Anti Chain Store Policies in India and America

by on December 19, 2011 at 9:57 am in Economics, History | Permalink

When we think of growth and innovation we often think first of high-tech sectors but in the United States during the roaring 1990s it was retail productivity growth, led by Walmart, that drove the country. Retail productivity is important because the retail sector is huge and because retail productivity extends backwards to manufacturing and service productivity. Today, growth in India is slowing in part because the Indian government is no longer pushing reform, and the most notable failure is the failure to modernize India’s retail sector.

The Guardian: The beleaguered Indian government has been forced to suspend its decision to allow international supermarkets to invest in India‘s £300bn retail market in the face of political opposition.

…Allies of the increasingly vulnerable administration of Manmohan Singh, now in its second term, had refused to back the measure. Critics said the move, which theoretically does not need parliamentary approval, would put millions of shopkeepers across India out of business and threaten the livelihood of farmers.

Supporters argued that it would mean improvements of infrastructure and lower prices for consumers.

Analysts said the delay to the move was due to “political not ideological factors. There are local elections coming up and no one wants to risk the commercial traders’ votes…. The failure to implement what would have been the first major economic reform since Singh’s second term began in 2009 will reinforce the sense of drift surrounding the Indian government, compounding anxiety at a time when growth has slowed, inflation remains high and the value of the Indian rupee is dropping fast.

Stock prices of Indian retailers plunged in response to the news.

The political constraints here are enormous. Here is Marc Levinson author of The Box and more recently The Great A&P and the Struggle for Small Business in America, on some of the crazy anti-chain story policies in the United States:

President Franklin D. Roosevelt, who portrayed himself as the consumer’s friend, turned restrictions on chains into national policy. Under the National Industrial Recovery Act of 1933, one of Roosevelt’s programs to revive the economy, federally mandated codes were instituted that limited store hours, and regulated wages and prices — but the restrictions applied only to chains and large stores, not to mom-and-pop merchants. When those codes were invalidated by the Supreme Court, Congress enacted another law, the Robinson-Patman Act of 1936, intended to make most volume discounts illegal so that small shopkeepers could buy their goods for the same prices as giant chains.

In 1946, the government won criminal convictions against executives of the largest chain of all, the Great Atlantic & Pacific Tea Company (A&P), on the bizarre charge that they were violating antitrust law by selling groceries too cheaply. As late as 1953, the government was trying to break A&P apart by claiming that baking its own bread and canning its own vegetables gave the company an unfair advantage.

k December 19, 2011 at 10:07 am

Well at least its good to know that the silliness in India isn’t new…

Sandeep December 19, 2011 at 10:32 am

I don’t know much about this, but have heard an argument that the retail sector is a sort of “shock absorber” for the economy in some sense. Opponents of this reform warn of sudden and sharp increase in unemployment as a fall out of FDI.

Brett December 19, 2011 at 10:38 am

It’s interesting, but not really surprising. This type of behavior – private companies using public clout to influence regulatory behavior in the face of serious new competition – is nothing new, and pops up every time a major sector of the economy is exposed to change. We saw the same type of behavior when car companies in the US were slammed by competition from Japanese imports in the 1980s.

It would be interesting to make a list of where this occurs.

Rahul December 19, 2011 at 10:50 am

Alex’s post title is misleading. The Indian policy is “anti international chain store” not anti chain store (not that I think this is warranted). Lot’s of Indian chain stores are thriving.

Alex Tabarrok December 19, 2011 at 11:04 am

Rahul, the post only discusses the anti-international chain store restriction but there are many anti-domestic chain store laws and regulations also.

http://www.economist.com/node/11465586

Bill December 19, 2011 at 10:47 am

I like how this site characterises the anti-chain store movement of the 1920’s and 30’s at a Roosevelt and democratic party movement, when in fact it was bi-partisan, spanning both parties–composed of many small shopkeepers, and headed by the National Association of Retail Grocers, among others.

If you want an unbiased history of the movement, I would recommend this law review article which includes the history of the anti-chain store movement and the state laws that sprang up, and the history of the Robinson-Patman Act, so dear to the small business community.

Here is the link for a University of Virgina Law School article on the anti-chain store movement of the 20’s and : http://law.bepress.com/cgi/viewcontent.cgi?article=1041&context=uvalwps

Cliff December 19, 2011 at 11:28 am

So, politicians plus special interests?

Bill December 19, 2011 at 12:26 pm

Just that the bias of historical presentation should not go unchecked. Who do you think the National Association of Retail Druggists and the National Association of Retail Grocers supported?

Andrew' December 19, 2011 at 1:46 pm

What is the bias, exactly? I don’t see “democrat” mentioned by either Alex or the author he excerpts. You are the only person saying it (mine quotes yours). People attribute stuff to Presidents when stuff happens on their watch. Are you going to go around fighting that everywhere?

Bill December 19, 2011 at 2:47 pm

Andrew’
I guess you didn’t read the post entirely: “President Franklin D. Roosevelt, who portrayed himself as the consumer’s friend, turned restrictions on chains into national policy. Under the National Industrial Recovery Act of 1933, one of Roosevelt’s programs to revive the economy, federally mandated codes were instituted that limited store hours, and regulated wages and prices —”

Arun December 19, 2011 at 11:25 am

The Indian government proposed lifting the restriction on Foreign Direct Investment into Indian retail chain stores. There are Indian chain stores, a few have failed, several are thriving. These, however, form only a small part of the Indian retail universe.

