Centerfield

I think the interesting thing about WalMart is that at some stage in an argument about whether or not Wallyworld is a net plus or a net minus on the economy is that the person opposed to WalMart will always wheel out Henry Ford's maxim about paying his employees enough to buy the product they're making. But that's a peculiar argument to make against WalMart, when you think about it. The point they're trying to make, of course, is that WalMart doesn't pay its employees much. But the thing about Ford's Law is that it can work two ways - you can pay your employees more, or you can charge less for your product. Both options meet the requirements of Ford's Law, and so when you look at WalMart, you notice that because they are so ruthless about costs, and because they keep wages relatively low (if you go and look at your city's budget - or, heck, your company's budget - in virtually all cases, the largest expense is employee wages. People cost a lot more than things), they can keep their prices down, and WalMart employees CAN afford to buy what WalMart says. And here's the difference between a WalMart worker and one of Henry's assembly ine drones: you can't eat a car. WalMart makes the basic essentials of life available at reasonable quality for lower cost, and for many people, that's the bottom line. So then you're stuck on the chicken-and-egg treadmill: people only need to depend on cheap goods from WalMart because wages are low, but if Walmart raises its wages, its prices will go up.

Honestly, I'm undecided on whether WalMart is a good thing or not. I recognize the validity of the points made against it, and I also recognize the argument that even if it is a net plus, the short-term problems it causes are real. But I've got to be honest: I have seen no serious economists arguing that WalMart is a net minus for the economy in the medium and short run.

Posted by: Simon at August 28, 2006 09:56 AM

The other point which needs to be considered about WalMart is that, while the people who object to the wages WalMart pays are all making lots more, people still line up in droves whenever a new WalMart opens and starts hiring. Perhaps there are a lot of people who want to work for WalMart for less than they are currently making -- which seems odd, unless it has other really, really major virtues as an employer. Or else WalMart's wages are actually pretty good, compared to other work that's available to all those people. Somehow, I'd be inclined to guess the latter -- combined with (probably unsurprising) elitist ignorance.

Posted by: wj at August 28, 2006 11:23 AM

I really liked the South Park episode on Walmart, whose point was basically "it's just a market. Markets are ruthless, but only because that's the way they are." In other words, there's a sort of inevitability to the approach Walmart takes, someone HAD To do it, and it had to succeed.

FWIW, to my knowledge Walmart pays noticeably less in wages and total compensation than other retail outlets. This may be less true now than when I was in retail, but if it is, it's very likely because Walmart dragged the competition down by outcompeting on price with other retailers who were more generous to their workers.

I'm not reflexively opposed to Walmart at all. I shop there, as they provide substantial bargains as long as you are willing to have (even) lowered expectations for service, supply, and the quality iof some goods, such as clothes. But I know that they help to drive what's left of our manufacturing sector offshore, and compensate their employees as minimally as possible.

I don't think it would be the end of the world if Walmart got unionized and they had to pay a bit more in wages even if costs went up a bit. I don't necesarily envision a union where it became impossible to get fired, or wages doubled or anything.

I'm certain it's difficult to make an economic case for unionization. But I don't see it as exclusively an economic issue, I also see it as an issue of the quality of our culture. The way I see it is that if there's a job that needs doing, the person who does it has some claim to getting paid at a level that provides a hair more than the barest, dullest, most borderline subsistence. Now we could debate exactly what that meant until well after the cows came home and chickens roosted.

I don't believe that minimum wage comes very close to doing this, and I'd start the conversation there, how much do you need to earn to support yourself, not in style, but at least bit beyond barest subsistence. Often when I try to take a discussion on this tack, it's sooiner or later suggested that, say, those who don't make enough money to support a family shouldn't start one. And while this is apoint well taken in the scheme of what it means to be a responsible adult, it's also fair to point out that low wages have, at least so far, shown precious little efficacy as birth control.

Posted by: bk at August 28, 2006 12:10 PM

lenty of good points made here. It's definitely better to have a Wal-Mart than not to have one, and one doesn't really even have a choice in capitalism, there *will* be discount retail.

Now, I would say that economic incentives should never be spent on putting a Wal-Mart in, because in our context it pays so little. That just makes no economic sense. It should be neither penalized nor given special privileges.

Posted by: Jon Kay at August 28, 2006 12:46 PM

Of course, "economic incentives" in the sense of special money for a particular business (or even for any business not already present) are a bad idea. (Economic incentives in the sense of not making it exceptionally expensive to do business somewhere are a different story.)

