Wal-Mart's Penalty for Success

By Business Observer Staff
| 6:00 p.m. February 20, 2004
| 2 Free Articles Remaining!

Opinion

No one has a right to business success or a right to be protected from competitors by the government.

By Edwin A. Locke

How would you like to be penalized because you do your work too well - for example, for running your business so effectively that it attracts hoards of happy customers?

Well, this is what is happening more and more frequently to Wal-Mart. Recently the West Covina, Calif., city council voted to deny the sale of land to developers who were going to build a Wal-Mart store on the site. The council was concerned that the Wal-Mart store would "threaten" other businesses and replace higher paying jobs in the area with lower-paying ones.

The banning of Wal-Mart also is being considered by the Los Angeles City Council and has occurred in some other California cities as well as in other locations around the country.

Wal-Mart is one of the most impressive success stories in the history of business. Founded some 50 years ago as a single five-and-dime store in a small Arkansas town, it has grown into a worldwide behemoth under the leadership of its brilliant founder, the late Sam Walton, and his able successors. It is the largest corporation in America in terms of sales, $245 billion. Wal-Mart has more than 4,000 stores worldwide, employs 1.3 million people and serves 100 million customers per week.

It is quite true that Wal-Mart has been successful in outcompeting other stores that sell the same products, such as toys, clothing and groceries. But how has it been able to do this? By discovering new ways of using computer systems and other technology to better manage its inventory and costs and reap the benefits of economy of scale.

Wal-Mart is especially popular among low-income shoppers who cannot afford the prices of the more upscale stores. It has put other stores out of business, but that is the way capitalism works. The automobile replaced the horse and buggy. Sound motion picture replaced the silents. No one has a "right" to business success or a "right" to be protected from competitors through government intervention. One only has a right to try to compete through voluntary trade. In a free economy, companies that offer the best value for the dollar win, and the losers invest their money elsewhere.

It is also true that Wal-Mart pays lower wages than many unionized stores. But it must offer a market wage or risk its employees going elsewhere, and it deals with employees on a voluntary basis. Those who do not like its terms are free to do business elsewhere. This makes the company especially hated by "organized labor," such as the grocery unions.

By coercively restricting the supply of labor, these unions, backed by government laws and regulations, have been able to extort wages and benefits far above those which would exist in a truly free labor market.

In a free market, how many people doing relatively unskilled work would get $17-$19 per hour plus full medical benefits? Unions, of course, have the right to organize and picket but not to benefit from government regulations, which give them special favors. No one has the right to dictate what a company offers to pay others.

There is only one morally proper way to keep Wal-Mart out of any community: Don't patronize its stores. If Wal-Mart cannot make money in a given location, it will either not move there or will close the store.

So far, however, it makes money everywhere it opens a store for one simple reason: Customers want to shop there. The low prices Wal-Mart offers make people wealthier. They can buy a wide range of quality goods that they could not otherwise afford, and they can use the money they save for other purposes.

Local government should not be allowed to abuse its power by keeping out stores in which consumers want to shop. Nor, of course, should Wal-Mart be allowed to use eminent domain laws, as it is trying to do in several states, to force property owners to sell their land.

But given that it refrains from using eminent domain, we should welcome every store that Wal-Mart builds. We should thank this great company for being so good at giving customers what they want that they make huge profits, which enables them to build more stores, hire more employees, give more profit opportunities to suppliers and make even more customers happy.

Wal-Mart should not be feared but should be admired as an American ideal - a classic rags to riches story. It is the quintessential example of an innovator left free to function. Only in a country where individual rights - at least what's left of them - including the right to earn a profit, are recognized, could a company like Wal-Mart arise and prosper. Trying to stop Wal-Mart is not only morally wrong, it is un-American.

Edwin A. Locke is dean's professor emeritus of leadership and motivation at the University of Maryland at College Park and is a senior writer for the Ayn Rand Institute (www.aynrand.org) in Irvine, Calif.