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May 18, 2005

Wal-Mart in Vermont

A Non-Religious Query from Enkidu, Theologian-in-Residence

Sometimes moderate Republicans I chat with are surprised to meet an actual Liberal. Having grown used to considering all “liberals” to be Socialist, they are a bit stymied to find themselves faced by an ardent Democrat who argues in their own language.

My Socialist friends are less surprised by my Liberalism, but are equally frustrated when, on occasion, we differ on policy decisions.

A recent bill proposed in the Vermont Legislature is a case in point of the latter.  The issue at hand is the increasing difficulties experienced by country stores in the small towns of that state.  Apparently they are being under-priced by the Wal-Marts going up in every other county. 

As a devout Liberal who admires the gains of the labor movement over the past 150-odd years, my first reaction was “if these stores have the organizational capacity to lobby the state legislature, why don’t not pool their buying and advertising power to compete with Wal-Mart head-on in Vermont?” 

Alternatively, as a New Yorker who shops at their own corner store rather than trekking a few blocks to the Big Box on the avenue might propose, specialization rather than broad-product competition might be an answer.

Actually, however, the bill in Vermont imposes a limit on the size of retail outlets, and accompanies this legal dam with a $50 million dollars in state grants and loans to small-business owners. 

Readers: please advise me as to how this regulatory solution is in the interests of the citizens of Vermont, and how it is superior to the alternatives that I and my New Yorker counterpart recommend?

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If a conservative is a liberal who's just been mugged, then a liberal is a conservative whose small shop is about to be rolled over by Wal-Mart.

“if these stores have the organizational capacity to lobby the state legislature, why don’t not pool their buying and advertising power to compete with Wal-Mart head-on in Vermont?”

I think that the reasoning behind this question is flawed in a couple of ways. First of all, it assumes that organizing enough to lobby the state legislature means that the same group could organize buying and advertising power--I think the latter is quite a bit more difficult.

More importantly, however, the Vermont store owners, even if they COULD buy and advertise together, would still be competing with the buying power and advertising budgets of ALL OF WALLMART. That is, when Wallmart buys its stuff, it does so (mostly) at reduced prices that the Vermont stores couldn't get even if they pooled together. They'd have to pool their buying power with small stores all over the country...

As far as specializing goes, I think that location and specialization are good ideas for small stores, but it's still left to be shown whether such things can work, long-term. Seems dubious to me (and I can't support this, it's just a feeling) just in light of how many stores haven't been able to compete in that way--at least some of them must have tried.

It gives great benefit to all those Vermonters who own small stores (and their employees & suppliers). It gives some benefit to all those Vermonters who benefit from tourism, which is induced/encouraged by all the 'cute' small stores'. And it gives considerable benefit to those who like to feel morally superior to Walmart customers.

Of course, all this is at the price of the rest of the Vermont population .. who may or may not care about this.

Yeah, I agree that pooling buying power would probably be insufficient to compete with Wal-Mart - though, it would assumedly create some considerable gains.

The law seems like a pretty obviously bad one - a really audacious attempt to capitalize on Vermont's political climate which is, I gather, extremely friendly to rent-seeking if cloaked in anti-corporatism.

The tourism gains of at least creating the illusion of mom 'n pop Vermont would be considerable, I guess, but could be accomplished better through selective zoning or tourism-minded development of significant tracts of land near hotels, eateries, etc (see, e.g., Beale Street, Bourbon Street, etc). You can make just as much money by making a few small areas look the way people expect while keeping your efficient, homogenized, convenient stuff a mile or two out of their sight.

Also, it just occurred to me that this question seems a little naive: “if these stores have the organizational capacity to lobby the state legislature, why ... not pool their buying and advertising power to compete with Wal-Mart head-on in Vermont?”

Even if we presume they could keep them afloat like that, the answer to the question seems obvious - they expect that the lobbying has a considerable chance of success, and the rewards for them, if they are successful, would be much, much greater. Given the political environment in the state, one thing you can't accuse the small stores of is behaving illogically. They're only behaving in a way that would be illogical in a system that was more averse to these broad market restrictions.

Walmart is able to offer such low prices largely because they underpay their employees and prevent them from unionizing. The proper, in my opinion, corrective action is national laws that require corporations to allow unionizing, to not interfere with union organizing, and to encourage union organizing. Don't ever forget, we could all enjoy still lower prices if we would just allow corporations to own slaves, but that, at least, we consider below our moral standards. Don't we? Please?

"Walmart is able to offer such low prices largely because they underpay their employees and prevent them from unionizing."

