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Source link: http://archive.mises.org/5342/should-wal-mart-be-broken-up/

Should Wal-Mart Be Broken Up?

July 19, 2006 by

Wal-Mart-hating interventionists are running out of reasons to hate Wal-Mart. Incapable of making any kind of coherent argument that America’s biggest retailer is harmful to consumers or workers, they are now rewriting American business history — including the history of antitrust regulation — to vent their hatred of an institution that has done more to help the poor than all the government welfare programs devised in Washington. FULL ARTICLE

{ 63 comments }

Jabra Ghneim July 19, 2006 at 8:43 am

Thanks for this great article. I am an immigrant to the US. I am the son of a lower middle class family. I came to the United States penniless after the events of September 11th. During the past 4 years I have managed to build a growing business, buy two homes and provide well for my family. I am one of millions of proofs that capitalism with a sense of personal responsibility and willingness to work a man can make things happen. Nothing distresses me in America more than this culture of persecuting businesses and business owners, big or small. The small business owner is persecuted by high taxes that seem to punish him the more successful he/she gets and the lack of affordable health care coverage (which I think would be plenty available if the government lays its hands off). The big business person is called powerful, corrupt and is portrayed in the media as worse than Satan. This is very painful for me to see in a country I love. It is hard for me to see prosecutors persecuting the very people and institutions that work very hard to provide employment, wages and the means to live to millions of people and produce new goods and innovations that better mankind and society. Walmart is one such institution, Microsoft is another. Ken Lay is a perfect example of America eating its own and his death was nothing less than a murder committed by all those who persecuted and villainized him. As an immigrant and business owner who wants to be successful and grow my business to be as big as those companies, such a situation is frustrating, depressing and discouraging. The fact that the people of the United States are willing to surrender their economic freedoms and decisions to lawyers is disturbing and puzzling to me.

Person July 19, 2006 at 8:50 am

Alright guys, let’s start the “Wal-mart is evil because they use the interstate highways system, and they’d be utterly incapable of reacting to any other kind of environment whatsoever” posts. I need a laugh.

jeffrey July 19, 2006 at 9:15 am

The whole anti-WalMart hyteria reminds me of the Incredible Bread Machine parable.

By the way, I was at a bakery this morning, early enough to see the Food Bank truck drive up and cart away about 20 bags of yesterday’s fresh bread to be given away to the poor (or those who say they are poor). Somehow it struck me as a remarkable scene. I had in my mind pictures of those long bread lines in the Soviet Union–this in a society that made wheat production a national priority. Thanks to the market economy and the absence of a national bread production board, we have become so advanced that yesterday’s bread sells at $0.0.

Roger M July 19, 2006 at 9:20 am

Jabra, Welcome to the US! We could use a lot more immigrants like you.

This is a good article, but what do you expect from Harpers? I’ve read it off and on for years just to keep up with what Marxists are thinking. The magazine has never cared for truth or accuracy, just promoting Marxism. I can guarantee that few readers of Harpers visit this web site, or are even aware of it.

Ike Hall July 19, 2006 at 9:43 am

I am a reader of Harper’s, and a supporter of the Mises Institute. I had just restarted my long-lapsed subscription to the magazine when it looked as though editor Lewis Lapham was starting to grow a pair and was sponsoring dialog that even libertarians could get behind: increasing red-state fascism, the possibility of a military coup, the HIV=AIDS controversy, and the case for impeaching President George W. Bush. Unfortunately, Lapham retired, and the editorial policy was taken over by the Marxists again. I didn’t even open my last issue, and I’m probably going to send this one back and cancel my subscription, if that’s what’s on the cover.

Bill Dowis July 19, 2006 at 9:58 am

What do you expect of bureacrats scrambling for acclaim in a contracting economy? What is needed is a company manged better than Wal Mart that would pose true competition: Can you imagine an ardent competitor to Wal Mart entering the arena?

Sean Woodruff July 19, 2006 at 10:28 am

Jabra is the type of immigrant that founded and built the U.S. I’d really appreciate hearing more and learning from your story.

Brad Edmonds July 19, 2006 at 10:31 am

I don’t know about other companies being better _managed_ than Wal-Mart, but as for successful competition: Target, slightly upmarket from Wal-Mart; Big Lots, slightly downmarket; large specialty stores, such as Pet Supplies Plus, big arts/crafts stores, big & cheap women’s clothing stores…there are lots. I go to Wal-Mart when I need a sweatsuit, toilet parts, and a bag of apples in the same trip. Otherwise, there’s plenty of competition — Wal-Mart still can’t rest on its laurels, even with regard to serving poor folks.

ginny August 25, 2010 at 9:16 am

Walmart sucks, if you want to see a thriving economy visit Manhattan, thousands of stores all taking a piece of the pie, and walmart is not allowed. My grandfather had three butchers in the thirties, back then there was a baker, a butcher, variety every store had something. We should go back to those days and our economy would boom again, anyone could open a store and it would thrive because the prices were pretty regular. I opened a small store and I have no chance at beating walmart as far as suppliers. Even in rural areas people drive 1 hour to visist walmart then go to a local store for price, this is wrong.

