Wall-to-Wall Wal-Mart

The May issue of Esquire has an excellent article about Wal-Mart: "Viva Wal-Mart!" (subscription required). Here are a few excerpts:

EVERYBODY HATES WAL-MART. Recently, three business magazines ran "Wal-Mart is bad" stories. Union employees at three California supermarket chains launched strikes because of the effect Wal-Mart might have when it adds groceries to its West Coast repertoire. Stock analysts can't imagine how WMT could continue to grow?a third of them rate it a "hold" (analyst slang for "turd")?and rush to diss the company. And even the government is mad: The Feds recently raided Wal-Mart, looking for illegals. (Shockingly, they discovered a few mixed in among the 1.2 million employees.) How can a store visited by 138 million people each week be so damn . . . unpopular?

The answer, of course, is that it's not. In fact, it's wildly popular. Saying that Wal-Mart is the biggest retailer ever doesn't really tell the story. It is three times bigger than its nearest rival. It generates eight times more revenue than Microsoft. It sells more than Target, Sears, Kmart, JCPenney, Walgreens, and Kroger combined. It has net sales greater than the GDP of Sweden. It sells one out of every three diapers sold in the United States. And the behemoth plans to open a whopping thousand more supercenters in the U. S. alone over the next five years. That's not because people don't like to shop there.

Magazine writers, brokerage analysts, and social critics who lament the Wal-Martization of America probably aren't among the 82 percent of Americans who bought something at Wal-Mart in 2002. Eighty-two percent! Elitists don't count pennies at Sam's Club. They don't care that Wal-Mart's practices have raised the standard of living for hundreds of millions of people. ...

The supercenters presumably have smaller profit margins than retail stores, but that doesn't bother Wal-Mart. Its inventory-control and information-technology systems are so far ahead of competitors' that it can enter a business with lower margins if the top line is sufficiently attractive. Wal-Mart, with only ten supercenters in 1991, is now the nation's largest grocer. (It is also the nation's third-largest pharmacy.) ...

Recently, I heard a professor on a radio program tsk-tsk that Americans don't appreciate the "real costs" of shopping at Wal-Mart, claiming they suffered from "mass hypnosis by bargain culture." Yuck. As if Americans need to be hypnotized before paying a dollar for something others sell for two. Look, I live in a quirky old house and shop at charming mom-and-pop stores. These things matter to me. But I can't stomach the notion that my taste should dictate to others. It's despicable for elites to decide their cultural values are more meaningful than Wal-Mart's diaper values.

If one were looking for a shining example of a Randian protagonist, Wal-Mart is it. Wal-Mart is hated for no other reason than being so damn successful.

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Um, Google for wal-mart and

Um, Google for wal-mart and "eminent domain". There's a little Orren Boyle mixed in with that Hank Rearden.

Well, add one justifiable

Well, add one justifiable reason for hating Wal-Mart. But I object more to eminent domain in general than to those companies who take advantage of any government subsidy given to them.

digamma, You said it.

digamma,

You said it. Bentonville ain't exactly Galt's Gulch. I live in Northwest Arkansas, and it's unheard of to provide road and sewer infrastructure to new Wal-Marts on a cost basis. They always get special treatment, with subsidized utilities.

We've also got a regional airport here in NW Arkansas, built under the political influence of the Waltons, Tysons, and J.B. Hunt; its main purpose is to provide a cargo facility for those interests. The intergovernmental authority that built the airport is an immortal corporation under state law, with power to condemn land and assess taxes. Several local governments voted to create it as an emergency measure, suspending the normal rules of debate, and with no prior announcement that it was on the agenda. The formation of this body was presented to the public as a fait accompli after it was too late to oppose it.

And as if this isn't enough, Wal-Mart has a very strong tendency to deal mainly with sweatshops in authoritarian Third World regimes that know how to keep the local workforce docile through torture and terror.

So pointing to Wal-Mart as an exemplar of rugged individualism is a bit much. If Wal-Mart is a Randian hero, it is so only in the sense that she regarded big business as a "persecuted minority" and considered the military-industrial complex a "pernicious myth." This is a case of the mainstream libertarian right being motivated, not by a principled devotion to free markets, but by a reflexive sympathy for big business. Or as Cool Hand Luke put it, "them pore ole bosses need all the help they can get."

But I object more to eminent

But I object more to eminent domain in general than to those companies who take advantage of any government subsidy given to them.

