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September 01, 2006
In H. Lee Scott They Trust
Responding to a particularly silly Tim Worstall column trying to take me to task for suggesting that Wal-Mart could pay better wages and sustain a viable business model, Randy Paul punches a thousand holes through Worstall's smug recitation of Costco's differences from Wal-Mart by comparing apples-to-apples, Costco v. Sam's Club (Sam's Club is Wal-Mart's Costco competitor):
According to Walmart's 2005 Annual Report, Sam's Club makes up 13 of their annual sales which, for that year, would be $37,078,860,000. Costco with 212 fewer stores has sales of $51,862,000,000.
Who has the better business model here? Moreover, where would Worstall want to work if he had to choose between the two?
Yowch. That had to hurt. In any case, I should probably say a few words about Worstall's piece. It was called -- I kid you not -- "Wal-Mart and Toddler Economics," and complained that the left was approaching the issue like "whining three-year-olds with all the attendant knowledge of incentives, utopian wishes and economic consequences such a three-year-old might possess."
Better that, I guess, than the Daddy-knows-best complex currently infecting the right. What staggers me is the total paucity of imagination, the apparent belief that whatever Wal-Mart has decided to pay, and do, and decide, is the best of all possible worlds, and we should trust in their wisdom and allow the behemoth to rage not merely unchecked, but entirely unexamined. What's good for Wal-Mart, in this scenario, is good for us. So were there any way to run the company that would better serve the public good, they would surely have implemented it (they're not only benevolent, but omniscient, too).
It is certainly true that, all other things being equal, Wal-Mart cannot substantially change their labor practices. It is certainly not true, however, that all other things are ever equal. What if Wal-Mart rose the price of everything by two pennies? What if things got a bit more expensive, but it was coupled with a large advertising campaign touting their genuine improvements in corporate citizenship? What if, what if, what if?
Clearly, Wal-Mart thinks some progressive changes are worthwhile. They've begun to grope towards a sort of corporate environmentalism, deploying everything from renewable energy sources to organic foods to lessen their environmental footprint and mollify and attract more upscale buyers. Clearly, according to Wal-Mart, there were better ways to run a company than how they previously did. Now they're seeking to adopt them.
Moreover, what's best for Wal-Mart as a company may not be best for America as a country. As the economist Rashi Fein likes to say, "we live in a society, not an economy." It may indeed be that having the largest employer in the nation be anti-union, pay low wages, offer paltry benefits, and essentially demand their producers do the same does not work in our best interests, even as serves Wal-Mart's. But for some reason, the right not only lacks class consciousness, they've tumbled into corporate consciousness -- they so identify and lionize the captains of industry and CEOs of mega-corporations that they seem wholly incapable of realizing their needs don't always coincide.
Now, I'm not precisely sure what needs to be done about all this, if anything. I'm still poring through the data, puzzling over the options. My sympathies, obviously, lie with unions, and my guess is that we need to relieve employers of the burden for the safety net, but I'd actually like to see smart people talking this stuff through. I was, as some remember, a primary defender of Jason Furman, when he took the heterodox view, based on solid evidence, that Wal-Mart is good for the poor. But I'm also convinced by Barry Lynn, who argues that Wal-Mart has begun exercising an effective monopsony, and is creating an economy that prizes cheap labor, and that forces producers to race to the bottom. How big that effect is, I'm not sure. But if Wal-Mart is good for the poor but kicking away the ladder to the middle class, that's not good enough.
As I said, I'm open to persuasion, but I'm getting precious little of that from the right. Goldberg admits on the Corner that he's conflicted over the issue and turns in a snide column mocking Democrats who've spoken out; Worstall pretends to praise the conversation only to conclude that Wal-Mart simply can't retain employees if they do anything differently. In H. Lee Scott they trust. I don't.
September 1, 2006 in Wal-Mart | Permalink
Comments
What's good for WalMart is good for America, or some nonsense like that.