The big Indian corporations that own chain stores uniformly want Foreign Direct Investment. It would seem that capital is lacking? Since Indian conditions are very different from those in the West (e.g., the US has effectively about a thousand suppliers of tomatoes. India has millions), I’m not sure how much know-how any other than Chinese companies, which deal with a similar situation, can bring in.

I’m surprised there isn’t enough capital for profitable retail ventures in India, and that it requires an infusion from abroad. My fear is that to make retailing profitable for the chain stores, they really need to accumulate market power, by driving out the competition, and this requires deep pockets available only abroad.

As far as agricultural wastage is concerned, the lack of roads, and post-harvest storage facilities (including cold storage and reliable electricity supply) is likely not going to be delivered a Walmart. The Indian corporate media has reported that the chain store operations go to the farms, instead of the farmer going to the market, and the farmers love it, it saves them time and effort. The problem, as I see it, is that this occurs only where there already are decent roads.

The main fear of opponents is that the Walmartization of India will wipe out the small retailers. To quote one op-ed (available on my blog),
Quote:
According to a FCCI study, food – read agriculture – accounts for 63% of retail trade. Here, some 74 million strong small farmer-wholesaler-small retailer combine – a social inheritance of generations – works, not hierarchically, but laterally through neighbourhood relations. Some 58.8 million small-marginal farmers from 6.8 lakh villages, sell their produce at 47000 haats/shandies to some 15 million wholesalers-retailers. It is the largest decentralised business in the world. They all operate within radius of 16km of where they are. Yet, only 40% of the food produced is traded; the balance 60% is barter-shared by social relations within villages. This [60%] sharing and [40%] trading keeps rural India alive.

The Parliamentary Standing Committee Report on FDI in retail [June 2009] says that traditional retail employs 40 million people; and finds the corporate retail claim to 2 million jobs “highly exaggerated”. The Committee is right. Walmart, with global turnover $422 billion employs just 2.1 million people. That is, with more than India’s retail business in its balance sheet, it provides less than 5% of India’s retail jobs! So the organised retail’s proven job potential is less than 1/20 of the performance of traditional retail. Where from did Anand Sharma get his maths that FDI in retail would generate 10 million jobs then?
End quote.

Another article,
http://www.thehindu.com/business/Economy/article2681679.ece

Quote:
Consolidation of the retail sector in China, as a result of the government-supported rise of local retail giants like Bailian, has put many small farmers, who, unlike Mr. Zhang, could not cope with lower prices, out of work.

It has, however, also improved productivity by increasing the size of landholdings. In Mr. Zhang’s village, for instance, each household had between 1 and 2 mu, but as more farmers moved to the cities for work, they rented out their land to those, like Mr. Zhang, who stayed behind.

End quote.

China, unlike India, has the rapidly growing manufacturing industries selling to the US and Europe that can absorb the displaced labor. In India this reform may simply increase the income inequality, and favor the middle class to the disadvantage of the poor.

Cliff December 19, 2011 at 11:32 am

It doesn’t make sense to compare Walmart’s global turnover to India’s “retail balance sheet” in dollar terms. I would imagine in dollar terms everything is much less expensive in India, thus requiring many more jobs for the same dollar turnover. Maybe comparing units would be more illustrative.

Arun December 19, 2011 at 11:41 am

I agree, the comparison with Walmart’s global turnover doesn’t make much sense, except to get a notion of the labor efficiency that a Walmart brings, and which, presumably, the Indian retail sector lacks.

India’s retail sector supposedly accounts for 22% of GDP and 8% of employment. That and other statistics are here.
http://www.ibef.in/industry/Retail.aspx

FYI, a lot of people also say that large chains and the small retailers can coexist, because most Indians don’t have cars and will favor the local small store.

neoclassical_libertarian December 19, 2011 at 11:04 pm

@Arun

Economic progress is not necessarily measured in terms of the number of jobs created. India could create more jobs if it banned all computers and replaced them with human calculators; banned shovels and replaced them with spoons; banned cars and replaced them with horses and buggies. There are huge trade offs: efficiency is one. Productivity is another.

Simply saying that small traders will be put out of work because they will no longer have a comparative advantage against Walmart is a cop out. Are you also for kicking Ford, Microsoft, IBM, and numerous other multinationals out of India simply because they pose a threat to domestic firms and traders? Wouldn’t a Ford dealership pose a threat to traditional small-scale repair shops dispersed across India? If we take the premise–“foreign competition will drive domestic firms and traders out of business”–the logical conclusion is compete autarky, a proven path to poverty India is not unfamiliar with.

Douglas Knight December 19, 2011 at 11:32 am

Walmart already has a wholesale operation in India. Why don’t Indians set up stores based on it? They can even hire a few Walmart employees to advise them. There are a lot more employees who know about the stores than who know about the wholesale side. Vertical integration is useful, but is it necessary?

Alex points to restrictions on domestic superstore. But those probably won’t go away if Walmart got to invest, so Walmart think it could live with them, so why couldn’t a domestic version? Moreover, the concrete examples in the article seem to be restrictions on wholesale, which Walmart has already established.

Douglas Knight December 19, 2011 at 11:35 am

I guess Arun answered my question:

The big Indian corporations that own chain stores uniformly want Foreign Direct Investment. It would seem that capital is lacking?

Douglas Knight December 19, 2011 at 11:54 am

What’s the public choice analysis of this?

