The evil Wal-Mart and offshore competition

Some people love to bash Wal-Mart.  This article is from 2003 but I suspect a lot of current critics would like it very much.

If you want to make money by far the best way is to go into a field where government legislation restricts competition – become a doctor or a teacher or something with  patent and copyright legislation.

There probably isn’t much legislation to restrict competition in retail sales so firms in that business have to sharpen their pencils or use marketing tactics.  Reading this article it is clear that Wal-mart is or has been very good with the pencil.  I am more opposed to legislation that restricts competition and marketing tactics than I am to firms that use sharp pencils.

On the theory that firms relying on legislation to restrict competition would be heavy into lobbying, I googled “Wal-Mart lobbying.”  It appears Wal-mart has not put much effort into lobbying although it is now starting to campaign for online retailers to be required to collect sales tax.

The issue appears to be that offshore competition, showing up in Wal-mart, is forcing some American manufacturers to go out of business putting their employees out of work.  Firms going out of business is a normal, and sometimes necessary thing.  The way to deal with that is a universal income scheme such as the negative income tax proposed by Milton Friedman or my own proposal for universal subsistence payments.

We should not feel guilty about buying things made in other countries.  Trade is a social activity and we want other countries to buy things from us.

I’m not a fan of Wal-Mart but I do occasionally go there.  I pride myself that most of the time I leave the store with only those items I had planned on buying.  I also know from experience they don’t always have the lowest prices and I can’t recall ever seeing Wal-Mart advertise quality.

In the retail segment of our economy there are lots of firms and lots of competition.  They all use marketing tactics to give them an edge. Therefore we should remember the old saying: “Buyer beware.”


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3 Responses

  1. I have no particular agenda for Walmart, but I have turned a bit of attention to the phenomenon.

    My impression is that Walmart consistently shoots itself in the foot. By that I mean “it”, that is its purchasing staff, consistently and obsessively demand lower prices from its suppliers. Is this a bad thing? Yes, for Walmart in the long term it is.

    By demanding lower and lower prices from all its suppliers, it drives all but a select few broke. That has been noted in all comments about Walmart’s purchasing behaviour.

    But what does ‘select few” mean in econonomic language? Oligopoly or monopoly. At a certain point, when the numbers of suppliers have been reduced to one or two, the suppliers will start pushing back. They will start demanding higher prices – and getting them. The suppliers will start controlling Walmart.

    Can the Walmart purchasing stafe be asked to stop this behaviour which is ultimately against the interests of Walmart, the corportation? Hold off the pressure when suppliers gat too few. This is where you get into an interesting area of economics – the “agency problem”. The interests of the employees and Walmart diverge. The employees get rewards and promotion by forcing lower prices regardless of the consequences, even if Walmart as a whole suffers. So the answer is no.

    The agency problem is not just a minor theoretical concern. It happens in banking and in every large concern. In fact it is the agency problem in banking which was the ultimate, ultimate cause of our current recession/depression, unemployment etc.

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    • But nobody mentions the creator of Wal Mart. Wal? No, the shipping container.

      That ubiquitous 20 ft or 40 ft tin box. All goods everywhere travel from one point in the world to the other in an un-opened shipping container, in a matter of days.

      Example. A container in filled with over a $!00,000 of warm winter clothes plus garden implements in Chunking, central China. It travels to the coast, put on a ship. landed in LA and then, wait for it, travels to an individual Wal Mart store in Topeka, inside two weeks, where the staff unload it, and put the goods on sale. The goods are usually sold in a week. Total shipping cost. About $1000. About 1% of the total value of the goods.

      A US company, even if it could produce as cheaply, cannot get into the supply chain.

      Now you know the cause of the US economic situation. A box.

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