Andrew Fischer July 19, 2006 at 11:15 am

Whether you like Wal-Mart or loathe it, one thing is clear: it is, in fact, a bully. Despite this, I don’t advocate any sort of intervention by government. Instead, Wal-Mart’s suppliers must stand up and, like a stern parent, simply say “no.”

My fiancée works for a major food company, which I’ll call Proxy Foods, and reports that Wal-Mart essentially dictates prices to Proxy. For example, their buyers will say something like “we want an 8 oz. box of macaroni and cheese for $.89 — take it or leave it.” Unfortunately, it costs $.99 to make said 8 oz. box. The management of Proxy doesn’t have the guts to refuse to cheapen its product and risk losing Wal-Mart shelf space, so they cave in and reduce the quality of the “cheese sauce.” This continues year after year, until finally Proxy’s mac-and-cheese has zero taste. This deterioration of product quality is obvious to anyone who remembers long-ago incarnations of various cookies, refrigerator biscuits, packaged cakes, etc.

One item that stands out in my mind is Velveeta. The first time I had a grilled cheese sandwich made with it was about forty years ago, at a neighbor’s house. It was fantastic, with great mouth-feel and a strong, delicious flavor. It was better than… well, real cheese! (If you call American cheese real.) Unfortunately my mother refused to buy Velveeta, and I had to wait until I was on my own around ten years later to purchase it myself. The product didn’t seem quite as tasty as it had before, but it was still pretty good and I consumed several loaves a year. Then, around five or ten years after that, it became obvious that something had changed. Instead of being a deep orange, the loaf had become strangely translucent. Clearly, water was being substituted for something else (cheese and milk, I hope)… and the cheese food’s flavor had weakened so much that I never again bought another package of Velveeta.

Lest you think that this is just the rant of an old man whose sense of taste has deteriorated over the years, I can assure you that this is not the case. My fiancée’s job with Proxy Foods is in product development, and she is always railing against the constant changes in product formulas. Some of these involve an irritating switch to “the fat of the moment,” or internal expense pressures, but many are due to cost-cutting initiatives demanded by Wal-Mart.

In effect, Wal-Mart bullies its suppliers into cutting costs, which in theory might be a good thing, but unfortunately this is generally realized by cheapening the quality of the products — at least in the case of processed foods. Naturally the suppliers are free to reject Wal-Mart’s demands — but they are afraid to do so. Proxy Foods could simply develop a backbone, go to the media, denounce Wal-Mart’s bullying, and refuse to compromise its products. Wal-Mart would no longer sell the products in question (nor perhaps any of Proxy’s products), and Proxy would stand to lose a major chunk of its sales, since consumers who demand the products might or might not shop for them elsewhere. This is a risk Proxy dares not take. (Additionally, it is easier to go along Wal-Mart’s requirements, and gradually erode product quality, than keep quality the same and raise prices due to higher internal costs.)

This is all part of free market capitalism, and consumers will ultimately decide which products survive and which do not; it requires no government intervention. However, Wal-Mart’s buying power will eventually result in an erosion of product quality so great that consumers will stop buying them someday, anyway, so in my opinion the suppliers should show some spine right now, and start saying “no” to Wal-Mart.

Mario Diana July 19, 2006 at 11:27 am

Before I say anything, let me say that I am not for breaking up Wal-mart, and that I subscribe to laissez-faire economics. I do think that an important part of the picture is left out every time someone jumps to defend Wal-mart and other “big” corporations — usually from charges that they run the “little guy” out of business.

In our interventionist economy, large corporations hold at least three unfair advantages over small business:

  1. The ability to negotiate tax breaks for “bringing jobs” into a community
  2. The ability to devote a smaller percentage of their revenue to navigating the jungle of various tax and employment laws
  3. The protection from up-and-comers, as capital accumulation is hindered by confiscatory tax rates, thereby stunting the growth of smaller competitors

I am fully behind any defense of free markets; but I think it would pay if, once in a while, someone pointed out how our present economy gives an unfair advantage to large corporations, and that government is at the root of the problem.

(Thanks for a very good article, by the way.)

Mario Diana July 19, 2006 at 11:30 am

I’m also noticing that formatting for <li> tags is centered — though I don’t know why.

jeffrey July 19, 2006 at 11:45 am
Daniel M. Ryan July 19, 2006 at 11:53 am

The American liberals are becoming belligerent again. “Big Business” is to the American liberal what the Magyar is to the Hun: target practice. Just as the Hun stomps down on the Magyar as preparation for going to war, so it is the the American liberals stomp on the ‘uppity’ business sector before preparing themselves for some sort of foreign adventure.

Wild Pegasus July 19, 2006 at 11:57 am

Broken up? Nah. But quit subsidising it.

- Josh

Steve Richardson July 19, 2006 at 12:57 pm

The chief driver of WalMart’s success, as I understand it, has been a combination of superb supply-chain execution and the advantages of high volume.

Ignoring for a moment the absurdities rightly identified in this article, and looking at the purported ‘solution’ it becomes clear that a ‘broken up’ WalMart business model would degrade in a way that other ‘busted trusts’ would not.