Exactly. The problem with the Vermont legislation is that it doesn't address the problem with Walmart. Size isn't the problem with Walmart. A hypothetical Walmart that treated its employees decently would be a very good thing.

. A hypothetical Walmart that treated its employees decently would be a very good thing

Read COSTCO...

Does every single small store in VT sell the same merchandise? Do they carry the same brands and the same items?

No.

Then how could they all pool their buying power? They're not buying the same things. The straight truth is that small stores simply cannot compete with WallMart.

Absolute faith in the market demands that we let WallMart go wherever it wants, but do we have that faith? Is there a value to maintaining small New England communities?
I'd say yes. I've spent a lot of time in the North East Kingdom of Vermont; which is hardly the hippy-dippy place most people think of when they imagine VT (instead think bumper stickers that say: "Real Vermonters shovel shit, they don't pack it!"). While there is the kitschy tourist stuff there are also actual small towns with their own communities, general stores, etc etc... Must we replace those small towns with a stip mall centered around a WallMart? Would WallMart be better or worse for those communities?

I'm not quite sure if I see how Wal-Mart would destroy communities. The same community would still be there, just with a different means for procuring supplies. I'm just a little confused by what you mean by "maintaining small New England communities." They certainly would still exist, correct?

Here's a hypothetical justification for the law, although it's not one I'm sure I believe. The problem with allowing Wal-Mart to enter communities seems like this: Wal-Mart, because of both its scale, its preexisting distributor relationships, and the capital backing it as it loses money at first, will have a price advantage over smaller stores,and will put them out of business; this puts Wal-Mart in a position to engage in monopolistic pricing of wages in perpetuity, which will be considerably lower than competitive pricing of wages. Size restrictions would make it more difficult to create a store so large that it could alone supply a town's needs - so, then, if a competitor with Wal-Mart wanted to enter the market, its upfront losses would be somewhat less with the size restriction - because instead of fighting off a store that is capable of supplying an entire market with ease, it'll have some more immediate customers who go there to avoid crowds, or leaving some of the remaining non-Wal-Mart smaller stores. Thus, the amount of up-front capital needed to enter the competitive market would be less.

Of course, there are holes: First, a size limit could be circumvented by just opening two or more smaller Wal-Marts. Second, the mom and pop shops still lose. Competing with Wal-Mart would still require similar contacts, scale, and backing (see Costco example from vanmojo) - so we'd be more likely to see dueling homogenized conglomerates, which is good if your concern is wages, but bad if your concern is some sort of intangible value in idyllic small town life remaining unchanged. Also, what the competitors might gain in more immediate customers they could lose from being able to reap the benefits of store-scale.

I'm a Canadian. A Green one, ... sorry. What I see is a local culture resisting the broader "American" or globalization culture. I tend to support the local culture. It is happening the world over. Good luck to them.

When you can walk everywhere, like you can in New York, it certainly is easier to stop at the small corner store than walking a few extra blocks to the big box store. But in a car, it's easier to stop, and park, in Walmart's big parking lot. And a big parking lot makes it harder to walk, thus even easier to go to Walmart, taking business away from the small store in the walkable neighborhood. Pretty soon, no stores are left in the walkable neighborhood, there's no where left to walk in those neighborhoods, and you have to get in your car to go to Walmart for all your needs.

I don't know anything about Vermont, but that's not theory. It's the dominant pattern of development in the rest of the country.

Size restrictions aren't necessarily about fighting Walmart's buying power or lower wages; it can also be about slowing the type of development that forces us to depend on fossil fuels, eliminates a source of daily exercise, kills more of the youth than any dreaded "crime" and replaces communities of people with queues of cars.

Can't at least one place in this country resist that?

The problems with Walmart are generally the things they do to maximize their profits by means other than their attention getting cost cutting (low wages, non-"full time" positions, hammering suppliers to reduce costs, etc.). This includes: playing regions off of each other to get generous tax breaks/zoning variances for their new stores and purposely pricing their health coverage so high that most employees have to rely on gov't help (Medicaid).

This offloading of CODB (cost of doing business) onto the local community is magnified by the stores themselves: buildings that are only suitable for their stores which are difficult to re-purpose when the inevitable move to a "new location" (after tax breaks run out at the current location). Localities are then left without local retail (driven out by "Low Prices") or tax base (which they weren't getting anyway) and a big, relatively useless building.

