Claremont Independent

Last Updated: 11/2/06 Section: Opinion

Wal-Mart's low prices can be a source of frustration to many. Indeed, I flee from Wal-Mart when I realize that I am being undercharged. Unfortunately, my nightmare is only magnified when I realize that every other store is offering products at low prices as well. What kind of world do we live in when the purchasing power of my dollar is made stronger by the entrance of one retailer?

Shortly after the death of founder Sam Walton in 1992, Wal-Mart came under fire from both the media and its stockholders. Dateline produced a documentary discrediting Wal-Mart's "Made in America" campaign, shedding light on the store's dependence on imports. Stockholders, meanwhile, became disgruntled with declining profits due to increased investment in technology and infrastructure by the former CEO, David Glass (a move that benefited the company in the end).

T.A. Frank, writer for the Washington Monthly, suggests that it was not only the company's image that was changing in the post-Walton era, but also the way it did business, notably its treatment of employees. Wal-Mart has always been adamant about keeping costs down by stopping the formation of labor unions. After Walton died, the company became even more stringent about cutting costs. It shifted from treating all of its employees as "associates" who had a stake in the company to making impractical demands of both them and the managerial staff.

Any fair assessment of Wal-Mart has to take into account its questionable treatment of employees as well as the economic benefits it imparts. Practices like overtime without pay and discrimination of women, however, have been and are being rectified by the legal system. Nor are these problems exclusive to Wal-Mart; other big box retailers (and big companies in general) have similar practices. In any case, Wal-Mart cannot continue to be profitable in the long run without remedying these issues. Studies show that happier workers perform better and gender diversity in management makes companies more successful because it expands the range of ideas in the boardroom.

Those who attack Wal-Mart either downplay or are ignorant of its economic benefits. Their attacks sometimes also betray a lack of understanding about basic economic principles.

Emek Basker, professor of economics at the University of Missouri, specializes in the study of Wal-Mart and its economic effects. In his study "Selling a Cheaper Mousetrap: Wal-Mart's Effect on Retail Prices," Basker finds that "Wal-Mart's entry into a given market (city or town) can lower prices by increasing the competitive pressure incumbents (and future entrants) face." Basker's research indicates that when Wal-Mart enters a market, overall prices decline by 1.5-3% in the short run and 7-13% in the long run, with the effects concentrated in smaller cities with higher store-to-population ratios.

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