Wal-Mart’s Pricing Strategy to Consumers Delivers Economic Growth
In a speech given several years ago, former Wal-Mart (NYSE:WMT) CEO Lee Scott noted that shoppers at the retailer’s stores get raises each time they enter them. Thanks to Wal-Mart’s size, and its global reach as a buyer in bulk, it can secure the best deals on consumer goods that are then passed on to its customers.
Not surprisingly, Scott’s highly truthful statement earned him scorn from activists and media members possessing a congenital dislike of profits, but a recent article in the New York Post revealed how very true Scott’s statement was. As the Post found, if Wal-Mart (NYSE:WMT) were allowed to open stores in New York City, the average buyer of a diverse basket of groceries – from hamburger buns to cereal to butter – would save 33%.
The problem now, of course, is that Wal-Mart (NYSE:WMT) has so far been unsuccessful in its efforts to secure permission to open stores in the five boroughs. This has no doubt pleased its many clueless detractors apparently able to afford higher-cost grocery items, but for the New Yorkers already suffering nosebleed rents in what is one of the world’s most expensive cities, they’ll continue to overpay for basic goods in order to prop up local grocery stores able to mark up prices thanks to a lack of realistic competition.
The collateral economic damage that results from this form of local protectionism is vast, and worth noting.
For one, money saved is money that, if left in the bank, is lent out to entrepreneurs and businesses eager to grow. In short, were Wal-Mart given the freedom to open its stores in the largest city in the U.S., not only would many of its citizens receive instant raises, but the realized savings would expand a capital base that is presently a bit subdued as evidenced by difficult economic times.
Extrapolated across the country, though Wal-Mart’s (NYSE:WMT) reach is impressive, it remains the case that it’s not everywhere it wants to be not because it lacks the means, or consumer demand, but thanks to local barriers meant to protect well-connected, local businesses. If removed, Wal-Mart’s (NYSE:WMT) continued expansion would on its own enhance the capital outlook for a country populated by businesses ever needful of more of it.
When prices of goods are kept artificially high thanks to government barriers, the first-stage losers are those with limited funds forced to do business with merchants whose prices don’t reflect market realities. Not mentioned enough, though, are the successful businesses actually offering what customers desire, but that are similarly weakened by unnatural hurdles that keep the most efficient businesses from opening.
Indeed, assuming a removal of the impediments to Wal-Mart’s (NYSE:WMT) expansion, its customers would quickly find themselves more flush, and if eager to consume rather than save, more able to patronize other local businesses eager to serve them. The beauty of free trade is that it expands the range of businesses that consumers can do business with. In Wal-Mart’s case, the presumed decline in receipts for inefficient grocery stores would redound to the sales of other businesses giving customers what they actually want.
Some will naturally say that it’s not fair for the behemoth that is Wal-Mart (NYSE:WMT) to potentially put its weaker competitors out of business, but what’s not said enough is how unfair it is that government obstacles require consumers to pay higher prices than they otherwise would. Furthermore, last this writer saw, Wal-Mart (NYSE:WMT) is not forcing shoppers to walk its aisles; instead, they do so voluntarily.
What’s similarly not asked enough is if it’s fair to foist on the citizenry reduced economic growth thanks to hurdles being put in Wal-Mart’s way. If the question isn’t clear, we need only remind ourselves what protectionism actually is.
Imposed on consumers by governments, protectionism at its core is the cruel process whereby weaker, less efficient businesses are kept in operation thanks to barriers that keep the goods and services of the more efficient producers out; either locally or internationally. Put simply, protectionism subsidizes the weak at the expense of the enterprising. And in a world of limited capital, this is problematic because it ensures the perpetuation of business practices that would otherwise cease if market forces were allowed to prevail.
Considering New York City’s economy, or any other for that matter, impediments to competition ensure that capital is destroyed, underutilized or both thanks to the inefficient being given a lease on life through pull with politicians. If it’s remembered that all jobs exist thanks to financial capital finding its way to worthwhile businesses, protectionism – be it local or between countries – destroys it on the way to less company/job creation.
Looking at New York City, no doubt some businesses will fail if Wal-Mart (NYSE:WMT) enters the market, but not discussed enough are the businesses that will replace the ones exposed as unworthy by Wal-Mart’s arrival. The word “capital” ultimately describes access to the human, mechanical and property inputs that comprise businesses, so while Wal-Mart’s hoped-for ascendance in New York City will reveal some businesses as wanting, its success will be stimulative for redirecting underutilized capital to higher, more economically productive activities.
Lastly, it must be remembered that government barriers to business formation are explicit taxes on our labor and liberty. As workers all, we produce in order to consume, and when unnatural obstacles retard our ability to trade our labor for what we want, we face a tax, along with a certain loss of liberty.
To transact with Wal-Mart (NYSE:WMT) or any other business entity is ultimately a voluntary act, and as such, Wal-Mart should be allowed the opportunity to set up shop wherever it desires. That its continued growth will expand the range of goods within our reach in concert with a more efficient deployment of capital makes plain that its continued good fortune will be economically stimulative too.
Improve Your 2011 Financial Health: What Bubble? Commodities Have More Upside in 2011 >>