Generally, one expects domestic firms to control the law at the expense of foreign firms. But one expects chains of large stores to defeat small stores by the usual public choice argument about the commons of lobbying. If, as Arun says, this is really about investment in existing chains of large stores, they ought to win and let the investment in. On the other hand, if they are capital limited, how can they afford lobbying? Similarly why did the small stores win the lobbying game in America for a few decades?

Rahul December 19, 2011 at 12:02 pm

Let me offer another facet of this uproar: The opposition parties need a stick to swat at the ruling party from time to time. The desire is stronger as elections approach. Anti-west sentiments are a time-tested, eminently effective rabble rouser in the Indian political arena.

Arun December 19, 2011 at 11:56 am

BTW, I really don’t know the answer. This is an area where economic theory meets policy. Surely, there will be winners and losers, but how do we make sure no one is fatally hurt (it is very possible in India, given the precarious existence most people have.)

One of the arguments the proponents of foreign investment in retail make is that the farmers (huge in numbers, and generally poor) will get better prices for their produce. So I picked a commodity, tomatoes, and did some google research. I found academic research papers that said that the Indian farmer gets “only” 30-50% of the price consumer pays for tomatoes. But in the US, as per USDA numbers, the farm price for tomatoes is less than 25% of the retail price!

Similarly on wastage. You can trace to the original FAO publication, but Wiki quotes it accurately:
http://en.wikipedia.org/wiki/Food_waste

E.g., food loss,wastage per capita per year, in Europe is estimated to be 420 lb from post-harvest to retail, and 200 lb by consumers. In South & Southeast Asia, the numbers are 240 lb from post-harvest to retail, and just 33 lb by consumers. Unfortunately the waste per unit produced is not provided. The hope is that the 240 lb in South Asia can be greatly improved upon (perhaps halved?).

But the very same FAO paper points out that the pattern of retailing in the West causes food wastage.

Quote:

Large quantities on display and a wide range of products/ brands in supply lead to food waste in industrialized countries. Retail stores need to order a variety of food types and brands from the same manufacturer to get beneficial prices. Consumers also expect a wide range of products to be available in stores. A wide range of products does, however, increase the likelihood of some of them reaching their “sell-by” date before being sold, and thereby wasted. When shopping, consumers expect store shelves to be well filled. Although certainly beneficial for sales statistics, continually replenished supplies mean that food products close to expiry are often ignored by consumers. This is particularly difficult for small retail stores.

End quote.

So, will retailing in the Western style in India simply cause the point where food wastage occurs to move rather than saving food?

— I really wish some non-ideological non-beholden to any economic interest academicians would do a study and provide the benefits and risks of opening up India’s retail sector.

mk December 20, 2011 at 8:29 am

The benefits is that customers can buy the same groceries or more for less money, and get to spend the saved money elsewhere in the economy. So your economy changes structure: from say 50% of the farmers (USA ~1850) to 1%-2% of the farmers (nowadays) and the rest doing Something Else. This is why fears of Walmart in USA about small businesses as such disappearing are unfounded: yes, mom-and-pop stores disappear, but money saved in vicinity of chains allows customers to do something else, from taking car to garage, to entertainment, to healthcare.

Sure, there are big losers in the picture: lots of subsistence farmers, not needed anymore. They are euphemistically called “transition cost”.

This is how normal economies develop: there’s no nice, painless way to get this done. There will be losers, big time, in this game.

Think, however, what would have happened had this not taken place: England would still be full of subsistence farmers, and so USA. One of the reasons Indian economy does not develop is that you do not seem to be willing to let some short-term pain happen in order to gain long-term benefit, and so your country is locked in semi-stasis, like India did under Gandhi’s “green socialism”.

TallDave December 19, 2011 at 12:12 pm

Ah, FDR, America’s worst and most popular President. Not as bad as when he tried to raise crop prices by raising gold prices, but up there.

prior_approval December 19, 2011 at 12:35 pm

And look at how badly he did against the Nazis – didn’t even torture a single one. No wonder we all learned how to speak German.

Though that might have also been because the White House didn’t even have a fence back in those days, when Americans were apparently foolish enough to believe that the only thing we had to fear was fear itself.

So different from today’s version of the America. No wonder some people think he was such a bad president – though others remember him for being a class traitor, and saying things like this –
‘I am certain that my fellow Americans expect that on my induction into the Presidency I will address them with a candor and a decision which the present situation of our people impel. This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days.

In such a spirit on my part and on yours we face our common difficulties. They concern, thank God, only material things. Values have shrunken to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone.

More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.

Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.

Recognition of the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit; and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, on unselfish performance; without them it cannot live.’
http://historymatters.gmu.edu/d/5057/
(Obviously, GMU should screen its resources better – one might think that FDR was something other than a bad president.)

Veridical Driver December 19, 2011 at 1:04 pm

FDR was a fascist. He was a nationalistic, populist, militaristic strongman, who supported government censorship, mass internment of ethnic minorities, wanted a centrally planned economy run by industrial capitalists as technocrats,

figleaf December 19, 2011 at 1:19 pm

“FDR was a fascist. He was a nationalistic, populist, militaristic strongman, who supported government censorship, mass internment of ethnic minorities, wanted a centrally planned economy run by industrial capitalists as technocrats”

Sounds like you’re saying FDR was a contemporary establishment Republican.

figleaf

Veridical Driver December 19, 2011 at 9:17 pm

Yes. Modern day Republicans are fascists. Modern day Democrats are fascists. If you support either party, then you are undoubtedly a fascist as well.

