Is Wal-Mart Really Bad for the Poor?

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It's freezing cold outside this December (2006), but the weather doesn't stop holiday shoppers. People are scurrying about this winter season shopping for the latest toy or gadget for their loved ones. This is just like any other day at Wal-Mart; the same ubiquitous checkout sounds, the same background noises of people buying whatever entertains them at the moment. I am here for some gloves, and maybe a Christmas gift. The woman in front of me in the checkout lane is buying an RC car and a large plastic pony, both of which are clearance items. The same toys would have cost double at any other store, but thanks to cheap labor and the inevitable economic globalization, this family is going to have a larger pile of Christmas presents under their tree without having to resort to charge card debt.

There is another woman behind me with three young children. The kids are showing off their new gloves, and chatting incessantly about their plans for the holiday season. Like all children they seem to be off in their own world. Unlike other children, these kids seem content with a pair of gloves. The mother holds an armful of basic foods, cheese, milk, and a frozen turkey. The items are priced below the local competitors. I begin to wonder if there is any other place where two very different families, separated by economic classes, would come together to shop at the same place.

Wal-Mart began as a variety shop owned by Sam Walton in Bentonville, Arkansas called "Walton's Five and Dime." Mr. Walton's personal idiosyncrasy (he was "cheap") translated well into the business world. He achieved financial success with his variety shop by selling products with slightly smaller prices than competitors. Later Mr. Walton capitalized on his success and opened the first official Wal-Mart in 1962 in Rogers, Arkansas. He then "cookie-cutted" his business model and incorporated it as Wal-Mart. A small trace of Mr. Walton's personality can still be found in Wal-Mart's slogan, "Always Low Prices," which may or may not be followed by reinforcing "Always." Today, Wal-Mart is the largest corporation in the world, second only to an oil company.

Since its inception as the largest corporation in the world, Wal-Mart has been the source of much controversy. Particularly, Wal-Mart's business practices have put the company under public scrutiny. Critics of Wal-Mart allege that much of the company’s financial success is due to business practices that are harmful to the local economy, the employees (sweatshops overseas), and the environment. Therefore Wal-Mart, like Carthage, must be destroyed. I am suspicious of the reasons for this controversy, and I believe that Wal-Mart has fallen into Wood's Law — that someone will eventually call to curb or abolish any market innovation that benefits the poor. By now you may be asking how much Wal-Mart has paid me. Please, allow me to explain.

In a capitalist economy, markets require that businesses either compete or go out of business. That may seem harsh, but it is not necessarily a bad thing. In fact, failure can be part of the trial-and-error method by which consumers and business owners learn vital lessons about what works and what does not. If you are a critic of Wal-Mart, you may be screaming, "Tell that to the hundreds of business owners that went under because of competition from Wal-Mart!" I hear you. I understand that some might be suffering from "the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of [widgets] that he is flooding the domestic market with it at an incredibly low price." Coming from a small town and being a supporter of the local economy, I hate to see small businesses go under, but Wal-Mart doesn't deserve all the blame. That trend started years ago with strip malls, K-Marts, Sears, the whole suburban sprawl and all the other discounters that preceded Wal-Mart. It is caused by our preference (in the case of the poor, it's hardly a preference) to buy based on price, rather than quality. In this context, criticizing Wal-Mart seems contradictory, since the consumers, you and I, direct the buying power. Contrary to popular thinking, Wal-Mart does not put small businesses out of business: customers do by choosing to shop at a store that does a better job of supplying their wants than do their established competitors.

What about the child labor in foreign countries? What can possibly justify sweatshops in China, cheap RC cars in Wal-Mart? It is not easy to justify the conditions of sweatshops. However, it is easy to point the finger. Wal-Mart is not entirely to blame here. Where Wal-Mart's merchandise comes from is not directly controlled by Wal-Mart. The off-shoring of manufacturing companies to China and India is not Wal-Mart's fault; the blame lies with the manufacturing corporations. They love that cheap and controlled labor, and they know that whoever can produce the cheapest gets the Wal-Mart contract. Landing the Wal-Mart contract is like landing the defense contract for the US military. It's a lot of money. To put this in another perspective, if you are a business and the customer says, “I don’t care where it’s made as long as I can afford it," what would you do? Now before I bury myself any further with this Nuremberg-esque defense of Wal-Mart, we need to look at Wal-Mart's practices in light of premises in which businesses operate in our market system.

