Wed, May 10, 2006 - Page 9 News List

Wall-to-wall Wal-Mart?

Love them or hate them, Wal-Mart stores have become the quintessential example of the costs and benefits of globalization

By Kenneth Rogoff

Do you want to know which video clip will soon be scaring the daylights out of policymakers throughout the world? In a scenario that looks uncannily like the spread of a global pandemic, the economist Thomas Holmes has prepared a dynamic map simulation showing the spread of Wal-Mart stores throughout the US. Starting at the epicenter in Bentonville, Arkansas, where Sam Walton opened his first store in 1962, giant boxy Wal-Mart stores have now multiplied to the point where the average American lives less than 7km from an outlet.

Interestingly, the video shows how the stores spread out like petals of a flower, ever thickening and expanding. Rather than jumping out to the coasts -- 80 percent of all Americans live within 80km of the Pacific or Atlantic oceans -- Wal-Marts have spread organically through an ever-expanding supply chain. Even though each new store takes away business from Wal-Mart stores established nearby, ever-improving supply efficiencies help maintain the chain's overall growth.

Love them or hate them, what is undeniable is that Wal-Mart is the quintessential example of the costs and benefits of modern globalization. Consumers pay significantly less than at traditional outlets. For example, economists estimate that the food section of Wal-Mart charges 25 percent less than a typical large supermarket chain. The differences in price for many other consumer goods is even larger.

Consider the following stunning fact: Together with a few sister "big-box" stores (Target, Best Buy and Home Depot), Wal-Mart accounts for roughly 50 percent of the US' much vaunted productivity growth edge over Europe during the last decade. Fifty percent! Similar advances in wholesaling supply chains account for another 25 percent. The notion that the US has gotten better at everything while other rich countries have stood still is thus wildly misleading. The US productivity miracle and the emergence of Wal-Mart-style retailing are virtually synonymous.

I have nothing against big-box stores. They are an enormous boon to low-income consumers, partly compensating for the tepid wage growth that many of them have suffered during the past two decades. And I don't agree with friends of mine who turn their noses down at Wal-Mart stores, and claim never to have visited one. As a consumer, I think big-box stores are great. They have certainly been great for America's trading partners; Wal-Mart alone accounts for over 10 percent of all US imports from China.

But I do have some reservations about the Wal-Mart model as a blueprint for global growth. First, there is the matter of its effect on low-wage workers and smaller-scale retailers. While completely legal, studies suggest that Wal-Mart's labor policies exploit regulatory loopholes that, for example, allow it to sidestep the burden of healthcare costs for many workers (Wal-Mart provides healthcare coverage to less than half its workers). And the entry of big-box stores into a community crushes long-established retailers, often traumatically transforming their character.

Yes, to some extent, such is the price of progress. But the loss of aesthetics and community is not easily captured in simple income and price statistics. Big-box stores are not exactly attractive -- hence their name. If they continue their explosive growth over the next 20 years, will Americans someday come to regard their proliferation as a spectacular example of the failure to adopt region-wide blueprints for balanced growth?

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