Very true. I make that point a lot discussing sports economics: pro teams do ugly things in order to get taxpayer-built arenas, but governments don't have to provide those incentives.

That said, I still don't think it's right to call a corporate welfare queen a Randian hero.

"That said, I still don’t

"That said, I still don’t think it’s right to call a corporate welfare queen a Randian hero."

I'm fairly sure that the government takes more from Wal-Mart than Wal-Mart gets from the government, so I don't think Rand would mind. Once a thief takes your money, you can endeavor to get restitution, even if it means others won't be able to, or the thief steals more from others as a result. As long as you oppose welfare, you can use welfare rules to get restitution (this is from Rand's "The Question of Scholarships", I believe).

So I think a Randian hero could be a "welfare queen"; he or she would see it as restitution and still oppose all welfare.

Eminent domain is a little different, I think; the issue isn't taking money back from a thief, but employing the thief to take things from others. I'm not sure you can use the "my competitors do it, so I can" defense, since you are stealing from a third party; what do you think? I'm not an expert on Rand.

I?m fairly sure that the

I?m fairly sure that the government takes more from Wal-Mart than Wal-Mart gets from the government, so I don?t think Rand would mind.
Well I get the impression that Rand probably would mind, given her ethics, undeveloped as they are. Dagny Taggart didn't start schmoozing the gov't for favored status (even though that would have been profit-maximizing behavior, hmmmm...) reasoning that she had a right to because of how much she gave back.

The problem is with assuming that any major business is gonna be some sort of Randian hero, because what that means is that the stockholders and the CEO would have to be noble but retarded. People have aptly described corporations as "externality machines"- laying costs on anyone else where they can and there are tremendous pressures to do this. Under their circumstances and with their values it would stupid not to take handouts.

Also I wonder whether the gov't takes more than it gives- I rather doubt it. Wal Mart is remarkably reliant on Federal Highway subsidies to keep their shipping lanes up, no?

Also as far a patronage proving that WalMart is great- that's kinda silly. People taking toilet paper from the USSR didn't prove that they loved the government- it proved that they needed toilet paper.

Matt's got it. WM is not so

Matt's got it.
WM is not so much a free-market enterprise as it is a player that has found the intersection of several subsidies deep in our tax code and government spending priorities. If any of these subsidies changed, a supercenter would be too large to be efficient.
Highway spending is a big one, and part of a huge problem: bigger, higher-volume highways that allow people to get further from cities faster lead to further-flung residential and commercial development, which increases the number of miles driven, which clogs existing highways and provides justification to build new ones (with the backing of powerful consruction lobbies and "infrastructure" advocates.)

Retailers consider their primary customer base to be those who live no more than a 15-minute trip away. The further you can drive in 15 minutes, the bigger you can build stores.

The way that cities annex land and fund the construction of infrastructure to new residential developments is another part of the problem. Existing taxpayers pay for roads, sewer, electric, police, ambulance, fire protection, etc., for new developments on the edge of town. The increase in property value as land transitions from farming to residential never covers the cost with increased real estate tax revenue.

These new residential developments provide a customer base to new commercial developments, and are the fuel to the urban sprawl we're all so familiar with and WM is so dependent on.

corporations are like

corporations are like organisms, they'll evolve to fit the environment, and Wm happens to be the blue whale. the system of unlimited goverment practically ensures WM would evolve to this state. theres a whole ocean of 'plankton' out there.

Also as far a patronage

Also as far a patronage proving that WalMart is great- that?s kinda silly. People taking toilet paper from the USSR didn?t prove that they loved the government- it proved that they needed toilet paper.

Bah - horrible comparison. Wal-Mart is not a monopoly, never has been and most likely never will be. They got big precisely because people choose to patronize them over their competitors, primarily because of their low prices. The USSR on the other hand, well, I really don't think I need to finish this sentence.

And about Federal Highway funds, please. I'm sure the significant tax on gasoline more than covers any cost Wal-Mart would have to pay in a truly free market, even ignoring all of the other taxes Wal-Mart has to pay (I would not be surprised if Wal-Mart is the single largest tax-payer in the country).

"Dagny Taggart didn’t

"Dagny Taggart didn’t start schmoozing the gov’t for favored status (even though that would have been profit-maximizing behavior, hmmmm…) reasoning that she had a right to because of how much she gave back."

Again, favors aren't all equal: getting money from the government (e.g. corporate welfare/tax breaks) is different from getting the government to give you someone else's property (e.g. eminent domain). Getting your own property back seems perfectly reasonable for a Randian hero.

