- The Washington Times - Friday, January 31, 2003

WASHINGTON, Jan. 31 (UPI) — The UPI think tank wrap-up is a daily digest covering opinion pieces, reactions to recent news events and position statements released by various think tanks.

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The Ludwig von Mises Institute

(The LVMI is a research and educational center devoted to classical liberalism — often known as libertarianism — and the Austrian School of economics. Grounded in the work of economists Ludwig von Mises and Murray N. Rothbard, LVMI seeks a radical shift in the intellectual climate by promoting the market economy, private property, sound money and peaceful international relations, while opposing government intervention.)

AUBURN, Ala. — The case for Wal-Mart

By Karen De Coster and Brad Edmonds

The accusations against Wal-Mart are numerous, and they include: paying overseas workers too little; not paying benefits to part-time workers; refusing to sell items that don't fall within its criteria for being "family-oriented;" not giving enough back to the community; and discriminating against women.

… Most retail and service sector employees still do not get paid full job benefits, so what makes Wal-Mart so distinctive in that case? What's more, Wal-Mart management has indeed made decisions to refrain from selling certain items that did not live up to its moral standards — including certain music CDs and a brand of barbecue sauce sold by a man who promoted his Confederate heritage — but what's wrong with a private company exercising its own moral discretion according to its stated values? The marvelous ways of the free market allow us to move on elsewhere for our purchases when we are dissatisfied with what we perceive as corporate nonsense.

Wal-Mart is an employer that pays relatively low wages compared to most jobs or careers, and that engenders a sense of loathing from people getting paid those wages. But Wal-Mart is not unlike any other retailer in the respect that it, for the most part, provides jobs and not careers. Other gigantic corporations such as General Electric or General Motors, on the other hand, employ executives, college graduates, and skilled laborers, so they avoid much of the wage-related scrutiny given to retail employers. Add to that the labor union organizers' inability to unionize Wal-Mart and you have the perfect recipe for resentment and scorn.

The overriding charges one comes across amid the many Wal-Mart rants are "too large" and "too powerful." Thus it's just more anti-industry, anti-free market claptrap. Along with that are the hoots and hollers about this great chain "destroying small towns" by way of buying property in rural areas and opening its doors to townsfolk so they have access to convenient, one-stop shopping, an ample supply of products, and unbeatable prices.

However, there is one prevailing phenomenon that makes Wal-Mart a unique target for contempt and that is its "bigness." Americans, generally speaking, like to attack bigness. There are things associated with bigness that Americans aren't keen on, like clout and domination.

In fact, the favorite indictment of Wal-Mart is that they dominate the market wherever they go and sell goods at prices that are too low (gasp!). This in turn — say the naysayers — drives small, local competitors out of business because they can't compete with Wal-Mart's pricing or product selection.

Suppose it's true that Wal-Mart went around opening giant stores in small towns, pricing goods below their own cost long enough to drive local stores out of business. Even if this were correct, Wal-Mart would only be selling its own property. Suppose you want to sell a house you inherited, and quickly. Should you not be allowed to set the price as low as you want?

The theory goes that Wal-Mart could then set prices high, and make monopoly profits. How plausible is this, really? First, Wal-Mart executives would have to be able to see the future — they'd have to know about how long it would take to drive everyone out of business in advance, and know whether they could afford to price goods below cost for long enough to corner the market.

Then, through trial and error, they'd have to find the point at which they could set prices low enough to keep customers from driving to another town, but high enough to recoup the losses from the earlier below-cost pricing.

It gets less plausible the more you think about it: The smaller the town, the easier it would be to drive competitors out of business. Then again, a town small enough for this would be small enough to have bitter memories of the pricing strategy and small enough to boycott Wal-Mart before the strategy succeeded. And a very small town would not support a giant Wal-Mart anyway.

The larger the town, the less feasible it would be to drive others out of business in that town — Wal-Mart would have to drive their prices far below those of large grocery and department stores, which would be much more difficult.

Further, where is there evidence of Wal-Mart ever driving up prices after becoming established in a market? Wal-Mart has indeed set prices low enough to drive mom and pop stores out of business all over the country and kept the prices that low forever. Yet a journalist for the Cleveland Scene said about Wal-Mart's pricing policy: "That's 100 million shoppers a week lured by 'Always Low Prices.'" Lured — as if consumers really don't want low prices, but are just tricked into thinking they do!

In a free market, large suppliers of nearly everything will drive most small suppliers out of business. The only people who can afford to do business on a small scale are people at the top of their fields or in a niche: McDonald's has to keep prices low, and economies of scale do this, while Brennan's restaurant in New Orleans can keep prices high. People who produce house paint and wallpaper must compete on price with other suppliers, while famous artists can keep their prices high. General Motors must keep prices low, while Rolls Royce doesn't have to.

Nobody complains that there aren't family auto manufacturers, but the powerful farmers' political lobby makes sure we pay inflated prices to keep inefficient farmers in business. Of course, giant agribusinesses don't complain that their weaker competition is kept in the market, because the giant agribusinesses enjoy the inflated prices just as do the family farmers, some of whom are paid to leave their fields fallow.

Nobody complains that there aren't family pharmaceutical manufacturers, but people complain when Wal-Mart drives a corner drug store out of business. Yet if the corner drug store owners had the same political lobbying power farmers have, you can bet we'd be paying $20 for Q-tips.

If the truth be told, Wal-Mart improves the lives of people in rural areas because it gives them access to a lifestyle that they otherwise would not have — a gigantic store showcasing the world's greatest choice of products from groceries to music to automotive products. When it comes to prices and service, try finding 70-percent-off clearances at your local mom-and-pop store, or try going to that same store and returning shoes you've worn for three months for a full-price refund with no questions asked.

