Thursday, June 09, 2005

Wal-Mart Debate Post Mortem, Part 2

These are the odds and ends I promised in the previous post.

Before the debate, I participated in a smaller seminar on why the Wal-Mart business model is so successful. This was something like a preview of the debate, since one of the other participants was Nelson Lichtenstein. During my speaking time, I made some harsh (perhaps too harsh) criticisms of this study from the UC Berkeley Labor Center, which purports to show Wal-Mart causes taxpayers to carry a greater public welfare burden. My fundamental criticism of the study is that it seriously confuses correlation and causation. It finds that Wal-Mart employees and their families rely disproportionately on public assistance, as compared to other retail employees and their families, and therefore concludes that Wal-Mart causes the difference in public assistance costs. All that statistic really shows is that Wal-Mart hires disproportionately from segments of the population more likely to rely on public assistance – specifically, people with few skills, people without education, single moms, immigrants with limited knowledge of the language, and so on. Nothing I could find in the study showed that Wal-Mart increased the number of such people (say, by pushing down wages) or caused them to rely more on public assistance than they otherwise would.

On the contrary, if Wal-Mart increases the employment of the people most likely to rely on public assistance (the study assumes Wal-Mart has zero net effect on employment), then it would actually tend to reduce the taxpayer burden. And of course, the study doesn’t even address the fact that lower prices raise people’s real incomes – presumably reducing the need to rely on public assistance, or at least making sure that each public assistance dollar goes further.

One of the study’s authors was there, and I’d like to have heard his responses. But I got pulled out the seminar early to meet with the debate moderator.

A handful of “smaller” issues came up during the debate but got squeezed out by the major issues discussed in the previous post. During the Q&A period, we delved further into one of them: the allegations of sex discrimination at Wal-Mart. Ted and I both stressed that we simply don’t know the truthfulness of those claims. But as Ted observed, while sex discrimination may occur on an idiosyncratic basis, it simply doesn’t make sense as a corporate policy. If sex discrimination means passing over equally or better qualified women in favor of men, then sex discrimination means sacrificing profits. Wal-Mart has been accused of many things, but insufficient greed has never been one of them!

Lichtenstein responded by pointing to Wal-Mart’s alleged policy of hiring young men as managers to enforce discipline on the workers, who are disproportionately older women. They don’t hire women for these management positions, he said, because women become friends with their fellow workers and are unwilling to crack down on them. We didn’t have a chance to respond to this argument (in our final statements, we chose to focus on the more important issue of low prices raising real incomes). But I wanted to respond, because the argument is so bizarre. If Lichtenstein is right – if women are unable or unwilling to enforce discipline – then women really are lower-quality managers. Now, I’m not saying that; I suspect you can find plenty of women tough enough to be managers. But to the extent that Lichtenstein’s argument is correct, then a policy of (mostly) hiring men does not constitute true sex discrimination, but merit-based hiring.

The issue of unions also came up during the Q&A. I hesitated for a moment, given the audience. But then I decided, what’s to lose? So I warned the audience I was about to stomp on some toes, and then said, “Unions do not represent the interests of all workers. They represent the interests of some workers at the expense of other workers.” The other workers include (1) workers who don’t get hired because hiring them can’t be justified at the higher wage imposed by unions; and (2) all the other workers whose wages are less valuable when the prices of goods go up. In response to the claim that Wal-Mart impedes freedom of association by opposing unionization in its stores, I pointed out that unions themselves impede freedom of association (and, I might have added, freedom of contract) between store management and potential employees. The “freedom to organize” championed by unions typically means the power to prevent firms from engaging in voluntary negotiations with non-members of the union.


Anonymous said...

I'm surprised that no one questioned your repeated contention that an increase in pay and benefits for the peon employees of Wal-mart would automatically result in an increase in Wal-mart's prices. I thought that Wal-Mart was one of the most profitable corporations in America, if not the world. So why not reduce those profits a tad? For example, isn't there considerable fat in the wallets of the Walton family? Alice Walton just purchased a painting from a library in New York for something like $25,000,000 to place in her newly-built personal art museum. I'm not about to tell Alice to spend her money on chocolates and puppies for poor kids, even the poor kids of her own company's workers. But I am prepared to find a way to reduce her obsene wealth one way or another. Call it class warfare if you will. I'm fine with that term.

I find it ironic that you feel that by paying it's employees better that you believe that it will hurt those selfsame worker's by increasing the cost they'll have to pay for goods from the company they work for. Isn't it lovely that Wal-Mart gets to recycle their employees' salaries into more corporate profits. If they chose to pay their employees better, then those workers will be able to buy even more goodies from Wal-mart. Hey, Wal-Mart will benefit from paying higer wages to it's workers. Can you compute by how much on the back of an envelope?

Perhaps a Southern California Wal-Mart worker aspires to the American Dream of home ownership. They might even be willing to forego buying all that Wal-Mart made-in-China trash if home ownerships were a realistic possiblity. Don't look now, but the median price of a home around Los Angeles is about $500,000. If somebody had brought that up, you'd have had them rolling in the aisles. The American Pipe Dream is the replacement (worker) term for the 21st century U.S. economy.

