Economics, Politics

Undercover at Wal-Mart

The New York Post recently posted an interesting personal account of writer and cryonics activist Charles Platt about working conditions and company policies at Wal-Mart. In Platt’s own words:

Some people, usually community activists, loath Wal-Mart. Others, like the family of four struggling to make ends meet, are in love with the chain. I, meanwhile, am in awe of it.

Platt does not found much ground for the negative treatment of Wal-Mart by progressives and singles out labor unions as one of the major sources of misinformation about Wal-Mart:

You have to wonder, then, why the store has such a terrible reputation, and I have to tell you that so far as I can determine, trade unions have done most of the mudslinging. Web sites that serve as a source for negative stories are often affiliated with unions.

But as he points out in his intelligent discussion of labor unions, the reason that people are paid low wages at Wal-Mart and other large retailers simply reflects supply and demand and not any deliberate attempt to keep wages low:

In our free-enterprise system, employees are valued largely in terms of what they can do. This is why teenagers fresh out of high school often go to vocational training institutes to become auto mechanics or electricians. They understand a basic principle that seems to elude social commentators, politicians and union organizers. If you want better pay, you need to learn skills that are in demand.

The blunt tools of legislation or union power can force a corporation to pay higher wages, but if employees don’t create an equal amount of additional value, there’s no net gain. All other factors remaining equal, the store will have to charge higher prices for its merchandise, and its competitive position will suffer.

This is Economics 101, but no one wants to believe it, because it tells us that a legislative or unionized quick-fix is not going to work in the long term. If you want people to be wealthier, they have to create additional wealth.

Although there is less support for labor unions in the United States than in other modern Western countries, the mystery remains why these organizations are taken seriously at all. Labor unions are labor cartels that do not create wealth but can only redistribute existing wealth at the expense of others. In reality, labor unions are often detrimental to increased productivity and creation of wealth because their policies produce unemployment, social unrest, and contribute to an entitlement culture in which people are discouraged from seeking individual solutions to better their economic conditions. As such, labor unions represent a harmful combination of tribalism and economic ignorance.

The writer also draws attention to the issue that small “mom and pop” stores are not necessarily better than large corporations. Many of them simply go bankrupt because they are unimaginative, wasteful, and rude to their customers. There is one caveat to this perspective, however, and that is that government regulation and labor union policies often favor bigger companies over smaller companies. Economies in countries like the Netherlands are heavily regulated by the government and the result has not been more diversity in retail but the depressing development of (designated) urban “shopping streets” that feature the same stores wherever one goes.

Despite their rhetoric about representing the little guy against corporate interests, in reality labor unions feel a lot more comfortable with large scale negation between the government, big corporations, and union representatives than the prospect of a healthy competition between unruly, impenetrable small companies. This (unintended) bias of government and unions for large corporations has recently been made official policy as a result of the “Too Big to Fail” doctrine which shelters failed companies from bankruptcy and socializes losses (corporate welfare).

Perhaps the most telling sign of the times is the influence of government employee labor unions. As an opinion piece in the Wall Street Journal notes:

When the movement among public-sector workers to unionize began gathering momentum in the 1950s, some critics, including private-sector labor leaders such as George Meany, observed that government is a monopoly not subject to the discipline of the marketplace. Allowing these workers — many already protected by civil-service law — to organize and bargain collectively might ultimately give them the power to hold politicians and taxpayers hostage.

There is a great taboo on individuals selling their votes but what to think of a President that rewards labor union voters in the public sector (the new privileged class) with more projects, higher wages, and increased job security while people  who work in the private sector cannot escape the consequences of the current financial crisis?

Further reading: Public Sector Unions Are Killing United States