If someone is foolish enough to OFFER incentives for me to put my business somewhere, I would be remiss not to take them if I go there. But bribery, under whatever guise, is bad economics.

Posted by: wj at August 28, 2006 01:31 PM

It should be neither penalized nor given special privileges.

Sorta depends on what the equation is in the specific instance, doesn't it? Suppose you're in a position of authority in some small town, and you know that Walmart is going to build a store somewhere in your area, and it might be in one of several different nearby towns. You know there's an issue of threshold population, so it's a zero-sum game over the near term. If they put one in Hooterville, then Tataburg isn't going to get one too. And you know that the first big box might beget others, and a shopping region may develop in whatever of the towns is most welcoming.

Do you want that extra property tax revenue and the inside track on jobs bad enough to bend over backwards a little? It's up to each town to answer, IMO.

Posted by: bk at August 28, 2006 01:35 PM

> But bribery, under whatever guise, is bad economics.

Is it?

What about if a fairly minor tax break, or an agreement to accelerate appropriate roadbuilding to handle traffic, could bring you an industrial research lab, with excellent jobs, with resulting improvement in tax base and lots of money to spend in your town?

What about the Samsung deal, where Central Texas has agreed to a sizeable incentive package to get an additional Samsung chip fab? Next-gen fabs are very expensive. The jobs aren't so amazing, but Samsung is projected to spend $6-8B on it, of which the Austin area would probably get at least $2B, between construction and deals with local companies. Plus, it helps keeps the city's chip cred strong.

Posted by: Jon Kay at August 28, 2006 09:53 PM

P.S.: This is a matter where careful judgement is needed. City officials were infamously ready here to offer Borders or Barnes&Noble money to develop a lot right next to our excellent local big-box bookseller, Book People. That would've been dumb. Somebody gave the (Not-So?) Smart Growth office a talking-to, and now the deal is for them to build in a rapidly urbanizing patch of the southern suburbs, which is win-win for everybody.

Posted by: Jon Kay at August 28, 2006 10:00 PM

I'm undecided on whether WalMart is a good thing or not.

Lots of "economic truths" being bandied about here. Where's an economist when you need one? (PS I don't thing economics talks about these issues in "good" or "bad" terms?) Posted by: c3 at August 29, 2006 09:23 AM

To say that Walmart gets about 38k Chinese a month out of poverty is a true statement. As the article states in so many words: Walmart is better than poverty for rural Chinese. The article does consider micro-loans but pooh-poohs them, because they don't show they same kind of growth as Walmart. Question: do micro-loans in total have the same capital as Walmart?

The article does not even broach the question: why are the so many Chinese in poverty? Overpopulation? That's probably a big part of it, but isn't it also likely that it has to do with the Chinese political situation? Does Walmart strengthen or weaken that political situation? Granted it raises the standard of living, but I'm not so sure it encourages free enterprise. In fact a dirty commie-type might argue that Walmart has an interest in a political situation that keeps workers in abject poverty to keep wages low.

But Walmart cares about people? No, Walmart cares about its bottom line: profit-margines. Y'know all that ruthless competition stuff.
This brings me to my next point. Walmart is not just a matter of markets and ruthless competition. Walmart is a corporation--a legal fiction--propped up by state power. Limited liability shielded Walmart from involuntary creditor's (tort victims) and helped to grow to its current size. Not to mention all of the other economic incentives (as mentioned in the previous posts) that the state has given Walmart.

To conclude Walmart is better than poverty. Does that say very much for Walmart? How 'bout we get creative and figure out economic solutions better than Walmart.

Posted by: Luzer at August 29, 2006 11:27 AM

What's a "legal fiction?"

Quite honestly, such a phrase serves as a red flag for me. It warns me that the person using it may well be full of crap in some asp[ects of their thinking, even if they make valid points elsewhere.

After all, consider the perspective from which a corporation could be viewed as merely a "legal fiction." From this perspective, what other parts of "the law" would not be viewed as equally "fictious?"

If you can't riddle me a good answer to this, I'm left to assume you are prone to uncontrollable bouts of silliness in the midst of serious conversation Not that there's anything wrong with that, it's just nice to know where you're coming from..

Posted by: bk at August 29, 2006 12:00 PM

The legal fiction at issue is corporate personhood. The law once did not but now does indeed treat corporations as persons in certain areas. The ability to sue the corporation and the resulting limited liability of the owners to their investment in the corporation is one of these. There are not many legal fictions remaining in the law (non as far reaching as this one for certain)...you can wikipedia the concept if you are interested in some of the others.

