« July 2006 | Main | September 2006 »

August 2006

Ghemawat on Wal-Mart

Pankaj Ghemawat of Harvard Business School notes that the attack on Wal-Mart is but the most recent battle in a long war:

History also provides perspective on the current clamor around Wal-Mart. When catalog pioneers Sears and Montgomery Ward seemingly threatened small-town retailers with extinction in the nineteenth century, those retailers mounted an energetic counterattack. The rise of chain stores in the 1920s also provoked outcries from independent dealers and whole communities, resulting in thirteen states passing anti-chain-store tax laws. The lesson for Wal-Mart is that successful new retailing formats tend to provoke vigorous reactions—in the nonmarket as well as the market sphere.

This all suggests that the debate around Wal-Mart isn't really about a Marxist conflict between capital and labor. Instead, it is a conflict pitting consumers and efficiency-oriented intermediaries such as Wal-Mart against a combination of old-line retailers and labor, community, and development activists. Particularly in retailing, policies in the United States favor consumers and offer fewer protections to other interests than is par for the course elsewhere. Is such proconsumerism a good thing?

The answer, at least in relation to Wal-Mart, depends on the identity of these "consumers"—the ones getting most of the benefits from the company's low prices. Wal-Mart operates 2-1/2 times as much selling space per inhabitant in the poorest one-third of states as in the richest one-third. And within these states, it focuses on poorer districts and consumers. Without Wal-Mart, therefore, the rural poor in particular would pay several percentage points more for the food and nonfood merchandise that—after housing—is their second-largest household expense.

Rich Lowry of National Review Online speculates on the reason Democrats are attacking:

Why do Democrats target Wal-Mart? As in so much else in Democratic politics, from trade issues to the minimum wage, part of the answer is to follow the unions. When Wal-Mart began to sell groceries, it ran afoul of the unions that dominate supermarkets, and they have made Wal-Mart a hate-brand on the left. Something deeper is at work, as well. In Democratic politicians’ contempt for Wal-Mart, there is an element of snobbery. They have a distaste for such a down-market, lumpen-bourgeois operation where few of their voters shop (one poll found that 76 percent of weekly Wal-Mart shoppers are Bush voters), let alone anyone they socialize with.

Worstall on income inequality

I'm not familiar with the data Tim Worstall cites, so I treat his claim with caution. But if the claim is supported by other data and by other investigators, it's quite surprising (from "America: More Like Sweden Than You Thought").

How we're supposed to read this is that the USA has a very uneven income distribution, that the poorest 10% only get 39% of the median income, that the richest 10% get 210%. Compare and contrast that with the most egalitarian society amongst those studied, Finland, where the rich get 111% and the poor get 38%. Shown this undoubted fact we are therefore to don sackcloth and ashes, promise to do better and tax the heck out of everybody to rectify this appalling situation.

But hang on a minute, that's not quite what is being shown. In the USA the poor get 39% of the US median income and in Finland (and Sweden) the poor get 38% of the US median income. It's not worth quibbling over 1% so let's take it as read that the poor in America have exactly the same standard of living as the poor in Finland (and Sweden). Which is really a rather revealing number don't you think? All those punitive tax rates, all that redistribution, that blessed egalitarianism, the flatter distribution of income, leads to a change in the living standards of the poor of precisely . . . nothing.