Wednesday, July 19, 2006

Think twice before throwing money at Wal-Mart

Posted By on 07.19.06 at 12:45 PM

Wal-Mart supporters in Chicago have a constant refrain that seems hard to argue with: "Something is better than nothing." A new study suggests that, at least in rural areas, that may not be true.

The first meticulous academic study of Wal-Mart's effects on county poverty levels has just been published in Social Science Quarterly. (Abstract here; full October 2004 version here; press release on earlier version here.)  Wal-Mart haters are pushing it, but what does it actually say?

"Holding constant the initial (1989) poverty rate, the results show that counties with more Wal-Mart stores (in 1987) had a higher poverty rate in 1999 (or a smaller reduction in the rate) than did counties with fewer or no Wal-Mart stores in 1987.  . . . [T]he spread of Wal-Mart stores during the 1990s was associated with higher usage of food stamps per capita, or with smaller reductions in this variable, holding other factors constant.  . . . The chain is not the engine of local economic growth that the company's spokespersons and public relations material suggest."

The authors--Stephan J. Goetz of Penn State's department of agricultural economics and Hema Swaminathan of the International Center for Research on Women--controlled for other causes of poverty. (They also took special care to control for the possibility that Wal-Mart might choose poorer locations to start with.) They acknowledge that they do not provide a complete balance sheet: they were unable to factor in either the benefits of lower prices or the cost of government subsidies to Wal-Mart.

No one study is conclusive, but any locality weighing the costs and benefits of a new Wal-Mart will need to consider this one.

The authors also don't know exactly how new Wal-Mart stores marginally increase poverty. They theorize that the causes might include the demise of existing mom-and-pop stores, lower retail wages overall, closing of local suppliers that had served the mom-and-pop stores, or the loss of local leadership and "social capital" if proprietors and suppliers choose to leave the area.

Many of these factors have more to do with rural than urban areas. But anyone who proposes subsidies for new Wal-Mart locations should bear the burden of showing that a new store's benefits really do exceed these costs. It's not all good.

 

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