The point that this fiction which shields owners to any liability (except on certain extreme circumstance) is state support is true in a way. The bankruptcy laws may be a better example of how corporations are supported by the rules dictated by the state though. I don't believe Walmart has ever faced lawsuits big enough that this legal fiction kept them in business when it otherwise would not have without it though. So Im not certain the point being made regardless of the existance of the legal fiction.

Anyway, my point in writing was to raise the issue of quality as a component of affordability and also raise the issue of our long term economic health in promoting the mass industrialization and economic growth of China in return for these minimal wage jobs and some tax base. I think these need to be considered in any complete discussion. Affording food that affects your long term health or an item that has 1/4th the useful life it would have if manufactured with quality may have short run benefits but long term ills. Also, further promoting the shipping our industrial base to a third world country with little environmental, worker and human rights protections that may be a long term threat is also cause for concern.

Posted by: solopract at August 29, 2006 01:40 PM

BK,
"Legal fiction" is a common expression in the law. It is used by law professors and lawyers alike. It is not a "silly" phrase.

"I don't believe Walmart has ever faced lawsuits big enough that this legal fiction kept them in business when it otherwise would not have without it though."

Limited liability would not keep Walmart in business if faced with a big enough lawsuit in any event. Limited liability protects investor's personal assets, not corporate assets. If Walmart was sued in the early days or today for a defective product, and lost, the lawsuit could drain Walmart of all its assets regardless of its limited liability.

Limited liability protects investor's from risk to personal assets. For instance, I could invest $2000 into Novartis, and if its products caused major damage to people's health. The most I could lose would be the $2000 dollars I invested. My liability is limited to my investment. Because the law recognizes the corporation as a person, it not me, is liable.

The same applies to debt. I could invest $2000 into a corporation that incurs billions of dollars worth of debt. The most I could lose would my $2000. In contrast to involuntary creditors (tort victims), creditors can decide if they want to invest into a corporation knowing full well that if it incurs debts beyond its corporate assets they are SOL.

Limited liability is a state incentive for people to cooperate in business. Free market it is not.

To repeat: do you think Walmart strengthens or weakens a political situation (dictatorship) that tends to impoverish Chinese?

Posted by: Luzer at August 29, 2006 02:11 PM

Well, was it decided that it makes legal sense to treat entities such as corporations likepersons, or does the law in fact declare that corporations are persons? Obviously the latter is a fiction, since corporations are not, in fact, persons.

But making a legal/legislative decision to treat corporations like persons in some cases isn't "a fiction," it's just a convention that was created because some part of the democratic system became convinced that such a perspective was useful.

All I'm pointing out is that the "fiction" remark seems like a distractor to me. Besides being inaccurate or confusing, it's immaterial. And sounds dismissive, too; the implied suggestion seems to me to be that corporations aren't people, therefore limited liability is wrong, or bad).

Seems to me that what you want to do is have a discussion about whether limiting corporate liability is a policy that has merit, or whether its merits outweigh its costs.

Posted by: bk at August 29, 2006 02:22 PM

BK,
I want to talk about how great Walmart is. Limited liability was merely an example that Walmart is not, South Park aside, purely a matter of free markets.

This article displays what Kevin Carson over at Mutualist Blog would call an example of "vulgar libertarianism." This is evidently frequent on the free market blogosphere. It goes like this: corporation X offers a "better deal" than the "next-best" option (poverty). So the most deplorable and hazardous working conditions and low wages are a "better deal" than the "next-best option" of poverty. This is exactly what this article asserts. And it is true.

As Carson points out, however, a worker's set of options or lack thereof might result from state policies. So Chinese worker's reduced options might owe something to their political situation. Walmart, itself a creature of state policies, benefits from worker's reduced options.

To benefit workers we might want to help improve their set of options. This leads to my question: Does Walmart strengthen or weaken China's political situation? If it weakens it, then Walmart is good, because it helps workers out of a situation that forces them to accept a crappy option: Walmart. If Walmart strengthens the political situation, which I believe it does, then Walmart impedes worker's from obtaining a better set of options.

Posted by: Luzer at August 29, 2006 02:46 PM

> The article does not even broach the question: why are the so many
> Chinese in poverty?

Be nice - it's one article, not an econ text. Most Chinese are in poverty because most Chinese are involved in farming.

Roughly speaking, the more a product is processed and improved, the more it's worth. A hoe is worth more than the chunks of wood and metals that go into it. A silicon chip is worth a helluva lot more than sand. A desktop computer is worth more than a computer chip. F/X software is worth still more. A movie produced digitally beats all of those, though. It's what's called the value chain. Farms are low on the value chain, industry medium, software high, and entertainment highest.

