Friday, November 18, 2005


Sanctimonious liberalism vs. dubious financial figures. One of the worst interviews ever on DemocracyNow!

To: cc: Wal-Mart Watch (by webform) While I would agree with Ron Galloway that the Wal-Mart debate is more nuanced than many opponents would like, and while I think Ms. Sefl did a notably bad job of presenting the case for her side, I wanted to draw to attention figures used by Mr. Galloway. At least one is simply incorrect. Others are doubtful. Mr. Galloway said: "Wal-Mart pays $22 billion – let's accept the number that is bandied about, which is that Wal-Mart costs taxpayers between $1.5 billion and $2 billion. Well, let's accept that, but Wal-Mart pays $22 billion in federal taxes, collects $11 billion in state and local taxes, and through their vendors – and this is sort of the unrecognized story – their vendor-suppliers, they also are responsible for another $40 billion in income tax. Wal-Mart is a complete cash cow, so if you add those three up, that's $73 billion. So sort of a flip side of looking at it is if Wal-Mart is paying or costing $2 billion, $73 billion is coming back into the treasury." These are some very interesting figures. They bear no relationship to the financial statements that Wal-Mart issues to the investment world. Wal-Mart paid $5.6B in total taxes in the year ending in 2005. Not $22B as claimed by Mr. Galloway. Now, it's theoretically possible --and highly doubtful--that Wal-Mart's employees could have paid the $16.4B difference between claimed and actual Total Sales, General, and Administrative costs (listed as $51B for the year ending in 2005). But as the Republican Party is so fond of saying, it's their money. Not Wal-Mart's. And then there's the figure of $40B Mr. Galloway claims for taxes paid by vendor-suppliers. This is very doubtful. Neither Chinese suppliers nor Liberian shippers are likely to be paying taxes to the United States, so we're left with American truckers and longshoremen and American manufacturers, such as Tyndale House. I could spend the time over at the SEC's Edgar site or reading the detailed S&P reports available to any Business Week subscriber to figure out what the true salary and tax figures are, but the fact is that Mr. Galloway and Ms. Sefl should do serious and skeptical research as the minimum courtesy for the privilege of accessing the public airwaves. While radio talk is probably not the format for providing sources, Mr. Galloway has a website where he could provide them. I went there. They are absent. Mr. Galloway is correct to paint the issue as a balance between taxes paid and services received, something that Ms. Sefl should pay attention to. A case can be made that some Wal-Mart employees (notably the elderly, but perhaps also the illegal immigrants Wal-Mart seems to accidentally hire so often) have no alternative jobs to go to and would not even if Wal-Mart closed its doors. But if Wal-Mart closed its doors, other retailers would open new shops and life would go on. Americans might buy fewer goods if prices were higher. It's not clear that would be a net loss. A few decades ago, we bought an expensive telephone expecting to have it for many years years. Now we seem to buy a cheap one every year. Higher costs of appliances, to take one retail category, might mean higher quality items or new jobs in appliance repair and lower landfill costs. It's a more complicated story than Mr. Galloway wants to make it. Also, if Mr. Galloway wants to do cost-benefit analysis, he ought to count Industrial Revenue Bonds and other incentives the company received. Wal-Mart also relies on roads and cheap gas to get consumers to their stores, the Securities and Exchange Commission to provide it the credibility in financial markets to raise capital, American courts to enforce the contracts it makes, and so on. Those are benefits it receives from society. Other corporations might well ask why Wal-Mart deserves what amounts to a special tax rebate in the form of Medicaid. Why shouldn't the government pay for their employees's health costs, too? Mr. Galloway should also study the debate that arose over a study by Alan Blinder on the minimum wage. Whatever the Wall Street Journal thinks, Blinder pretty well proved to people who understand finance and economics that raising the minimum wage has small, but positive effects on business profitability. Look at Costco. It presents a business model that pays employees more and costs consumers about the same as Wal-Mart. It seems to being doing fine. Henry Ford discovered the virtues of paying a living wage almost 100 years ago. How stupid we are to have forgotten. While hard data are very hard to come by, a case can be made that Wal-Mart is economically inefficient, existing only because of market distortions either created or abetted by the government. It is not unreasonable to suspect Wal-Mart has a long term strategy of creating a monopoly through predatory business practices that exploit such distortions. It's not as if this has not been tried before, with varying outcomes. These are the questions that needed to be debated on Democracy Now! Instead, we heard what are at best gross oversimplifications, and a moderator who let them slide by. Sincerely etc.
What about Walmarts vendor's suppliers suppliers? Or the employees of said suppliers suppliers. I feel that $72B is grossly underestimated. It always makes me wary when some quotes numbers with no explination to back it up.
It always makes me wary when posters post comments that I don't understand. I think Anonymous is satirizing Ron Galloway, but it's a bit hard to tell.

I have an e-mail from Mr. Galloway that persuades me that there is absolutely no basis for the numbers he quoted. His explanation was so deficient that I think I had better leave it to him to try to present what he was trying to say.

But let me make a better argument than he has and that deals with the issues Anonymous has raised. Every new technology creates new demand, the demand helps bring new businesses into existence as the supplier, and creates jobs outside of the original business. Ideally, tax revenue is collected, used to educate a new generation, which goes on to invent new technologies.

The correct term for this is "the virtuous circle," in which invention feeds economic growth and economic growth feeds invention. Or infrastructure improvements. Or social efficiencies like public health. Or anything that in turn feed economic growth.

It's easy to make a virtuous circle argument for industries like vaccines, solar panels, telephony, and soon nanotechnology and the hydrogen economy (not as envisioned by Bush). Each one has benefits and costs, but the benefits have far outweighed the costs.

Opponents of Wal-Mart should listen to people like Ron Galloway. Galloway is making a virtuous circle argument. Indeed, Wal-Mart has always made such an argument, that its more efficient inventory management system and supplier relations amount to a new technology.

And give them credit. Wal-Mart does use building space far more efficiently than most businesses, creating what's called a high turnover ratio. They did pioneer database inventory management.

The question remains whether the benefits Wal-Mart produces are greater than or less than the bad things. In a better world, a Congress dedicated to serving the American people would investigate and tell us. Since academics lack the subpoena power of Congress, no one can force Wal-Mart to disclose information that could cause people to conclude that the benefits they produce are illusory. Nothing is left except Wal-Mart spin, toothless business journalism, and Robert Greenwald.

I have made a basic case that the negative externalities Wal-Mart creates (like dumping employees on Medicaid, hiring illegals, cheating employees out of pay, and so on) account for the entirety of their supposed advantage in business performance. If they operated under basic moral and legal constraints, they'd be a much smaller company.

Like maybe one outlet in Bentonville, Arkansas.

Sorry if this seems like a sharp response, Anonymous.
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