WalMart’s success is driven by supply-chain excellence coupled to huge volumes. The unique centralized supply-chain advantages would be unsupportable in a series of separate “Baby W’s” and and, of course the purchasing volumes similarly would degrade.

WalMart’s strength and its limitation is price.

Price, not quality, is what WalMart is all about. If price is the sole criterion, after economies of scale in dealing with such a large distributor have been exhausted, and innovation has been pressed to the max, all vendors can do is to cut quality, because the quality of goods is a significant component of cost, however wisely it is managed.

This trade-off between price and quality is not news. What is news is that WalMart’s volumes are so large that they can tempt enormous manufacturers (such as Kraft, which is an excellent example) into degrading their brands, although as was pointed out, some of these vendors have been doing so since well before WalMart came along.

In 1957, the Chevrolet BelAir was the top of the line. In 1958 GM degraded the BelAir model and introduced the Impala as the top of the line. After a few years, the Caprice was stacked above the Impala, and by that point the BelAir, if it remained in production at all, was at the very bottom of the heap. I figured this out as a pre-teen, but actual car buyers understood the game as it unfolded. (The relative amount of chrome was a dead giveaway!)

What gets lost in the quality discussion is the fact that customers (whatever their demographics) just aren’t stupid. Just because the label looks the same doesn’t fool them (or all that many of them) into thinking they are getting the same goods as before.

Walmart does not succeed on quality, merely on price. Vendors have walked away from WalMart (and survived) when they were unwilling to cut their margins to nothing or engage in a race to the bottom for quality. (One of the household name lawn mower manufacturers did so a few years back, for example.)

For those — consumers or vendors — to whom quality is a major consideration, substitution of other goods (at higher prices) will replace the degraded goods. Let WalMart have the inflated goods.

What should be troubling for the shareholders of firms like Kraft — before I quit buying their stuff altogether, I phoned over a period of years to complain about constant quality inflation, particularly with their pasta salads — is that unlike GM in the 50-60′s, Kraft never introduces anything new of better quality at the top of their lines. We all saw what happened to US carmakers in the mid-70′s after they decided God had given them the US auto market in perpetuity, changed their strategy and concluded there was no market for quality any longer. The big food processing manufacturers have placed themselves in the same position as, say, Chrysler in 1972. (Someday there will be a lot of folks who don’t like Sara Lee.)

Ben Kilpatrick July 19, 2006 at 12:57 pm

I don’t know that Bill Gates was some sort of innocent victim. The only reason he amassed such a massive fortune was because he was able to use the power of the state via IP laws.
Wal-Mart is in a similiar boat, but this time the culprit would seem to be govt subsidization of transport and local works improvements for individual stores.
I doubt that Wal-Mart is economically efficient in itself as that everything from govt subsidies to the car industry to the economic centralization created by inflation are making it profitable. Wal-Mart couldn’t survive in an unhampered market.

Paul Marks July 19, 2006 at 12:59 pm

I take it by subsidising Josh means such things as the government building of roads (which help nationwide enterprises undercut local producers and retail outlets). Fair enough, I also oppose government road building.

On the basic point of “antitrust” law there is a choice to be made.

Either people do not seek to use the threat of violence to change the way other people engage in civil interaction (even if this civil interaction leads to very large companies), or they seek to use the threat of violence (regulations) to “correct” reality in order to make it fit a model they have in mind (such as the “perfect competition” model taught in mainstream economics).

Basically mainstream academics, media people and government types see how people engage in voluntary interaction and find that this reality does not fit their theory of how people (“the market”) “should” work – therefore they demand regulations to “correct” this “market failure”.

They reject reality in favour of a model (perfect competition) which can exist only as a fantasy in their own minds. Rather than considering the possibility that their theory might be mistaken.

And these are the same people who declare that they are “empirical” and denouce the Austrian school for being too dependent on logic.

tom July 19, 2006 at 1:08 pm

Andrew,

“My fiancée’s job with Proxy Foods is in product development, and she is always railing against the constant changes in product formulas. Some of these involve an irritating switch to “the fat of the moment,” or internal expense pressures, but many are due to cost-cutting initiatives demanded by Wal-Mart.”

If your fiancée is in product development, then it is her JOB to monitor trends, or “fads” as one might call it, in consumer preferences. This includes changes in product formulas. Making a product “New and Improved” is what companies are constantly striving to do in order to retain and expand its customer base. Product development may be the wrong line of work for her if she is always railing against product changes. She should find a line of work that she will enjoy.

Other part of your fiancée job in product development would be to satisfy “Proxy’s” customers, which in this case, is Wal-Mart. Satisfying one’s customers may difficult, but I think the main problem is that your fiancée may be in the wrong line of work.

tom July 19, 2006 at 1:16 pm

Ben

“I don’t know that Bill Gates was some sort of innocent victim. The only reason he amassed such a massive fortune was because he was able to use the power of the state via IP laws.”

Hey, Ben. The state IP laws that protect intellectual property rights apply to you as well as Bill Gates. Yet, why is it that he is a billionaire and you are not?

M E Hoffer July 19, 2006 at 1:26 pm

What I find interesting is that many who “loathe” WMT are surely aiding and abetting it through their holdings of various MutFunds, Indices, Pension Plans, Insurance contracts, and even their “banking” relationships.

