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«Richard Vedder and Wendell Cox The AEI Press Publisher for the American Enterprise Institute WA S H I N G T O N, D. C. Distributed to the Trade by ...»

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The Wal-Mart Revolution

The Wal-Mart Revolution

How Big-Box Stores Benefit Consumers,

Workers, and the Economy

Richard Vedder


Wendell Cox

The AEI Press

Publisher for the American Enterprise Institute

WA S H I N G T O N, D. C.

Distributed to the Trade by National Book Network, 15200 NBN Way, Blue Ridge

Summit, PA 17214. To order call toll free 1-800-462-6420 or 1-717-794-3800.

For all other inquiries please contact the AEI Press, 1150 Seventeenth Street, N.W.,

Washington, D.C. 20036 or call 1-800-862-5801.




This publication is a project of the National Research Initiative, a program of the American Enterprise Institute that is designed to support, publish, and disseminate research by university-based scholars and other independent researchers who are engaged in the exploration of important public policy issues.

Library of Congress Cataloging-in-Publication Data Vedder, Richard K.

The Wal-Mart revolution : how big-box stores benefit consumers, workers, and the economy / Richard Vedder and Wendell Cox.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-0-8447-4244-1 ISBN-10: 0-8447-4244-9

1. Wal-Mart (Firm) 2. Discount houses (Retail trade)—United States—Management. I. Cox, Wendell. II. Title.

HF5429.215.U6V43 2006 381'.1490973—dc22 © 2006 by the American Enterprise Institute for Public Policy Research, Washington, D.C. All rights reserved. No part of this publication may be used or reproduced in any manner whatsoever without permission in writing from the American Enterprise Institute except in the case of brief quotations embodied in news articles, critical articles, or reviews. The views expressed in the publications of the American Enterprise Institute are those of the authors and do not necessarily reflect the views of the staff, advisory panels, officers, or trustees of AEI.

Printed in the United States of America Richard Vedder dedicates this book to his wife, Karen Vedder Wendell Cox dedicates this book to his wife, Jean Love Contents




REVOLUTION 1 Wal-Mart and Its Imitators: Saints or Sinners? 2 The Genesis of the Big-Box Revolution 3 The Economic Impact of Wal-Mart and Other Big-Box Stores 4 What Should We Do About Wal-Mart? 6



–  –  –

8. WAL-MART AND THE POOR 117 Wal-Mart’s Customers 117 Implications for Policy 121 Wal-Mart and Public Assistance 124 Conclusions 125


Estimating Broader Economic Effects: Some Issues 126 The Big-Box Discount Revolution and Productivity Change 128 Broader Economic Effects: Social Savings of Modern Discount Stores 134 Conclusions 136

–  –  –


1-1 Demand and Supply of Oranges 14 1-2 The Effect of Retail Innovations 14 1-3 Retail Innovations and Consumer Surplus 15 3-1 Employment (in thousands) in Retail Trade, 1900–1965 44 3-2 Retail Trade Employment as Percent of Total U.S. Employment, 1900–1965 45 4-1 Real Contribution of Retail Trade to U.S. National Income, 1960–2004 (in billions) 47 4-2 Retail Trade Sales as a Percent of National Income, 1960–2004 48 4-3 The Price of Wal-Mart Stock, August 1972 to August 1977 56 4-4 Value of $1,000 Invested in Wal-Mart Stock on August 25, 4-5 Value of a 1972 Wal-Mart Stock Investment in 1985–1995 60 4-6 Value of $1,000 of Wal-Mart Stock Purchased on August 25, 4-7 Changing Price of Wal-Mart Stock vs. the S&P 500 Index, 1995–2005 64 6-1 U.S. Employment, 1998–2004 (1998=100) 86 6-2 Average Annual Real Growth, 2001–2004 86 6-3 Median American Unemployment and Wal-Mart’s Presence 89 6-4 Average Weekly Wages, 10 Most and Least Intensive Wal-Mart States, Fall 2004 94 7-1 Median Employment Growth, 25 Future Wal-Mart Towns and Non-metro Areas of the Same States, 1999–2001 (percent) 102


7-2 Median Employment Growth, 25 Future Wal-Mart Towns and Non-metro Areas of the Same States, 2001–2003 (percent) 103 7-3 Retail Trade and Other Employment Growth, 25 New Wal-Mart Towns, 2001–2003 (percent) 104 7-4 Percent Change in Annual Compensation, Retail Trade, 2001–2003, Wal-Mart Counties (percent) 106 8-1 Regular Wal-Mart Shoppers as a Percentage of Group, by Income Categories (percent) 118 8-2 Average Per-Capita Income, Counties with New Wal-Mart Supercenters and New Costco Stores, 2001–2003 119 8-3 Percent of New Openings in Lower Income Counties, 9-1 Five-Year Moving Average of Annual Productivity Growth, 1980, 1992, 2004 (percent) 129 9-2 Wal-Mart Domestic Sales as a Percent of GDP 1980, 1992,, 2004 (percent) 130 9-3 Annual Productivity Growth: U.S. Economy vs. Retail Trade, 1987–2004 (percent) 133 9-4 Annual Productivity Growth, Various Retail Trade Sectors, 1987–2004 (percent) 134 11-1 Imports and Unemployment, 1970–1980 vs. 1994–2004 154 12-1 Inflation-Adjusted Changing Stock Price, Wal-Mart and Competitors, March 2001–March 2006 (percent) 177