"People have aptly described corporations as “externality machines”- laying costs on anyone else where they can and there are tremendous pressures to do this. Under their circumstances and with their values it would stupid not to take handouts."

Handouts are different from "laying costs on anyone else." A hero could oppose welfare and see the handouts as restitution.

Other "laying of costs" are different (pollution, eminent domain, subsidies that exceed taxes, etc). In those cases, Rand would want a hero to resist any tremendous pressure to do the wrong thing.

"If any of these subsidies changed, a supercenter would be too large to be efficient."

Assuming the subsidies are lower than taxes paid, doesn't this imply that government taxes would prevent efficient supercenters?

As for all the subsidies mentioned, I don't see any problem with trying to avoid taxes or get tax money back; I don't think Rand would either. As long as the subsidies are seen as resitituion, and Wal-Mart would choose a system of no corporate welfare to the present system, I don't see a problem with subsidies.

horrible comparison.

horrible comparison. Wal-Mart is not a monopoly, never has been and most likely never will be. They got big precisely because people choose to patronize them over their competitors, primarily because of their low prices. The USSR on the other hand, well, I really don?t think I need to finish this sentence.
what was it again? "When in doubt answer opportunity costs"? Supposing that we've provided the context in which a Wal-Mart can flourish over smaller businesses, it's kind of like the "calling the fire department" example. Supposing someone opened a 1,000 dollar a roll (of TP) shop in the USSR, I doubt it be popular, even though it competes with the USSR. Thus the USSR would no longer be a monopoly. That doesn't affect my point in the least- it's still intact.

And about Federal Highway funds, please. I?m sure the significant tax on gasoline more than covers any cost Wal-Mart would have to pay in a truly free market, even ignoring all of the other taxes Wal-Mart has to pay (I would not be surprised if Wal-Mart is the single largest tax-payer in the country).
this isn't a good answer. It's just a distracting can-of-worms:
a.what about the routine military operations that occur to maintain control of the oil?
b.Who the hell knows what prices would be in what's called a free market, and is that a fair comparison? Many people argue that businesses of WalMart's size couldn't exist under one.
c. The taxes reflect certain environmental costs that are externalized by gas-users. They reflect this only to a limited extent anyway, it might be noted.
d. Your math is probably wrong. The indexed prices of all the federal highway construction projects, repair, maintenance, highway patrolman's salaries (or a portion of them) and so forth compared with the taxes that WalMart pays? Especially when you consider that we're only mentioning one way in which the gov't helps Wal-Mart out: computers and hi-tech subsidies help make their inventory system more efficient and enable coordinated communication and so forth, agricultural subsidies aid the food walmart sells, etc. This is a rather large question, and it likely involves countless other things I haven't included here, but my guess is that if you do the math, WalMart owes the taxpayer bigtime.

Again, favors aren?t all equal: getting money from the government (e.g. corporate welfare/tax breaks) is different from getting the government to give you someone else?s property (e.g. eminent domain). Getting your own property back seems perfectly reasonable for a Randian hero.
You might think so. What about playing the political game she refused to engage in? Of giving rides to the politicians and so forth? This is really a literary question, because I'm arguing that the appeal of the Randian hero has much to do with uncompromising rational-man ethics as with profit-maximizing libertarian socio-politics. Her heros were absolutely not rational utility maximizers, and are therefore incredibly unlikely to appear and remain in actually existing US business. The taggert stockholders should have been furious that Dagny wouldn't play the game if it affected their bottom line, no? Don't even get me started on Fransisco.

Handouts are different from ?laying costs on anyone else.? A hero could oppose welfare and see the handouts as restitution. Other ?laying of costs? are different (pollution, eminent domain, subsidies that exceed taxes, etc). In those cases, Rand would want a hero to resist any tremendous pressure to do the wrong thing.
She sure would, and if the wrong thing were profitable the CEO would be acting illegally! It also seems logical that the laying of costs on someone else would almost always be profitable (pretty much by definition)and that, accordingly, a Randian hero would be fired immediately from an ordinary position (certainly from steel, railroad, copper, and architecture.) The pirate could get by maybe.