What a different World there may be if individuals would bother with the idea that : The way we spend and/or invest our “dollars in the marketplace of Goods and Ideas, informs our Today and shapes our Tomorrow.

Yet another opportunity to suggest that vMI start their own “investment pool”/ “Mutual Fund”.

Also, if the Institute thinks vMI t-shirts are popular, they might want to ponder vMI “checking accounts”, replete w/ ‘ol Ludwig’s visiage smack dab in the middle of the Visa debit card.

Manuel Lora July 19, 2006 at 1:30 pm

In related news: this:

A federal judge on Wednesday overturned a Maryland law that would have required Wal-Mart Stores Inc. to spend more on employee health care, arguing the retail giant “faces threatened injury” from the law’s spending requirement.

The state law would have required large employers to spend at least 8 percent of payroll on health care or pay the difference in taxes. Only Wal-Mart would have been affected by the law.

Read more here

Brett Celinski July 19, 2006 at 1:57 pm

The Huns didn’t just go after the Magyars, but the Ruthenians, Russians, Germans, Poles, Europe…

What I’m saying is, everything seems to be target practice for these intellectuals… growing higher and higher… then, due to no really organized principle other than jealousy and desire for revenge, they scatter and flee. And the Magyars still stand.

David Spellman July 19, 2006 at 2:06 pm

Every time there is a Walmart article, I say the same thing. Fortunately, several people have stated similar views this time. I don’t shop at Walmart because the quality is so poor. They will go bankrupt if they depend upon me. If other people benefit from buying there, let them do it. If people benefit from working there, let them do it. If suppliers are content to distribute goods to them, let them do it.

If someone has to break up Walmart to stop them, it says there are monumental forces favoring Walmart’s existence. There are only two forces powerful enough to exert that kind of influence: the coersion of government authority or the unrelenting tide of the market. Which one do you think it is? And do you want to rely on the other?

Faultolerant July 19, 2006 at 2:27 pm

While Mr. DiLorenzo makes some very valid points, in re the original article, he’s still naught more than a shill of an apologist for WMT – always has been, always will be. His brand of “intellectual honesty” is somewhere beneath a Carny Shill at your local sideshow.

That having been said, (meaning 85% of his hyperbolic huffing in the article is so much crap) WMT deserves to live or die on its own…and the idea of breaking it up is pure political nonsense.

Personally, I despise WMT and refuse to darken the threshold of one of their dumps. They cater to the lowest common denominator among us – both monetarily and intellectually. That’s their right and there’s certainly a market for it. No shortage of poor, stupid people in the US.

If any rational human wants anything more than the cheapest, grungiest crap then WMT is not the destination of choice. However, that’s still no reason for the Gummint to go messing with them – there’s a lot of competition working overtime to take WMT down a peg or three and being quite successful at it.

I do find it amusing, however, at how every Libertarian practically foams at the mouth to defend WMT at all costs. It’s the typical Pavlovian response….mention WMT and this site goes absolutely ape. Predictable.

cynical July 19, 2006 at 3:58 pm

Faultolerant,

Your points are so… sophisticated! =)

Roger M July 19, 2006 at 4:22 pm

Years ago, I read an article that traced the path of two shirts from the same plant Asia. One ended up in Dillards, the other at Wal-Mart for half the price. I think of lot of Wal-Mart haters are fooling themselves about the quality of Wal-Mart products!

faultolerant July 19, 2006 at 4:36 pm

Cynical,

When you’re talking to the WMT crowd, sophistry is lost. Besides, the ability to talk in ever-decreasing diameter circles isn’t necessarily an asset……except in here!

Daniel M. Ryan July 19, 2006 at 4:52 pm

Faultolerant,

Your points are so… sophisticated! =)

Maybe you should leave this one to the LvMI customer-relations department, cynical.

Lisa Casanova July 19, 2006 at 5:03 pm

Good to know I’m part of the poor and stupid. I’ll be sure to tell my dissertation advisor that, since the school forgot to ask me if I shopped at Wal-Mart when they let me into the PhD program. Their mistake, I guess. Wal-Mart’s no angel, to be sure, and I feel no need to foam at the mouth to defend it, but I shop there often. I do hate to think that I’m part of the “lowest common denominator intellectually.” Where exactly should I go for the kind of high quality paper towels and laundry detergent that can lift me to a higher intellectual plane?

ginny August 25, 2010 at 9:31 am

Why don’t you try a local grocer, why do you feel the need to give all your business to walmart. There prices are not that low actually, if you use coupon and take all your local store ads, I bet you can find it much cheaper somewhere else.

beefcake the mighty July 19, 2006 at 8:27 pm

Tom DiLorenzo is the Bill O’Reilly of
libertarianism.

Francisco Torres July 19, 2006 at 9:26 pm

Andrew Fisher writes:

Despite this, I don’t advocate any sort of intervention by government. Instead, Wal-Mart’s suppliers must stand up and, like a stern parent, simply say “no.”

If they did, it would be in violation of anti-trust law (!!!).

