Friday, February 10, 2006

Wal-Mart's CEO speaks out

It took a while, but Lee Scott came out swinging. And of all the newspapers, the Washington Post published his piece. It's not one of my regular reads, but our friend Marshall Manson (who does PR for Wal-Mart) alerted me:
Wal-Mart Is in Maryland to Stay

By Lee Scott
Thursday, February 9, 2006; A23

Last month the Maryland General Assembly enacted a law that requires large employers to spend a certain percentage of their payroll on health care. The bill was designed to apply solely to our company, Wal-Mart. Since then we've received a lot of e-mails and phone calls from folks urging us to stop doing business in Maryland. "Send those politicians a message," many of our friends are saying. We always appreciate advice, but what we'd like to do instead is send the people of Maryland a different message: We at Wal-Mart stand by you.

If we closed our doors in Maryland, a lot of things would happen, and none of them would be good for the working families of this state. Seventeen thousand associates work for us in Maryland. Every one of them -- both full-time and part-time -- can become eligible for health coverage that costs as little as $23 per month. Our stores here collect $112 million in sales taxes and generate $13 million more in tax revenue for state and local governments. We buy $678 million worth of goods and services from 667 Maryland suppliers. Thanks to our foundation and good works in our stores, we donate $3.7 million to local charities in Maryland. And when it comes to our customers, we save the average household more than $2,300 per year by offering the products people want at affordable prices in one convenient place.

We think those are valuable things we do for the working families of Maryland. And we're planning to do more. We will build more stores, create more jobs, offer even more affordable health care, generate more tax revenue, do more business with suppliers and give more money to local charities. Though the General Assembly passed a bill that affects our company and our company alone, we will not flinch in our commitment to our customers, our associates and the communities we serve. Working families want us in Maryland, and we're staying in Maryland.

That's not to say that the bill state legislators passed wasn't bad public policy. It was. And we're not the only people who think that. Dozens of experts, academics, business leaders, government leaders and editorial pages from the District of Columbia to Washington state agree that this bill and similar ones popping up in other states aren't solutions. Consider this fact: According to the Kaiser Family Foundation, almost every large business in the United States offers health insurance to its employees, yet only six in 10 small businesses are able to do the same. Clearly, any policy that singles out large employers -- much less a single large employer -- ignores the reality that businesses of all sizes are struggling to deal with the soaring cost of health care in America. Still, we will of course comply with the laws of Maryland.

A lot of people also think -- and we agree -- that legislation of this type will cost jobs. We will do our best to make sure that doesn't happen at our company. Last year we created 125,000 jobs nationwide -- many of them in neighborhoods that desperately need jobs. Just as an example, after the recent announcement of a new store in Chicago, we received 25,000 applications for just 325 jobs. We'll work hard to continue to find opportunities to serve our customers and operate more efficiently. This will generate more sales and savings for our company. But will other companies be able to do the same and absorb the higher cost of employing their workers? With other state legislatures considering bills that apply to more and more companies in addition to Wal-Mart, we may find out, and unfortunately the result won't be good for working families....
It was a mostly great defense that illustrates the reality of how beneficial Wal-Mart is to Maryland (and everywhere else it has a presence). However, I question touting things like tax revenues, jobs, and purchases from other businesses in the state, because if people didn't have Wal-Mart and spent the same money at other businesses, while they wouldn't be able to buy as much with their money, the amounts of taxes, jobs, etc., would likely still be the same. Thus it's not a given that building a Wal-Mart automatically expands the economy (increasing things like employment and the tax base).

One accusation that Paul Krugman hurled at Wal-Mart a little while ago is that it creates jobs, but jobs on net are lost because smaller businesses, which are said to employ more people, go bust. That could very well be true; I don't have real numbers. However, that would actually be a good thing. That means when Wal-Mart comes in, it provides the same retail service with fewer people. If it does the work of 500 with 450, then 450 people are more productive, 50 more people go into another line of work, and then the economy does expand. But leave it to Krugman to dwell on one of Keynesian economics' erroneous goals: jobs just for the sake of jobs. Look at what that focus did to France.

