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Wal-Mart Serves Humanity

July 6, 2004

Tags The EntrepreneurU.S. Economy

The New York Times recently ran an interesting article on everyone’s favorite global retailing behemoth, Wal-Mart. It offers an interesting look at Wal-Mart's changing corporate culture (they're apparently beginning to wonder if they should pay off the barbarians at the gate), two stunning examples of economic illiteracy, one misrepresentation of a very heroic deed, and a lovely comparison of Sam Walton to Chairman Mao.

On Wal-Mart's corporate philosophy, the Times writes that "(e)sentially...Wal-Mart's focus is on its customers, its stores and its workers; after all, meetings invariably begin with the latest sales reports."  A shocking and timely condemnation of Wal-Mart as a for-profit corporation, to be sure.

And this is particularly revealing. In spite of what people might say about the "power" of big business, Wal-Mart is ultimately at the mercy of its customers. In a series of lectures given in Argentina and published posthumously as Economic Policy: Thoughts for Today and Tomorrow, Ludwig von Mises noted that:

The people who think that the power of big business is enormous are mistaken…since big business depends entirely on the patronage of those who buy its products: the biggest enterprise loses its power and its influence when it loses its customers (p. 4).

In fact, Wal-Mart shareholders should revolt if meetings don’t invariably begin with the latest sales reports. As Milton Friedman so famously wrote, the social responsibility of the corporation is to increase profits.[1]  The corporation’s directors have a direct fiduciary obligation to shareholders, and that fiduciary obligation is to increase shareholder value. They are not obliged to behave in any way consistent with a left-wing political agenda.

On the fact that Wal-Mart offers "Always Low Prices," the Times writes that "Wal-Mart's culture has long emphasized cost-cutting as well as serving the customer - two concepts that may be at odds."  No justification. No discussion of the supposedly mutually exclusive goals of lowering costs and serving the customer. They just might be at odds, says the Times. 'Nuff said.

Cost-cutting and customer service most certainly may not be at odds. Cost-cutting is good customer service. Wal-Mart is at the mercy of its customers. Personally, I love Wal-Mart. I like shopping at the Wal-Mart Supercenter near my parents’ house. I can’t wait for the new Supercenter to open near where I live. I’m a member of Sam’s Club. I have a fantastic relationship with the Wal-Mart Corporation—until I see that I can get higher quality, lower prices or both at Target, Schnuck’s, or the local farmer’s market. At this point, my allegiances switch instantly. Most consumers are just like me, and the "fat-cats" who run big corporations are absolutely at the mercy of our good graces—good graces that extend only so far as the corporation can offer what we want at prices we are willing to pay.

The Times also writes that "(l)ately, it's been hard to tell what kind of company Wal-Mart plans to become. On one hand, it bans certain magazines from its stores, vigorously fights matters ranging from shareholder proposals to federal lawsuits, and justifies strategies by quoting its long-dead founder in the obsolete manner of Chinese quoting Chairman Mao."

Wal-Mart is heroic for refusing to sell magazines featuring racy content, and they will be rewarded with higher profits. The customers deem it to be so. They're a family establishment, not a bordello or an adult bookstore. It bears repeating that they are at the mercy of their customers: if carrying magazines with suggestive content will ultimately hurt the bottom line, it is absolutely in their best interest to refuse to carry these magazines.

What’s more, it is their obligation to shareholders. As readers of Mises Institute publications no doubt know, any firm is well within its rights to decide what and what not to sell, and the "right to free expression" is not the same thing as the right to an audience. Also, there is no principled reason to criticize Wal-Mart for failing to sell less-than-wholesome magazines. No one has yet criticized the Mises Institute—a private institution—for failing to offer adult content. So why should we criticize Wal-Mart, another private institution?

Mentioning Sam Walton and Mao Tse-Tung in the same sentence would be hilarious were it not for the fact that Mao killed 75 million of his own people, among other atrocities. Granted, the writer no doubt meant to suggest that Wal-Mart executives see "Mr. Sam" with the same blind veneration expressed by some of Mao’s most ardent admirers. People have leveled a similar accusation against Misesian economists and commentators ("as Mises said…", "as Rothbard argued…").

Nonetheless, it is one thing to borrow liberally from a man who is responsible for an organization that creates more value than any other organization on earth (as measured by annual profits). It is quite another thing to borrow liberally from a man who almost destroyed one of the world’s most ancient civilizations and killed tens of millions of people in the process.

Lots of people want to condemn Wal-Mart for its variety of so-called sins.[2] They "discriminate."  They don’t give enough money to charity. They drive mom-and-pop out of business. Sam Walton…Mao Tse-Tung. This is really dangerous: As I tell my students, the great virtue of the free market is that it exhausts all possible mutually beneficial trades, and trade is the very essence of wealth creation. Preventing voluntary trade makes at least someone worst off, so "society" is poorer for it. Condemning the institutions and organizations that make up the juggernaut that is commercial society—Wal-Mart, for example, or the rule of natural law—only serves to impoverish.

Art Carden is a graduate student in Economics at Washington University in Saint Louis, a Humane Studies Fellow of the Institute for Humane Studies, and a Fellow of the Center for New Institutional Social Sciences. carden@wueconc.wustl.edu. Comment on the Blog.

[1] Naturally, we include the proviso that the corporation be held strictly liable for infringements upon private property rights, as Murray Rothbard argues in The Ethics of Liberty.

[2] See the links on www.alwayslowprices.net for anti-Wal-Mart groups and organizations. See also William Anderson’s recent article (and the associated blog commentary) on whether or not Wal-Mart destroys communities.

 


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