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Jul 28

Is Wal-Mart Really to Blame?

I’d like to respond to some of Howard’s and Steve’s comments to my previous article, so I’ll take them in turn. Unfortunately, I’m so darn long-winded that it’s too big for a simple comment post, so its taken the form of an article:

Costco’s competition with Walmart

Howard speaks of how Costco effectively competes with Walmart effectively with unionized labor and higher wages. This may indeed be true. However, the fact is Costco does not directly compete with Walmart Stores. Rather, Costco is a more direct competitor of Sams Club, another Walmart brand. Walmart Stores are really the bread and butter of Walmart, and having said this, there is no other organization that competes effectively with Walmart on a worldwide scale, hence Walmart’s iconic status. This being the case, it might even be plausible to say that Sam’s Club could pay higher wages and unionize and still be competitive. One possible reason for avoiding this scenario is the collateral effect it would have on Walmart Stores.

Overcompensated Executives

On the subject of Executive Compensation, however, as I explained in terms of associate pay, the market rate rules. Indeed, do the Executives need a union to get fair pay? The fact is that if you want someone with the experience of running such a large organization effectively, you’ll have to pay the going rate.

I, like many folks, don’t like to pay for anything. In my work, I often am paying $1,500 per day for an individual with specialized skills. Is this extortion? No, these individuals invested in themselves to develop the skills I, and many others, need. While I think the rate is awfully expensive, I am willing to pay because I desire the work to be done. Just as I complain about these costs, I might complain about the cost of the executives. On the other hand, I think I might complain more if I was an owner (shareholder) of Walmart and the company went belly-up due to poor management. Everyone thinks they have what it takes to lead an organization the size of Walmart; but I say if you’re so sure, test your mettle leading an organization of 50 people (rather than 1.5 million). Once you’ve steered such a small boat, you can then only imagine what is required to sit at the helm of a fleet of massive ships.

Profitable Unionized Organizations

When it comes to the example of a unionized shipping company being more profitable than a non-unionized one, understand that I am not asserting that a unionized shop cannot be more profitable. Indeed, there are many ways to make your cost structure higher, and unionization is but one of them. Other bad organizational decisions can do even more harm to the bottom line. As such, since the national parcel shipping industry in the U.S. is essentially an oligopoly, it suffers from a number of dysfunctions and diseconomies, similar to (though not yet as bad as) the airline industries. However, should this market’s oligopoly status be broken, as has happened in other markets, you can expect a new low cost leader to enter as a non-union shop. This goes back to my original comments on barriers to entry.

Market Systems as the Devil

(I’m referring here to a number of section numbers from the Catholic Catechism in Steve’s comment.)

(2423) Social relationships should not be entirely determined by economic factors: I don’t see this at Walmart, or even in American society at large. The fact is that socialization often passes through barriers: economic, class, caste, race, creed, etc. Each of these is a determining factor, and as such, I don’t see the application here. I certainly don’t see how Walmart differs than any gas station who pays minimum wage. I agree there are systemic issues, but I say as a society the issue must be righted. Don’t pick the big target and blame it for playing by the rules that so many others espouse. Rather, fix the rules.

(2424) I agree that profit should not be the ultimate end of economic activity. Indeed, American society sets rules (often in the form of laws) that impose costs or practices upon organizations to ensure that other ends our met (i.e. protection of life, liberty, etc.). My assertion is that persons are not "nothing more than a means of profit", they are however "a means of profit." There is no denying that people are but one resource necessary to generate productive value, and as long as someone must farm the land such that they may eat, this will never change. Rather, I accept that productive work is necessary to ensure every individuals livelihood.

(2425) (206) I again agree that there are many human needs that cannot be satisfied by the market. Again, it is the duty of American society to set the rules by which the market must operate (minimum wage, work safety, environmental concerns). The rules are enforced, but the ones we want to apply simply don’t exist. Rather than blaming Walmart as a manifestation of our society, I say our society has failed to set rules and norms. I cannot blame Walmart any more than I might blame one football player for hitting another to tackle him. That’s the rules we’ve put in place.

Steve states, I think rightly, that there is no justification within Christianity that an employer should be entitled to pay a market rate. However, I have yet to find any Christian teaching that justifies paying artificially high rates either. Indeed, any teaching I can think of would apply to both in terms of a "fair" rate. In our society, we have decided that a fair rate is that agreed to by both parties (typically a market rate absent a contract or other outside forces). Again, if this is unacceptable, I cannot blame Walmart for abiding by the norms of our society. Howard makes my point well here with his eggs example: as long as people continue to be rational economic beings, and as long as the rules of economics don’t change, organizations such as Walmart will continue to thrive. Why shouldn’t they? After all, we set up the rules, asked them to play, and then complain that they’re doing such a good job of following the rules.

I also agree that many of the things our society does today profit the present and costs the future. It is again our duty as a society to right these wrongs. Don’t expect those who were created around our rules and norms to fix it! Let us (society), who set the rules and norms, fix the problem.

Income without Work

Every time you put work into something, you hope to get more out than you’re putting in. For example, when you pump a water well, you hope to get water, even though you’re not nearly doing enough work to actually create water from hydrogen and oxygen. Without this premise, humans could not live very long, since no individual can exert enough work to actually make food and water themselves without harnessing the land, the sun, and other natural resources.

Steve points to income without work as a problem as well. I wonder how many folks tell their bank not to pay them interest because it’s income without work (or insist on paying for checking services, or paying rent for the vault, etc.) Indeed, any investment income (at a bank, in stocks, as venture capital) is such. The reality is, however that this IS income WITH work. Money is a representation of stored value. Stored value is created when you do work. Investment of money, then, is the way to transfer your work to another place. By doing so, you hope to get more out than you put in. You hope to create productive value.

Your bank takes your money and reinvests it, thereby acting on your behalf as a proxy for investment. Or you may also directly invest in stocks, and the company you invest with becomes the proxy. Or if you’re really ambitious you could invest your money as venture capital, thereby helping a business to get past the initial costs of starting up so it may create productive value. If you start your own business, this is essentially what you are doing, though investing in your own business.

Indeed, not only is it necessary to invest work (money) in the hopes of getting more out simply to survive, it is also a necessary economic factor. Economic inflation causes stored work (money) to decrease in real (rather than numerical) amounts. The only to protect stored value is to continually reinvest that value in the hopes of producing more. The fact is that anyone with retirement accounts relies on this to ensure that the value (money) they’ve saved over their lifetime retains its value so they may continue to live after they can no longer work.

Conclusion

My overall point, here, is that while many of us like to point to Walmart as a horrible organization, I believe it has been very effective at following the rules and norms of our society. Rather, because it does this so well, and I may not like some of the outcomes, I believe our society has done an awful job of setting rules and norms. Those who blame Walmart are simply trying to shirk their own responsibility, even culpability in the matter.

I do not blame a driver following a 55 MPH speed limit for causing traffic to back-up when everyone typically drives on that road at 75 MPH. Rather I blame those responsible for not building enough lanes or setting the speed limit too low. In the same sense, I don’t blame Walmart. I blame America.

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