Wal-Mart's Maryland customers should be pleased it's not leaving the state, but after all, there's still profit to be made, even if the new tax is indeed unjust and onerous. Sadly, that's how the politics of taxation works: how much pain can legislators inflict before too many people (or in this case the single target) pick up and leave? There's also a long legal battle ahead, which Wal-Mart could win. I'm glad Wal-Mart has decided not to "cut and run," which it could easily do out of spite.

I like to clarify that I don't support Wal-Mart per se, rather, I'm an advocate of capitalism. I don't look at Wal-Mart as a good neighbor, as a provider of valuable service to the community that isn't giving up on its customers (though Maryland's legislature is making it so unwelcome), or as a caring employer that offers such affordable health insurance. Wal-Mart is a business, meant to make as much profit as possible, and it's staying in Maryland because, so far, it's still good business. Business isn't about altruism, charity or humanitarian goodwill, and there's nothing wrong with that. As Adam Smith is renowned for saying:
...by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.
Not "always," but "frequently," and coupled with the ever-true observation that commerce for the sake of "the public good" is ineffectual. It makes sense to us, or at least most of us, 230 years later, that if businesses operated like charities, then they would have none of the competition that spurs economies forward. Through its competitive practices, Wal-Mart makes the retail sector more efficient, and in its drive to benefit its shareholders by maximizing profits, in a quest its detractors call greedy and monopolistic, Wal-Mart benefits society through its prices.

Wal-Mart gave $200 million to charity in 2005, but dwarfing that is what Wal-Mart does best: providing low-priced goods to its customers. Bastiat would remind us that a family saving $2300 a year by shopping at Wal-Mart is essentially receiving a gift, meaning Wal-Mart gives an annual gift of billions to the U.S. as a whole. Even Wal-MartWatch admits one estimate that Wal-Mart saves Americans $20 billion a year. And remember that Mississippi residents affected by Hurricane Katrina found their Wal-Mart well-stocked and even specialized, when local stores hadn't even begun to clean up, and the nearest other stocked stores were at least 30 minutes away. Wal-Mart wasn't doing it out of charity, but to make a profit, and still at its "everyday low prices." Not even big government can provide such goods and services so well, no matter how much it taxes and plans!

No matter how cutthroat Wal-Mart's practices may seem, people still have the freedom to buy elsewhere and to work elsewhere. Whether they shop or work there, people by their actions show that they believe they're getting a fair, voluntary exchange. When 63% union workers still shop at Wal-Mart, I wonder why they don't patronize unionized stores, to keep the money within union labor; also, union jobs supposedly pay more, so why should they need to go to Wal-Mart? On the employment side, non-union Wal-Mart jobs are apparently so bad that 25,000 people applied for 325 positions at the new Wal-Mart in Evergreen Park, Illinois.

Naturally, the sheltered-from-reality moonbats at Democratic Underground claimed the Evergreen Park scenario illustrates "the bad economy." That makes as much sense as the anecdote of a Soviet citizen in Paris pointing to the failure of capitalism, because of the long lines extending outside a famous bakery. Maybe the moonbats really think (or hope) they live in France, where employment prospects are indeed dismal. In the United States, Unemployment is now at 4.7%, a 53-month low, the absolute number of unemployed people keeps falling, and the ratio of the work force to the population has been around the same level for years. It peaked during the height of the dotcom bubble, when people who otherwise would not have worked entered the unsustainably hot job market.

Don't pay attention to economic doomsayers whose purpose in life is to make up one new economic bogeyman after another. The American economy passed the "recovery" stage three years ago and since then has been in full-blown expansion (let's just hope the Fed doesn't overly tighten and cause a recession). There's a lot of opportunity out there, but it's the same old story that those who cannot compete instead turn to government, like with New York City's transit union and teachers union, and domestic industries that lobby for protectionist policies (which benefit them but overall hurt the economy more than the benefits). In the case of Wal-Mart, it's under fire by union labor that can't compete, and it's actually unionized stores that are greedy, because they want laws that indirectly protect their higher prices. It's nothing short of hypocrisy that the unions lobbied Maryland's legislature into levying this "health benefits" tax (as Scott put it, "designed" just for Wal-Mart), and not because the unions care about Wal-Mart workers, but because the tax hurts Wal-Mart's ability to compete against unionized stores.