The reality is that dealing with Walmart is too good a business for all suppliers to simply get together and dictate terms to the client. Even if you get 99 suppliers to agree, the 100th will always say “Yeah, sure, whatever…” and immediately undercut his competition.

Steve Richardson writes:
If price is the sole criterion, after economies of scale in dealing with such a large distributor have been exhausted, and innovation has been pressed to the max [...]

Innovation cannot be predicted or measured, which means it cannot be pressed to the maximum – what would be the maximum? What is the limit? Can you tell me that? Could anyone??

[...] all vendors can do is to cut quality, because the quality of goods is a significant component of cost, however wisely it is managed.

Quality is in the eye of the beholder – the problem with your contention is that it implies an objective trade-off between price and quality, when in fact “quality” is an entirely subjective term.

The important issue is the marginal value. For me, who only occasionally toasts bread, it would not represent an advantage to have the best possible toaster the market has to offer. If I can get a toaster that will do the job for $10 USD, then I would receive EXACTLY THE SAME VALUE than would a $25 USD toaster. For me, higher quality as far as toasters are concerned is not important – thus there is no justification to spend the extra $15 dls for a toaster I will use the same number of hours than the one of lesser quality.

This is exactly the problem with your argument, you assume that quality is seen the same way by everyone, but this is pure fantasy: like any other feature, quality is a subjective term. In this simple economic fact rests the success of Walmart: it is able to deliver items that many customers value the same but at a more affordable price.

BTW, I truly believe the quality argument is elitist – it represents a way of saying “I can afford it but I don’t want you to” to poor people.

Som July 19, 2006 at 10:54 pm

What do some of you mean Walmart’s bullying of manufacturers “deteriorate” product quality? none of these people see the big picture…these manufacturers never HAD these new walmart costumers in the first place. let me explain…

Manufacturers charged high prices for higher products. However, because of these high prices, an entire section of the population would not buy there products (the law of demand)

then walmart comes into the picture with a big stake in the market and comes with an agreement with the manufacturers to lower the price below their current cost, so the manufacturers reduce some ingredients and do some creative cost cutting to preserve profits (the only reason walmart “gets away” with this is because walmart knows it can go to forgiegn manufacturers that charge that negotiated price (+ shipping) so walmart wants these prices without shipping to local companies, effectively PREVENTING these domestice manufacturers from going out of business due to foriengn competition – so these manufacturers should be greatful for walmart’s pressure).

When the costs are lowered and a lower price comes to the shelf, an entire new market of consumers buy at these lower prices, raking in (much needed) profits for the MANUFACTURERS and Walmart, profits they would have never seen from the higher price products and they the loyalty of a new market so long as they stay competitive enough for walmart.

Let me declare, not only do these manufacturers be greatful to walmart, THEY NEED COMPANIES like walmart, and i can take that claim to the bank!

ginny August 25, 2010 at 9:40 am

Oh this is so stupid, I will go back to manhattan, all stores are packed, I lived there, I made good money and most were making good money and stores were high and people earned good money spent their money in their stores, now I move to Tn, where there are tons of stores for lease empty because they cannot compete with Walmart. If grocers and Businesses were broken up into individual units like in the old days. In manhattan you can find a butcher, a florist on one corner, a restaurant, a baker, it is wonderful. The is democracy, I see Manhattan as democracy, all people are able to earn good money and spend that money, their are plenty of jobs, the rest of America has walmart, Target imagine a world where everyone could own a small store and people could visit for flowers or cake. I have not seen one bakery here, why because Walmart has one, flower store went under, Walmart has that too, etc. Break up these stores and America will truly rock like it did in America before the advent of the grocery store. I feel the rest of America could be like this if they brought back small stores and dismantled megastores. I remember the local hardware store too, mom and pop stores all gone, it is very sad.

mpolzkill August 25, 2010 at 9:52 am

“I will go back to manhattan”

That will be awesome. You do that and we’ll eliminate the “Commerce Clause” and close the New York central bank (ending the war machine then should go without saying) and we’ll see how you do.

And Lisa, assuming you’re still alive, this Union shill may not think you’re poor, but he sure thinks you’re stupid, don’t he?

Som July 19, 2006 at 10:55 pm

What do some of you mean Walmart’s bullying of manufacturers “deteriorate” product quality? none of these people see the big picture…these manufacturers never HAD these new walmart costumers in the first place. let me explain…

Manufacturers charged high prices for higher products. However, because of these high prices, an entire section of the population would not buy there products (the law of demand)

then walmart comes into the picture with a big stake in the market and comes with an agreement with the manufacturers to lower the price below their current cost, so the manufacturers reduce some ingredients and do some creative cost cutting to preserve profits (the only reason walmart “gets away” with this is because walmart knows it can go to forgiegn manufacturers that charge that negotiated price (+ shipping) so walmart wants these prices without shipping to local companies, effectively PREVENTING these domestice manufacturers from going out of business due to foriengn competition – so these manufacturers should be greatful for walmart’s pressure).

When the costs are lowered and a lower price comes to the shelf, an entire new market of consumers buy at these lower prices, raking in (much needed) profits for the MANUFACTURERS and Walmart, profits they would have never seen from the higher price products and they the loyalty of a new market so long as they stay competitive enough for walmart.