Consider the origins of the free market, or capitalism (for my purposes the two terms are interchangeable). Most of Wal-Mart's business practices are justified by the concept of the free market. In the United States, we call our system of trade collectively "capitalism." All forms of trade in a capitalist economy are driven by incentives for both (or all) parties. This incentive of personal gain has deep roots in human nature. Arguably, the very foundation of capitalism can be credited to the driving force of self-interest in human nature. Capitalism is, after all, an economic system supporting the pursuit of profit and personal interests. In the free-market, Wal-Mart's practices, like turning a blind eye to the sweatshops of their contractors, is acceptable.

Nowhere is it written in any principles of the free market (or capitalism) that a business has an obligation to make sure everyone is satisfied. Since the concept of capitalism has limited analytical value, it is harder yet to define obligations or values. Capitalism certainly wasn't delivered to the people from a mountain top. No one said, "wouldn't it be cool to have a behemoth of an industrial economy with a "survival of the fittest" ethos, where 90% of the world's wealth is concentrated in the hands of less than 10% of the people." Capitalism doesn't entail that the highest form of the pursuit of happiness is to settle down with a nine-to-five job, then come home to suburbia, with a couple of cars in the garage and slew of stupid things sold to us by this behemoth that few of us have ever taken the time to understand. People didn't get together and decide to do this and call it capitalism. It just emerged out of the social constructs of natural human development. Capitalism was and is the inevitable adaptation of human behavior.

Capitalism arose from the ashes of the industrial age with the fatalistic implications of social Darwinism. That is to say, capitalism arose without any particular principles beyond "might is right." Although it is hard to define obligations or values of capitalism, we can look at the free market school of economic thought for some grounding. In spite of the origins, capitalism has managed to transform communities with its unimaginable individual wealth, and it's ideology that celebrates acquisitive individualism. Capitalism has done so without a framework or values. It would seem that capitalism would be expected to breed selfish people with no concern for others. We picture the rugged individualist, or the loner, complete with a cowboy hat and no concern for anyone but his/her self. Yet Americans, who often epitomize the rugged individualist, give more money than the citizens of any other country. The ideology of acquisitive individualism, that has spawned the likes of Wal-Mart, has inadvertently created the most generous population in the world. This is quite an irony. So much so that it has found a place in the realm of the sensationalized on late-night reporting.

The point here is that Wal-Mart has to be beneficial in some way, to survive as a business. Wal-Mart has to be beneficial to a large population; otherwise its financial success simply would not be possible. In the words of the economist and social philosopher Ludwig Von Mises, "The profit system makes those men prosper who have succeeded in filling the wants of the people in the best possible and cheapest way. Wealth can be acquired only by serving the consumers. The capitalists lose their funds as soon as they fail to invest them in those lines in which they satisfy best the demands of the public. In a daily repeated plebiscite, in which every penny gives a right to vote, the consumers determine who should own and run the plants, shops and farms." Next time someone criticizes Wal-Mart for economic reasons, ask them if they have bought anything at Wal-Mart or tell them to recall the story about the people who advise troubled candle-makers to lobby for a law outlawing the sun.

Returning to the central question of this essay, who really benefits or who is hurt from Wal-Mart? Is it the little girl working in a sweatshop to make the RC cars? Is it the business owner forced to come up with a new idea? Is it the upper-middle-class mother buying RC cars for Christmas? Perhaps we can all agree that the poor family, who purchases gloves and food for the holidays benefits from Wal-Mart. If nothing else, maybe that anecdotal evidence proves that we have we reached Wood's Law? Recall that Wood's Law is that someone will eventually call to curb or abolish any market innovation that benefits the poor. Wal-Mart certainly benefits the poor in America at some economic level. I believe we have reached what I dub the paradox of Wood's Law. It is not a two-way street for those who labor in foreign countries to produce the goods Wal-Mart sells. Arguably Wal-Mart's low prices do not benefit them, in many senses of the word. The poor in America find Wal-Mart's low prices beneficial, but the factory workers overseas don't. This dilemma deserves to be defined. We'll call this observation Wal-Mart's Law: the paradox that businesses that benefit the poor often utilize the poor to do so.

I notice the woman behind me paying for her order with some wrinkled five- and one-dollar bills. We make eye contact and she forces a smile, but the look in her eyes betrays her troubles. As she leaves the store I hear one of the children exclaim, "we gonna' have a turkey this year!" Indeed they will, thanks to Wal-Mart.

April 16, 2007