Markets
In Praise of Wal-Mart
For millions of people, Wal-Mart is a lifesaver that provides what they want at prices they can afford.
By Jeremy J. Siegel, Contributing Editor
From Kiplinger's Personal Finance magazine, January 2007
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Impact on prices
Studies have shown that Wal-Mart's prices have a huge impact on consumers' purchasing power. Global Insight, an international research firm, found that Wal-Mart's growth between 1985 and 2004 resulted in food-at-home prices that were 9.1% lower and overall prices (as measured by the consumer price index) that were 3.1% lower than they would otherwise have been.
These findings are stunning. Jerry Hausman and Ephraim Leibtag published a working paper for the National Bureau of Economic Research in 2004 titled "CPI Bias From Supercenters: Does the BLS [Bureau of Labor Statistics] Know That Wal-Mart Exists?" In it they showed that the BLS's inflation measure for food bought for home use is too high by about 0.32 to 0.42 percentage point per year because the agency improperly accounts for Wal-Mart's low prices, a mistake that leads to an upward bias in the overall inflation rate of about 15% per year. (In other words, if the government is reporting annual inflation of 3.45%, the real figure is closer to 3%.) No other company makes such a favorable impact on such an important statistic.
(This year, Wal-Mart rolled out a headline-making generic-drug program. Read more about trends in generic drugs.)
On the international front, those who criticize Wal-Mart for encouraging "sweatshops" in the developing world also fail to see the big picture. John Tierney, a columnist for the New York Times, recently wrote that Wal-Mart is as deserving of the Nobel Peace Prize as are Bangladeshi economist Muhammad Yunus and Grameen Bank, which he founded. Yunus and Grameen won the award in 2006 for their role in granting small loans to help poor villagers in Bangladesh start their own businesses. But, Tierney notes, Wal-Mart is responsible for the creation of far more jobs in developing nations. (Read Knight Kiplinger's discussion of Yunus's influence.)
Michael Strong, the head of a nonprofit group that promotes entrepreneurship abroad, says factories in developing countries that sell goods to U.S. retailers do a lot more to lift people out of poverty than virtually any governmental or private program, including the work of Grameen Bank.
Dynamic economy
Finally, those who fault large discounters for the decline of individual shopkeepers are ignoring trends that have been around for more than a half century. Similar accusations were made after World War II, when the growth of supermarkets, such as A&P, contributed to the demise of locally owned butcher shops, vegetable stands and dry-goods stores. Yet today, the supermarket is a symbol of the American way of life, and specialty stores that cater to particular tastes (such as ethnic and gourmet foods) are still thriving.
Let me say that my family and I have not stepped into a Wal-Mart store for years. When one opened in Philadelphia a decade ago, we found the checkout lines far too long and personal service lacking. We prefer to shop at more "upscale" discount stores, such as Target.
But I vividly remember the people who shopped at Wal-Mart. Many were from Philadelphia's poorer neighborhoods, and they shopped as if every penny counted. When I see groups such as Acorn (the Association of Community Organizations for Reform Now) lead the battle against Wal-Mart by claiming to fight for "the disadvantaged classes," a thought comes to mind: Have any of their members ever spoken to any of the millions of Wal-Mart shoppers for whom the chain's "everyday low prices" are critical for making ends meet?
What's your view of Wal-Mart? Vote in Kiplinger's reader survey.
Jeremy J. Siegel is a professor at the University of Pennsylvania's Wharton School and author of Stocks for the Long Run and The Future for Investors.