Wal Mart: The (Incredibly) High Cost of Low Prices

Hello to all and thanks so much for checking in,

I know what you're thinking. You're thinking, "Wow, that is a great title for a post!" And, you would be right. But, it's not mine. I borrowed almost all it from a 2005 documentary called "Wal-Mart: The High Cost of Low Prices." (that mention should help me avoid a lawsuit)

The documentary was really well done, well received, and I suggest you check it out, if you haven't already. I watched it again recently and I noticed that if feels somewhat dated, considering what else is known about Wal-Mart now. So, this has inspired a broader question for me. I won't answer it completely here today and there are other corporations to look at about this. The question is,"Do they ( ___ corporation) serve any real good?" From what's coming up, you'll see that I feel that Wal-Mart doesn't serve a positive gain to the community/nation. But, admittedly, more work has to be done (or perhaps found by me).

Your first reaction might be to think of the sheer number of people they employ and that must serve some good. You'd be correct about the employment part. Wal-Mart employs 2.1 million employees. And, I understand that these employees go out and spend money, pay taxes, buy goods, etc. But, would you be surprised to find out that we taxpayers end up footing part of the bill for Wal-Mart's employees? Wal-Mart costs taxpayers $1,557,000,000,000 (this is 1.557 Trillion, I wanted you to see the the zeroes for effect) to support its employees, welfare and healthcare. That stat actually inspired me to do this post, because even I was shocked. This works out to an average of $943 per taxpayer, to pay for food stamps, Medicaid, and cash assistance.

In Ohio alone, there are over 13K Wal-Mart employees that are currently on Medicaid. If you were to take at the state-by-state look (within the last link), many of the usual suspects appear nationwide (including McDonalds, Home Depot, Burger King, etc.) The average pay of a Wal-Mart worker is $8.81 per hour. Being completely fair, Wal-Mart does actually pay taxes, which is a rarity these days. In 2010, they paid 7.1 billion in taxes on 22.1 billion of profit.Even with that tax rate, they still have privatized 15 Billion in profits for shareholders and socialized over 1.5 trillion dollars in (what should be) their employee costs on to the rest of us, in only one year.

I mentioned at the beginning that there is so much more work to do on the effect of large corporations, and if they serve a net good. When you consider other effects of the way Wal-Mart does business, the question gets more muddied. Trying to factor in all the externalities is difficult at this time. There has been many studies, but it is tough to quantify if you want to extrapolate all the data a few steps further. I wanted to pose the question and maybe this will serve as Part I of a voluminous collection on Wal-Mart and other corporations. When thinking about externalities, consider the potential cost of these Wal-Mart facts:

- 3.5-3.9 million: approximate metric tons of CO2 emitted each year by Wal-Mart stores built-in the U.S. since 2006

- Under 2%: percentage of Wal-Mart's U.S. electricity consumption that currently comes from its solar projects and specially purchased wind energy

- 196,000: number of U.S. jobs lost from 2001 to 2006 as a result of Wal-Mart's imports from China

- 1,940: number of small retail firms (fewer than 20 employees) per 1 million population in the U.S. in 1992

- 1,455: number of small retail firms per 1 million population in the U.S. in 2007

That is just a sampling of some of the work that has been done. If you consider those items one by one, for instance, what is the public cost to that many tons of CO2 going into the atmosphere? If you consider air quality (and related illnesses & health issues when air quality is poor), climate change, etc, it may be impossible to accurately measure those costs.

But, what would be the positive ramifications of Wal-Mart becoming sustainable? What kind of boom would that cause? A large buyer like this could create an economy of scale for a supplier (especially a local one) of renewable items. That supplier hires US workers, those workers in turn buy goods, pay taxes, buy homes, pay property taxes, etc. The multiplier effect would be strong in a case like this. But, it is another hypothetical that I can't quantify just yet. Don't get me wrong. It's not Wal-Mart's responsibility to help the US's renewable industry. But, the effects could be massive if they chose to. It would be great for the environment, job force, manufacturing as a whole, and so many other downstream industries. In that case, they would most certainly be an overall good to the public.

If you look at the 3rd item, there were 196K jobs lost in a 5 year span. What are the costs of 196K being out of work for even a short time? It's another question that's tough to answer. 196,000 people collecting unemployment benefits, not paying payroll taxes, buying less goods, paying less sales taxes, etc, makes calculating the impact tougher to figure as well. The 196K number does not count smaller businesses closing up (and the subsequent job losses) when a Wal-Mart comes into a neighborhood (exhibited in the 4th and 5th facts).

The sad part about all this is that it seems that the consolidation at Wal-Mart is increasing. In 1988, Wal-Mart opened their first super-center that sold groceries. Today, they are responsible for 25% of all US grocery sales. And, in 29 metro areas, they capture more than half of all grocery spending in the region. They are set to open 200 more US stores in 2012. Their revenue is up over 100 billion (from 312-419 billion), from 2005-2010.

I guess the question is ultimately: Do the people Wal-Mart employ, taxes they (Wal-Mart & employees) pay, and economic growth they eventually drive outweigh the 1.557 Trillion we pay in social costs and the pollution and job loss they cause? I will try to find more on this. My hunch is that we'd be better off if they somehow didn't exist. But, my goal is to find out for sure.

I know I haven't answered my own question, but hopefully this was illuminating to you. Perhaps it will make you look at large companies more skeptically. Perhaps you will question politicians who bend over backwards to help these companies with tax breaks/subsidies, when we're paying about $950 each, for their employees. Maybe it will inspire you to shop more local, independent stores. Maybe it will even inspire to shop at Wal-Mart more, since you figure you're already about $950 in the hole each year, and you want to recoup that loss in savings there. The choice is yours. There will definitely be more to come on this subject. Stay tuned. I can say that this post gave me hope. I'm not the only one frustrated by WalMart's way of doing business.

See you next time,
James