As for all the subsidies mentioned, I don?t see any problem with trying to avoid taxes or get tax money back; I don?t think Rand would either. As long as the subsidies are seen as resitituion, and Wal-Mart would choose a system of no corporate welfare to the present system, I don?t see a problem with subsidies.
assuming that they are less than taxes payed? That's a big assumption, for one thing. For another it creates an unlevel palying field for companies that don't benefit so extensively from gov't handouts. Local businesses using locally grown food are competing with WalMart's supply curve which is heavily distorted.

Well I would say that's not really fair, and while for WalMart (even if we grant you your huge assumption) it may seem fair, it certainly wouldn't to the competing businesses.

_matt

> corporations are like

> corporations are like organisms, they?ll evolve to fit the environment

Exactly right. Government and laws exist to set boundaries on permissible behavior. Corporations are mandated by their shareholders to toe that line. If government willingly gives breaks to Walmart, it can't be faulted for taking advantage of them. If the government raised the speed limit to 70, would you still drive as if it was 65?

Funny that none of you talk about the good Walmart has done in keeping inflation down and in lowering everyone's cost of living.

"Especially when you

"Especially when you consider that we?re only mentioning one way in which the gov?t helps Wal-Mart out: computers and hi-tech subsidies help make their inventory system more efficient and enable coordinated communication and so forth"

What, are you kidding me? Computers and hi-tech are about the least subsidized or regulated products out there.

"Highway spending is a big one, and part of a huge problem: bigger, higher-volume highways that allow people to get further from cities faster lead to further-flung residential and commercial development, which increases the number of miles driven, which clogs existing highways and provides justification to build new ones (with the backing of powerful consruction lobbies and ?infrastructure? advocates.)"

That only partially offsets heavy regulation on personal aircraft which tends to greatly decrease the distance that people can practically live from their shops and workplaces.

Micha, The relevant tax for

Micha,

The relevant tax for this case is the tax on diesel fuel, along with whatever weight-distance taxes and tolls are specifically targeted at trucks from state to state. Semis cause virtually 100% of damage to highways, because they're the only vehicles above the weight threshold the roadbeds were designed to withstand. So unless 100% of highway maintenance comes out of taxes on trucking, the freight industry is subsidized out of gasoline taxes and general revenue.

Ben,

The process you describe, of subsidies leading to bottlenecks, is typical of the distorted feedback that comes when you interfere with the market pricing system. Rothbard described it very well in Power and Market. (I think someone on this blog had an excellent post on price as a feedback mechanism a couple of months back).

Bill,

The problem is that your description seems to make Wal-Mart and other large corporations the passive beneficiaries of corporate welfare. It's more accurate to say that the corporations are actively working through the state. Political appointees in the policy apparatus, senior corporate management, coupon-clippers and foundation heads, and an assorted gaggle of investment bankers and corporate lawyers: this interlocking oligarchy of revolving-door elites functions as an executive committee of the ruling class. The regulatory and welfare state, for the most part, has been put together by the corporatist ruling class with their own interests in mind. Check out G. William Domhoff's excellent work (especially The Higher Circles, and The Power Elite and the State).

If government willingly

If government willingly gives breaks to Walmart, it can?t be faulted for taking advantage of them. If the government raised the speed limit to 70, would you still drive as if it was 65?
a. the gov't doesn't "willingly" give exactly. Businesses ask, and exchange favors for such treatment.
b. I think you are anthropomorphizing WalMart and the gov't, here. Walmart can't "faulted" because WalMart isn't a person- it's true that any corporation in Walmart's $4.99 shoes would behave the same way, but what does that mean? Actually this is probably Micha's fault for calling "WalMart" a randian hero or something.

Funny that none of you talk about the good Walmart has done in keeping inflation down and in lowering everyone?s cost of living.
if you can give it credit, can you not give it blame?

What, are you kidding me? Computers and hi-tech are about the least subsidized or regulated products out there.
There's a study called "Targeting the Pentagon" which examines the absolutely unparalleled subsidy that the pentagon (alongside NASA and the Department of Energy) provides to the Hi-Tech industry. Most of the technologies funded by defense money are "Dual Use" technologies that Boeing (for instance) can use for its commercial airliners. As for computers, just read you history books. I can give citation if you like, but the basic science is funded by the gov't (through Public Universities and Grants) and the basic technology was almost completely funded by the gov't for the first 20-30 years of the post-war period. I will provide a citation if you like.

That only partially offsets heavy regulation on personal aircraft which tends to greatly decrease the distance that people can practically live from their shops and workplaces.
sure it does. I don't think either Ben or I are claiming that the gov't is benevolent here. These subsidies are not made to benefit people and small business owners. I don't think anybody's arguing the that. You could argue quite the opposite actually.

