Monday, January 15, 2007

Wal-Mart Causes Poverty

I've been reading The Wal-Mart Effect by Charles Fishman, which is full of interesting facts about the world's largest retailer. From the reason that deodorant no longer comes packaged in a cardboard box, to why Snapper won't sell lawnmowers through Wal-Mart, to how the "Wal-Mart Effect" is like crack (addictive and dangerous) to suppliers, I'm learning a lot from this book. But this little nugget knocked my socks off. WAL-MART CAUSES POVERTY. Stephan Goetz is an economist at Penn State University.

From The Wal-Mart Effect:
"We were surprised," says Goetz. As the study puts it, "We find that the presence of Wal-Mart unequivocally raised poverty rates in U.S. counties during the 1990s." The question, of course, is how Goetz can be certain that the poverty is caused by Wal-Mart, rather than simply coincidentally correlated with it. "That's a very important question," Goetz says. "We're not looking at the poverty rate, really, we're looking at the change in the poverty rate over time. We're not explaining the poverty rate, we're explaining the change." And looking at Wal-Mart as a factor just as they would look at education level or whether a family with children had two parents present or one. After accounting for all the other things that cause poverty rates to change, then plugging Wal-Mart into the statistical equations, says Goetz, "There is an effect that we can only explain by Wal-Mart's presence."
I Googled Goetz and found his actual study. This is taken from the abstract:
We find, after controlling for other factors determining changes in the poverty rate over time, that both counties with more initial (1987) Wal-Mart stores and with more additions of stores between 1987 and 1998 experienced greater increases (or smaller decreases) in family poverty rates during the 1990s economic boom period. We offer three possible explanations for this finding, including that Wal-Mart stores destroy civic capacity in the communities in which they locate by driving out local entrepreneurs and community leaders.
More from the body of the report:
This raises the question of why Wal-Mart affects county poverty rates. First is the obvious fact that poverty rates will rise if retail workers displaced from existing mom-and-pop type operations work for Wal-Mart at lower wages because they have no alternatives (this assertion has been contested in the literature), all else equal. Second, even though Wal-Mart Corp. presents itself as a “good local citizen” and engaged in local philanthropy through the Sam Walton Foundation in the amount of$106.9 million 2003 alone, this type of philanthropy may not be as extensive or effective as that which the displaced mom-and-pop type stores would have provided.

A third and perhaps more subtle effect may be that, by destroying the local class of entrepreneurs, the Wal-Mart chain also destroys local leadership capacity. This has been pointed to by rural sociologists and others as one outcome of the increasing concentration of non-local bank ownership and the resulting branch plant economy that is believed to have destroyed the pool of local leadership talent. The destruction of small, locally-owned businesses may also reduce social capital levels, as has been argued, for example, by Cornell University’s T. Lyson (pers. comm.. 2002). Social capital, or civic capacity, is also an essential ingredient for economic growth to occur, according to Harvard University’s Robert Putnam. Thus, the elimination of local leaders from among a key group of entrepreneurs may be the single-most important and far-reaching impact of Wal-Mart Corp.
Repeat after me. Small is beautiful.


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