However, FDR is held as a saint of progressive thinking… When the left holds up someone who essentially had the same ideology as Mussolini to be a paragon of left-wing thinking in America, they shouldn’t expect to win over hearts and minds.

TallDave December 19, 2011 at 3:26 pm

Plus, he thought the Communists were on our side, even as they infiltrated his administration. Not the brightest penny, FDR.

mk December 20, 2011 at 8:30 am

There’s some evidence, I don’t know how good, is that FDR got ahead of himself in some power games in American govt, Stalin got hold of this and blackmailed FDR with documents that would have him impeached if hit the light.

TallDave December 19, 2011 at 3:23 pm

Wow, you really think Nazis weren’t tortured? You do realize we firebombed major cities, right? Never heard of the Dachau massacre? And people today complain about waterboarding 3 terrorists. My God, the ignorance.

FDR also threatened to shut down the press if they didn’t give him favorable war coverage, wiretapped their offices, arrested war protesters en masse… I could go on.

And then there were his economic policies…

TallDave December 19, 2011 at 4:05 pm

“Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.”

Thanks, I can’t think of a better indictment of FDR than that piece of anti-capitalist demagoguery. No wonder the Great Depression went on so long!

neoclassical_libertarian December 19, 2011 at 11:14 pm

@prior_approval

I think TallDave was making a “point” about FDR’s retarded economic policies–which were just a continuation and worsening of the policies of Republican Herbert Hoover. Please read properly before you go off with your mouth like a drone.

prior_approval December 19, 2011 at 12:27 pm

‘…it was retail productivity growth, led by Walmart, that drove the country. Retail productivity is important because the retail sector is huge and because retail productivity extends backwards to manufacturing and service productivity.’

Well, that is strange – Walmart failed miserably in a market widely dominated by chains that make Walmart look like a bloated and inefficient retailer (which it is, actually), a market known for its manufacturing prowess.

Walmart is not ‘productive’ – Walmart is exploitative – like using our tax money to pay part of its employee’s food costs, since the pay was so notably poor. Or this, back in Walmart’s glory days –
‘Wal-Mart, the world’s largest retailer, forced employees in Oregon to work unpaid overtime between 1994 and 1999, a federal jury found Thursday in the first of dozens of such lawsuits across the country to come to trial.

A separate trial will be held to decide how much Wal-Mart should pay in damages.

More than 400 employees from 24 of Wal-Mart’s 27 Oregon stores had sued the retailer, accusing it of violating federal and state wage laws.

“I guess, basically, we are disappointed with the verdict. Wal-Mart has a strong policy of paying its associates for all the time they work,” said spokesman Bill Wertz. “We would emphasize that this ruling affects only approximately 350 workers out of 15,000 in Oregon.”

Wertz said the company is considering whether to appeal.

The lawsuit was filed by Carolyn Thiebes and Betty Alderson, who worked in managerial positions at Wal-Mart stores in the Salem area.

The lawsuit claimed managers got employees to work off the clock by asking them to clean up the store after they had clocked out and by deleting hours from time records.’
http://www.cbsnews.com/stories/2002/12/20/national/main533818.shtml
Which led to a cascade of other suits, since it appears as if Walmart felt that paying its employees for their labor was essentially at Walmart’s discretion.

Of course, there was also employing undocumented labor –
‘NEW YORK (CNN/Money) – Wal-Mart will escape criminal sanctions and pay $11 million to settle claims stemming from a federal investigation of illegal workers hired by the company’s cleaning contractors, the company said Friday.

The agreement came after the government concluded its more than four-year criminal investigation and said it would not pursue charges against Wal-Mart or any Wal-Mart associates, the world’s largest retailer said.

“We acknowledge we should have had better safeguards in place to make sure our (floor-cleaning) contractors hired only legal workers,” Mona Williams, vice-president of corporate communications at Wal-Mart said during a conference call Friday.

Williams added that the company has “taken steps to put its house in order,” like having all floor-cleaning now done by Wal-Mart employees and requiring written contracts for all maintenance agreements.

However, the company will still use outside contractors for other maintenance jobs.

The more than four-year investigation was led by Immigration and Customs Enforcement agents and federal prosecutors in Pennsylvania. It produced 245 arrests of undocumented workers in 2003.’
http://money.cnn.com/2005/03/18/news/fortune500/wal_mart_settlement/

At some point, Americans will discover that Walmart is not a shining model of what is right in America, but a fine symptom of what is going wrong. Probably after the downward spiral ends in an impossible to ignore crater. Though in a country where half of the population apparently feels that evolution is not a valid explanation as the mechanism for the biological world around us, I’m not holding my breath.

(And for the claims about tax money being a part of how Walmart employees survive at those low, low prices –
‘An August 2004 University of California, Berkeley Labor Center study found that many Wal-Mart workers in California rely on government safety net programs such as food stamps, Medi-Cal (California’s version of Medicaid) and subsidized housing at an estimated cost to taxpayers of $86 million annually– $32 million for health-related expenses and $54 million for other assistance. Further, families of Wal-Mart employees utilize these services considerably more than the average for families with employees of all large retail companies. In fact, if other large retailers in California were to provide wages and benefits at Wal-Mart’s level it would cost California taxpayers an additional $410 million in increased public assistance costs. According to the study:

* The families of Wal-Mart employees in California utilize an estimated 40 percent more in taxpayer-funded health care than the average for families of all large retail employees.
* The families of Wal-Mart employees use an estimated 38 percent more in other (non-health care) public assistance programs (such as food stamps, Earned Income Tax Credit, subsidized school lunches, and subsidized housing) than the average for families of all large retail employees.