It?s more accurate to say that the corporations are actively working through the state. The regulatory and welfare state, for the most part, has been put together by the corporatist ruling class with their own interests in mind. Check out G. William Domhoff?s excellent work (especially The Higher Circles, and The Power Elite and the State).
couldn't have said it better myself- this is exactly right. I'll check out the book, Kevin. You should maybe look at Thomas Ferguson's "The Golden Rule" for a compatible, also insightful perspective. Ferguson both puts it in an historical context (looking at money influence in the constitutional convention up through 1994) and uses hard data.

"if the wrong thing were

"if the wrong thing were profitable the CEO would be acting illegally!"

I see; a CEO's contract tells him to increase profits for shareholders no matter what, right?

I'm fairly sure there is an ethics clause in there, though. Even rational utility-maximizers can have ethical side-constraints. However, point taken.

"assuming that they are less than taxes payed? That’s a big assumption"

I plead complete and utter ignorance :-) Doesn't affect my reasoning, luckily.

"For another it creates an unlevel palying field for companies that don’t benefit so extensively from gov’t handouts. "

True, but you're arguing against the government, not Wal-Mart.

"The regulatory and welfare state, for the most part, has been put together by the corporatist ruling class with their own interests in mind."

Point taken; the companies must be against welfare and regulations for my argument to work. If they aren't, then all bets are off. In other words, the corporatist ruling class must be willing to choose no taxes and no subsidies instead of taxes and subsidies. I would not be surprised at all if this weren't true.

I'm not 100% sure, though; assuming taxes paid are more than welfare given, perhaps lobbying the government could be seen as just trying to get their money back? Seems iffy at best, but almost plausible.

"As for computers, just read

"As for computers, just read you history books. I can give citation if you like, but the basic science is funded by the gov?t (through Public Universities and Grants) and the basic technology was almost completely funded by the gov?t for the first 20-30 years of the post-war period. I will provide a citation if you like."

Yeah, and that technology sucked. It wasn't remotely usable by a retail operation until long after the private sector took over.

Also, just because the government brought some technology into being doesn't mean that it's forever tainted and that any enterprise that ever makes use of it is morally equivalent to Orren Boyle. If the government brought some technology into being, and provided it preferentially to some enterprise, that enterprise would then be on Orren Boyle's moral level. Everyone can use computers in their enterprise, and computers and software now tend to come from the private sector.

"sure it does. I don?t think either Ben or I are claiming that the gov?t is benevolent here. These subsidies are not made to benefit people and small business owners. I don?t think anybody?s arguing the that. You could argue quite the opposite actually."

I'm just pointing out that simply taking advantage of the fact that people and goods can travel on freeways isn't really "taking advantage of government largess", since in the absence of the regulatory-welfare state, people and goods would be able to travel even longer distances in personal aircraft.

Yeah, and that technology

Yeah, and that technology sucked. It wasn?t remotely usable by a retail operation until long after the private sector took over.
Ken, you might think James Watt's steam engine sucked too- that doesn't mean it wasn't vitally important to later developments. The IBM projects of the 50s and 60s are considered vital to current computer technology- the fact that they sucked is precisely the point! No one wants to buy sucky stuff, so the products were completely unmarketable. If the state hadn't funded it, it likely wouldn't have happened. The Internet's the same way.

Also, just because the government brought some technology into being doesn?t mean that it?s forever tainted and that any enterprise that ever makes use of it is morally equivalent to Orren Boyle.
that's for you guys to decide. I don't think state funded research "taints" things.

Everyone can use computers in their enterprise, and computers and software now tend to come from the private sector.
right, many people call this "socializing risk, privatising profit". Now that it's fully developed, sustainable and profitable, the profits and technology are just handed over to the private sector.

I?m just pointing out that simply taking advantage of the fact that people and goods can travel on freeways isn?t really ?taking advantage of government largess?, since in the absence of the regulatory-welfare state, people and goods would be able to travel even longer distances in personal aircraft.
who knows if that's true? I mentioned the Pentagon aiding in commercial airline technology- the abscence of the state would mean the abscence of airplanes as we know them. I'm sure it could be true that private enterprise would have done it, but, hey, anything could be true- that's a not a good argument.

What I think you'll run into is that, given the level of state participation in the US economy, it's difficult to even get an idea of how a free market would function.

-Matt