal-Mart system should participate in allaying the pain of mom-and-pop job losses: Government (higher taxes), Wal-Mart (higher corporate profits) and Consumer (higher savings and better service).