3-1 Growth of Seven Leading Chain Store Companies, 1920–30 40 3-2 U.S. Retail Outlets with Sales over $1 Billion, 1965 43 4-1 Sales, Profits, and Profit Margins, Wal-Mart Stores, Fiscal Years 1968–75 55 4-2 Sales, Profits, and Profit Margins, Wal-Mart Stores, Fiscal Years 1975–85 57 4-3 Sales, Profits, and Profit Margins, Wal-Mart Stores, Fiscal Years 1985–95 59 4-4 Sales, Profits, and Profit Margins, Wal-Mart Stores, Fiscal Years 1995–2005 61 LIST OF ILLUSTRATIONS xiii 5-1 Big-Box Retailers with More Than $10 Billion in Sales, Fiscal Year 2005 68 5-2 Fortune 500 Rankings of Ten Leading Retailers, 1995–2005 70 5-3 Characteristics of the Three Leading Big-Box Office Supply Retailers, 2006 79 6-1 Ordinary Least Squares Regression Results, Employment– Wal-Mart Relationship 90


Sometime in 2004, Jeff Judson, the former president of the Texas Public Policy Foundation and a friend of ours, contacted each of us to suggest we delve into the growing controversy about Wal-Mart stores. We both had mixed, but mostly positive, reactions to the idea. While neither of us had spent much time researching or writing about retail trade issues, we both were intrigued by the idea, for somewhat different reasons.

One of us (Richard Vedder) is an economic historian who has spent a lifetime telling students about how the seemingly mundane process of engaging in what Adam Smith called “truck and barter” has changed so radically over time, and how changes in retailing dovetail well with broader changes in the American economy. He knew that corporate critics emerged whenever a business became rich and powerful—witness the attacks on the Standard Oil Trust a century ago. And he knew that usually the concerns raised by the critics were at least excessive, and sometimes even totally misguided. Moreover, he found the changes happening in retail trade a beautiful example of what Joseph Schumpeter incisively called “creative destruction”—change for the sake of progress.

The other of us (Wendell Cox) had spent a lifetime dealing with issues of transportation and urban sprawl. The “Wal-Mart Revolution” seemed to be closely tied to these issues. The automobile was critical in defining the type of operation that Sam Walton and other entrepreneurs developed in the last half of the twentieth century, and the decline in mass transit (never very popular with Americans) is closely tied with suburbanization—the development of shopping centers and malls, and so forth.

At the same time, being unfamiliar with much of the literature on WalMart, we were uncomfortable taking any position on the Wal-Mart question until we reviewed the evidence. One of us had already completed a book

xiv PREFACE xv

for the National Research Initiative at the American Enterprise Institute, and thought that the NRI might be a good outlet for a broader examination of this issue. We also both felt that, although we wanted to give special emphasis to Wal-Mart, some examination of the entire “big-box” retail industry was appropriate. Fortunately, the folks at AEI agreed with us, and this project was born.

We have been extremely careful in trying not to become overly biased by propaganda from either side in the Wal-Mart debate, and we rather carefully avoided any contact with Wal-Mart at all until fairly late in the process of writing this book. Neither of us owns stock in the company, nor have we received a penny of remuneration from it, nor have we met with high-level company officials, or been to their headquarters in Arkansas. At one point, we felt we needed to contact the company in order to get some needed information. Interestingly, the company largely ignored our request, modestly limiting our ability to analyze some issues in greater depth, and suggesting that Wal-Mart is smarter at selling goods than in conducting public relations. By keeping our distance from the company (to an even greater extent than we wished), we certainly assured that no one can complain we were unduly influenced by Wal-Mart-induced propaganda.

Actually, a New York Times reporter, Michael Barbaro, did raise the issue of inappropriate Wal-Mart influence with Richard Vedder in an early September 2006 phone conversation. Barbaro informed him, after this manuscript was at the publisher, that the American Enterprise Institute had received some contributions from the Walton Family Foundation. Since this book was essentially completed at that point, these contributions (which in any case were trivial in relation to AEI’s budget) obviously had no impact on this work. AEI goes to great lengths to separate its fundraising efforts from its scholarly and editorial mission, and any suggestion that this book has been influenced in any way by Wal-Mart’s support for AEI is entirely false.

Indeed, the authors would never have known of the Walton Family Foundation’s support for AEI had the New York Times not made them aware of it, so great is the separation between AEI’s fundraising and scholarship.

While we had little contact with Wal-Mart, we did, however, both get some help from others. Of dominant importance in this regard was Bryan O’Keefe, an AEI staffer at the beginning of the project who has since gone on to a new position. He had a strong interest in the topic and did yeoman’s xvi THE WAL-MART REVOLUTION service ferreting out information, producing graphs, and even helping with some editing chores on an early draft of the manuscript. Bryan’s contribution was so great that it almost merits his being named a coauthor on this work. We appreciate his help immensely, and are pleased that we have made a new and valued friend.

Other members of the AEI and National Research Initiative staffs helped us, including Ryan Stowers, Courtney Myers, and Kim Dennis. The publication people at AEI, led by the estimable Sam Thernstrom and Karlyn Bowman, were great colleagues, friends, and helpers, rather than adversaries, as is sometimes the case in book publishing. Véronique Rodman has been helpful in getting the word out about this book. A former student of Richard Vedder’s, Bob Moran, helped get some data from Wal-Mart that proved useful. Our families put up with us as we burned, in some figurative sense, the midnight oil (purchased, no doubt, at Wal-Mart) in our desire to finish the project. To all of them, we express our deep gratitude.

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