Let me declare, not only do these manufacturers be greatful to walmart, THEY NEED COMPANIES like walmart, and i can take that claim to the bank!

Som July 19, 2006 at 11:33 pm

What do some of you mean Walmart’s bullying of manufacturers “deteriorate” product quality? none of these people see the big picture…these manufacturers never HAD these new walmart costumers in the first place. let me explain…

Manufacturers charged high prices for higher products. However, because of these high prices, an entire section of the population would not buy there products (the law of demand)

then walmart comes into the picture with a big stake in the market and comes with an agreement with the manufacturers to lower the price below their current cost, so the manufacturers reduce some ingredients and do some creative cost cutting to preserve profits (the only reason walmart “gets away” with this is because walmart knows it can go to forgiegn manufacturers that charge that negotiated price (+ shipping) so walmart wants these prices without shipping to local companies, effectively PREVENTING these domestice manufacturers from going out of business due to foriengn competition – so these manufacturers should be greatful for walmart’s pressure).

When the costs are lowered and a lower price comes to the shelf, an entire new market of consumers buy at these lower prices, raking in (much needed) profits for the MANUFACTURERS and Walmart, profits they would have never seen from the higher price products and they the loyalty of a new market so long as they stay competitive enough for walmart.

Let me declare, not only do these manufacturers be greatful to walmart, THEY NEED COMPANIES like walmart, and i can take that claim to the bank!

Robert July 19, 2006 at 11:39 pm

Nice article Thomas! Keep up the good fight!

M E Hoffer July 20, 2006 at 12:49 am

Som,

You’re doing a parody, right?

This: “effectively PREVENTING these domestic manufacturers from going out of business due to foreign competition – so these manufacturers should be greatful for walmart’s pressure.”–is completely severed from reality.

Ask Vlasic, Heinz, and Levi’s…for starters.

And, this beauty: “When the costs are lowered and a lower price comes to the shelf, an entire new market of consumers buy at these lower prices, raking in (much needed) profits for the MANUFACTURERS…”– Revenue=Profits? Even the largest Consumer Packaged Goods manufacturers are becoming less profitable as WMT becomes a larger share of their Revenue structure. See: P&G, Kraft Foods, Fresh Del Monte, Kimberly-Clark, et al, etc. …

Here you get two birds with one stone: “profits they would have never seen from the higher price products and they the loyalty of a new market so long as they stay competitive enough for walmart.”

Again conflating mere potential revenue with assured profitability, and the fatal error of marketing hacks everywhere, confusing “price sensitivity” with “loyalty”.

You vociferate: “Let me declare, not only do these manufacturers be greatful to walmart, THEY NEED COMPANIES like walmart, and i can take that claim to the bank!”

If that means that you can back up the statements you’ve made in your post, by all means, please do so.!~

Yancey Ward July 20, 2006 at 8:46 am

To the commenter who wrote that the readers here practically foam at the mouth to defend Walmart:

You simply don’t understand libertarians. You and other WalMart-haters come here espousing government intervention to “fix” the wrongs perpetrated by Walmart, and then have the nerve to complain that the readers here won’t support such actions. Now, if you came here espousing ideas for getting government out of the business of subsidizing Walmart, then you will find allies here.

Oldsmoblogger July 20, 2006 at 9:17 am

The one minor quibble I’d raise with Mr. DiLorenzo’s otherwise fine work here is the false dichotomy he appears to raise: high-priced and inferior vs. cheaper and better. Sometimes you really do get what you pay for, and least-cost producer isn’t the only business model in town (and for that we are thankful: it isn’t much fun trying to wring out another tenth of a cent of unit contribution margin, and when it comes to least-cost producers there can be only one in any case).

But the point lies with the other poster who called on Wal-Mart’s suppliers to stand up to them. Better yet, I call on Wal-Mart’s suppliers to better understand their own business models, and think long and hard about whether Wal-Mart is the right partner.

More on the “bully” issue: Wal-Mart allegedly has asked to see suppliers’ books and ordered them to cut their price if they decided the unit margin was too high (other firms do this as well). Again, I blame the supplier.

The rational response is: “If you want to run my business for me, buy me out and take on my fixed costs. You don’t get to reap the benefits of vertical integration without taking on the costs.”

The plain grumpy response is as above, followed by a reference to a ten-pound hammer and a nice big pile of sand (fortunately, you can get both at Wal-Mart, I’m pretty sure).

Wal-Mart is good for what they’re good for, and that’s fine. I buy some things there and not others. For example, I’ll pay between $3-6 more (and that gladly) for a 550-round box of .22LR ammunition at my local pistol range/retailer than the Wal-Mart right down the street charges. The average 20 minutes I spend cooling my heels at Wal-Mart while blue vests scuttle by, industriously avoiding eye contact, is worth a heck of a lot more to me than six frakking dollars.

I’ll close with this final thought: Wal-Mart today reminds me considerably of McDonald’s about 1991: the dirty stores and surly/indifferent help are quite a different experience than the one they promise. That disconnect will bring a correction eventually, no government intervention required.

