RUSS ROBERTS

READ

In Praise of That Ugly Box On the Edge of Town

From the St. Louis Post Dispatch
Wal-Mart has become the biggest corporation in the world, measured in annual sales. To some, Wal-Mart’s success is the ultimate symbol of the hollowing out of the U.S. economy. We were once the workshop of the world. Now we’re nothing but a service economy of minimum wage jobs.
When did the “hollowing-out” begin that so alarms the critics? It’s hard to pin down a precise date, but manufacturing employment has fallen steadily while service employment has increased steadily since the end of World War II. In 1950, 34% of non-farm employment was in manufacturing. Today it’s under 14%. What is left are those manufacturing jobs that are still best done in America-those that apply cutting-edge information technology to the manufacturing process. And those technologies inevitably require fewer people to do the work.
Yet the last half of the twentieth century transformed the standard of living in America. Maybe a large manufacturing sector is not the key to wealth. Maybe an economy can thrive by success in health care or education or telecommunications or computer software or even retailing. America has been doing it for 50 years.
But can we say anything even remotely nice about Wal-Mart? Surely, say the critics, those are the retail jobs we don’t want. Goodbye, quaint general store on Main Street. Hello, ugly box on the edge of town.
Sam Walton had a lot of charm, but he couldn’t force people to shop in his stores. People shop at Wal-Mart because they like the prices and the quality. When a Wal-Mart comes to town, everyone celebrates except the folks who run that store on Main Street. They will probably go out of business. But they will go out of business because consumers prefer shopping elsewhere.
Sam Walton had more than charm. He understood how to harness information systems and technology to reduce inventory costs. He also understood how to outsource—how to buy low-cost goods made all over the world. He passed the savings on to the customer.
Has it been a good deal for the customer, this world of lower prices and a less quaint Main Street? I’d leave that for the customer to decide. But even if you don’t like the customer’s preference for Wal-Mart, know that there are other benefits to Wal-Mart than cheap socks and underwear.
Those benefits are harder to see. But they are real. Because of Wal-Mart’s relentless pursuit of profit through lower prices, consumers have more money left over to spend on other things. That means more music lessons for the kids, more evenings at romantic restaurants. Does that make up for the ugly box that ruins the view of the meadow and leaves a hole on Main Street? I can’t judge that. I only know that the full effects of Wal-Mart are a little more life-enhancing than they appear at first glance.
Because of the efficiency of the retail sector and a slimmer but still successful manufacturing sector, we as a nation have more resources for both sublime and ridiculous ends-a health care revolution and better special effects at the movies. Gourmet coffee and drugs that prevent heart attacks. Viagra and Amazon. More of everything. More life. Literally. Today, life expectancy is more than eight years longer than it was in 1950.
What does Wal-Mart’s success and the growth of retailing and other services have to do with living longer? Our increased life expectancy isn’t a natural phenomenon. It’s an economic phenomenon. It requires venture capital and investments in research and development. It requires better nutrition and knowledge about disease and how to cure it. It takes money. The wealth we have accumulated over the last fifty years has let us create better health care. It has let us have the resources to make our air and water cleaner. It has let us produce more of everything.
The critics said the shrinking of the manufacturing sector would hollow us out and make us poor. The critics called for subsidies and protectionism to preserve manufacturing jobs. Most of the time, the government didn’t listen. And we have thrived as a result of that decision.
If we had decided back in 1950 to preserve the size of the manufacturing sector and choke off the move to the service sector, we would be dramatically poorer. We wouldn’t have the resources or standard of living to fund all of the new industries and products that have changed our lives over the last half-century.
Not everyone has benefited from that transition. But for the overwhelming mass of Americans-black and white, rich and poor, young and old-life is much better today than it was 50 years ago. And some of that improvement is due to Wal-Mart. Wherever you are Sam, congratulations.

♦♦♦