Posted by: Eric | Sep 1, 2006 4:20:51 PM
Over the past 30 years, I have been amazed at the general acceptance that it is unnatural, not to say immoral not to always choose the highest margins for the greatest return in the shortest possible time. I believe this has to to with the enormous investments in the stockmarket in general but particularly by executives. Stock market investment pays off in increased share price not in divident income (but that's another story). In any case, something that became more apparent is that like Marx said, to a great extent the economy as we know it is DEPENDENT on an underclass. One of the plaints after Katrina by retail and hospitality businesses was there are no low wage workers - (they had no particular reason to return because of owning nothing and that housing costs had skyrocked.) If Wal-Mart and through them - other mass employers in the service industry require low wage workers to maintain their status quo, they will work to ensure they are available, hence the republican counter intuitive push for guest workers. It's what business wants! Since Reagan there has been an idea that the purpose of policy has been to strengthen business - not sole proprieters, just corporations, even business regulations seem to have been developed to raise the bar for entering the marketplace rather than taming the corporate beast. As Jonathan Alter pointed out the urban homesteading idea whent no where after Katrina - it would have given indiviudals an opportunity to participate in the taxpayer gravy train. And of course, there is also the idea that low wage workers deserve the low wages. Why aren't they smarter, better looking, healthier, why don't they just move close to better jobs?
In my mind Wal-Mart is evil and reflects the incredible lack of generosity of spirit combined with insufferable self-righteousness that I see in the U.S. in behavior at and ideology both domestically and overseas.
That's my incoherant rant of the day.
Posted by: Cathy | Sep 1, 2006 4:22:37 PM
Let's not forget one thing: a lot of these right wing nuts are funded by right wing "think tanks" that get oodles of cash from lots of really rich guys. And surprise! they keep on coming up with lots of arguments on how these rich guys and corporations are just great, should pay less in taxes, and are being unfairly attacked by "liberal elites".
And let's also not forget that faith based, means faith based - they don't want to reason, they want to chant. And that's what they do.
Posted by: Samuel Knight | Sep 1, 2006 4:31:04 PM
Walmart is putting their money where their mouth is in terms of green energy - I know from first hand experience, just this week.
I can't release the details, as the contract isn't signed but they are.
Its astonished us too. :)
Posted by: mickslam | Sep 1, 2006 4:45:36 PM
The last part of it is correct Sam. I was arguing about the minimum wage (in Vermont) with a Republican friend of mine (yes, they too can be your friends!) I causally referred him to an article Ezra wrote (Raise the Minimum Wage, Raise it Now) at the beginning of the summer. His response was simply, "I cite any Econ 101 book."
Thats it. They are simply sold on theory of complete and total free market capitalism. I didn't take Econ 101, but it seems to me that American economics might be a bit more complex than what one might learn in 101.
Posted by: Adrock | Sep 1, 2006 4:50:34 PM
Also, economics is a social science NOT a natural science. Truth doesn't flow from it like gravity or photosynthisis. It can only be seen through the template of the human psyche which is what it is in fact studying. The "givens" in economics are not the same kind of constant as the speed of light or the angles of a triangle.
Posted by: cathy | Sep 1, 2006 5:06:22 PM
"...it seems to me that American economics might be a bit more complex than what one might learn in 101."
Spot on. Econ 101 is all about markets with limited variables where everyone has perfect information and acts rationally. There's a large number of variables in the real world - and there's a tremendous amount of money to be made by misinforming people and businesses so they act irrationally.
Posted by: Kylroy | Sep 1, 2006 5:14:38 PM
Costco pays "presumably" better than Sam's Club? You mean you don't even know? Doesn't seem like a brutal takedown if it turns out people at Sam's Club make $17/hour.
Posted by: spike | Sep 1, 2006 5:34:02 PM
The avg wage at Sam's Club is $9.68, nearly 40 percent less than Costco's avg of $16 or so.
Link.
Posted by: Ezra | Sep 1, 2006 5:41:26 PM
The article is two years out of date, but I doubt either Sam's has raised or Costco lowered wages significantly since then.
Google. It rules.
Posted by: Kylroy | Sep 1, 2006 5:41:36 PM
Damn. So what did you put into Google, Ezra?
