RETAIL VIEW: Wal-Mart shines academic light on itself
- by Tim Linden | November 16, 2005
On Nov. 4 in the nation's capital, a group of academics got together and discussed whether Wal-Mart has a positive or negative impact on America and the local economies of the towns it enters.
That has been a much-debated topic in city council chambers and county supervisor offices throughout the country. What made this conference unique is that Wal-Mart itself sponsored it and set it up to be as unbiased as possible.
Two years ago when the idea was hatched, Wal-Mart turned over management of the conference to independent consultant Global Insight, which pledged to select papers only for their academic rigor, not for their pro-Wal-Mart bent. As a result, nine papers were presented at the conference; some concluded that Wal-Mart had a positive impact on communities and the nation's economy, while others presented the negative impact the nation's largest retailer has on wages and benefits.
In an article announcing the event, Wal-Mart Vice President of Corporate Affairs Robert McAdam said, "To us it's worth the risk to have a real healthy discussion. We start out with a bias because we think we have a positive economic impact. If the results come back and they show that we don't have a positive economic impact, that will be a disappointment, but at least it's an honest look."
In general, the papers discussing the impact on the economy were positive, concluding that Wal-Mart does have the impact of lowering prices to consumers, both at its own stores and across the board. Making this point most forcibly was a paper presented by Global Insight that Wal- Mart did commission. That research firm apparently had complete access to Wal-Mart sales figures, and determined that Wal-Mart saved consumers a total of $263 billion last year, which it said equals $2,329 per household.
Chris Holling, the Global Insight economist based in Toronto who led the 18-person team that did the Wal-Mart analysis, told The Produce News
that "we found that in the aggregate, Wal-Mart has a positive influence." He said that the giant retailer brings down prices that consumers pay for products and tends to help the local economy by attracting other large retailers "in a clustering effect." He added, "If there is a Wal-Mart, a Home Depot might come into town."
Mr. Holling said that his research did not show that Wal- Mart had a negative impact on wages. "We found that Wal- Mart pays the same wages as other retailers." He said that people often rail against the low wages that Wal-Mart pays but they don't consider that retailing is essentially a low-paying job. In addition, he said that Wal-Mart's impact on prices tends to keep inflation down, which also decreases general wage hikes in a community. "But overall, we found that real wages increased by 1 percent when Wal- Mart comes into a county."
Mr. Holling was quick to point out that other researchers using other methodology did find a negative impact on wages. "Those results should also be considered," he said. BusinessWeek, reporting on the summit, quoted Massachusetts Institute of Technology economics Professor Jerry Hausman as saying, "Wal-Mart is cutting wages, which is bad [for the economy], and is also more efficient, which is good -- the question is, how much of each one?"
In an interview with The Produce News
after the event, Mr. McAdam said that Wal-Mart was very pleased with the results. Overall, he said that the papers showed that the nation's largest retailer has a positive impact on the economy through the lowering of prices and that, at the very most, its wage structure has a neutral impact. "Only one paper suggested we had a negative impact" on wages and benefits in the community or in the nation, he said.
But business and consumer press articles on the conference painted a little different picture. On the plus side, they cited the Global Insight paper as well as another paper that determined that Wal-Mart food prices were "27 percent lower than rivals on average, and that its presence forces supermarkets to reduce their own prices to 5 percent less than they otherwise would have been."
University of Missouri economics Professor Emek Basker presented a paper that found a similar impact on specific consumer items on which he compared the prices in 165 different markets.
Two studies argued that Wal-Mart can increase a county's total employment, with one of them estimating that gain at 1-2 percent. One of the studies showed that the presence of a Wal-Mart also led to increased commercial property tax revenues in the host county.
A study in Mississippi found that Wal-Mart increased retail sales in one community by 59 percent, although most of those gains came at the expense of surrounding cities.
On the negative side, as reported in the Los Angeles Times, one study concluded that Wal-Mart's grocery and general merchandise supercenters brought little net gain for local communities in property taxes, sales taxes and employment; instead, the stores merely siphoned sales from existing businesses in the area. The Public Policy Institute of California found that residents in a local labor market do earn less following the opening of a Wal-Mart. That paper found the biggest negative to be in the South, where Wal- Mart began and where it has its highest level of concentration.
Co-authors looking at the San Francisco Bay area predicted that once Wal-Mart established itself as the region's leading grocer, it would probably depress grocery store employees' wages by hundreds of millions of dollars. But they found that the company also would save shoppers hundreds of millions of dollars by offering cheaper food.
That conundrum seemed to be the top takeaway from the conference from newspaper reporters: Wal-Mart has a positive impact on the pocketbooks of consumers but a negative impact on the pocketbooks of its employees and the surrounding labor market. Academics and journalists alike opined that the studies were too narrowly focused to determine if the net impact was good or bad.
Mr. McAdam did not believe that those two competing thoughts were an accurate characterization of the summit. He reiterated his belief that it was mostly positive, which is the bias Wal-Mart admittedly brings to the table.
The summit itself was also criticized by some as Wal-Mart's attempt to garner positive press. Mr. McAdam said that criticism was anticipated, which is why the retailer went to great lengths to make sure that an objective board of experts picked the papers that would be presented. He said that ultimately nine papers were presented, and Wal-Mart does not know which criteria were used and was not involved in the selection process.
Mr. Holling of Global Insight said that his firm "issued the call for papers" and ultimately determined which ones were presented. He said that requests for papers established specific criteria that called for empirical studies completed with data. Whether they were pro-Wal-Mart or anti Wal-Mart was not part of the criteria during either the call for papers request or in the selection process, according to Mr. Holling. Eleven papers were submitted. Two were rejected - one, which he called a pro-Wal-Mart piece, was theoretical in nature; the other he said did not meet the standards for a peer review paper. He said that one presented a mixed view of Wal-Mart and covered themes that were already covered in the other papers.