On the whole, if one doesn't like Wal-Mart and finds it to be of greater utility to support their local mom-and-pop stores for an assortment of cultural and non-economic reasons, then they may do so. If consumers wish to obstruct the development of a Wal-Mart store in their small town, they have scores of non-bullying options to pick from in order to try and persuade their fellow townsfolk that a new Wal-Mart is not the best option.

Still, it is not always easy to convince folks to eschew ultra-convenience for the sake of undefined, moral purposes. Consumers most often shop with their wallet, not with political precepts. For that reason, the anti-Wal-Mart crowd uses political coercion and an assortment of anti-private property decrees — such as zoning manipulation — in order to stave off the construction of a new Wal-Mart store in their town.

Hating Wal-Mart is the equivalent of hating Bill Gates. Sam Walton had a grandiose vision for himself, and sought to realize that vision by providing something people want — low prices. He has done every bit as much for your lifestyle as Bill Gates.

Families who shop carefully at Wal-Mart can actually budget more for investing, children's college funds, or entertainment. And unlike other giant corporations, Wal-Mart stores around the country make an attempt to provide a friendly atmosphere by spending money to hire greeters, who are often people who would have difficulty finding any other job. This is a friendly, partial solution to shoplifting problems; the solution K-mart applied ("Hey, what's in that bag?") didn't work as well.

It's interesting to observe that the consumers who denounce Wal-Mart are often the same folks who take great joy in reaping the rewards of corporate bigness, such as saving money with sales, clearances, and coupons, being able to engage in comparative shopping, and taking advantage of generous return policies.

When all's said and done, Wal-Mart employs lots of people; provides heaps of things you need in one place at the lowest prices you'll find; and gives millions to charities every year. Add up the charitable giving of all the mom and pop stores in the country and it probably won't equal that of one giant corporation.

To be sure, if Americans didn't love Wal-Mart so much it wouldn't be sitting at the top of the 2002 Fortune 500 with $219 billion in revenues. And we do love Wal-Mart. We love it because it gives us variety and abundance. We love it because it saves us time and wrangling. And we love it because no matter where we are, it's always there when we need it.

(Karen De Coster, a CPA, is a freelance writer, graduate student in Austrian Economics, and a business professional from Michigan.)

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The Competitive Enterprise Institute

(CEI is a conservative, free-market think tank that supports principles of free enterprise and limited government, opposes government regulation, and actively engages in public policy debate.)

WASHINGTON — C:Spin — The FCC's local competition report: Surprise!

by James Gattuso, Heritage Foundation, Jan. 31, 2003.

Like a snail in a sprint, the Federal Communications Commission is rushing towards a decision on its local competition rules. (FCC Commissioner) Michael Powell announced this week that he expects the FCC to meet its Feb. 20 court deadline for its revised rules, in fact to beat it by a week.

That's welcome news. How much reform there will be, however, is still a question mark. The mere prospect of action has sparked howls of protest from defenders of the regulatory status quo. The message has been simple: competition to the Bell monopolies is weak and uncertain, with challengers rocked by failure. Loosening the rules now would mean the death knell for the competition hoped for in 1996.

It's a nice clean storyline, and sure to be all over the media — no matter how timid the final FCC decision is. But — as shown in stats just released by the FCC — competition hasn't been a failure. It's actually doing pretty well, although the greatest competition has come from a source not contemplated in 1996.

Of course, this doesn't mean the last few years have been good to investors in competitive carriers. From a high of some $86 billion, capitalization of competitive local exchange carriers, known as CLECs, was down to $4 billion at last count, and the number of CLECs has diminished from some 300 to less than 100.

Despite these numbers, telecom competition is hardly on the rocks. In fact, according to the latest report by FCC statistics guru Peyton Wynn and his staff of number crunchers, there's more competition in local telephony than ever before. They found (as of June 2002) CLECs held 21.6 million — or 11.4 percent — of all telephone access lines. That's a 10 percent increase over the beginning of 2002, and a 26 percent jump over a year earlier.

These numbers, however, tell only part of the story — and not even the most important part: the phenomenal growth of competition from cell phones and other mobile wireless providers. Once a purely supplementary telephone service — too expensive to use regularly — the price of wireless phone service, combined with it functionality, is making it a prime substitute for old-fashioned wire-line service.

The number of subscribers is vast — 129 million, compared to 167 million lines held by incumbent local exchange carriers, known as ILECs. Of course, not all of these use their wireless phone as a substitute — but an awful lot do. A smallish but significant number — 6.5 million — don't even have a wired phone. More telling, about one in six (18 percent) consider their wireless phone their primary phone.

Ironically, this competitive challenge wireless was not contemplated by the authors of the 1996 act — that legislation barely referenced mobile wireless services at all. And the technology hardly figured in the seven-year drama of regulation and litigation over competition rules that have followed. Instead, after the initial assignment of spectrum, Washington has largely left the industry alone. Despite — or perhaps because — of this neglect, consumers have been rewarded with a competitive success story.

So, if things are going well, why should the commissioners change the current rules?

First, while wireless competition is largely facilities-based, the same cannot be said about the more traditional local exchange carrier competitors, which use their own loops for less than 30 percent of their lines. Real, facilities-based, competition is the goal, and as several judges have hinted, is discouraged by the current rules.

The second reason has nothing to do with voice competition — the damage done to broadband and other new technologies could dwarf the consequences in the voice market.

It is for these new technologies of the 21st century, rather than the old ones of the 20th, that reform is most needed.

(James Gattuso is a research fellow in regulatory policy at the Heritage Foundation.)


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