Progressive Wal-Mart

by Russ Roberts on November 28, 2005

in Wal-Mart, Work

In a quest for truth, the Washington Post’s Sebastian Mallaby becomes persona non grata at chic Washington Dinner parties by making the case (rr)  that Wal-Mart is actually good for poor people:

Wal-Mart’s critics allege that the retailer is bad for poor Americans.
This claim is backward: As Jason Furman of New York University puts it,
Wal-Mart is "a progressive success story." Furman advised John
"Benedict Arnold" Kerry in the 2004 campaign and has never received any
payment from Wal-Mart; he is no corporate apologist. But he points out
that Wal-Mart’s discounting on food alone boosts the welfare of
American shoppers by at least $50 billion a year. The savings are
possibly five times that much if you count all of Wal-Mart’s products.

These gains are especially important to poor and moderate-income
families. The average Wal-Mart customer earns $35,000 a year, compared
with $50,000 at Target and $74,000 at Costco. Moreover, Wal-Mart’s
"every day low prices" make the biggest difference to the poor, since
they spend a higher proportion of income on food and other basics. As a
force for poverty relief, Wal-Mart’s $200 billion-plus assistance to
consumers may rival many federal programs. Those programs are better
targeted at the needy, but they are dramatically smaller. Food stamps
were worth $33 billion in 2005, and the earned-income tax credit was
worth $40 billion.

Mallaby also gives a lovely answer to those who complain that Wal-Mart encourages its employees to apply for government health care programs.  First, he explains that this is what you’d expect of a business:

There’s a comic side to the anti-Wal-Mart campaign brewing in Maryland
and across the country. Only by summoning up the most naive view of
corporate behavior can the critics be shocked — shocked! — by the
giant retailer’s machinations. Wal-Mart is plotting to contain health
costs! But isn’t that what every company does in the face of medical
inflation? Wal-Mart has a war room to defend its image! Well, yeah,
it’s up against a hostile campaign featuring billboards, newspaper ads
and a critical documentary movie. Wal-Mart aims to enrich shareholders
and put rivals out of business! Hello? What business doesn’t do that?

But then, having teed up the ball, Mallaby proceeds to drive it out of sight:

Wal-Mart’s critics also paint the company as a parasite on taxpayers,
because 5 percent of its workers are on Medicaid. Actually that’s a
typical level for large retail firms, and the national average for all
firms is 4 percent. Moreover, it’s ironic that Wal-Mart’s enemies, who
are mainly progressives, should even raise this issue. In the 1990s
progressives argued loudly for the reform that allowed poor Americans
to keep Medicaid benefits even if they had a job. Now that this policy
is helping workers at Wal-Mart, progressives shouldn’t blame the
company. Besides, many progressives favor a national health system. In
other words, they attack Wal-Mart for having 5 percent of its workers
receive health care courtesy of taxpayers when the policy that they
support would increase that share to 100 percent.

Brilliant.  I will try and track down the source for his claims about the percentage of workers on Medicaid.

Here is an earlier post on whether Wal-Mart should treat its workers better.

Here’s another on Wal-Mart wages.

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{ 24 comments }

Randy November 28, 2005 at 12:21 pm

It seems obvious to me that the attacks on WalMart are motivated by simple greed. And I find it amusing that once again the extortion method of choice is to accuse the intended target of greed.

Christopher Meisenzahl November 28, 2005 at 12:26 pm

Wonderful, thanks for posting this Russell!

Chris
http://amateureconblog.blogspot.com/

JohnDewey November 28, 2005 at 12:37 pm

I think many Wal Mart attackers truly believe in what they are doing: fighting for a socialist world. Although some may be motivated by greed, many see their fight against WalMart as a crusade for control over evil private enterprise.

WalMart's sin is simply that they have been extremely successful at meeting the needs of their customers. WalMart's customers and its employees are happy with the company. The arrogance of the socialists is that they are certain they know what is better for those customers and employees.

rmark November 28, 2005 at 1:19 pm

If Wal-mart doesn't sell it, I don't buy it plus I also have my paycheck direct deposited to them, its much simpler. Ok, it just seems like the above. Living in a smaller town in flyover country, we can't get a Target (too many poor students, not enough roads)and I've never even seen a Costco. Why is Ikea so loved? Its just another big box store with inexpensive products.

Axel Kassel November 28, 2005 at 1:48 pm

Why does Mr. Mallaby keep calling liberals "progressives" when they're nothing more than early-20th Century Labour Party cross-dressers?

doinkicarus November 28, 2005 at 1:54 pm

I don't think there exists any evidence suggesting that if Wal-Mart were to raise its wage/benefit package, the people would be so taken by Wal-mart's generosity, as to line up in droves to purchase their wares in record numbers, thus negating any adverse effects. On the contrary, people appear to be quite satisfied with the prices they pay at Wal-Mart.

Otherwise, Wal-mart wouldn't be in business any longer

John Pertz November 28, 2005 at 2:50 pm

The Walmart controversy is a very very bad debate. Anytime that you have to argue for "Democratic Facism", and that is exactly what Walmarts critics are doing, then you are putting yourself in an extremely vunerable position. Arguing against Walmart is not a terribly logical or ethical thing to do.

Jeff Younger November 28, 2005 at 3:11 pm

Russell, I loved that last hit at Progressives! It’s a brilliant skewering of progressive hypocrites.

I know a fellow capitalist who won’t shop at Wal-mart because he fears that some of the Chinese products are made from the coerced labor of political prisoners or conscripts of the People’s Army.

Does anyone know how real this objection is?

dagmy November 28, 2005 at 5:15 pm

People like to protest Wal-Mart because it's an unappealing place to shop if you have any better alternatives, but you get more happy feelings from saying "I don't shop at Wal-Mart because I disagree with them ethically" than "I don't shop at Wal-Mart because their aisles are crowded and the lines are long."

