Demos Attacks Wal-Mart, But is it Fair?
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Do low prices cost jobs? In a new report from the hard-left group Demos, that's what we are supposed to believe. According to the report, the U.S. has suffered job losses -- specifically in manufacturing -- in no small part due to Wal-Mart’s (NYSE: WMT) extra-low prices and low wages. But the Demos report is an object lesson in poor analysis, bad economics and good old-fashioned Wal-Mart bashing. And it should not go unanswered. Wal-Mart is the most powerful anti-poverty organization in the world.
First, here’s a sliver of the report, called "Not Made in America:"
Why is it that America no longer makes things the way we used to? Between 1980 and 2011, the United States lost 7 million manufacturing jobs, many of them middle-class positions that enabled workers to support their families with dignity. Today, the nation’s largest employer is not a manufacturer, but mega-retailer Walmart – which is celebrating its 50th anniversary this week.
Fortunately, most Wal-Mart shoppers will never encounter the report, much less whatever media hits it has managed to spawn. The bad analysis and bad economics are designed to tap into people's darker instincts.
But anyone who cares about human beings has to admit, under no uncertain terms, that Wal-Mart is a staggering force for good in the world. Let’s linger on the latter point, then return to the “analysis” part of the Demos report.
“Forget the World Bank, Try Wal-Mart”
In an effort to subtly lay the nation’s unemployment woes at the feet of America's largest private employer, Demos uses crude protectionism and ‘blood-n-soil’ nationalism. This demonization strategy is designed to create a scapegoat. That is, Demos hopes to divert its readers from the failed policies of a beleaguered president during an election year marked by 8+ percent unemployment. Their implicit punchline: If the fault lies with China and Wal-Mart, it doesn't lie with the Administration.
One of the few actual truths in the Demos report is the fact that Wal-Mart buys from suppliers who manufacture in China. The problem with misusing this fact is that it exposes something most unseemly about Demos: The organization must really not care about poor people. If they did, they would have to admit, like Michael Strong, that Wal-Mart is the most effective poverty fighter on earth.
Strong writes:
Between 1990 and 2002 more than 174 million people escaped poverty in China, about 1.2 million per month. With an estimated $23 billion in Chinese exports in 2005 (out of a total of $713 billion in manufacturing exports), Wal-Mart might well be single-handedly responsible for bringing about 38,000 people out of poverty in China each month, about 460,000 per year.
The fact is, the Chinese are human beings, too -- human beings who also want to “support their families with dignity.” If one cares about the progress of human beings -- as opposed to political agendas or borders -- one cannot straight-facedly claim that Wal-Mart is not a force for good in the world. In fact, even “without considering the $263 billion in consumer savings that Wal-Mart provides for low-income Americans, or the millions lifted out of poverty by Wal-Mart in other developing nations, it is unlikely that there is any single organization on the planet that alleviates poverty so effectively for so many people.”
One wonders: Could Amy Traub, the report’s apparent author, look at any of those 174-plus million people in the eyes and tell them that their lives and livelihoods are worth nothing because they are not American? That would be unconscionable. Yes there can be growing pains from globalization. But the evidence shows, overwhelmingly, that both Chinese people and Americans are better off thanks to the existence of Wal-Mart.
Bad Analysis
If you want to paint a populist picture, there’s no better way to do so than to pluck some manufacturing numbers out of context and imply that an eeeeevil corporation is to blame for them. But the world is a lot more complicated -- and indeed more abundant -- than the Demos authors would have you believe.
Economist Mark J. Perry reminds us, for example, that:
In 2009, the most recent full year for which international data are available, our manufacturing output was $2.155 trillion (including mining and utilities). That's more than 45% higher than China's, the country we're supposedly losing ground to. Despite recent gains in China and elsewhere, the U.S. still produced more than 20% of global manufacturing output in 2009.
The truth is that America still makes a lot of stuff, and we're making more of it than ever before. We're merely able to do it with a fraction of the workers needed in the past.
So even if it’s true that there are fewer people per capita employed in the manufacturing sector than in the past, it is also true that fewer people per capita are employed in the agriculture sector. It used to be that agriculture made up the bulk of U.S. GDP. Now it’s less than 2 percent. But would it be desirable to return to an agrarian life?
America’s economy is now far more diverse. Since 1980, people many more people are employed in the knowledge economy, in services industries like medicine and massages, and, yes, even in retail. I think about my grandfather who once toiled away in a textile mill. Would he have been worse off stocking shelves and helping customers at the same wage?
Bad Economics
Bear also in mind that the Chinese, as their economy grows, are buying our products and making investments back into the U.S. Together all this makes up a “trade deficit.” So what? For all this talk of a balance of trade, remember that you have a trade deficit with your grocery store. And as economist Donald Boudreaux reminds us: "To lament an American trade deficit, is to lament the fact that foreigners are investing in America. And that seems very odd."
The Demos report also picks on Wal-Mart for paying entry-level people “$8.81 an hour on average.” (Note: other sources put the Wal-Mart wage average at closer to $11 per hour.) Not only is this higher than the federal minimum wage, according to Salary.com, it is exactly what people in the U.S. retail sector should expect to make at this level. Indeed, there are 2.2 million Wal-Mart associates willing to work for these wages. (It should be noted that Target (NYSE: TGT) wages are similar. So why pick on Wal-Mart?) In other words, far from exposing Wal-Mart for paying "low" wages, Demos exposes its own mendacity.
But let’s suppose Wal-Mart decided to pay “associates” -- entry-level folks -- more money under pressure from groups like Demos. Not only would it have to cannibalize its returns -- and the returns of those who provide capital (people with 401ks, like our readers) -- Wal-Mart would also have to employ fewer people. Why is it that five people employed at $16 per hour (but also five people suddenly unemployed and on the dole) is somehow preferable to 10 people gainfully employed at $8.81 per hour? It’s not a lot of money. But you can live on it. And no one can live on $0.00 per hour.
Furthermore, why would Wal-Mart or anyone else want to think of labor as being a phenomenon somehow outside the laws of supply and demand? It sounds a little cold and calculated to understand labor in these terms. But in cold calculation, we often find the unseen costs of stupid policies (unemployed people) and the unseen benefits of good policies (more employment and disposable income). It’s just bad economics to think of labor as being somehow different; just like it’s bad physics to think that an idealistic scientist could revoke the law of gravity. In either case, when we ignore these laws, we all fall down.
Of course, we cannot overlook the benefits that Wal-Mart’s low prices generate in savings. If people have more disposable income from shopping there, they have freed up resources to put into other places, like coffee shops, computer stores and the city ballet.
Naked Partisanship
The Demos report is an agenda masquerading as scholarship. But you don’t have to take off the mask. Just look below the chin. You’ll find naked partisanship. Clearly, the authors are willing to resurrect discredited 18th century economics -- mercantilism -- and ugly nationalist sentiments about the Chinese to keep a failed politician in office. And they are willing to demonize one of the world's great companies to do it. Those who really care about people will balance common sense economics with concern for the world’s poorest people--that is, two sides of the same coin.
Max Borders is author of Superwealth: Why we should stop worrying about the gap between rich and poor (Fall 2012). Contact him here if you’d like notification when the book is out.
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