A 2002 internal memo from the Georgia Department of Community Health that focused on the state’s Children’s Health Insurance program PeachCare showed that the children of Wal-Mart employees accounted for 10,261 of the 166,000 children enrolled, about 14 times that of the second-highest employer, the supermarket chain Publix, which had 734. Wal-Mart, with 42,000 workers in the state in 2002, had about one child in the health care program for every four employees; the ratio for Publix was one child in PeachCare for every 22 employees [The Atlanta Journal Constitution, 2/27/04 (registration required)].

The state of Connecticut discovered in January 2005 that it pays an estimated $43 million annually to cover health costs for workers at the state’s 25 largest employers; Wal-Mart was at the top of the list with 824 employees or employees’ adult dependents on state public assistance programs. Beyond Connecticut, Wal-Mart had the most employees on Medicaid in a total of 11 states: Alabama, Arkansas, Connecticut, Florida, Georgia, Iowa, Tennessee, Texas, Washington, West Virginia and Wisconsin, according to examinations in those states [Employee Benefit News, 5/01/05].’
http://mediamatters.org/research/200505120009 )

figleaf December 19, 2011 at 1:33 pm

And for the record I’ll never forget a caller to a local current-events program on commercial radio from a bitter conservative hospital administrator from rural King County here in Washington State back during the “Hillarycare” debacle. Her job was, basically, to manage so-called “indigent” accounts — care given to people administrators of income levels insufficient to ever repay their medical bills.

She very clearly did. not. give. a. crap if any of her indigent patients died, or for that matter starved. All she cared about was the “good Samaritan” obligation hospitals have to never turn away a patient with a medical emergency.

The reason she called in was not to grouse about the prospect of socialized medicine, although she didn’t want that either.

Instead she was apoplectic about the upsurge in indigent patients after a local Walmart opened (she said the new cases were uniformly Walmart employees) and a second surge 18 months later when a Walmart subsidiary, Sams Club, opened in the same market.

She said, basically, that Walmart new damn good and well about the Good Samaritan requirements and, in her opinion, deliberately offloaded some of their labor costs onto her hospital’s bottom line.

Again, we’re talking about a woman who’d most likely prefer Herman Cain or Michelle Bachman. But she bitterly resented the defacto corporate welfare Walmart’s wage and salary policies imposed on her for-profit hospital’s bottom line.

figleaf

Rahul December 19, 2011 at 1:39 pm

Did the small mom-n-pop grocery stores in the USA offer health insurance plans; the sort that people hate Walmart for driving away?

figleaf December 19, 2011 at 3:02 pm

It’s a good question, Rahul. My guess is sometimes yes, sometimes no. For instance the small grocery in my walk-around neighborhood offers it. Others might not have. But unlike Walmart, at least in the market area served by that hospital, smaller companies it displaced (which certainly were not all mom-n-pop shops, remember) evidently paid more than minimum wage. Because otherwise why would the administrator have so specifically and so bitterly singled out an influx of “indigent” Walmart and Sams Club employees? Before Walmart opened she said they weren’t there in the same numbers, after there were. Similarly she cited a second influx as specifically following the opening of a Walmart subidiary.

If you think about it logically, it’s almost impossible to imagine any other outcome than Walmart displacing local companies that paid more — paid the proprietors even if it didn’t provide benefits or better pay for employees. (Consider the very high wage reduction, say, a Walmart staff pharmacist takes compared to their previous standalone non-chain pharmacy. Consider the wage drop an independent local sales rep or distributor takes when local business dries up in favor of a Walmart with it’s Soviet-style central planning and price- and wage-setting. Remember, it’s not just about impact on minimum-wage earners, it’s about increasing the volume of minimum-wage earners.)

figleaf

TallDave December 19, 2011 at 3:43 pm

Virtually never. They combined high prices for consumers with

Probably most of Walmart’s efficiencies come from squeezing suppliers and real-time market-pricing information; everyone on the floor can make stocking decisions. They’re great at seizing volume price points, which isn’t always great for their suppliers — they drove Vlasic into BK with a high-volume deal on large jars of pickles.

TallDave December 19, 2011 at 3:37 pm

Nonsense, they offer products cheaper than competitors, greatly benefitting the poor. Blaming them for the welfare state is beyond ridiculous.

mulp December 19, 2011 at 1:02 pm

So, we have the economics of Alex where workers work for capitalists and consumers buy from capitalists, and capitalists are his hero when the capitalists use every possible means to pay workers less so they can sell products cheaper and create higher aggregate revenues while reducing aggregate labor costs. Obviously the workers are not consumers and the consumers are not workers because this model would require labor costs equal revenue for the economy as a whole.

And since circa 1980, this model has been more deeply ingrained in the US economy with savings falling from 10% of incomes to depleting savings to fund survival a few years ago, and now 10% of the people depending on government borrowing to fund their consumption.

What happened to the economics of workers==consumers==workers??

