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See The Wal-Mart Controversy, at my own econotrashtalk.org

What do you say to the idea that Walmart has unfairly benefitted from government expenditure? For over a hundred years, the US government's most egregious violation of its laissez-faire principles has been its continued meddling in the transport industry. Before the turn of the century it was railroads, and today it's roads. Walmart's distribution system is predicated on cheap transport costs and millions of miles of truck-worthy roads, so that it can amass goods from all around the world and sell them cheaply. However, if transport costs were higher (as a result of government divestment in road infrastructure and securing shipping lanes), would Walmart be the power that it is? Would the profitability calculus be skewed towards selling more local goods, with less homogeneity across the US in terms of retailers? To what extent is Walmart truly a market institution?

All fair questions Stephen. And Wal-Mart itself has been known to lobby for various government favors as well. All of that said, its innovations in inventory management are truly its own. And every other player had the opportunity to take advantage of the existing state of government support for infrastructure and the rest and were not nearly successful at turning it into real benefits for consumers. It seems to me Wal-Mart is no more or less a "truly market institution" than any other firm in North America, so in noting the very real effects it has had in making lives better it seems just as appropriate to credit the degree of capitalism we do have for that result.

One could also equally ask whether private roads really would be more expensive as you seem to assume. It might be the case that they would be as heavy users like Wal-Mart might pay more. It could also be that if roads were more in private hands, we might have seen innovations in construction and design, not to mention payment schemes, that might well have made them cheaper.

So a private road system might be more expensive (bearing in mind the incentives for private operators to build them cheaper) but people would be paying less tax and so everyone could still be better off on balance.

Congratulation to Steve Horwitz for a brillian response.

I've loathed to defend my least favorite province, but calling it "the people's state of" is unnecessary. Canada as a whole does pretty well on the economic freedom rankings and BC certainly isn't the worst offender. If you want to talk about the socialist provinces you should look at Saskatchewan, Manitoba and Quebec first. Having lived in BC I can say that it is a vibrant province which welcomes and allows immigrants to find their footing in Canadian society. Besides, the Fraser Institute is located there, so it can't be that bad.

My god, what did I say; can I take it back?

The comparison between the road system and rail is unfair; roads are just a paved surface which can be altered to suit prevailing conditions, often user-paid by fuel levies or tolls and on which private transport enterprises operate whilst the rail system is a complex fixed structure of rail, energy, labour, rolling stock and facilities all paid for by the taxpayer out of treasury. Maybe only in the UK do the fares reflect the costs.

Robert:

I actually LOVE Vancouver. It's one of my favorite cities in North America and I've done several Fraser events in my career. One of those events was for high school students in Vancouver and it was without a doubt the most left-wing crowd I've ever spoken to. They were mostly polite, as are all Canadians except the Ontario Teacher's Union, but they were *really* to the left.

Didn't mean to offend with my little jibe. :)

In response to Stephen, I dont think we should automatically assume that Walmart is benefiting from the use of public road systems. Time costs money and Walmart is ultimately forced to pay for the use of public roads by having to wait with others to use a good that is distributed "freely."

Let me quickly reply to Dr. Horwitz's first response in the comments section to this post. I am amazed by the extent to which we take this point for granted:

"And every other player had the opportunity to take advantage of the existing state of government support for infrastructure and the rest and were not nearly successful at turning it into real benefits for consumers."

This was written by Dr. Horwitz above in the comments. His entire argument seems to depend on this fundamental assumption. This statement is strikingly similar to Kirzner's theory of entrepreneurship which states that ownership of assets do not matter in the exercise of entrepreneurial discovery. It is surprising that Dr. Horwitz would continue to reason along these lines even after reviewing Dr. Burczak's excellent book "Socialism after Hayek" where he attacks directly this dubious claim. Very briefly, not everyone has equal access to become entrepreneurs or to "take advantage of the existing state of government support for infrastructure" because credit must be rationed and the interests of creditors lies not so much in the rate that can be charged as it is in the expected rate of returns.

Can the market practices of Walmart continue to be defended if we abandon the claim that everyone can aspire to compete with this powerful institution?

Well Matthew...

First, I never said "equal" opportunity. I said its competitors had "the" opportunity. So to the extent YOUR argument rests on any claim about my having said equal, it's not gonna fly.

Second, I happen to think Ted is wrong about credit rationing and the like, so that's not gonna fly either. I didn't bring those issues up in my limited space in Reason, but I think credit markets are less problematic than he portrays them in the book.

All that said, my point was simply that any number of several national or super-regional retailers could have done what Wal-Mart did (e.g., K-Mart, Montgomery Wards and others around 10 or 20 years ago), but they did not. Much of what Wal-Mart did was indeed Kirznerian entrepreneurship in the sense that it was better ideas as much as anything else.

To deny that those insights and innovations could have been made by others than Wal-Mart seems to be a weird sort of historical determinism where only Wal-Mart could have done what Wal-Mart did.