K Blankenship July 20, 2006 at 9:18 am

First, I am not for government intervention. I, however, wish that the participants in the market would wake up. Wal-Mart doesn’t care about quality. They don’t care about the community. They most definitely don’t care for their non-management employees. They don’t even “Always” have the lowest prices.

I avoid making purchases at Wal-Mart for all of those reasons and have found that other retailers provide goods with greater quality and equal or better pricing when you analyze the big picture. If I buy a shirt at Wal-Mart for $9.99 but it falls apart after I have worn it 5 times, I am essentially paying $2 per instance of use. If I purchase a more expensive item at another retailer for $18.99 and still can wear it a year later (generally on a weekly basis), it is blatantly obvious that I have saved money by shopping away from Wal-Mart. Similar results can be found in their food products. My mother recently noticed that she could get most grocery items at a comparable price at other stores. She also noticed that when she bought the groceries elsewhere, they seemed fresher. That is completely logical when you consider that Wal-Mart purchases in such bulk, that food items probably sit in a warehouse somewhere longer than with smaller retailers.

Anyone who says that Wal-Mart has done great things for the poor and middle class is completely delusional. I am in the middle class and have relatives that would be considered poor. Some of them work at Wal-Mart and are still poor. The primary difference between a Wal-Mart employee who is poor and any other worker that falls into that same distinction is that the Wal-Mart employee almost always has a worse benefits package to go with it. On top of being paid less than others in the retail industry, they generally have to put up with the worst management in the industry which tends to favor a bullying approach that discourages good employees. If you are a good employee at Wal-Mart you can expect to be rewarded with a $0.10 raise after several years of work. This actually happened to my aunt who is a CSM that has served in that position for over 7 years. Wal-Mart even dictates to her when she can take her UNPAID vacation.

In the town I live in, the city is putting in a new intersection and additional road surface to accommodate the new Wal-Mart Supercenter at great expense. You would expect Wal-Mart to at least open more than one register on a Saturday night to serve customers in exchange for that public investment.

Paul Marks July 20, 2006 at 9:45 am

As far as I know nobody has written to say that government road building schemes are a good idea. If people will not pay for a road voluntarily that means the road should not be built.

As for “public investment” I guess that is code for government spending. There is no such thing as “public investment”. Taking money from the taxpayers and spending on some political project is not “investment”.

As for Wal-Mart.

As has been said by many others here – if someone does not like the prices, quality of products, or the type of service that Wal-Mart provides they should not shop there (period).

They should not seek to use violence (the antitrust “laws”) to attack Wal-Mart.

Nor should Wal-Mart use these government regulations to get the state to attack its suppliers or anyone else.

Of course these “competition laws” (which are based on a false understanding of what the market is) should not exist.

The fantasy that is the “perfect competition” model has done great harm.

People should be allowed to engage in voluntary (civil) interaction, even if this leads to enterprises that are bigger than some people would like.

faultolerant July 20, 2006 at 11:21 am

Lisa says:

“Good to know I’m part of the poor and stupid. I’ll be sure to tell my dissertation advisor that, since the school forgot to ask me if I shopped at Wal-Mart when they let me into the PhD program. Their mistake, I guess. Wal-Mart’s no angel, to be sure, and I feel no need to foam at the mouth to defend it, but I shop there often. I do hate to think that I’m part of the “lowest common denominator intellectually.” Where exactly should I go for the kind of high quality paper towels and laundry detergent that can lift me to a higher intellectual plane?”

Your PhD is about as impressive as a new pair of shows. BFD. Sorry, but what I said still holds: If you want anything more than the cheapest crap on the planet, WMT isn’t the place to go. So keep your feigned indignation.

Others have said that WMT provides what they need when they only need low quality (see the toaster comments above). That’s perfectly fine. It’s still low-quality crap. If that’s what you want, so be it. Not everyone is satisfied with the bottom-rung products WMT sells.

So, your petulant whining about your degree smacks only of your own eg-stroking….not an argument worth a warm bucket of spit.

Yancey Ward July 20, 2006 at 12:40 pm

Has “petulant whining” been redefined since I was in school? I could have sworn that Lisa was engaged in sarcastic wit.

mark July 20, 2006 at 1:14 pm

Walmart is in large part a Government factory. This is an evident fact that those who live in expensive metro areas in the U.S. see with their own eyes.

Who pays the Walmart factory workers section 8 housing?

Who pays the Walmart factory workers medicaid and health benefits?

Who pays the Walmart factory workers transportation costs?

Who pays for their families primary day care centers(otherwise known as public schools) ?

If you expect mom and pop to at least compete in some of the market niches shouldn’t the playing field be leveled at least a little bit?

Yancey Ward July 20, 2006 at 1:27 pm

mark,

I agree completely. Lets get rid of section 8 housing, medicaid, the highway funding, and the public schools.

Person July 20, 2006 at 1:27 pm

mark: Those are great questions. Now I have some for you:

Who pays the mom and pop’s workers section 8 housing?

Who pays the mom and pop’s workers medicaid and health benefits?

Who pays the mom and pop’s workers transportation costs?

Who pays for their families primary day care centers(otherwise known as public schools) ?

Wanna rethink that post, or should I connect the dots for you?