Mind you, if Wal-Mart can get away with it (and they usually do), the locality usually only has themselves to blame for what happens next. Wal-Mart is just "doing business" (maximizing profit), which is what businesses do. It's like the reflex to finance a new sports stadium every time a team says they're moving. Essentially, Wal-Mart is the classic "neutral-greedy" alignment (D&D term), not the "lawful evil" some folks claim. Unfortunately, most politicians are just "pragmatic stupid" and can't see the ramifications 10-20 yrs down the line.

Yeah, what PTLindy said.

I imagine that a liberal would be just as opposed to the subsidies that big-box stores get from local governments searching for "jobs" or expanded tax-base (not to mention the state and federal subsidization of road-building to support automobile-oriented development) as the liberal is to the proposed Vermont legislation. So I guess the liberal's perfect answer would be to stop it all. But that just isn't happening, and I don't foresee it happening any time soon. So I don't think there is anything wrong with someone sticking up for the small businesses.

Toby makes an excellent point. Wal-Mart's pricing advantage depends on globalization, which depends on oil, which will not last forever (see previous post). The regulatory solution is in the interest of Vermont because maintaining a network for local distribution of locally produced goods is in the interest of Vermont. If the Vermont regulatory solution preserves a localized economy, then Vermont will be better positioned to thrive than most of strip-mall dependent suburbia when peak-oil destroys the price advantage that Wal-mart's distribution model currently enjoys.

If you want to see the effect of the big box stores, go to the midwest. Most every small town within easy driving distance of a larger town with a Wal*Mart no longer has many businesses.

There are laws against preventing unionization, Wal*Mart doesn't follow them and in general faces no consequences because the Department of Labor won't enforce the laws.

"Free" markets are probably the biggest myth of the last half of the 20th century. Free markets assume (among other things) that all the competitors are the same size. One function of government regulation is to account for the variations of real life from the assumptions of theory, so in this case prevent large entities from destroying smaller competitors simply through their size. The problem is the US has spent the last 30 years getting rid of this sort of legislation.

Hey Lindsay, when is this blog going to be mostly you, instead of conservative idiots who think they have all the answers to the Walmart problem?

Not only is the original posting noxious in itself, it's attracting conservatives to the thread like flies to shit.

If you're going to keep handing your blog over to assholes, I'm gonna quit coming by.

Well, Toby and PTLindy have said pretty much all I was going to say, so I will just nod vigorously.

I'm not sure this specific law is the right thing to do (don't know enough about it), but the economic, environmental, land-use, and social problems associated with "big box" stores are very real, and people are right to be concerned.

I'm unpersuaded by the oil-saving rationale. First, if there are regions that discourage driving, Vermont just isn't one of them. It's big, spread out, and empty. And, once again, this could be prevented by selective zoning, forcing Wal-Mart to move somewhere where its parking doesn't interfere with the centralized walkable area (which, in Vermont, is likely to be pretty fucking small). Second, is there any evidence that the smaller stores don't have globalization as part of their business model? I sincerely doubt the businesses in question are selling nothing but local handicrafts - I imagine they sell goods shipped across borders and oceans, just like Wal-Mart would. That's oil down the drain regardless.

Also, BillCross: show me one significant market-friendly economist that assumes that competitors are all a single size.

And Toby: I don't see how this law would be justified by the idea that subsidizing companies like Wal-Mart "just isn't happening." It may not be happening elsewhere, but it could, at the very least, happen there - if there's sufficient political pressure to back this broad, reactionary law, I don't see why that same pressure couldn't be applied to zoning variances. Of course, Wal-Mart would still benefit there from the gains it got elsewhere, but it seems absurd to think local governments should burn every bridge imaginable to keep out any industry that profits from subsidies elsewhere. In fact, as long as you don't subsidize yourself, you're essentially getting a community gain from the poor thinking of other communities - which seems pretty nice.

There are two arguments being made against WallMart here that I find appealing:
1) Wallmart is no good for the local economy.
2) Wallmart is no good for the local community.
Folks have talked about health insurance, low wages, etc..(aka argument 1).

Let's think about the other one.
I would say there is social value in being able to drive to town, park your car, and walk from store to store for your shopping. Knowing the people/families that run the feed store, the pharmacy, the video store, the diner and the supermarket is something that has value to me.
Does it have value to others? Probably not to Eli, but to the people I know in VT it does. They like living there because of that small town atmosphere. The town is better because it is a community, and not an isolated series of driveways connected to the highway.

For a urbanite this social value sounds like BS. I live in brooklyn right now and I don't know the names of any of the people who run the stores in my neighborhood - more to the point I don't care. But NYC is not VT, and the social needs a city dweller are different from those of someone in a small rural town.

