Wal-Mart CEO calls for higher minimum wage

[nodoodahs]

http://www.washingtonpost.com/wp-dyn/content/article/2005/10/28/AR2005102802079.html

Ingenious!

Aside from the public relations benefits and the confusion around the rank-and-file Socialistas that have attacked WMT (don’t hate me because I’m successful!), there is … another side to this issue.

This is a prime example of corporate rent-seeking. Of course, WMT already engaged in that on the local level through capitalizing on county commissioners’ powers of imminent domain, but this, oh this is inspired!

WMT is growing in the U.S. via superstores, stores that combine grocery stores with the general merchandise they’re known for. Their competitors in this space are the old-line grocery stores. These grocery stores, already a low-margin enterprise, are far more likely to have minimum-wage employees than WMT is.

Time and again, when corporations call for regulation that seems at first blush to hurt them, like safety equipment in cars, or call for “green” regulation like adding catalytic converters to autos, they have a profit motive at heart. In WMT’s case, they have already absorbed more of the cost of a higher minimum wage than their competitors have, so this move hurts the competition more than it hurts them. It also raises the “cost of entry” into the discount merchandising space by increasing the cost of labor.

The persons hurt by an increased minimum wage will be WMT competitors, not WMT.

Other discussions of this phenomenon:
http://www.fee.org/vnews.php?nid=3093
http://www.marketthoughts.com/forum/viewtopic.php?t=957
http://www.marketthoughts.com/forum/viewtopic.php?t=461
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Economy of scale is generally assumed to be a phenomenon where increasingly larger businesses reap increasingly more advantages in the marketplace, but I don’t believe this is axiomatic. There are spheres of influence where marginal increases in size act in contrary manners. Large retailers gain some advantage from size, but lose ground in organization efficiency (just as all large organizations do) and in information specificity, i.e. national organizations operate with some ignorance of regional variations in regulation, customer preference, etc. Large retailers have more $$ to tempt local governments into use of imminent domain for property seizures, whereas smaller local retailers have “relationship capital.” Just because the marginal increase in size is an advantage for that sphere of influence from some point A doesn’t mean that a marginal increase in size is an advantage for all points along the scale. You may be able to bid out your printing needs more efficiently when going from size A to B, but in going from size X to Y, you may find that your printing needs are so large that only a few companies can handle them, and now they have pricing power.

Should we collective the experience of the communities where WMT displaces local shopkeepers? Talented employees at local shops may have little or no room for advancement if they aren’t related to the owner – at WMT they have that room, and they benefit, do they not? The consumers who are paying lower prices at WMT benefit. Locals who own WMT stock benefit from their community’s prosperity in a way they couldn’t when the local shops were family-owned. It has good and bad, depending on the individual’s value system, for each individual. Trying to assign an aggregate benefit implies that (1) all debits and credits could be known, and (2) that quantifying debits and credits objectively between different individuals was possible.

Dealing with the particular trend of larger and/or more established businesses engaging in setting regulations in order to gain benefit, which, incidentally, is the foundation of much of the licensure regulation on the books, yes, it would tend to benefit smaller businesses by removing an artificial barrier to entry. Also the return of caveat emptor, along with the power of reputation, would certainly benefit locals more than large corporations (and BTW the primary effect of licensure regulation is to neuter both caveat emptor and reputation). However, there may be other impacts that are deleterious to the smaller firms.

I prefer to make the argument against regulation from moral grounds and not from practical grounds. Once the argument is phrased in terms of “less regulation benefits __”, we have entered the realm of politically deciding who is to benefit from whom, and have totally sidestepped the issue of should anybody benefit from anybody else through the force of arms applied by the government.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[fh1951]

This is a thought provoking post.

Economies of scale lead to many competitive advantages don't they?

No question, in our modern era, fragmented markets lend themselves to consolidation.

But - shopkeepers have been a bulwark of the middle class for centuries. No question that Wal-Mart and other big box retailers have benefited at the expense of the socio-economic structure of many of the communities they serve.

Less regulation might help local businesses compete better by reducing administrative expense (obvious); might it also help them by making caveat emptor an operative term again? Who do you trust more - the company with headquarters a thousand miles away or your neighbor?

Libertarianism anyone?