Posted by: Kylroy | Sep 1, 2006 5:44:13 PM
Actually, in the Econ 101 class I took, we were taught both an economic model under which unemployment would go up if the minimum wage was raised, and another in which it the minimum wage could be raised, to an extent, without causing unemployment to go up. We were also given enough background to make educated guesses as to which model's assumptions and predictions more closely matched reality.
It could be that I went to a better school than the "I cite any Econ 101 book" Republican, but I have found that most Republicans put their ideology first, then go looking for facts or lies to support it.
Posted by: felix | Sep 1, 2006 6:20:14 PM
What staggers me is the total paucity of imagination, the apparent belief that whatever Wal-Mart has decided to pay, and do, and decide, is the best of all possible worlds, and we should trust in their wisdom and allow the behemoth to rage not merely unchecked, but entirely unexamined.
In the end, their entire view of economics comes down to a weird Panglossian tautology: the absence of government intervention produces the best results because everything that happens outside of government intervention is good, and everything that happens outside of government intervention is good because the absence of government intervention produces the best results. It's the best of all possible markets.
Posted by: Tom Hilton | Sep 1, 2006 7:13:18 PM
Oh, heck, Thorstein Veblen shot the logic of the Marginalists full of holes a hundred years back ... but in the New Deal, the Institutionalists went to work for the government while the Marginalists, who couldn't do anything useful, stayed at University reproducing themselves ... then after the war, the use of mainframes and minicomputers to provide statistical estimates of their models allowed them to give it the gloss of usefulness, and with the leverage provided by the support of Rand and others, the rest (as they say), is history.
The fact is that there is substantial filtering of which economic modelling is allowed through, which is far better explained empirically by their utility in rationalizing the handing over of money to wealthy men than by actual success in explaining the world.
Whereas Ford wanted to set a wage that would allow a Ford worker to buy a Ford (and, not coincidentally, discourage the establishment of a union), Wal-Mart is quite happy to have a strategy of acting like a low wage country exporting to a high wage country.
A fly in the ointment, as far as their strategy goes, is that a lot of the growth in purchasing power in their consumer market has been debt-fueled. When the collapse of the housing bubble picks up pace, a chunk of that a substantial part of that purchasing power will disappear.
Posted by: BruceMcF | Sep 1, 2006 10:43:13 PM
Let's say the Republicans would concede that abseence of government coercion doesen't always neccessarily produce the best results, and that what's good for Wal Mart isn't always good for America. Is this the argument some are using as justification for Government intervention?
I don't think what's good for the Pornographic industry or the Pop music industry is neccessarily good for America either, that doesen't mean I think laws should be passed prohibiting them or bringing them in line with the best interests of the American state.
Posted by: Dustin | Sep 1, 2006 10:51:01 PM
It's amusing that Dustin jumps right to regulating sex and roc and roll. Classic Republican -- no interference with commerce, unless its to censor the evils of the young.
Posted by: paperwight | Sep 2, 2006 12:23:02 AM
I'm tired of this mindless defence of Walmart and Exxon and the inevitable neoliberal"rising tide of prosperity that elevates all boats"jive we've been force fed for the last 25 years.Isn't it painfully obvious by now to even the most fervent disciples of this cruel brand of economics that the rich are getting richer,the poor poorer,while the middle class slowly disappears?In this glorious New Order,wealth trickles "up" not "down".
Posted by: scott | Sep 2, 2006 1:02:41 AM
My question for Worstall: is there anything in the sensory, material world that you would consider falsifies your views? In short, is this like mathematics, proving theorems from axioms, or economics, theorizing about the real world using mathematics as a tool, then testing it against empirical evidence?
