Recently, Wal-Mart Corporation announced plans to build a Super Wal-Mart store
a few miles outside of the town where I live, Grove City, Pa. In response to Wal-Mart’s plan, a local faith organization held an open showing of a film called “The High Cost of Low Prices” as part of a nationwide release. “The High Cost of Low Prices” is highly critical of Wal-Mart and is filled with examples of how the company exploits its workers and the environment, while not doing enough to protect the safety of its customers. The film also blames competition from Wal-Mart for driving small shops out of business so that attractive and historic downtown areas come to resemble ghost towns.In response to the outcry against Wal-Mart, the General Assembly of the State of Maryland passed a bill (vetoed by the governor) that would require companies with more than 10,000 employees to spend at least 8 percent of their payrolls on health benefits or contribute to the state’s health insurance program for the poor. A number of local governments have also pursued political action to block Wal-Mart from opening new stores.
Many of the criticisms of Wal-Mart could be applied to other corporations that have come to dominate a number of markets due to their innovative practices. Beginning in the first part of the 20th century, large supermarket chains, taking advantage of economies of scale, drove down retail food prices, resulting in thousands of mom and pop grocery stores closing their doors. The same decline of locally owned businesses due to competition from large chains has happened in the restaurant business, home remodeling, consumer electronics, and banking.
Critics argue that Wal-Mart’s behavior is especially reprehensible because they pay low wages and resist unionization of their work force. They also buy more products from China than any other firm, exploiting low-paid Chinese workers, while effectively denying jobs to U.S. manufacturing workers. The fact that Wal-Mart is paying low wages—whether to their U.S. workers or to Chinese workers—ignores the reality that wages in a market economy are determined by supply and demand. Workers voluntarily choose to work for Wal-Mart, which suggests that the wages offered are higher than what they could get working somewhere else. Would these workers be better off if they did not have the opportunity to work for Wal-Mart? If Chinese workers are willing to work for low wages and therefore supply products to Wal-Mart (and ultimately to U.S. consumers) at a lower cost than those products can be produced by American workers, it should be no surprise that U.S. consumers will take advantage of that opportunity.
While many of the criticisms in “The High Cost of Low Prices” do not hold water in light of careful economic analysis, Wal-Mart should not be extolled as a paragon of corporate virtue. The film presents convincing evidence that some Wal-Mart stores have used their market power to take advantage of workers, requiring people to work during breaks without pay. Their careless practices in the storage of garden supplies have led to the pollution of rivers and streams. Another charge is that local governments provide subsidies to new Wal-Mart stores, giving them an advantage over existing local businesses that never received such subsidies.
It is hard to refute the charges of critics that Wal-Mart has engaged in some ethically questionable practices to gain its competitive advantage. Does that mean that Wal-Mart should be prevented from building a new super center near Grove City? To get some kind of law passed that does not allow Wal-Mart to build a super center is to go against fundamental principles that undergird the free enterprise system. Our system is built on private property rights and freedom of contract. As long as Wal-Mart exists as a corporation, they have the same right as any other corporation or individual to acquire property and use that property as they see fit. If they are guilty of unethical practices or of despoiling the environment, the best approach is to enforce laws or implement government policy to prohibit or penalize those harmful actions. It is clearly inappropriate for local government to provide subsidies to help an established corporation expand its local presence, but if taxpayer money is being misused in that way, it is the fault of local politicians, not Wal-Mart.
If you think that Wal-Mart has not been a good corporate citizen, whether or not they have violated any laws, you can refuse to shop there and make sure you do not own any of their stock. Before you join the anti-Wal-Mart crusaders or feel guilty about shopping at Wal-Mart, make sure you consider how Wal-Mart has benefited consumers by lowering prices while providing jobs that many workers obviously consider to be better than any alternative jobs for which they are likely to be hired.
Dr. Tracy Miller is an associate professor of Economics at Grove City College. He holds a Ph.D. from University of Chicago.
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