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Feb 14, 2005
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Southern SD
Wal-Mart: A Business We All Can Look Up To
by John Semmens
08 April 2005

The sheer size of Wal-Mart attests to the success of its low-price strategy.

Wal-Mart is the world's largest business. Its $250 billion in annual sales makes it bigger than legendary giants like Exxon, General Motors, and IBM. How did Wal-Mart get so big?

In a market economy, success goes to those businesses that best serve consumer needs. Businesses must persuade customers to hand over money in exchange for the merchandise. Customers are completely free to ignore the offerings of any business.

We are all consumers, and consumers like bargains. Every dollar we save on a purchase enables us to make additional purchases of other items. More of our needs and wants can be fulfilled when prices are lower than when prices are higher. Wal-Mart's basic strategy has been to guarantee low prices.

The sheer size of Wal-Mart attests to the success of its strategy. It has grown into the largest business on the planet precisely because it is accurately interpreting consumer needs and efficiently serving them. This is what we want businesses to do.

But what about the methods Wal-Mart uses to achieve its goal of low prices?

According to a legion of critics, Wal-Mart allegedly exploits its own employees by paying "poverty wages" and forcing them to work unpaid overtime. Wal-Mart also allegedly "squeezes" vendors, forcing them to lay off American workers and ship their jobs to foreign "sweatshops."

Anyone who understands economics, however, knows these claims are without merit. No one is forced to work at Wal-Mart. Every employment contract is a voluntary agreement between consenting parties. The wages, benefits, and work conditions at Wal-Mart must be as good as or better than those elsewhere, since otherwise people wouldn't choose to work at Wal-Mart.

Wal-Mart can't force its employees to work overtime without compensation. Employees are not chained to their stations. They are free to leave and take other jobs if the working conditions or pay at Wal-Mart are less than satisfactory.

Neither can Wal-Mart "squeeze" vendors, compelling them to accept deals they would prefer to refuse. Of course, sellers would like to get as high a price as possible for their wares. And buyers would like to get as low a price as possible. Both have to settle on a price that is mutually agreeable.

If some of Wal-Mart's suppliers choose to manufacture their products overseas that is because doing so lowers their costs. Wages demanded by workers in places like Bangladesh are lower than they are in the U.S., but they must still be sufficient to lure workers from alternative occupations. As bad as these "sweatshop" wages and working conditions may appear to Americans, they are obviously cherished by those who endure them in other countries, where the alternatives often pay much less and can be physically demanding or dangerous.

From an economic perspective, Wal-Mart is a major force in promoting prosperity for everyone, including consumers, employees, shareholders, and suppliers. The company helps consumers get more for their money, provides jobs for willing employees, and offers a great expansion of choices of consumer goods for consumers in small communities.

Wal-Mart's "lowest price" policy is stimulating its suppliers and competitors to be more efficient, which requires higher productivity. Higher productivity, in turn, is the key to prosperity. By encouraging international trade between the U.S. and less-developed countries, Wal-Mart is helping put these countries on the path to higher standards of living as well.

Wal-Mart is doing all these good things with a profit margin of less than 4 percent. To call Wal-Mart a "corporate criminal," as an article in the January 3 issue of The Nation does, is libel. Wal-Mart is a model of success that should be emulated, not reviled.

Economist John Semmens is a policy advisor to The Heartland Institute and project manager for the Arizona Department of Transportation Research Center.

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