Feed on

Let it be noted that for many years I had a personal aversion to Wal-Mart, and that I am currently neither a stockholder nor an employee of Wal-Mart, so what follows is merely a result of my careful thinking and research about the issues.

Once again, a great deal of attention is being paid to how evil Wal-Mart is and how they are destroying the American way of life. This wave has been created by a large number of interest groups that use Wal-Mart as a “free” way to garner media attention to their causes.

I will not deny that many of the “bad things” depicted in this documentary are in fact true, but before you consider driving your tank to your local Wal-Mart, I urge you to seriously consider all of the questions raised by the documentary and the critics of Wal-Mart. Then, I urge you to seriously consider the empirical evidence that has been compiled about the economic effects of Wal-Mart.

Here are two brief powerpoint presentations that: (1) discuss the theoretical and political arguments made against Wal-Mart and (2) summarizes the empirical evidence to date on the economic impacts of Wal-Mart. In case you do not want to read too much, the moral of the story is that Wal-Mart is not the devil incarnate, though there are some (expected) negative effects in the empirical literature, and that many of the arguments made against Wal-Mart do not stand up to careful economic scrutiny.

Inevitably, the discussion about Wal-Mart boils down to whether or not businesses and corporations have any social responsibilities. I do not believe for one minute that the pursuit of profits and social responsibility are mutually exclusive terms. Yes there are bad CEOs out there and there are bad corporations, but using that as evidence that corporations are evil is much like committing the logical fallacy known as post hoc ergo propter hoc. In the days leading up to and after Hurricane Katrina, Wal-Mart donated an unprecedented $20 million of cash 1,500 truckloads of free merchandise, food for 100,000 meals and the promise of a job for every one of its displaced workers. This does not prove that corporations are benevolent either. However, I would hope that it gives rise to serious thoughts about the role that profits play in society. A common call by socially conscious people goes something like, “a society must find ways to encourage long-term thinking and long-term growth or it will be picked apart by short-term profit maximization.” Nonsense on two levels. First, the businesses that are considered the best are usually those that treat both their customers and employees well. Those businesses that mistreat customers and employees do not do so well. Do you think that Wal-Mart’s efforts pre- and post-Katrina were an act of short-term profit maximization? No. Do you think they did this because Wal-Mart loves people? Probably not. My two cents go to the theory that these enormous signs of generosity will increase Wal-Mart’s long-term profitability through increased customer and worker loyalty – and perhaps reduced anti-Wal-Mart sentiments. Second, even if I give the critics their due and assume that the above comment is true, why wouldn’t one want to replace the term “short-term profit maximization” with “political rent seeking”? Is there anything inherently more trustworthy about a politician that is in the pocket of special interests and only faces the threat of re-election every two or four years as opposed to a corporation that faces the threat of bankruptcy each and every single day?

Rather than continue to address all of the questions of social responsibility here, I refer you to these two wonderful books. First is The Invisible Heart: An Economic Romance by Russell Roberts and the second is The Fatal Conceit by Nobel Prize winner Friedrich von Hayek.

Here are links to all of the papers that are referred to in the second presentation above. Please send me copies of papers that I might have missed – regardless of what the results say.

Leave a Reply