These last two weeks in American Heritage have found us discussing issues ranging from the progressive income tax to political correctness. In the middle of this discussion of the free market, capitalism, and government intervention has been a discussion of the value of Wal-Mart. As the largest retailer in America (the world) it shouldn't come as a surprise that they find themselves under the magnifiying glass. Most of the comments in class have been critical, taking issue with low wages and poor healthcare. As I was thinking about these critiques, I came across an op-ed piece in The Wall Street Journal that poses the question: Is Wal-Mart good for America? (click for WSJ subscribers)
I post this first for my American Heritage students who read my blog and think critical about these vexing issues and second for all the rest of you. As always I encourage my students (and other readers) to read this skeptically as they would anything else. However, I think it makes some good points.
Is Wal-Mart Good for America?
December 3, 2005; Page A10
It is a testament to the public-relations success of the anti-Wal-Mart campaign that the question above is even being asked.
By any normal measure, Wal-Mart's business ought to be noncontroversial. It sells at low cost, albeit in mind-boggling quantities, the quotidian products that huge numbers of Americans evidently want to buy -- from household goods to clothes to food.
Wal-Mart employs about 1.3 million people, about 1% of the American work force. Its sales, at around $300 billion a year, are equal to 2.5% of U.S. gross domestic product. It is not, however, an especially profitable company. Its net profit margins, at about 3.5% of revenue, are broadly in line with the rest of the retail industry. In fiscal 2004, Microsoft made more money than Wal-Mart on just one-eighth of the sales.
The company's success and size, then, do not rest on monopoly profits or price-gouging behavior. It simply sells things people will buy at small markups and, as in the old saw, makes it up on volume. We draw your attention to that total revenue number because, in a sense, it tells you most of what you need to know about Wal-Mart. You may believe, as do service-worker unions and a clutch of coastal elites -- many of whom, we'd wager, have never set foot in a Wal-Mart -- that Wal-Mart "exploits" workers who can't say no to low wages and poor benefits. You might also accept the canard that Wal-Mart drives good local businesses into the ground, although both of these allegations are more myth than reality.
But even if you buy into the myths, there's no getting around the fact that somewhere out there, millions of people are spending billions of dollars on what Wal-Mart puts on its shelves. No one is making them do it. To the extent that mom-and-pop stores are threatened by Wal-Mart, it's because the same people who supposedly so value their Main Street hardware store find that Wal-Mart's selection, or prices, or parking lot -- something about it -- is preferable. Wal-Mart can't make mom and pop shut down the shop any more than it can make customers walk through the doors or pull out their wallets. You don't sell $300 billion a year worth of anything without doing something right.
What about the workers? In response to long-running criticisms about its pay and benefits, Wal-Mart's CEO, Lee Scott, recently called on the government to raise the minimum wage. But as this page noted at the time, Wal-Mart's average starting wage is already nearly double the national minimum of $5.15 an hour.
So raising it would have little effect on Wal-Mart, but calling for it to be raised anyway must have struck someone in the company as a good way to appease its political critics. (Bad call: Senator Ted Kennedy quickly pocketed the concession and kept denouncing the company.) The fact is that the company's starting hourly wages not only aren't as bad as portrayed, but for many workers those wages are only a start. Some 70% of Wal-Mart's executives have worked their way up from the company's front lines.
The company has also recently increased its health-care options for employees on the bottom rungs of the corporate ladder. Starting in January, one of those options will be a high-deductible health-savings account, which is a great way to insure yourself if you're relatively young, relatively healthy and yet want to protect against the onset of some catastrophic illness. Mr. Kennedy, who recently called Wal-Mart one of the most "anti-worker" companies around, has been a chief opponent of these pro-worker, pro-market health insurance vehicles.
But suppose Wal-Mart did look more like the company its detractors would like it to be, with overpaid workers, union work rules, and correspondingly higher prices on goods. It would not only be a less attractive place to shop, and hence a considerably smaller company. It would drive up the cost of living for the millions who shop there, thus hurting those in the bottom half of the income-distribution tables that Wal-Mart's critics claim to be speaking for. One might expect this fact to trouble the anti-Wal-Mart forces, except that their agenda is very different from what they profess it to be.
As our Holman W. Jenkins Jr. pointed out in a recent column, the vanguard of the Wal-Mart haters is composed of unions that have for decades kept retail wages and prices artificially high, especially in the supermarket business. Those unions have had next to no success organizing Wal-Mart employees and see Wal-Mart's push into groceries as a direct threat to their market position. And on that one score, they may be right.
But seen it that light, it becomes clear that much of the criticism is simply a form of special-interest lobbying in socially conscious drag. And why an outside observer should favor the interests of unionized supermarket employees over those of Wal-Mart shoppers and employees is far from clear (unless you're a politician who gets union contributions).
Any company as successful as Wal-Mart will invariably run afoul of such vested interests. It is in the nature of the rise of a new giant on the scene that it disrupts established ways of doing things and in the process upsets established players. So it was with Standard Oil at the beginning of the 20th century, IBM in the middle and Microsoft at the end of the century. Wal-Mart, perhaps because it restricted itself to towns of less than 15,000 people as a matter of policy into the 1990s, at first avoided and later seemed blindsided by the attacks that have come its way.
What do you think?