I had difficulty understanding whether Worstall's argument was based on a lump-of-labor fallacy or a claim that companies like Wal*Mart paying more would raise NAIRU. It looks, at a casual glance, like Worstall's claiming that the fact that Wal*Mart employs a lot of people means that any reduction in its labor force due to more efficient use of labor would just lead to a lot more unemployment, which is, of course, a classical lump-of-labor fallacy (the common argument against higher productivity-per-worker). However, a more charitable interpretation is that he thinks that the U.S. economy would be able to employ all of Wal*Mart's poorly paid workers at higher rates, but this would be inflationary, forcing the Federal Reserve to raise interest rates, leading to a generally higher level of unemployment. This is a possibility, but so far, economists looking very hard for such an effect have failed to find one.
Posted by: Julian Elson | Sep 2, 2006 1:53:30 AM
You know, my mother was remembering growing up in a town dominated by Standard Oil. Now SO had a lot to answer for-- the pollution was horrific, and more than once refinery fires killed townspeople. But she was remembering that SO built the city call, the library, and the community center while voluntarily paying 4 times its assessed property tax. She remembered that her uncle Pete -- a refinery worker-- had retired wealthy due to annual gifts of stock from the company-- given to every employee. She remembered that SO laid off not one worker during the Depression.
In some ways (especially environmental), that wasn't a good corporate citizen. But they really did try to improve the lot of their workers and the community. It's hard to even imagine a Walmart behaving that way.
Posted by: lister | Sep 2, 2006 3:08:42 AM
Ezra: It was you who originally compared Costco to WalMart. I then went on to say that this was an inappropriate comparison, given the difference in the intensity of their use of labour.
The retort that actually we should compare Sam’s Club with Costco does not "hurt". Rather, it validates my point: we should not be comparing WalMart with Costco in the way that you were.
"The avg wage at Sam's Club is $9.68,"
Well done, actually misquoting the very page you link to:
"Although Sam's $11.52 hourly average wage for full-timers tops the $9.64 earned by a typical Wal-Mart worker,"
" In return for all this generosity, Costco gets one of the most productive and loyal workforces in all of retailing. Only 6% of employees leave after the first year, compared with 21% at Sam's. That saves tons, since Wal-Mart says it costs $2,500 per worker just to test, interview, and train a new hire. Costco's motivated employees also sell more: $795 of sales per square foot, vs. only $516 at Sam's and $411 at BJ's Wholesale Club Inc. (BJ ), its other primary club rival."
Given that turnover of the workforce, the training costs, as the article then goes on to point out, Sam’s Club probably does spend more of its turnover on labour than Costco does. Although as is also pointed out, we don’t actually know, because the figures aren’t broken out for us.
Re the ladder up into the middle class not being provided by WalMart: well, that really depends upon where those 21% that leave in the first year are going, doesn’t it? If WalMart is a training ground, somewhere for people to get their first job experience, and when they leave they move up the scale (perhaps to Costco?) then that is a ladder, isn’t it?
"But for some reason, the right not only lacks class consciousness, they've tumbled into corporate consciousness -- they so identify and lionize the captains of industry and CEOs of mega-corporations that they seem wholly incapable of realizing their needs don't always coincide."
As I’ve said before here, I’m a liberal, even if of the Classical type. I am well aware of the way in which big business captures the regulatory machinery, fully awake to the way in which such things as tariffs and quotas (as examples) benefit certain businesses and stockholders at the expense of consumers. I do indeed rant and rage at such transfers from poor to wealthy (for example, at the Adam Smith Institute blog, my bits there being perhaps analagousto your’s at Tapped).
"Let's not forget one thing: a lot of these right wing nuts are funded by right wing "think tanks" that get oodles of cash from lots of really rich guys."
I’m paid as a freelance writer: per piece and no, I don’t know who the money comes from.
"Actually, in the Econ 101 class I took, we were taught both an economic model under which unemployment would go up if the minimum wage was raised, and another in which it the minimum wage could be raised, to an extent, without causing unemployment to go up. We were also given enough background to make educated guesses as to which model's assumptions and predictions more closely matched reality."
Quite so. The question is whether the current minimum is anywhere near the market clearing wage. One below it has very little effect. Set the minimum wage well above the market clearing one and unemployment will indeed result.
"My question for Worstall: is there anything in the sensory, material world that you would consider falsifies your views?"