The value of the product you're producing limits the salary you can get. Therefore, the Chinese making shirts tend to be better off than rice farmers.

Meanwhile, most US jobs are beyond industry on the value chain, so factory jobs are increasingly unattractive to most of the first world.

> To benefit workers we might want to help improve their set of
> options. This leads to my question: Does Walmart strengthen or weaken
> China's political situation? If it weakens it, then Walmart is good,
> because it helps workers out of a situation that forces them to accept
> a crappy option: Walmart. If Walmart strengthens the political
> situation, which I believe it does, then Walmart impedes worker's from
> obtaining a better set of options.

That turns out to be an oversimplication. It DOES help the govt of China, but it ALSO helps the worker, I'd say even more. The difference allows people to feed their families reliably and keep a family home. For better or worse, most cultures seem to place a higher value on feeding families than good government. I'd bet on Chinese fascism being temporary; once Chinese can afford good government (after industrialization), they'll demand more. They're already holding their government noticeably more accountable for corruption.

We could go back to Cuba-like policies toward China. Do you think US trade and investment barriers are the right policy in Cuba?

Posted by: Jon Kay at August 30, 2006 12:16 AM

> The article does not even broach the question: why are the so many
> Chinese in poverty?

Be nice - it's one article, not an econ text. Most Chinese are in poverty because most Chinese are involved in farming.

Roughly speaking, the more a product is processed and improved, the more it's worth. A hoe is worth more than the chunks of wood and metals that go into it. A silicon chip is worth a helluva lot more than sand. A desktop computer is worth more than a computer chip. F/X software is worth still more. A movie produced digitally beats all of those, though. It's what's called the value chain. Farms are low on the value chain, industry medium, software high, and entertainment highest.

The value of the product you're producing limits the salary you can get. Therefore, the Chinese making shirts tend to be better off than rice farmers.

Meanwhile, most US jobs are beyond industry on the value chain, so factory jobs are increasingly unattractive to most of the first world.

> To benefit workers we might want to help improve their set of
> options. This leads to my question: Does Walmart strengthen or weaken
> China's political situation? If it weakens it, then Walmart is good,
> because it helps workers out of a situation that forces them to accept
> a crappy option: Walmart. If Walmart strengthens the political
> situation, which I believe it does, then Walmart impedes worker's from
> obtaining a better set of options.

That turns out to be an oversimplication. It DOES help the govt of China, but it ALSO helps the worker, I'd say even more. The difference allows people to feed their families reliably and keep a family home. For better or worse, most cultures seem to place a higher value on feeding families than good government. I'd bet on Chinese fascism being temporary; once Chinese can afford good government (after industrialization), they'll demand more. They're already holding their government noticeably more accountable for corruption.

We could go back to Cuba-like policies toward China. Do you think US trade and investment barriers are the right policy in Cuba?

Posted by: Jon Kay at August 30, 2006 05:14 AM

That doesn't sound unreasonable to me Luzer. But it doesn't really address the question of what currently available strategy better empowers impoverished Chinese workers.

When it comes to China, you can make a strong argument that neither (let's call it) economic engagement nor (let's call it) isolationism is particularly effective at swaying China from its chosen course. At least based on our experiences so far. So for me, the question becomes why under these circumstances we aught to hold walmart (or the US, for that matter) responsible for curing the ills of China that some Americans perceive. If either of two vastly different strategies A and B is wholly ineffective in "reforming" China, why not choose from among these strategies on the basis of whether they are helpful to Walmart and to Americans?

Especially when you CAN make the argument (that you've noted can be derisively called "vulgar libertarianism) that the chosen strategy DOES result in a marginal increase in the standard of living for some Chinese. Leaving aside the clever naming of this argument for the sake of attacking it, let's at least notice that this argument can be boiled down to the argument that it's better than nothing. Which seems to be true. Granted, as you have pointed out," it's better than nothing" is neither a ringing endorsement nor conclusive proof that such an an approach is optimal. I'd go so far as to say that's so obvious that it's almost a trivial insight, but we miss trivial insights all the time, especially when we use big words. :-)

You've called upon us here to do the hard work of solving the problem of the relative impoverishment of many chinese. Very idealistic of you. But don't let such idealism get in the way of noticing that you're not exactly blazing an uncharted path here... many, many people who've been concerned by such issues have tried to resolve them in the past, and the history so far suggests that the problem is pretty intractable. If you think you're better, smarter, and more capable, and have some sort of specific new plan that you're convinced is going to work, be my guest, I'm all ears.