If unions are truly concerned about health care, here's something they can do to reduce the cost: let them lobby for the repeal of laws forcing hospitals to give emergency room treatment, regardless of the ability to pay. In the southwest U.S., untold billions have been spent that way on illegal immigrants, which forces hospitals to charge paying customers more. Sometimes the federal government steps in, like last year when it "gave" Texas $1 billion for hospital expenses incurred from illegal immigrants, which means taxpayers pay a higher rate than they ought to. Let unions challenge the welfare state and the higher prices and taxes it precipitates, and then we might start believing they have a smidgeon of sincerity.

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4 Comments:

Blogger TKC said...

I ask politely that the above comment be deleted. I 'ask' simply because it is not my site. I'm hardly one to be making demands here. Maybe if I was in the MD State legislature....

As for Wal-Mart, if they can still turn a profit in MD then I guess it is worth their while to stay in business here. Sadly, I worry if this will just do nothing more than to embolden the state legislature (which is on a mean streak of bad ideas) to come up with even more economically unsound laws. As has been pointed out most of the uninsured Maryland workers do not work for Wal-Mart. Out of 786,000 uninsured Maryland workers less than one half of one percent of them work for Wal-Mart. So when this law doesn't do much to change the number of uninsured Maryland workers then what will be next? My guess is more of the same. One cannot solve a problem by compounding it.

I'm glad their staying but somehow I don't think the extortionists in the legislature are quite done with them yet.

Friday, February 10, 2006 7:36:00 PM  
Blogger CaptiousNut said...

Count me in the camp that thinks WMT foolish to not pull out of the state.

Clearly WMT has done the cost/benefit analysis of doing so and come down on the side of staying.

It would of course be arrogant of me to think that I know better than seasoned WMT management how best to assess said risk/reward scenario. Nonetheless, personally I think they are inviting further extortion from other states.

This may be their "Munich".

Friday, February 10, 2006 10:04:00 PM  
Anonymous mstahl16 said...

Hey, I have an idea! Let's get each employed person to pay for the healthcare of one other individual. We could just pass a law that would make it happen. What's that you say? The government is already paying 55% of the cost of healthcare in the country? And we know where the government gets the money? I already am paying for the healthcare of another person? Okay, maybe it wasn't such a good idea after all.

Sunday, February 12, 2006 4:42:00 PM  
Blogger Perry Eidelbus said...

Sorry for being away for a couple of days again. I've just been so busy and also needed my rest. I originally was going to keep the above comment, because it amused me for some strange reason I couldn't put my finger on. However, it did use some terms that might be offensive to some readers, and I do want to keep my blog polite.

Sadly, it's illustrative of the American male mindset that, instead of talking about pressing issues, someone anonymous (presumably not getting any) merely wishes to talk about female anatomy. I'm sure there are many sites which will fulfil his needs, visually as well as verbally, but not this blog.

We can presume that Wal-Mart is willing to spend (or lose) $x to "make its point" (garnering publicity and public support) about Maryland's tax. If Wal-Mart projects that it will still make $y profit by keeping a presence in Maryland, then Wal-Mart will remain so long as [y]>=[x]. Now if Wal-Mart is in fact losing $y, and it will lose $z by moving, it will stay in Maryland so long as [y]=<([x]+[z]). For example, Wal-Mart might project losing $10 million by staying in Maryland, and that it will lose $9 million by moving. It will stay if it values "making its point" at $1 million or more, it will stay. If it values "making its point" at only $500K, it will move, because losing that money to "make a point" isn't worth the reduced losses of moving.

As I said, tax-and-spend politicians will inflict taxes as heavy as possible without forcing people out. It's really a tragedy how a business is pressured into staying, because moving would be more expensive. Right now Wal-Mart is restructuring things like supply centers and delivery routes, changes that reduce operational costs now. We can presume that before Maryland's tax, these changes would have been more expensive than the status quo, otherwise Wal-Mart would have already shifted toward them.

Sunday, February 12, 2006 11:15:00 PM  

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