Dr. Horwitz,

To respond to the first point. If we take Ted Burczak's argument on its own terms, the distinction between "equal" and "the" opportunity to compete is moot if we admit the possibility that some borrowers, particularly asset-poor individuals, will be unable to obtain credit at "any" price.

Now to the second argument. I would like to hear why you think Ted is wrong in his presentation of and position on the credit rationing literature. I found his argument fair (to the Austrians) and persuasive. Kirzner, in fact, when responding to this objection, resorted to the "transaction cost" argument and said that high interest rates can be justified on the grounds that there are costs involved in "securing recognition of one's competence and trustworthiness". But again, this doesn't sufficiently counter Burczak's point that I provided in the paragraph above (the inability to obtain credit at any price).

Also, I did enjoy your review article in Reason. In fact, it was one of the reasons that I decided to read the book. But I do think you could have focused your attention on some of the more important points Burczak makes in his book. Here is a link to my review of the book:

http://www.amazon.com/Socialism-after-Advances-Heterodox-Economics/dp/0472069519/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1202963775&sr=8-1

To respond to the last two paragraphs of your reply. We can certainly evaluate the achievements of Walmart on the bases of their performance relative to other existing competitors and call it Kirznerian entrepreneurship. Walmart grasped and executed ideas that went overlooked by their competitors. Here I will borrow a phrase that Pete Boettke uses against me all the time and say "Dr. Horwitz, you are reading Kirnzer uncharitably!" Kirzner clearly bases his argument on the notion that entrepreneurial activity is in principle available to everyone. Only on these terms can we justify the actions of and profits earned by Walmart. Walmart may be performing better than their other competitors, but that does not mean they are the most efficient entrepeneurially if we accept Burczak's argument that there are severe obstacles to entrepreneurship. There may be some that have discovered innovative ideas, but have no means (or any way to obtain the means) of physically realizing these discoveries.


In the UK, towns who have rejected our own retail-behemoth of Tesco have prospered more than towns who have accepted it. Essentially Walmart and Tesco implement a sort of reverse capitalism at the local level. Rather than the virtuous cycle where people earn more and can thus spend more, Tesco and suck money out of the local system as people earn less and can spend less. This results in a downward spiral of cheaper, poorer quality food, goods and housing. The beneficiaries of the lower wages and more efficient distribution systems are not the staff or the local people.

At least in the UK, a reasonable minimum wage now acts as a buffer. How much more prosperous would the world be now if a higher US minimum wage had allowed people to buy better quality, longer lasting goods (also made by the Far Eastern economies).

"Walmart may be performing better than their other competitors, but that does not mean they are the most efficient entrepeneurially if we accept Burczak's argument that there are severe obstacles to entrepreneurship." - Matthew

"And every other player had the opportunity to take advantage of the existing state of government support for infrastructure and the rest and were not nearly successful at turning it into real benefits for consumers." - Horwitz

Can someone explain to me if there is a meaningful difference between these two statements? I don't see it. I said WM's competition was "not nearly as successful" (the "as" is missing, but should have been clear) as it was. Matthew says "WM is performing better than its competitors". Good to see we agree.

I never claimed anything more for Wal-Mart in that sentence than that it took advantage of an opportunity legally available to all and that, as a result, it has done much better than its competition.

Dr. Horwitz,

Please remember that I am not out to attack you, I am just repeating arguments Ted Burczak has made against the Austrian literature on entrepreneurship, arguments which I have found to be very persuasive.

That said, I would say that there is a big difference between the two above quotes you included in your latest post. The "existence" of competition is very different from a situation in which everyone is free to compete. You seem to believe that just because Walmart has competitors, then its actions can be justified. I, however, tend to see barriers to entry as a cause for concern with respect to the practices of Walmart.

Two months ago, I would have just said that in a perfectly free market, competitors would simply enter the market and compete away the profits Walmart has been making. The fact that this hasn't happened must mean that it is not economically prudent to do so. I realize now that not everyone is in the position to become an entrepreneur in the Kirznerian sense. Walmart is in the position it is in not because of superior entrepreneurship, but because of an institutional environment that discriminates against "asset-poor individuals".

Now, this doesn't mean I have to accept Burczak's socialist conclusions. But his arguments do present a challenge to Austrian economists. I think it is time we go back to the drawing board.

Dr. Horwitz,

Please remember that I am not out to attack you, I am just repeating arguments Ted Burczak has made against the Austrian literature on entrepreneurship, arguments which I have found to be very persuasive.

That said, I would say that there is a big difference between the two above quotes you included in your latest post. The "existence" of competition is very different from a situation in which everyone is free to compete. You seem to believe that just because Walmart has competitors, then its actions can be justified. I, however, tend to see barriers to entry as a cause for concern with respect to the practices of Walmart.

Two months ago, I would have just said that in a perfectly free market, competitors would simply enter the market and compete away the profits Walmart has been making. The fact that this hasn't happened must mean that it is not economically prudent to do so. I realize now that not everyone is in the position to become an entrepreneur in the Kirznerian sense. Walmart is in the position it is in not because of superior entrepreneurship, but because of an institutional environment that discriminates against "asset-poor individuals".