Yes, many of my views have in the past been falsified by real world evidence. No doubt many more of them will tumble in the future. Also true that some are fortified by real world evidence. That tends to be the result of trying to look for the evidence that will support or refute one’s ideas.
I don’t think WalMart paying more or less will have any effect upon NAIRU. Haven’t even thought about it to be honest.
My point was rather that if WalMart utilizes labour with the same efficiency as Costco then WalMart will employ a lot less labour.
Posted by: Tim Worstall | Sep 2, 2006 3:48:42 AM
There's some pretty good evidence that Wal-Mart overstates its average wages. When our organization, Wal-Mart Alliance for Reform Now, looked at information gathered in Florida by the unemployment, their average wages came to a lot less:
http://www.warnwalmart.org/fileadmin/WARNstorage/walmart_study_-_v2__1_.pdf
It seems likely that Wal-Mart is gaming the #s to make them look better than they are. Which makes the comparison to their competitors who pay better even worse, unless they play the same game the same way.
Posted by: Brennan Griffin | Sep 2, 2006 12:10:57 PM
While I personally would prefer to see Wal-Mart provide better healthcare benefits and raise prices to the extent necessary to cover the incremental cost, I wonder about two things.
First, a comparatively large number of Wal-Mart stores are located in small towns or suburbs well away from large metropolitan areas. Since the cost of housing and property taxes are much much lower in such places as compared to big cities (especially on the East and West Coast), it may well be that Wal-Mart's wage supports a higher standard of living than many might think.
Second, if there are large numbers of people who think Wal-Mart is a horrible corporate citizen and leading a low wage race to the bottom, they should not only communicate their view to management but make it clear that they will not shop at Wal-Mart even if it means paying somewhat higher prices elsewhere.
Posted by: BC | Sep 2, 2006 1:03:22 PM
paperwight
"It's amusing that Dustin jumps right to regulating sex and roc and roll. Classic Republican -- no interference with commerce, unless its to censor the evils of the young."
Erm, except I'm not talking about regulating "sex and roc and roll" either.
If that's too "Classic Republican" for you (I'm not a republican) or if you are simply not able to see the forest for the trees of the examples I used, I don't think the Hunting industry, the Gun industry or the fast food industry neccessarily serve America's best interests, or what's good for them may not exactly be good for the Country as a whole. But I'm not getting on board for regulating them either.
Posted by: Dustin | Sep 2, 2006 1:49:30 PM
Tim Worstall is right. Some employer are the stepping stone to work from welfare and Medicaid. When they learn to show up on time, an important skill for an employer, they interview at Costo and WalMart and WalMart hires them away from the midnight shift at 7-Eleven. Which may or may not be a dangerous job.
WalMart employees in the Pittsburgh area have a choice of UPMC as their health insurance exactly like other employees from hundreds of Pennsylvania companies. If WalMart's health insurance is so bad then why isn't the teachers' union insurance bad?
Sometimes these Brits, like Tim, can make a lot of sense. Matthew Holtz doesn't though. Matthew has a bumb knee and the Brit's have kicked him off of their Socialized Medicine. Matthew is a sad Englishman on the left coast. He has been reduced to purchasing short term medical policies. It's sad.
Posted by: Ron Greiner | Sep 2, 2006 2:41:45 PM
Randy Paul punches a thousand holes through Worstall's smug recitation of Costco's differences from Wal-Mart
Punches a thousand holes? That's incredibly silly. All that Randy Paul does is: Say that you should compare Costco's to Sam's. What do we get then? Does Randy Paul know what are the wages and benefits at Sam's? Well, no. Does Randy Paul know whether Sam's or Costco's is more profitable? No, although he pretends that he does: He claims that Costco's is a "better business model" because its revenues are higher. Balderdash: you can't compare business models just by looking at raw revenues.
Bottom line is that Randy Paul doesn't punch any holes at all, let alone a thousand. He might be able to make a good point or two, IF he came up with actual data on wages and profits.
Posted by: Anono | Sep 2, 2006 2:43:27 PM
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