The big chains are bringing in goods from a larger region or globally and putting local labor out of jobs and taking the revenue out of the community with the all too often reversal of saving to borrowing for the laboring-consumers in the community, leading to local economic decline. All too often this loss of market turns out badly for the chain stores and they end up bankrupt. Sears and Wards expanded from mail order to chain stores just as Wal-Mart has been doing. They coexisted with the dime stores for awhile until the dime store chains did the dozen or so K-Mart like chain stores, killing the dime stores and putting the hurt to Sears and Wards. All over the US we find the abandoned dime stores in the depressed city centers and the abandoned Sears-Wards-K-Marts in the urban border depressed and abandoned shopping centers. For the chain stores, they just move on because they either must struggle to survive, or they just go bankrupt, simply because their consumers are bankrupt because the chain stores spent too little of the revenue they got within the communities the sold to.

In the past, raiders would go into communities are pillage and plunder and move on to the next one, unconcerned with the waste left behind. Some communities certainly rebuilt better than before, some creative destruction, raising taxes to build strong defenses again a return of the marauders. Others rebuilt only to be pillaged and plundered a few years later. Others died. The chain stores operate like the marauders, but on a longer time scale because they have no concern for building robust communities for the long term.

Veridical Driver December 19, 2011 at 1:16 pm

Making economic activity more efficient does not eliminate jobs. In a thriving economy, the workers you displace from being low-paid cashiers can become medical specialists, web-developers, or work in any number of industries that exist because we no longer need massive labor-intensive activities for mundane things like grocery shopping.

The trouble is, we live in an economic system in which rent seeking corporations now fund the progressive movement, and where economicly ignorant populist outrage is used as an effective smokescreen for regulations that preserve capitalist oligarchy. We are making our economy more of a byzantine process of government subsidies, public relations, etc., vs any sort of economic competition that rewards efficiency or innovation.

Thus, when we innovate, eliminating labor and especially skilled labor in the retail process, those displaced don’t find a bunch of other fields to find better employment in.

figleaf December 19, 2011 at 1:35 pm

“The trouble is, we live in an economic system in which rent seeking corporations now fund the progressive movement…”

Right, VD! Because rent-seeking corporations would never fund conservative movements.

Oh wait!

figleaf

Brian G, December 19, 2011 at 1:47 pm

Whatever they will fund, they sure as hell won’t fund a free market movement. Should tell you something.

figleaf December 19, 2011 at 3:15 pm

Exactly! Which is exactly why real libertarians need to be exactly as suspicious of private institutions as public ones. Past a certain point it’s always more cost effective for a private institution, even a small one, to seek rents than it is for them to either compete or innovate.

figleaf

TallDave December 19, 2011 at 3:57 pm

Private institutions will always seek rents, but only public ones can coercively create rentseeking opportunities.

Gyan December 19, 2011 at 11:12 pm

I didn’t realize the mafias were public institutions.

TallDave December 20, 2011 at 8:09 am

You didn’t realize that public institutions behave like mafias?

Veridical Driver December 19, 2011 at 9:22 pm

Corporations fund both the left and the right. The right preserve the military-industrial complex, and the left preserve the poverty-industrial complex. Both sides are simply different marketing segments of the same corporate oligarchy.

It doesn’t change the fact that the “progressive” movement are corporate bitches.

TallDave December 19, 2011 at 3:39 pm

This is how we get Obama saying companies like Solyndra are going to lead economic growth.

Marian Kechlibar December 20, 2011 at 4:35 am

“the capitalists use every possible means to pay workers less”

Marx 101. Beyond ridiculous, outside some very specific academic circles. Even Marx himself had to manipulate his own “research”, because during his lifetime, real salaries rose, in complete opposition to his theory.

The analogy between a retail business and a Mongol raid is also very sweet. Can’t you see that the level of shrillness is absurdly high in this one? (Take 5 minutes, google some photos from Mostar 1993, compare them to an abandoned store. Sort of everyone notices a difference.)

BTW ” building robust communities for the long term” is quite a fascist concept, it usually involves a lot of government coercion (how dare the little people prefer their own interests – force them to work for the greater good), equivalents of Soviet 5-year plans, plus a lot of rhetoric. “Building” is a systematic process, and, no doubt, someone who perceives himself to be superior to the ignorant street will always want to be The Architect.

At the risk of violating Godwin: the 1000-year Reich was an extreme example of the intent “building robust community for the long term” by governmental force led by an unacknowledged architect wannabe. As it goes, it lasted 12 years, much less than many of the unregulated, unplanned, unbuilt communities all around the world.

mk December 20, 2011 at 8:34 am

Oh please. If you want “traditional society” go live in Ethiopia or say Australian interior among Aborigins.

It’s pretty obvious that when increased economic efficiency hits, say, agriculture (has everybody forgot this lesson?) there’s going to be millions of losers in this game. The winners are consumers who pay less for food, and can take their money Elsewhere in the economy.

The main problem is that Elsewhere (healthcare, cars, internet, computers, spa, entertainment) takes money, time, sweat and risk to build up, and in the meantime you deal with millions of impoverished peasants, not quite capable of organizing Elsewhere.

figleaf December 19, 2011 at 1:15 pm

I’d be curious to read Levinson’s A&P book. Both my mom and grandparents spoke about what they considered to be predatory pricing by the A&P in their very small Appalachian community — they did (correctly) undercut local merchants to such an extent all non-chain, largely close-neighborhood grocers went under. Which is to be expected: even absent the volume purchasing power one roughly middle-class grocer family per ~40 families is necessarily going to have way higher overhead than one high-volume grocer per ~1000 families employing even the same number of lower- and lower-middle-class workers. And of course even a very early supermarket employed fewer people overall than the dozens of neighborhood grocers they replaced.