Now, this doesn't mean I have to accept Burczak's socialist conclusions. But his arguments do present a challenge to Austrian economists. I think it is time we go back to the drawing board.

"Walmart is in the position it is in not because of superior entrepreneurship, but because of an institutional environment that discriminates against "asset-poor individuals"."

This is nothing but pure assertion Matthew, with nothing to back it up. I nowhere claimed that Wal-Mart's success is somehow "optimal," only that it reflects the fact that it took advantage of a situation that others could have but didn't. To argue that K-mart or other major super-regional retailers were "asset poor" seems a stretch to say the least. Yes, maybe some guy in his basement had an even better way of managing inventory than Wal-Mart did, but you can't prove a counterfactual.

All we know is that several retailers were in positions comparable to Wal-Mart and WM did what they did not. And I didn't say a word about "justifying WM's actions." All I've argued is that WM benefited no more or less from government largesse than any other competing firm. Go back and read the original context for the point of mine that started us down this path.

For whatever reason Matthew, you've chosen to take this in a direction that allows you to pick a fight over something I don't think I ever said.

I think you are grossly overstating the benefits of WalMart. I live in a small community in Ohio, and have seen local economies virtually replaced with a WalMart. Although a number of fair but not exceptionally high paying jobs are created, a high number of local small business owners are put out of business. I can drive less than fifteen miles in any direction, and arrive at a WalMart, and another is presently planned, also within about 10 miles. Although low quality goods are less expensive, clearly we are accepting inferior goods chosen purely on a cost basis. Aside from use of infrastructure in the form of roadways, WalMart also benefits from the artificially low cost of fuel due to government intervention in the oil industry. As more WalMart stores crop up, they supplant local establishments to the point of collapse, then capitalize on the lack of competition to raise prices.

I live in a small community in rural NY state. Wal-Mart moved into a town 20 minutes away and not only did the local businesses not die, several have expanded. WM is upgrading to a Super-Center in a town 35 miles away and has brought a Home Depot and several new restaurants in its wake. The big problem in that town is not the loss of small businesses but GM pulling out. In Watertown, about an hour away, a WM Super-Center is responsible for reinvigorating a stretch of Route 11, complete with a new mini-mall and several restaurants.

Finally, 10 miles away a Super-Center is under construction. A new Tractor Supply and strip mall have opened across the street and more is on the way.

The jobs created by WM itself and the associated growth far outnumber the jobs lost by small businesses. Moreover, WM pays notably more than the mom-and-pop places do, not mention providing at least some benefits for workers and staying open much later hours for working families. I should also add that the grocery competition from the Super Centers will drive down food prices. (There's no evidence at all that WM jacks prices back up after it supposedly drives out competition.)

In one of the poorest counties in NY state, the combination of hundreds of new jobs at better wages and many products at lower prices, more accessible to folks really in the rural areas is a HUGE economic benefit.

Did they make a point of counting their unionbusting efforts that would certainly have revealed some less than virtuous conduct on the part of Wal-Mart? They'd have to come clean and be very transparent on this one to have any chance. They have no problem shutting down "coincidentally" if it goes like Jonquiere, or breaking the bank to break an effort in Colorado.

They dont mind putting those people into poverty, who wish to defend themselves. When they have enough of a town(or the town decides to go against them full tilt), they start getting ugly. Their "morality" is revealed as window dressing, and dirty tricks.

As for those who say it lifts people out, the only thing it enables people to do is buy a ton of junk. Fine if you want to buy and rebuy something that breaks down. When it breaks down or requires you to go to a manufacturer, your only leads are to places(in China in a lot of cases) that make Enron look clean on accounting. Think about that next time you see that knockoff on their shelf- or see an oddly constructed, yet "cheap" pair of sandals.

At one time they were virtuous and stood by their own. Now that Sam's gone and that people see them for who they are, they have to spend money on fighting their former customers and keeping their own (financially and ideologically) captive.

Matthew Mueller,

Kirzner's point has nothing to do with the fact that when Wal-Mart was founded in 1962, it faced strong competition from lots of retailers, some of which had been around for decades. The question is: why did Wal-Mart succeed and grow, whereas many of its competitors, such as W.T. Grant, S.S. Kresge, Dayton Hudson, Woolworth's (the U.S. division), etc. got swept into the dustbin of history?
The companies that Wal-Mart vanquished had access to the same (alleged) subsidies that the Bentonville, AR, firm had.
Btw, Wal-Mart has paid gazillions in corporate income taxes over the years, not to mention bazillions more paid by Wal-Mart's shareholders on their capital gains and dividends.
You have to take this into account when looking at the subsidies, such as they might have been, that you and other are so worked up about.
I think it's bizarre to look at public roads, and criticize Wal-Mart or anyone else, other than the politicians who made them public.
Wal-Mart didn't invent public roads.
Wal-Mart's great success was due to how it ran its business, mainly better supply chain and inventory management and superior logistics generally, supercenter innovation, and the great deals and "everyday low prices" it posted for consumers.

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