I guess I didn't make myself clear - what isn't happening is (my supposed) ideal Liberal solution of stopping all subsidy for businesses. Bigger corporations like WalMart are more likely to play the local government race to the bottom game. And this is one of those games that is not much fun to play, but may be even worse to sit out. A local government that stands alone in the region by not offering incentives can lose much of their commercial and industrial space to other municipalities in the region, especially when the roads to travel to those places are subsidized so greatly.

Small businesses lose out in this game because they don't individually make enough of a difference to the local government. That is why a federal program to support them seems to be more appropriate.

And it is my sincere belief and experience that small businesses are more likely to carry local products. Of course, not all their products are produced locally, but having a market for local production is the first step to encouraging more local production. This kind of law (which I, admittedly, don't know much about) won't create a healthy, diverse local economy itself (we'll agree that no government action can do that) but it may start to offset some of the government policies that has encouraged ownership of so much in so few hands.

Will, I don't doubt that some people in VT value rural romanticism over all else, or that the majority of people there value it at least some. What we should be worried about here is the creation of a lobbying coalition between well-off consumers who can afford to pay the premiums of the idyllic vision and the self-interested small business owners who are a much more organized constituency than the diffuse group of lower-income consumers who would likely benefit from Wal-Mart's prices.

A number of years ago there was a lot of hand-wringing about mall bookstore chains putting local booksellers out of business. People who could afford to pay more for their idealized setting put up a big stink to try to save the old stores, but the reality is that the costs of preserving an inefficient business in perpetuity are astronomical - the average consumer/taxpayer ends up subsidizing yuppie tastes both in their book prices (obviously b/c they cost more) and in their taxes (because the tax base is lessened by the presence of less valued real estate and less profitable businesses). Right now, though, I, in my small central Virginia city, live in walking distance of a nice bookstore with good selection, a friendly atmosphere, employees I recognize, and any number of other benefits associated with the small stores. I imagine you can guess what I'm referring to - it's Barnes and Noble, and it's a big, globalization-lovin' conglomerate just like the rest of them.

The answer to the Wal-Mart problem doesn't lie in small businesses - it lies in fostering and maintaining competition on a scale that can challenge Wal-Mart, the way BnN and Borders challenged Waldenbooks and the like. Many people will choose price first out of necessity, but would choose a friendlier cheap big place over a faceless one - and that can be accomplished by the market, if we don't keep big competitors out across the board and don't give Wal-Mart preferential treatment.

See, now, THIS is why Liberalism has such a bad name. By keeping Walmart out, Vermont is saving itself a big chunk of change in terms of public assistance for underpaid employees. Also, as many people have pointed out, Walmart's prices are not actually lower than many of their competitors; rather, certain items are placed on sale (loss leaders, if you will) that allow them to claim lower prices. If you were to consider the actual savings that any individual consumer would see from Walmart (a few cents here, a dollar there) versus the costs to employees, small business owners, and the taxpayers, I don't think you could argue that Walmart's position is so clearly superior as to make it an issue that shouldn't be resolved through the political process. Your Liberalism seems to smack of elitism, in the sense that you feel that economic issues should be decided by economic theorists, and not by the people who must suffer the consequences. To be frank, it's your version of liberalism that gave us NAFTA, declining wages married to higher productivity (and the consequent stagnation in hiring), and the end of employer-provided healthcare by removing economics from political control: that is, from the people's control.

Will -- Jane Jacobs [The Death and Life of Great American Cities] would probably argue that in truly a thriving urban neighborhood, people who live and work there do know the owners of the local businesses, etc., and vice versa. It's not the same as the familiarity of a small town -- people's relationships are public and economic, not deeply enmeshed with one another.

I am lucky enough to live in a suburb that is actually walkable: I am less than a mile from most of my regular shopping needs. The guy who owns the local cheese store is an excellent source of neighborhood gossip, and the fishmonger is an incorrigible flirt. Shopping on our small main drag is somewhat (not a lot) more expensive than driving to the supermarket, but I prefer it for a lot of reasons: I like shmoozing and being able to ask "what's good today, Joey?" or "I've never cooked this cut of meat before -- should I broil it?" I like not having to get in my car every time I want an onion or a quart of milk. I also like the convenience of being able to get off the bus a few stops early on my way home from work, to buy fresh vegetables for dinner. I have never understood why people think that "one-stop shopping" in giant superstores is "convenient."

Is there any evidence of the lobbying power of the small country store owners? Or is that conjecture based on your economic theory, used to support your economic theory?

Does your local Barnes and Noble stock local magazines and zines?

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