Anonymous said...

I'm not an economist in any sense, although I love this topic. It touches on so many aspects of American society.

First of all it is unfair to pick on the Walton family. Walmart is a public company. If you pick on the Waltons you must also pick on every shareholder who benefits from Walmart's practices. Those who pick on the Waltons seem simply jealous to me. It's not their fault that Sam Walton was as successful as he was.

And about the American Dream. In my opinion the AD is not about working at a discount store like Walmart. The AD might "start" at Walmart, to allow a person, for example, to get off of public assistance. Then other things can happen, like go back to school, or start a small company by your shoestrings. The AD is about entrepreneurship (sp?). Too many people forget that.

The reference to the AD must be compared to similar employees of establishments supposedly displaced by Walmart (e.g. mom-and-pop hardware store). Do you really think the employees of such a store were experiencing the American Dream? I doubt it. I think Walmart provides many more opportunities to get on the path to the AD than smaller store would have. The AD is not about where you work, but what you aspire to be or do and what you're willing to do to get there.

- Matt

Anonymous said...

Seriously, Glen, you know that Wal*Mart is destroying Main Street, right?

Caliban said...

"I thought that Wal-Mart was one of the most profitable corporations in America, if not the world. So why not reduce those profits a tad? For example, isn't there considerable fat in the wallets of the Walton family?"

The majority of WalMart stockholders are not rich Walton family members. They are people like you and me, people who are trying to have this American Dream you speak of. If you take some of that value that is disbursed to stockholders, the Walton family won't even notice. The family trying to save for their retirement or to invest to put their kids through college will.

If WalMart chooses to do that, then that's fine and dandy. The stockholders will have to voluntarily agree to it, and choose to sell/keep their stock. But for you to imply that it's morally rephrensible for WalMart to transfer that wealth to stockholders is simply stupid.

You are implicitly accepting the tenet that WalMart makes their employee's lives better. You are basically making the argument that they should make their lives more better; that you have a better plan for achieving that goal. It doesn't come across as a particularly devastating critique of WalMart.

Anonymous said...

I find that a lot of the criticism that was brought toward Wall-Mart can be applied to many other companies. It seems participants failed to focus on the main thing that distinguishes Wall-Mart: its sheer size. There seems to be natural resentment towards Wall-Mart that can only be explained by our natural (an in my opinion justified) tendency to be suspicious of groups with vast unrestricted power.

Wall-Mart has become so big that people feel suspicious of how they got into their position and how they stay there. People are doubtful that a company which does only the old traditional work of retailing would gain a large advantage over others. Their success cannot be explained by new technology or intellectual property. I think this is the feeling that is articulated when there are irrational arguments against wall-mart. People are sometimes just desperately trying to ascertain an explanation for their feelings.

It is nearly impossible to prove whether wall-mart used underhanded techniques to get to where it is and stay there. People can only have these persistent clues: the lack of explanation for their success and the concern that their sheer size gives them a political advantage. Some people feel that is enough evidence to prove on balance of probabilities that Wall-Mart is guilty.

As hint of the political power that wall-mart has is seen in the issue about unions. It doesn’t matter who the unions represent or if the unions are an asset or not to society. What is important here is that Wall-Mart through its political power is able to avoid unions where other smaller companies would not have been able. This gives them an unfair competitive advantage. Just a few months ago, here in Canada, the only Wall-Mart that was about to be unionized closed its door under pretext that they were predicting poor economic condition in the region. Not all companies can afford to close stores to steer around laws.

Anonymous said...

This blog attracts the uninformed and the computationally crippled. So here is my contribution: The combined net worth of the Walton family (not the tv Walton's) is approximately $100,000,000,000 (source:the Forbe's 400 list). Using advance mathematical techniques, you divide Wal-Mart's 1,000,000 employees into that montrously large number. Hmm, the answer is ... $100,000 per employee. Yes, I find it inconceivable that those cretinous employees should get paid anymore money. Where will the extra money come from for Christ's sake - manna from heaven? Glen's readers may not be "jealous" or "stupid," but clearly they flunked their high school math class when the subject of exponents was covered. They must not have understood exponentiation to the base ten, because they have no concept of how big a number like 10 to the 11th power is.

Saxdrop said...

Kudos Glen for entering the Lion's Den, head first.

I had an experience similar to this, although with a smaller audience, and a less incendiary topic.

I was asked to join a panel debate on the use of direct incentives by cities to attract retail/manufacturers/etc. The rub is, I was skeptical of the use of such incentives generally speaking, and the conference was put on by a professional association of city and non-profit economic development managers.

They were cordial, and while I may not have changed many minds, I think they appreciated hearing what I had to say.

Glen Whitman said...

"I'm surprised that no one questioned your repeated contention that an increase in pay and benefits for the peon employees of Wal-mart would automatically result in an increase in Wal-mart's prices."

Actually, they did question that contention, and in pretty much the same way you did: "I thought that Wal-Mart was one of the most profitable corporations in America, if not the world. So why not reduce those profits a tad?"