KB July 20, 2006 at 1:40 pm

Faultolerant,

How exactly do you figure Wal-Mart sells only low quality stuff? I mean, I can go and buy Tide Laundry Detergent at Wal-Mart and Charmin Toilet Paper. Is there some luxury laundry detergent I don’t know about? Some cushier toilet paper? As for your “low-quality crap”, I honestly think the quality of their own brands is superior to the national brand much of the time. For instance, the Parent’s Choice diapers leak less and fit better than Huggies or Pampers. Of course, you can buy those at Wal-Mart so they must be cheap crap. I also feel that the Member’s Mark Paper Towels are preferable to Kleenex brand (which is the most expensive brand I’ve seen). How exactly does Wal-Mart sell only cheap crap anyway when they typically sell all of the national brands? Now maybe in clothes and such, they’re lower quality but you’d have a real hard time convincing me in most of the other stuff… Even with clothes though, I’ve bought Dockers and Wranglers there before at half the price they sell for elsewhere. Maybe those brands aren’t “uppity” enough for you, though…

Lisa Casanova July 20, 2006 at 1:52 pm

Faultolerant,
Thanks. I was just confirming my suspicions that you are, in fact, nothing but a troll. Don’t complain about others “whining” when you do nothing but engage in immature name-calling. I will be ignoring you from now on and strongly urge others to do the same.

Francisco Torres July 20, 2006 at 2:57 pm

Anyone who says that Wal-Mart has done great things for the poor and middle class is completely delusional. I am in the middle class and have relatives that would be considered poor. Some of them work at Wal-Mart and are still poor.

Non sequitur. Maybe they are poor not because they work at Walmart but because they are incapable of maintaining good finances.

Second, there is a serious misunderstanding of what us libertarians mean when we say that Walmart is good for the poor: we do not mean Walmart gives away buckets of money, but that it provides numerous goods at very accessible prices, many goods being so accessible that people of low income can now shift some of their resources towards other expenditures, instead of applying almost everything to food and clothing.


The primary difference between a Wal-Mart employee who is poor and any other worker that falls into that same distinction is that the Wal-Mart employee almost always has a worse benefits package to go with it.

Your error is in making a value judgement when saying Walmart offers a bad deal – it is a bad deal from YOUR point of view, but such things are entirely subjective, for what it may seem as disdainful to you may seem attractive to others. Nobody places a gun at those workers’ heads compeling them to accept less-than-preferable terms: like all other VOLUNTARY exchanges, they accepted the deal Walmart offers because they found it convenient.

On top of being paid less than others in the retail industry

Which others? Or should we take your word for it?

… they generally have to put up with the worst management in the industry which tends to favor a bullying approach that discourages good employees.

I believe you are making a sweeping generalization.

If you are a good employee at Wal-Mart you can expect to be rewarded with a $0.10 raise after several years of work. This actually happened to my aunt who is a CSM that has served in that position for over 7 years. Wal-Mart even dictates to her when she can take her UNPAID vacation.

Does Walmart dictate the same to all its employees, or just your aunt? What I think is that your aunt is probably just an adequate performer, thus compelling the company not to raise her salary – she being ever more expensive to keep.


In the town I live in, the city is putting in a new intersection and additional road surface to accommodate the new Wal-Mart Supercenter at great expense.

If it were a Tinseltown Multiplex or a Dillard’s, would you feel just as outraged, or it is just because it is Walmart? Your quarrel should be with your local government and not Walmart.

(8?» July 20, 2006 at 4:10 pm

Amazing, all of these comments and none touched on my opinion, which is…

Why did Mr. DiLorenzo constantly make the mischaracterization that Mr. Lynn “fails to understand” virtually everything?

This is just the kind of apologist framing that totally distorts what I consider a much more truthful picture, which is that Mr. Lynn INTENTIONALLY mischaracterizes the ideas of others to his advantage. Which, from what I’ve seen from other “intellectuals” is the basis for debate (the battle of psuedo ideas that pretends to mold them into better form).

To state that Mr. Lynn “fails to understand” is to provide him cover while giving his comments more exposure, while ignoring the fact that he has an agenda and is on a mission.

To me this is a dangerous move, and has drawn Mr. DiLorenzo into the same trap as the sheeple who love to point out the “failure of government” to solve their pet problem du jour, while failing to realize themselves that the government works spectacularly well (but only for those who own it).

If your gonna insult Mr. Lynn, you might as well do it in an honest fashion. I doubt that he got where he is by being dumb. He just knows very few people know anything about Adam Smith, and have never heard of The Wealth of Nations.

pedro July 20, 2006 at 4:20 pm

If neither Wal-Mart nor Microsoft are monopolies, NO other corporation on Earth can possibly be. Why, after Republican dominance in every branch of government for several years, does the antritrust division not only exists but continues to pester the smaller companies? ANSWER: Because the big corporations and their politicans want those regulations to remain in place.

Also, I am for Wal-Mart to continue extending its empire into every community. Thanks to its impeccable business practices of maximum profit no matter the consequences, Wal-Mart alone accounts for a third of the U.S. deficit with China, which also holds a pretty good portion of the country’s external debt. The unique abilities of capitalists to sink the future prospects of the U.S is clearly astounding!

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