But let me warn you, for the time being, and under current political circumstances, I think that it strongly behooves America to continue with its relatively laissez-faire policy towards China. I think that we have plenty of irons ion the fire, and we have limited resources for watching and forging these irons.

Posted by: bk at August 30, 2006 09:27 AM

In my opinion embargos strengthen the ruling party. Castro, for example, has a scape goat: "Our economic problems are not my fault, it's that darn embargo." And obviously it eliminates a useful carrot: trade.

Perhaps, Walmart could condition its trade with China on China's promise to make some real reforms. Obviously, it would not entail immediate and total destruction of the dictatorship. But if handled effectively, it could pressure China to begin to make real improvements for the Chinese.

The problem is I don't know if Walmart as well as other corporations that trade with China want such reforms. Obviously it benefits the corporations to have Chinese workers stuck with a crappy set of options. Perhaps, the government could condition a corporation's trade on a nation's willingness to make real reforms. But I don't think the current U.S. government would want that, because it would decrease U.S. wealth.

The solution is that ethical consumers refuse to buy from Walmart. This forces Walmart to include 'ethical considerations' into its costs of doing business. For example, Walmart could begin to have some of its products produced in rights-respecting nations. China might decide that it dosen't want to lose all of Walmart's business, and begin to make real reforms itself.

Posted by: Luzer at August 31, 2006 11:23 AM

The solution is that ethical consumers refuse to buy from Walmart.

Well that's just a gigantic whopper on top of being a grotesque oversimplification of the idea of what it means to be ethical. (For example, is it "ethical" for a parent of limited means to buy higher cost goods if such actions harm his family?)

There's zero guarantee that our refusal to purchase from Walmart benefits anyone but Walmarts competitors. And unless there's a reasonable presumption that many or most consumers join in such a boycott, there's no reason to think that the boycott hurts anyone but the boycotter. Prisoner's dilemma.

And besides, you've just finished declaring that you believe that embargoes are counterproductive. Make up your mind.

Posted by: bk at August 31, 2006 02:46 PM

BK,
China doesn't respect Chinese worker's rights thus narrowing Chinese worker's set of options. Walmart benefits from Chinese worker's state-enforced "limited set of options". Walmart's ability to pay lower wages to Chinese workers is a partial, but substantial result, of Chinese worker's state-enforced "limited set of options". Lower wages translate into lower prices. Consumers benefit from Walmart's lower prices. Walmart consumers benefit from the violation of Chinese worker's human rights. It is unethical to benefit from wrong and unjust actions. It follows that ethical consumers refuse to buy from Walmart.

(For example, is it "ethical" for a parent of limited means to buy higher cost goods if such actions harm his family?)

You're begging the question. Would it be ethical for a single mother on welfare to refuse to buy from "boosters" (professional shoplifters) if such actions harm her family? Well that depends on whether we accept professional shoplifting as ethical. Likewise, we must answer the question whether Walmart is acting wrongfully or rightfully.

The point is not to benefit Walmart's competitors, although that could happen, but to pressure Walmart into acting more socially responsible.

And unless there's a reasonable presumption that many or most consumers join in such a boycott, there's no reason to think that the boycott hurts anyone but the boycotter. Prisoner's dilemma.

You prove too much. This argument applies to any boycott.

Embargoes and boycotts are different. The purpose of embargoes is economic warfare to cripple an economy. Boycotts seek concessions. The problem with an embargo is that it creates no incentive for the ruling power to negotiate. Embargoes say in effect we shall not trade with you at all. Boycotts say we won't buy unless you make certain concessions. The former forecloses cooperation, the latter invites it.

Posted by: Luzer at September 5, 2006 11:14 AM

P.S.
Actually some embargoes seek concessions, and some boycotts seek the total elimination of its target. To the extent an embargo seeks concessions, and it incentivizes a nation to make reforms, then I favor it. But an embargo, like Cuba's, that restricts trade until the the ruling power steps down from power is obviously not going to incentivize the ruling power to step down. Between the cost of the embargo and the cost of stepping down from power, it is the cost of stepping down that is the greater cost to the ruling power. That an embargo might harm an economy and thus turn the people against its government has not shown remarkable success. Given the state-controlled media and liberal use of force, this hardly seems surprising.

Posted by: Luzer at September 6, 2006 09:58 AM

boflex

Posted by: boflex at September 9, 2006 08:10 AM