Wal-Mart, like any profit-seeking business, makes pricing decisions based (in part) on costs. Anything that raises a firm's marginal cost of production or service will induce it to raise prices. This is true regardless of how profitable the company is, so the fact that Wal-Mart makes large profits is irrelevant to the analysis. The degree of competition in the market will influence how much of the cost increase is passed through to consumer, but some portion will always be passed through (except under highly implausible conditions). Or do you think firms ignore their costs when choosing their prices?

"I'm not about to tell Alice to spend her money on chocolates and puppies for poor kids, even the poor kids of her own company's workers. But I am prepared to find a way to reduce her obsene wealth one way or another."

Funny thing is, forcing Alice Walton to spend her money on goodies for poor people would actually be a better way of achieving your social goals than virtually any other scheme you might cook up. (Not that I would advocate that, of course.) Passing laws that drive up WM's labor costs is an incredibly counterproductive way to improve the lot of the poor, for the reasons outlined above.

Glen Whitman said...

"Glen's readers may not be 'jealous' or 'stupid,' but clearly they flunked their high school math class when the subject of exponents was covered."

I love it when ignorant people accuse others of ignorance. What exactly do you think that $100,000 figure *means*? All it shows is that you could make the WM shareholders disgorge their wealth and then divide it among 1,000,000 people who just happen to be WM employees. Or you could pick 1,000,000 people at random from the population and do the same thing. It tells us absolutely nothing about the "right" wage for WM employees. Did you want to force WM to pay higher wages or benefits to its employees? Oh, well that's an entirely different question -- and the effects of that policy are explained in my previous comment.

Anonymous said...

Glen, I don't mind when you get testy or insulting; you need to get your frustrations out one way or another. Your entitled to be less than perfect on occasion. You're plenty perfect enough.

But your disingenuous answer is problematic. Now I finally realize when it is proper to flunk a plagiarizing student. When the plagiarized passages aren't necessarily true or are intended to deceive the reader. The worst of the worst would be to plagiarize a passage that was likely plagiarized itself. Neil, is there a word for someone who can accomplish that feat? I know the word isn't 'brilliant.'

I also know that when you have to rely strictly on 'economic theory' and pepper your answer with economic terms such as 'marginal' this or that, that you are grasping and in trouble. You can wave your 'economic theory' in my face, but I'm getting too old to have the wool pulled over my eyes.

In my book, you're still cool and smart; and I'm still ignorant in your book, I suppose. Sticks and stones ...

-Your #1 Fan (I'm not easily discouraged)

Anonymous said...

I have to hand it to you, Glen. Nobody gets blog-stalked like you do.

Anonymous said...

That's a nice story, but it's also totally false. The high point of the American industrial union was probably the 1950's; at this time, industrial workers more hours under much less safe and less comfortable conditions, and their material welfare was generally worse than that of today's poor people. Perhaps more importantly, de-unionization has coincided with a large reduction in the income gap between blacks and whites.

The way to continue this trend is to encourage the highly efficient firms like Wal-Mart. The purveyors of Socialism Lite would be happy to let this country stagnate, if that's what it requires to satisfy their hatred of capitalism.

Anonymous said...

The taxpayers are subsidizes Wal-Marts low wages by paying for the medical benefits and other welfare benefits (like education)of its employees. That sounds like a cogent corporate social responsibility argument for WM to increase pay and benefits now. I'M SICK OF MAKING THE WM STOCKHOLDERS (ESPECIALLY THE BILLI0NAIRE WALTONS) RICHER OUT OF MY TAX DOLLARS!! I'VE HAD ENOUGH AND I'M NOT GOING TO TAKE IT ANYMORE! What happened to progressive taxation in this country? Why are you, as an economist, not up in arms about that? Has Hayick brainwashed you? How disgraceful!

Anonymous said...

Where does the line start to collect the check for a hundred grand? Do you have to be a Wal-Mart employee? Isn't that discrimination? Gee, a line a million people long might require a long wait not to mention wend its way around a few city blocks. Will Wal-Mart pick of the tab for the extra traffic control, trash pickup, security, etc. It sound logistically difficult. Can't they just use the already-in-place Social Security system to direct deposit the check into my bank account? I like it when government and business work together to make our lives so much better. I'm trying to budget the money to make the most of it. Thanks Wal-Mart!!!

Anonymous said...

How is that again? Millions of manufactoring jobs in America have been replaced by low paying jobs in retail. You like that? I assure you that I like it even more. Go China!!! Rah, Rah, Sis Boom Bah!

-Alice Walton, Arizona Wildcats Cheerleader

Anonymous said...

"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration." Lincoln's First Annual Message to Congress, December 3, 1861.

-Honest Abe's #1 Fan

Anonymous said...

John Walmart, with a worth estimated at 19.1 billion dollars is dead. He was Sam Waltons second oldest child. He was piloting an experimental plane when it crashed near the Grand Tetons. He is survived by his wife and one son.

You can rest assured that his lawyers and tax accountants protected his vast wealth from estate taxes ("The Death Tax").

He never worked a day in his life in Wal-Mart stores, but was on the Board of Directors recently. This is the sick country we live in, folks.