Wednesday, March 07, 2007

The Invisible Hand of Wal-Mart

In the NY Times last fall, columnist John Tierney wrote that "Wal-Mart has been one of the most successful antipoverty programs in America," and posed the question, "Has any organization in the world lifted more people out of poverty than Wal-Mart?" So far, nobody has provided any convincing alternative to Wal-Mart as the #1 global organization for bringing people out of poverty. You could argue that Wal-Mart has done more for world poverty than the World Bank, the IMF, the United Nations, United Way and Red Cross combined.

From the WSJ yesterday, an article about Wal-Mart's huge success in countries like Mexico:

"Like Wal-Mart fans in less affluent parts of America, most shoppers in developing countries are much more concerned about the cost of medicine and microwaves than the cultural incursions of a multinational corporation. That fact is making Wal-Mart a dominant force in Latin America."
Translation: Low prices at Wal-Mart make consumers in Mexico and Latin America better off and significantly raise their standard of living.

"Wal-Mart de México SAB, a publicly traded subsidiary, is the biggest private employer in Mexico. Wal-Mart's jobs pay well by Mexican standards and serve as a gateway to the state health and pension systems. Full-time jobs with regular salaries are scarce."
Translation: Wal-Mart provides thousands and thousands of jobs to help bring people out of poverty in Mexico and Latin America.

"In Mexico, Wal-Mart has been a counterweight to the powers that control commerce. One of the most closed economies in the world until the late 1980s, Mexico was dominated for decades by a handful of big grocers and retailers. All were members of a national retailing association called ANTAD, and cutthroat competition was taboo."
Translation: Wal-Mart broke Mexico's former grocery and retail cartels, and replaced high prices, limited selection and restricted competition with competitive low prices and lots of choice.

"In recent months, as rising prices for U.S. corn pushed up the price of Mexico's corn tortilla, a staple for millions of poor, Wal-Mart could keep tortilla prices largely steady because of its long-term contracts with corn-flour suppliers. The crisis turned into free advertising for Wal-Mart, as new shoppers lined up for the cheaper tortillas."
Translation: Wal-Mart's size helps to stabilize prices for staples, much more so than small retailers can. Also, Wal-Mart's distribution system and computerized logistics allows it to sell products like microwaves for the same price around Mexico, and smaller, more remote towns no longer pay premiums.

From Adam Smith, paraphrased: "By pursuing profits, Wal-Mart intends only its own gain, and yet it is led by an invisible hand to bring people out of poverty, which is not even part of its self-interested intention. But by pursuing its own self-interest, Wal-Mart as an organization promotes the general interests of society, does more to help lift people out of poverty, and does this more effectually than if it were to intentionally try to promote the public interest and address world poverty through an organization like the United Way, United Nations, World Bank or IMF."

7 Comments:

At 3/07/2007 9:55 AM, Anonymous Walt G. said...

As a strong supporter of organized labor, I'm always concerned about complete criticism of non-union workplaces. The need to completely vilify these organizations is counter productive to continuous improvement in the workplace—a necessity for job security.

I don’t agree with a lot of Wal-Mart’s policies. I know that they could treat their employees better. However, many of their processes are outstanding and should be copied by others. Innovation is fine, but why reinvent the wheel when excellent models already exist?

There is nothing wrong with unions and businesses saving money and cutting costs by using many of Wal-Mart’s methods. Just don’t try telling a company such as GM or labor organization such as the UAW, “Let’s use cheap computer chips to track stock like Wal-Mart does.” Sadly, many people are not ready for such forward thinking. Personally, I don’t care who we copy if it works. Emotions should not overrule excellent business decisions.

 
At 3/07/2007 10:13 AM, Blogger Mark J. Perry said...

One could probably reasonably argue that corporations like Wal-Mart have done more globally to help workers, and have lifted more workers out of poverty, than organized labor?

 
At 3/07/2007 10:43 AM, Anonymous Walt G. said...

Tangentially, one could reasonably argue that organized labor created the middle class in America.

I think what’s important, though, is not painting any organization with a broad brush.

Organizations are comprised of people—no more—no less. People can always learn from one another. Improvements in processes come from taking best practices from everywhere and anywhere possible.

 
At 3/07/2007 12:27 PM, Anonymous Anonymous said...

The hand of God working through Wal-Mart.

 
At 3/07/2007 1:11 PM, Blogger Mark J. Perry said...

One could reasonably argue that organized labor is largely responsible for the loss of 300,000 manufacturing jobs in Michigan since 2000.

 
At 3/07/2007 2:40 PM, Anonymous Walt G. said...

Mark J. Perry said...
One could reasonably argue that organized labor is largely responsible for the loss of 300,000 manufacturing jobs in Michigan since 2000.

I Respond:

Sadly, you're correct.

Organized labor has to be an asset not a hindrance; the people must be willing to change. Like I said before, organized labor is made up of average people with a common goal. Unions are no more monsters than corporations are.

As far as the loss of jobs, I’m working on a research paper now that shows 1500 employees are stamping out as many tons of steel today per day as 4000 employees did 40 years ago. I am not sure how to quantify possible “above market union wages” and choices the corporation would have made regardless due to vast technology changes.

I’m sure the loss of 2500 employees was not due to above market wages alone. Even non-represented manufacturing plants that make the same products have implemented those same changes while paying “market wages.”

I don’t think I’m ready to blame the entire 300,000 manufacturing jobs lost in Michigan on organized labor alone. A lot of those jobs just vanished. We need to find a way to hold on to the one’s that are left.

 
At 8/14/2007 12:06 AM, Anonymous CreditAnalyzer said...

For people who can not find any other way to earn money Wal-Mart is often a way out, especially for those who came to the US from developing countries, having no profession. In this country, you can find a better work if you are qualified. So one shouldn't blame WM, as it undoubtedly plays its special role in the economy.

 

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