Radical Reason

"Nil sine ratione."

Thursday, September 07, 2006

From Ra-James - we'll have to do it this way until I figure out how to use the blogging software -

This is from a debate about our favorite idiot columnist, Harold Meyerson. He wrote a column about health insurance and Wal-Mart. -ed.

The health insurance concerns are, I believe, the reason that so many Americans are apprehensive about the state of the economy. The lack of health insurance is a major problem and needs to be addressed through fundamental and radical reform of our entire health care system, although I will stress that my statement doesn't imply nationalized health care (however, I do like the idea of a government subsidized health care voucher system) . I'd also like to point out that unlike virtually every good and service provided by our economy, the cost of health care has increased in real terms over the past century. I'd say that we need to figure out a way to get health care to behave more like those other goods and services.

The "Wal-Mart depresses wages" theory only holds water if Wal-Mart has such a hugely disproportionate market share that it can push down the wages of workers across the industry, by exercising said market share to push down really hard on its overall operating costs and allowing its prices to follow suit. Thus, it follows that other firms in the industry will have to cut their operating costs, which includes labor costs, in order to compete on a price basis with Wal-Mart. However, I find this claim to be exaggerated for a number of reasons:

1. There is no rule that says companies in the industry compete only on price. Target and Costco make up for their higher prices relative to Wal-Mart by offering higher quality merchandise and a more attractive shopping experience (higher quality staff, cleaner stores, etc.). Target and Costco also pay their workers higher wages than Wal-Mart, but hire less workers. In essence, anti-Wal-Mart activists are saying that they would like to impose the Costco model on all big box retailers in order to ensure that the workers are paid more. However, common sense dictates that if forced to do so, Wal-Mart will simply hire less workers and keep the same operating costs. The only way that forcing the Costco model onto workers at Wal-Mart would be good for those workers would be if Wal-Mart decided to absorb all of the increased costs of labor and not lay anyone off, thereby driving up their operating costs and forcing them to take a major hit in profitability. This scenario seems extremely unlikely and the whole anti-Wal-Mart argument amounts to a lot of wishful thinking.

2. Additionally, I mentioned that in order to exercise a strong depressionary effect on wages, Wal-Mart would need to have a hugely disproportionate market share in the sales of the goods it stocks on its shelves. In fact, it would probably need to have a near monopolistic grip on the market in order to do so. However, once a company gains a monopoly market share, it tends to raise its prices because it now has carte blanche to do so. Additionally, historically firms with a monopoly grip on the market will almost always pay their workers more than they would have earned if the industry was competitive. Moreover, it is glaringly obvious that Wal-mart is not a monopoly. Just off the top of my head I can think of a handful of competitors, including: Harris Teeter, Target, Costco, KMart, TJ Maxx, Best Buy, Meijer, the list goes on. Thus, this argument rests on an empirical fallacy as well as a theoretical fallacy.

Some other general comments:

1. I do not understand how anti-Wal-Mart activists can neglect the massive benefits that the store confers on the poor consumer by allowing them to purchase goods for much less than they would be able to get anywhere else. In that sense the poor have no greater friend than Wal-Mart. All that you have to do to confirm this is walk into a Wal-Mart and observe the shoppers who walk in and out. I guarantee that the clientele at Wal-Mart has a lower average income than the clientele at Costco or Target.

2. There is no reason to believe that the individuals who choose to work at Wal-Mart for low wages do not do so because it was the best option available to them at the time. No one is forced to work at Wal-Mart. Also, there is no reason to believe that people who work for Wal-Mart are stuck there forever. Indeed, someone with no work skills or experience who works at Wal-Mart for 2 years can use that experience with Wal-Mart to springboard to a better job at Costco, where they will be paid more and have health care benefits. I am willing to bet that since Costco pays so well, it rarely hires people with zero or marginal experience to work in its stores. Forcing Costco labor standards on Wal-Mart would probably cut off a source of upward mobility for the individuals who need the experience and skills gained by working at Wal-Mart the most.

3. There is strong evidence that Wal-Mart is a major contributor towards alleviating extreme third world poverty, which, judging by their attitudes towards trade, anti-Wal-Mart activists don't care about. (http://www.tcsdaily.com/article.aspx?id=082206D)


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