Wal-Mart & Globalization

Ralph J. Brown Professor of Economics Ralph.Brown@usd.edu www.usd.edu/~rbrown

STATEMENT OF PRINCIPLES
PEOPLE SHOULD BE: Free to Choose as Consumers as Workers as Suppliers

COMPETITION
Consumers best friend Workers best friend Not pro-Wal-Mart. Not pro-business. Pro Consumer.

I dont care whether it is Wal-Mart, Target, K-Mart, or whomever.

The Economic Impact of Wal-Mart

Does it lower prices? Does it create jobs? Does it increase productivity & efficiency in the economy?

GLOBAL INSIGHT STUDY

http://www.globalinsight.com/publicDownload/genericContent/11-03-05_walmart.pdf

Largest most prestigious econometric modeling firm in the world. THE ECONOMIC IMPACT OF WAL-MART Wal-Mart opened books on sales, employment, etc. 1985-2004.

Studies monitored and reviewed by economists from Brookings Instn. and American Enterprise Institute.

GLOBAL INSIGHT
Wal-Mart has been positive due to: lower consumer prices, due to real efficiency gains, not by lower wages.
more efficiencylower priceshigher real income

GLOBAL INSIGHT CONCLUSIONS

Due to Wal-Mart: Price Effect-US (Direct & Indirect) Food prices 9.1% lower, Commodity prices 4.2% lower, Overall CPI 3.1% lower.

GLOBAL INSIGHT cont.

Due to Wal-Mart: Increased Purchasing Power(2004) $118 billion-US $402 per person $1,046 per family

GLOBAL INSIGHT cont.

Due to Wal-Mart: Employment Effects US (2004) +210,000 net jobs nationwide. General economic efficiency +0.75%, (total factor productivity)

OTHER STUDIES(PRICES ARE LOWER)

UBS Warburg 17% - 39% lower. Basker (U of Mo) 23% lower. Hausman & Leibtag (MIT) food stores 25% lower - $782 per HH. Callahan & Zimmerman (WSJ) food prices 27% lower. AT Kearney food prices 20-25% lower. Aberdeen Study food prices 25% lower, 63% of savings to HH < $50,000, 42% of savings to HH < $35,000.

WAGES
Global Insight Wal-Mart BLS Avg 7 retail positions $9.17 $8.46 SD FT average $10.02 Global Insight - no evidence of belowmarket wages. WM provides health to FT & PT who choose to participate & pays 70% of premium.

INNOVATION & PRODUCTIVITY (Key to Increased Living Standards)

The US has observed an upswing in productivity since 1995. 1973-95 1.4% 1995-04 2.9% A quarter of that came from retailing.

Wal-Mart Effect
McKinsey Global Institute states:
More than half of the productivity acceleration in the retailing of general merchandise can be explained by only two syllables: Wal-Mart. Wal-Mart rivals (Target, K-Mart Sears) emulate highly productive processes. Competition from Wal-Mart makes its competitors better companies.

Wal-Mart and Vermillion?

Does Does Does Does it it it it add retail choice? lower prices? create jobs? provide tax revenue?

Vermillion Retail Sector is Underserved

Retail Sales Per Capita Inc.Adj.

(1.0 = avg of 11 largest cities)
Vermillion
2.00 Building Materials and Garden Supplies General Merchandise Stores Food Stores Automotive Dealers and Serice Stations Apparel and Accessory Stores 1.00 Furniture and Homefurnishings Stores Eating and Drinking Places 1.13 0.72 0.00 0.34 0.14 0.04 0.09 1.02 0.51 0.55 Total Miscellaneous Retail

Vermillion Impact (Estimated)

Retail Sales (Per Year) +$45 mil. Wal-Mart - $15 mil. displacement +$30 mil. NET Employment +275 jobs (700+ applicants) - 100 displacement +175 jobs NET

Vermillion Impact (Estimated)

Tax Revenue (Per Year) +$600 thou. City Sales Tax (2%) +$117 thou. Property Tax $164 thou. when complete.

Lower Prices -$2 mil Grocery prices @ 10% lower in V More disp income in & more spending locally
Less Travel to Yankton, Sioux City, & Sioux FallsLower travel costs

CONCLUSION
If we could eliminate Wal-Mart from the economy we would: pay higher prices, be less productive, have a lower standard of living, poor & modest income hurt most.

THE END

Progressives Should Read

Jason Furman, Wal-Mart: A Progressive Success Story Just google it.

INTERNATIONAL TRADE
Trade is a good thing. It raises standard of living in both countries. Trade does not destroy jobs, it changes composition of jobs.

DOES A TRADE DEFICIT CAUSE UNEMPLOYMENT?

12 UNEMPLOYMENT RATE

PERCENT

4 CURR ACCT BAL % GDP

-4

-8 80 82 84 86 88 90 92 94 96 98 00 02 04

NO RELATIONSHIP
Nonag Employment 140000 130000 120000 110000 100000 90000 80000

200 0 -200 -400 -600 -800 1980 1985 1990 1995 2000 2005 Trade Balance

Throwing Rocks at Wal-Mart

(Vermillion Community for Peace and Justice)