So yes, in itself A&P did produce a sizable reduction of middle-class families, with a corresponding cost reduction to all their neighbors. And of course from an economic (if not social or political) perspective any middle-class at all is grossly inefficient and the best possible outcome in terms of cost containment is to have as many minimum- or sub-minimum wage workers as possible and a minimum of affluent entrepreneurs and shareholders. So at least in Southern Appalachia A&P (and Woolworths and later Walmart, etc.) helped move things efficiently in that direction.

This was fine, of course, for my grandparents. As a physician and pediatrician you’d think my grandfather would have been fairly well off, and he was certainly comfortably middle-class. But only because he made outside income from writing popular child-care books and magazine columns and because he was sought out by affluent vacationers during the summer. Especially during the 20th Century Depression the local population just couldn’t pay him what he could have earned elsewhere. (Thanks to lung damage from mustard gas he had to move his practice from NYC to North Carolina when he returned from WWI.)

Anyway, while they probably lamented the further loss of middle-class merchant customers my mom and grandparents were pretty nettled that a few years after opening in their town, and once the majority of their competitors were out of business A&P jacked the crap out of their prices… until the first competing Krogers opened a few years later. Even in the early 1960s my grandparents avoided A&P in favor of relatively more distant grocery stores.

I’m aware that there’s some controversy as to whether A&P had a direct, deliberate nationwide policy of predatory pricing, and some claims that no individual store ever raised prices locally after driving out their competitors. My generally socially-conservative and extremely religiously conservative grandparents would not have agreed, and consequently they spoke with some satisfaction about the anti-trust prosecution. For the record my mom was able to explain the case in terms a kindergartener could understand when I asked why we never went to the A&P (where I always wanted to go because had one of those nickle-a-ride mechanical ponies in front.) So I assume that at least locally the case must have seemed pretty clear cut.

figleaf

Cliff December 19, 2011 at 3:11 pm

Wow, a whole page for one anecdote. Is this the new blog-commenting strategy? Take up all the real estate on the screen by posting long diatribes instead of links or being concise?

Brett December 20, 2011 at 12:06 pm

And of course from an economic (if not social or political) perspective any middle-class at all is grossly inefficient and the best possible outcome in terms of cost containment is to have as many minimum- or sub-minimum wage workers as possible and a minimum of affluent entrepreneurs and shareholders.

No, it’s simply that there were a lot of positions filled by one-man businesses that could be more efficiently filled by larger, more consolidated businesses. As the PDF article from UVa posted by Bill up-thread points out, many of these small businesses weren’t even profitable for their owners – they lived from credit extension to credit extension. We’d call them “subsistence workers” if that term wasn’t so connotated with poor farmers.

Anyway, while they probably lamented the further loss of middle-class merchant customers my mom and grandparents were pretty nettled that a few years after opening in their town, and once the majority of their competitors were out of business A&P jacked the crap out of their prices… until the first competing Krogers opened a few years later.

Well, there’s your answer. A & P may have tried to exploit their market position, but that carries the seeds of its own destruction by drawing in other competing chains. We see the same thing with Wal-Mart, which usually has to compete with grocery store chains, home improvement chains, online stores (such as Amazon), and direct rivals like Target.

Assuming that it’s a true story.

Rahul December 19, 2011 at 1:28 pm

Is there any hard evidence to support Alex’s assertion that Walmart was the dominant driver of the American boom of the 90’s? Never heard this theory before.

figleaf December 19, 2011 at 3:05 pm

I think it’s more accurate to say Walmart’s volume-driven ability to dictate supplier prices helped buffer the impact of wage stagnation in the 1990s. Even as it helped contribute to wage stagnation. It would be a (characteristic) mistake to say Walmart drove the boom.

figleaf

TallDave December 19, 2011 at 4:15 pm

I recall seeing a graph years back suggesting retail productivity was the highest of the major sectors, though I would also like to see a link.

WalMart and the other big retailers have also been cited in some progressive circles as explaining the observed rise in living standards for the poor during a time of stagnant income.

Stuart December 19, 2011 at 5:30 pm
TallDave December 19, 2011 at 9:32 pm

Good find, although I should point out the comparison of gains between countries with unlike productivity are unfair because catch-up is always easier.

figleaf December 19, 2011 at 3:12 pm

Incidentally, just because A&P, Woolworth, Walmart, etc. had a negative impact on relatively affluent middle America doesn’t mean it’s a good idea for India to lock out chain stores altogether, national or international. In particular there are multiple equilibriums in retail, and while Walmart might drive things to one extreme, networks of subsistance-income “corner” stores drives in the other direction. Except in economic models favored by professors of undergraduates, optimum efficiency isn’t equivalent to either minimum or maximum efficiency.

figleaf

lark December 19, 2011 at 3:31 pm

Now that I read more widely (as a result of the financial implosion) I am far more skeptical of the neoliberal arguments in favor of the WalMart model. Here’s another source:

“The Indian debate provides an opportunity to consider the actual impact of large corporate retail, and especially multinational retail chains, in developing countries in general. Proponents of such corporate retailing make several claims: that they “modernize” distribution by bringing in more efficient techniques that also reduce wastage and costs of storage and distribution; that they provide more choice to consumers; that they lower distribution margins and provide goods more cheaply; that they are better for direct producers, such as farmers, because they reduce the number of intermediaries in the distribution chain; that they provide more employment opportunities.

