Wal-Mart and Woods's Law

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One proof of Woods’s Law — that someone will eventually call to curb or abolish any market innovation that benefits the poor — can be seen by studying Wal-Mart. Here is a company that unquestionably increases the purchasing power of the poor, thus improving the poor’s standard of living and while helping the poor live more independent, autonomous, and (I would argue) virtuous lives. It’s heroic. So, following Woods’s Law, it is predictable that Wal-Mart is attacked by disparate and disgruntled — but well-funded — groups to force it to unionize its labor force and provide benefits to its workers above and beyond whatever benefits the firm and its employees would agree to voluntarily.

That these groups are funded by unions who extract money from members under the threat of force raises moral questions that are not my focus today. Still, I wonder how much more effective Wal-Mart could be, and by extension how much better off the poor would be, if it didn’t have to divert resources to combat their efforts.

A report issued by the research firm Global Insight last November identifies another economic benefit that occurs when Wal-Mart opens a new store in a community. In a broad study of the economic impact of Wal-Mart on the U.S. economy, researchers found that on the county level, Wal-Mart "serves to stimulate the overall development of the retail sector that leads to an overall positive impact (in terms of retail employment) for the counties in which Wal-Mart has expanded." (You can download the 64-page report here. It discusses many more areas than retail employment.) In other words, just as Southwest Airlines forces competition to become more efficient in those markets it enters (this known as the Southwest Effect), so does Wal-Mart affect the structure of county-level retail employment (the Wal-Mart Effect). Again, as a result of this activity, the poor benefit.

Wal-Mart’s economic effects on the U.S. economy, in the aggregate, support this point. According to the report, in 2004, Wal-Mart was

responsible for 210,000 net jobs, a level of total factor productivity (general economic efficiency of the economy) that is 0.75% higher … than it would have been. Nominal wages are 2.2% lower, but given that consumer prices are 3.1% lower, real disposable income is 0.9% higher than it would have been in a world without Wal-Mart.

It seems contradictory, in light of this, that today’s world with Wal-Mart includes the establishment of a Communist Party committee in two of its Chinese stores, a concession the firm probably thinks is necessary if it is to be allowed by the Chinese government to establish a larger market presence there. (It currently has 60 stores in China.) This news, followed a week after it was announced that Wal-Mart would recognize trade unions in China, has been called a double-standard by a spokesman for Wal-Mart Watch, one of the firm’s union-funded detractors. "Wal-Mart’s applying a complete double standard here," said Nu Wexler. "Why are they [sic] comfortable with it in one country and fighting it in another?"

Wexler is right. It is a double-standard, but one forced on it by the State. Because economic laws are universal, this policy will have the same harmful economic effects that unions have in the U.S. People will go unemployed because they can’t find work at the union wages. Many of them will then become dependent on, and supporters of, the party in power. Unskilled workers will remain unskilled because they will be denied the opportunity to develop the skills plus the work ethics and values that are only learned in the workplace. Prices will exhibit upward pressures as the firm tries to recoup costs incurred both complying with union regulations and proving that it is complying with union regulations.

By fighting unionization in the United States, Wal-Mart does have a double-standard being forced upon it. All this proves, however, is that for groups like Wal-Mart Watch to force the unionization of Wal-Mart’s labor force, they must agitate for the U.S. government to be a little more like the Chinese government than it already is.

It also proves that the effects of Woods’s Law are relatively harmless, except when governments get involved on the side of those calling for the repeal of market innovations. When that happens, violence is introduced where it previously did not exist, and as always, the poor suffer more than they otherwise would.

August 28, 2006

Chris Westley [send him mail] teaches economics at Jacksonville State University, Alabama.

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