When I lived in Nigeria, one of the great cultural myths that I observed was that wealth was like a pie. In other words, there’s only so much of it. When one person gets a big piece of the pie, it means that he must have cheated or stolen from another person. It’s the view of economics that one person’s gain is another person’s loss.
The way this worldview worked out practically in Nigeria was in a culture of corruption. In several rankings of the world’s most corrupt countries, Nigeria has ranked in the top ten. A person in Nigeria would rather sabotage their neighbor’s car or business than see him succeed. When a rich person drives by in a big car, people assumed that he got there by oppressing others.
The United States, by and large, has been proof that the opposite is true: when one person succeeds, it is to the benefit of everyone around them. When an innovation is made, the whole society reaps the benefit. While one person’s innovation may make them rich, it’s not to the detriment of everyone else. And, in the United States, we have (for the most part) a culture that applauds those who succeed.
There are those that stubbornly say otherwise, though. There are those, even in America, who believe that if you have succeeded, the only way that you could have done so is by clawing at others, trampling them on your way to the top. Now, I’m not saying that no one gets to the top by clawing their way there or by trampling people on the way.
One corporate example that many people argue about is Wal-Mart. Wal-Mart has been trying to open a store in Chicago for many years, and has been rebuffed each time. The detractors’ argument goes like this:
- Wal-Mart abuses its workers. It doesn’t pay them a “living wage,” has horrible benefits, makes them work unpaid overtime, etc.
- Wal-Mart abuses its vendors. It squeezes them, forcing them to take lower prices, and forces them to ship jobs overseas.
- Wal-Mart abuses local businesses. When it opens a store, it forces thousands of already-existing stores out of business.
All of this is done in the name of lower prices, so the argument goes (Oh no! Not the lower prices evil monster!).
The problem is… those who make this argument don’t understand economics. Let me give a few counterarguments from economics:
- Pricing: individual wealth creation happens in one of two ways. First, it can come from higher wages (you can get a job that pays a higher hourly wage; you can get more education which leads to a higher salary, etc). Second, lower prices. If a person makes $50,000/year, and the price of everything he buys decreases by half, his income has not decreased, but his real income has doubled. Wal-Mart has increased the real income of each of its customers (mostly poor and middle-class people, by the way) by delivering to them low prices.
- Productivity: Wal-Mart has made some of the greatest innovative advances in productivity in history. The reason why Wal-Mart has lower prices is that it is more productive—or more efficient—than its competitors. It was one of the first companies to have its own central distribution centers, and its own trucking line. It was one of the first companies to adopt EDI as a method of payment. It helped develop the Universal Product Code (UPC). It has one of the most sophisticated supply chains in the world.
- Jobs: Wal-Mart does create a shift in the workforce. When a Wal-Mart store is opened, it does displace workers in other companies (though not as many as some critics have stated). The problem with the argument, though, is that these shifts do not cause long-term unemployment. A more productive society can actually create more wealth. Those that are displaced by Wal-Mart can be put to more productive and higher-paying jobs. If the society only needs 80% of the people it used to need to be in retail jobs, those extra 20% of people can be freed to be the next innovators of the society. When the automobile was invented, it put many in the horse-and-buggy industry out of business. There was some temporary heart-ache, as people pined for the days of the horse-and-buggy. But, it turns out that we didn’t need to dedicate such a large portion of our workforce to maintaining horses and buggies, and our society is better off as a result.
- Wages: Does Wal-Mart abuse its workers by paying them low wages? No, Wal-Mart does what any competitive business does. A rational company seeks to pay its employees the least it can to adequately perform the job. If the company doesn’t offer enough money to a potential employee, than the employee will not choose to work for that company. If a Wal-Mart worker is unhappy with the wages that he is being paid, then he is not obligated to work for Wal-Mart. In fact, in a suburb of Chicago, when Wal-Mart opened a store, there were 300 applicants for each job opening in the store, which shows that people are more than willing to work for the wages that Wal-Mart is offering. The same can be said for Wal-Mart’s vendors. As a competitive company, Wal-Mart seeks to pay the lowest amount for goods that it can. If a vendor cannot make its product for what Wal-Mart is willing to pay (or if another vendor can make it for less money), then they are not obligated to do business with Wal-Mart.
The bottom line: the high productivity of a company like Wal-Mart contributes to the overall wealth-building of our society. Wal-Mart, and companies like it, increase the real income of everyone in America (by offering lower prices), contributes to huge productivity innovations, and allows the economy to continue to grow.
The businesses and workers that are displaced by Wal-Mart when it opens a new store can move to new or larger industries that have jobs that are in high demand.
The employees and vendors of Wal-Mart are all in consenting agreements with Wal-Mart. None are required to do business with Wal-Mart. Employees are not bound to work for Wal-Mart. Neither are vendors required to sell their goods to Wal-Mart.
Our economy is not a pie that is divided between its citizens. A person who succeeds does not do so at the expense of another. Greater productivity in our economy means that everyone gets wealthier. Wal-Mart helps that to happen.