In fact, all of these claims are suspect, and several are completely false. This is particularly so in the case of employment generation: experience across the world makes it incontrovertible that large retail companies displace many more jobs of petty traders, than they create in the form of employees. This has been true of all countries that have opened up to such companies, from Turkey in the 1990s to South Africa. Large retail chains typically use much more capital intensive techniques, and have much more floor space, goods and sales turnover per worker.

One estimate suggests that for every job Walmart (the largest global retail chain) creates in India, it would displace 17 to 18 local small traders and their employees. In a country like India, this is of major significance, since around 44 million people are now involved in retail trade (26 million in urban areas) and they are overwhelmingly in small shops or self-employed. Since other organized activities in India create hardly any additional net employment, and overall there has been a severe slowdown in job growth in the past five years, this is obviously a matter that simply cannot be ignored.

The argument that such large retail benefits direct producers like farmers is also very problematic. Greater market power of these large intermediaries has been associated in many other countries with higher marketing margins and exploitation of small producers. This is even true of the developed world, with more organized and vocal farmers protesting against giant retailers squeezing the prices paid to the farmers for their products, in some instances forcing them to sell at below cost prices. The European Parliament in 2008 actually adopted a declaration in February 2008 stating: “throughout the EU, retailing is increasingly dominated by a small number of supermarket chains…evidence from across the EU suggests large supermarkets are abusing their buying power to force down prices paid to suppliers (based both within and outside the EU) to unsustainable levels and impose unfair conditions upon them”. In the United States, marketing margins for major food items increased rapidly in the 1990s, a period when there was significant concentration of food retail.

The idea that cold storage and other facilities can only be developed by large private corporates involved in retail food distribution is foolish: proactive public intervention can (and has, in several countries) ensured better cold storage and other facilities through various incentives and promotion of more farmers’ co-operatives. The argument is also made that corporate retail will encourage more corporate production, which in turn supposedly involves more efficient and less ‘wasteful” use of the production. But calculations of efficiency based only on marketed output really miss the mark, because they do not include the varied uses of by-products by farmers. Biomass is used extensively and very scrupulously by most small cultivators, but industrial style farming tends to negate it and does not even measure it. Biodiversity, use of biomass and interdependence that create resilient and adaptive farming systems are all threatened by the shift to more corporate control of agriculture.

There is another crucial implication that is all too often ignored in discussions of corporate retail. Corporate involvement in the process of food distribution causes changes in eating habits and farming patterns, which create not just unsustainable forms of production that are ecologically devastating, but also unhealthy consumption choices. In the developed world, this has been effectively documented by books like Eric Schlosser’s “Fast Food Nation” and Michael Pollan’s “The Omnivore’s Dilemma”.

In the Baltic countries, this has led to a striking breakdown of any real link between local production and the supply of food. The global supply chain has become the source of most food and the European market has become the destination of food production: all mediated by large chains that deal in buying from farmers (often in contract farming arrangements that specify inputs and crops beforehand) and in food distribution down to retail outlets. Anecdotal evidence suggests that farmers have not gained from this even in a period of rising food prices, as they are powerless relative to the large traders who now control the market. And consumers complain about the rising prices of food, which the supposedly more “efficient” supermarkets have not prevented at all.

As affluent western markets reach saturation point, global food and drink firms have been seeking entry into developing country markets, often targeting poor families ad changing food consumption habits. Such highly processed food and drink is also a major cause of increased incidence of lifestyle diseases like such as obesity, diabetes, heart disease and alcoholism, all of which have been rising rapidly in the developing world. The recent experience of South Africa is especially telling: around one-fourth of schoolchildren are now obese or overweight, as are 60% of women and 31% of men. Diabetes rates are soaring. Yet, nearly 20% of children aged one to nine have stunted growth, having suffered the kind of long-term malnutrition that leaves irreversible damage. And it has been found that obesity and malnutrition often occur in the same household.”

http://triplecrisis.com/multinational-retail-firms-in-india/

TallDave December 19, 2011 at 4:58 pm

These are all old arguments against modernization, but less efficient labor, higher prices to consumers, and fewer choices (even if some of those choices are bad!) are not net benefits to society in any industry.

mk December 20, 2011 at 8:39 am

“This is particularly so in the case of employment generation: experience across the world makes it incontrovertible that large retail companies displace many more jobs of petty traders, than they create in the form of employees.”

Splendid! That’s the entire point of the exercise. As long as 1 chain does not have monopoly, competition will reduce the prices for consumers, who then take saved money to other businesses.

Yes, mom and pop stores die. But customers are not going to burn the hard earned cash or buy 3 times more bread than they need. They’re going to either spend or invest the saved money.

So small businesses get reborn in other forms: garages, custom furniture carpenters, etc. That is the normal way the economy develops, and one of the main obstacles to devlopment of more prosperous world is precisely that the voters stupidly enslave themselves with bad economic thinking.

Bill December 19, 2011 at 4:19 pm

If you have inefficiency in distribution, all you do is raise costs to consumers and increase the number of differentiated distributors who, with free entry, will proliferate and still make normal returns, albeit selling at higher prices.

So long as small retailers can form wholesale purchasing cooperatives, and achieve scale economies in wholesale distribution services and purchase in sufficient quantities to obtain discounts or develop a private label, the efficient small retailer can compete against the big box stores.

But, being inefficient just attracts big box entry.

The solution is to become efficient.

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