Walmart
Essay Preview: Walmart
Report this essay
Wal-Mart is one of the great shining examples of what a market economy can achieve. If I were to give a tour of the United States to visitors from a socialist country, who are used to experiencing chronic shortages of almost everything, Wal-Mart would be one of the first places I would take them. It is a perfect symbol of one of the most remarkable things that we have Ж an enormous variety of high quality, low cost products that are available to virtually everyone throughout the United States.
Wal-Mart stores are indeed impressive sights, housed in gigantic structures, capable of serving many thousands of customers every day. Wal-Marts most common type of store Ж the Supercenter Ж offers customers an indoor, air-conditioned shopping area larger than three football fields. These shopping behemoths provide so much Ж such a staggeringly huge range of well-made products Ж that a person could practically live his whole life without having to shop anywhere else.
Walk into a Wal-Mart Supercenter and look around; the place is amazing! It boggles the mind to think of the enormous complexity that must be involved in running a store that accomplishes all this, which is truly responsible for an improvement in our standard of living. For Wal-Mart to provide so much, for so many, as efficiently, reliably, and inexpensively as it does is an economic miracle. Never in human history have so many people had such affordable and convenient access to all the products that Wal-Mart offers, and the number of people with this access is growing all the time
To understand Wal-Marts economic significance, the concept of wealth must first be understood. Economic progress means an increasing level of wealth, both for the individual and for the entire economic system. Wealth, in an economic sense, is material goods that have been produced by human labor. This includes cars, houses, lipstick, silverware, garden hoses, television sets, and anything else that has been taken from nature and changed by man into something that is more valuable to man. It can include land or natural resources to the extent that humans perform labor to make them useful.
Wealth is not the same thing as money. Money is simply a medium of exchange for wealth. Money derives its value from the wealth available for trade in an economic system. For example, if someone were stranded alone on a desert island with few supplies, it would not be accurate to call this person wealthy even if he had $5 million in cash with him on the island. His money is valueless here because there is no wealth on the desert island for him to buy. Since money derives its value from wealth, as an economic system produces more total wealth, its money supply becomes more valuable.
To learn what policies would create the most wealth is the most fundamental concern of economic science. It is not primarily concerned with consumer spending, or jobs, or interest rates, but with wealth. And it is not about how to make some particular group wealthier; rather, it is about how to make the entire economic system wealthier. It is no coincidence that one of the most influential economics books ever written is titled The Wealth of Nations. This innovative work was one of the first to focus not on the wealth of steelworkers, or the wealth of blacksmiths, but on the wealth of entire nations. We should use this same focus in deciding whether or not “Wal-Mart is bad for America.”
There are many reasons why Wal-Mart has been so successful. It offers a wide variety of products, it has customer-friendly service, it effectively communicates its value through advertising and promotions, it selects merchandise that people want, and much more. But the major reason that Wal-Mart has had such a meteoric rise is that it offers its products for consistently lower prices than its competitors. Its motto is “Always Low Prices. Always.” And it has lived up to that promise. Wal-Mart customers have come to expect good deals on virtually all Wal-Mart products at all times. Its lower prices have attracted large and growing numbers of customers, and have resulted in large and growing volumes of sales.
These lower prices are possible because Wal-Mart is more productive Ж more efficient Ж than its competitors. This gives it lower costs than its competitors and because its costs are lower than theirs it is able to charge less than they do while still making a profit.
To increase productivity is to increase the amount of wealth that can be produced per unit of input. To illustrate this concept, consider the effect of a modern technology like telecommunication. Before the telephone, telegraph, or radio were invented, communications had to be physically carried from the communicator to the recipient either in person or through letters. When telecommunications became widespread, people were able to instantly communicate with each other from all over the country. Imagine all the labor that was saved from no longer having to physically carry all communications from one party to another. This caused a vastly increased ability to produce more total wealth. The economy could produce everything that it could before, plus whatever could be produced with the labor that was no longer needed to carry communications.
This is an increase in productivity. It is an increase in the ability to produce. It is more wealth with less expense.
Increases in productivity are achieved economy-wide, by single businesses, and by individuals. They can be as simple as a hot dog stand owner finding a more efficient way to cook his hot dogs. Anyone who has figured out a way to produce more with less has found a way to increase productivity, and all increases in productivity cause an ability to produce a larger total amount of wealth in the economic system as a whole.
The history of Wal-Mart is a history of increases in productivity. Wal-Mart started off buying products in larger volumes to get them cheaper per unit. It was one of the first to use self-service in its stores for goods other than groceries, thereby saving money on employees. It opted for less extravagant store presentation in favor of lower prices.
Wal-Mart saved money through the years simply by being frugal when it came to its managers accommodations. It prefers to have small and cheap offices in cheap locations. It has been known for requiring managers to fly coach on business trips, stay two to a room in cheap hotels, rent cheap cars, and eat at cheap restaurants.
Wal-Mart increased productivity through new methods of training its employees. It used its own central distribution centers and trucking to improve the efficiency of its flow of incoming inventory. As its business grew and volumes of sales continued to increase, Wal-Mart