Jack and Suzy Welch (Jack Welch, the past CEO of General Electric) defend Wal-Mart in an opinion article in Business Week (May 1, 2006, p. 112), "What's Right About Wal-Mart". (An excellent debate about Wal-Mart was also carried in the Riverside Press-Enterprise op-ed pages in January 2006. See the two main articles, here and here.)
The Welchs make a number of important points; the one I wish to enlarge upon here, with a personal anecdote, criticizes the notion that the main street stores in small towns have a special place in rural American life that should be preserved above Wal-Mart's competition. They write: "Yes, Wal-Mart has meant the end of many local stores. And yes, at some of them, customers might have been greeted by name when they walked in the door. But those ustomers chose to shop at Wal-Mart when it came to town because low prices, apparently, meant more to their quality of life than a wave and a smile. No conspiracy, just the free market at work."
The Welchs' observation strikes the right points. Opponents of Wal-Mart often say (see the first PE opinion piece linked above) that Wal-Mart destroys "democracy". This view is factually incorrect. Wal-Mart promotes democracy. How?
Main street stores exist by virtue of their monopoly on the goods and services they provide. By virtue of this monopoly, they charge higher prices than they would if there were competition. The monopoly and higher prices support a class system that is as rigid in small towns as it is in New York City. The merchant class, along with other business owners in small towns, are a separate class that divides community vertically. They have the nicest homes, often second homes, take vacations to distant places, send their children to private schools, shop in better stores in distant cities. They socialize among themselves. They do not dispense their monopolistic profits into charity, take a drop in standard of living, and share in the modest life styles of the local customers to their stores. They do what all monopolists do; they use the money to raise their own standard of life, without regret for those who do not have enough money to share in it.
This class system sucks the life and vitality out of small towns. It concentrates income and capital, so that sufficient income is not left to the majority of residents of villages to support other enterprises, including cultural activities and education at levels higher than subsistence. These woes of small town life were amply and repeatedly documented by novelists (such as Sinclair Lewis) and sociologists during the decades of the 1920s through the 1940s. Weep not for the financial stress placed upon small town capitalists by competition, from Wal-Mart today or from the beginning of franchise retailing eighty years ago.
It is true, some personal comfort might be lost in the shift from main street monopoly to free-market competition in small town and rural shopping. Here a personal anecdote is appropriate. During the 1950s, my parents' family had hard luck and fell down the economic ladder. My father started adult life in the 1930s at the top of the northern New England economic hierarchy, the son of a wealthy man. He died an alcoholic living in a trailer. During our family's decade of misfortune, my parents lost their home to taxes. They often did not have money to buy food. The owner of the larger of two grocery stores in my home village knew my parents from high school and allowed them to buy on account. For years, my parents "charged" their weekly food bill to the store. If they had not been allowed this charity, we would not have had food to eat, and, as it was, often we ate very little. My parents never paid back all the supplies they purchased on account. They were grateful for this charity. It symbolizes the best, though infrequently exercised, bonds of support between the small town bourgeoisie and their customers.
Some years after my parents' sad saga ended, commercial competition came to northern New England. Chain discount stores, principally in clothing and grocery, came to the village; or, to be exact, to a strip mall built on the land previously owned and operated as a dairy farm outside the village. My mother immediately began shopping there. She told me, she felt slightly guilty, but only slight guilt, given how much she had purchased on account in the main street market; but the prices were so much lower that their standard of living was significantly improved. Of course, they could not buy "on account" at the chain stores.
What was true of my parents' situation is true today of millions of families who shop at Wal-Mart and other discount stores in rural and small town America. And the story will be true of millions of Americans who live in cities, as soon as Wal-Mart and other discount merchants break into the cities where they live.
This free market competition improves the standard of living of the majority of people. It also improves the social and cultural conditions of the lives of those same people. It does this by destroying the monopolies that local capitalists have in the rigid, hierarchical class system that exists everywhere in America that competition is excluded. (And it is worth noting that it is labor monopolists, i.e. labor unions, who are the principal opponents of Wal-Mart in cities.)
Cheers to Wal-Mart.