Vince Daliessio November 28, 2005 at 6:10 pm

Nice post – especially with regard to the fact that for all of the carping about the "bad" things WalMart does, its competitors do pretty much exactly the same thing.

ralphie November 28, 2005 at 6:21 pm

I was in Palm Springs this weekend. The local weekly had one article protesting Wal-Mart's plans to open another store out there, and another article lamenting the lack of a Super Target. Can somebody explain that one to me?

Larraine November 28, 2005 at 9:22 pm

Wal-mart may be good for the short run for the poor but not for the long run. If forcing taxpayers to pay for their employees' health care is "progressive" than I guess I thought the term meant something very different. In addition the junk Wal-mart sells is all made in China and the "poor" are forced into low-paying service jobs instead of higher paying manufacturing jobs. Meanwhile third world country workers are being paid literally pennies.

Larraine November 28, 2005 at 9:23 pm

Wal-mart may be good for the short run for the poor but not for the long run. If forcing taxpayers to pay for their employees' health care is "progressive" than I guess I thought the term meant something very different. In addition the junk Wal-mart sells is all made in China and the "poor" are forced into low-paying service jobs instead of higher paying manufacturing jobs. Meanwhile third world country workers are being paid literally pennies.

thedaddy November 28, 2005 at 10:39 pm

Lorraine,

You didn't have to post it twice to show what an ill informed person you are.

thedaddy

Russell Nelson November 29, 2005 at 2:19 am

thedaddy,

No, but it help.

-russ (no, not THAT russ)

JohnDewey November 29, 2005 at 7:33 am

Larraine,

I own a small retail business. Like most retailers, including Walmart, I do not provide health insurance for parttime employees. Most of those employees have health insurance anyway: some through the employer of spouses or parents; some through school health programs; and some through the fulltime jobs they also hold. One may take advantage of other government-sponsored health programs. If health insurance was an issue for my parttime employees – or for Walmart's – they would move on to jobs that provide it. I would then be forced to provide health benefits – and pass along the costs to my customers – or else find other workers who didn't require health coverage.

We cannot blame Walmart or any other company if their government decides to provide for their employees' health care. We can only blame ourselves for allowing elected represestatives to fund it. There is no reason why Walmart should not take advantage of the government giveaway that all other retailers can likewise benefit from. Walmart would be shirking its duty to its shareholders to allow other retailers that cost advantage.

I don't think Walmart sells junk. Neither do its other constomers, who continue to buy in record numbers.

As for your claim that inexpensive Asian imports hurt our economy in the long run: where's the evidence? We've been buying more and more from Asia for at least 30 years. During that same period, real U.S. wages have increased and U.S. unemployment levels dropped to lowest levels in 40 years.

What Walmart's lower prices allow us to do is spend more money on other goods and services to the benefit of our economy. I fund Arizona and Colorado vacations with the money I save by buying inexpensive Asian goods. I'd much rather be paying those savings to the owners of a Scottsdale golf resort than overpaying unskilled American workers for sewing T-Shirts. No reason I should miss out on my vacation because some folks in South Carolina refuse to learn a skill.

John Pertz November 29, 2005 at 10:48 am

Larraine is sadly a shining example of the venom of the Left. Listen to the rage oozing out of her post. I love the accusation that Wal Mart sells junk. How cheep, in fact she offers no facts to back up here accusations that Wal Mart does sell junk. I dont understand why should we say such a thing because everytime that I go into the store I always see brand new products on the shelves. I guess there must be some secret garbage section of Walmart, kind of like the back room of old school video rental stores that contained the porno tapes. I'll have to look for the curtain in the back of Walmart so I can see the "JUNK ROOM."LOL

Jeff Younger November 29, 2005 at 11:19 am

Larraine clearly does not understand the notion of nominal wages vs. the real value of wages in terms of goods. Moreover, how are these poor people to become rich if they cannot use their best advantage: lower opportunity costs?

On the other hand, if there is coerced or conscripted labor involved, then I think that there is a moral issue involved — a capitalist ethos cannot abide force in human relationships. I worry that some free-market advocates overlook this issue.

Gravity November 29, 2005 at 5:25 pm

"The average Wal-Mart customer earns $35,000 a year, compared with $50,000 at Target and $74,000 at Costco."

Huh? Median income in the United States is approximately $25,000 a year. Where do these numbers come from?

Luisa November 29, 2005 at 9:48 pm
Blake Riley November 29, 2005 at 10:13 pm

Gravity, where did you get your number from? According to the Census Bureau, median household income is around $44,000. While I don't know where Russ got his numbers, they seem reasonable compared to this.

http://www.census.gov/Press-Release/www/releases/archives/income_wealth/005647.html

PlanMaestro November 30, 2005 at 9:26 am

I think the source for the Medicare figures was the 12-page leaked internal memo of 1 month ago. It included average numbers for US retail.

http://www.nytimes.com/packages/pdf/business/26walmart.pdf

Gravity November 30, 2005 at 10:09 am

I got my numbers from the Census Bureau. I looked at median *personal* income, not median *household* income. Since the quote I take issue with refers to average "customer" earnings, I feel that personal income is the more appropriate measure.

Still, even if you assume they meant household income, the numbers seem wacky. You're telling me the average Costco shopper earns 70% more than the national average? Doesn't seem right to me.

JohnDewey November 30, 2005 at 10:51 am

It's not surprising to me that Costco's customers have much higher incomes than do Walmart's. In Texas the Costco stores are located in upper middle class suburbs. I think membership is about $45 a year, which probably keeps out many low income families who believe they can get equal savings at WalMart.

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