How We Chose to Make Walton Rich


April 15, 1992|By DAVID N. LABAND

Clemson, South Carolina. -- Plaudits showered upon Sam Walton at his death. President Bush, who had presented him the Presidential Medal of Freedom, the nation's highest civilian honor, hailed him as ''an American original who embodied the entrepreneurial spirit and epitomized the American dream.'' Mr. Walton was not lionized merely because of his entrepreneurial spirit; millions of Americans have entrepreneurial spirit. What made Sam Walton unique was his spectacular success as a (dare we say greedy?) capitalist.

Mr. Walton's empire of 1,735 Wal-Mart stores and 212 Sam's Wholesale Club warehouses made him and his children so rich that they ranked numbers 3 through 7 on the most recent Forbes list of wealthiest Americans. The millions of Americans who patronized his stores and contributed to his immense wealth would do well to consider the applicability of Sam Walton's success story to their current Japan-bashing fetish.

American consumers voluntarily made Sam Walton rich. Many of the same individuals who seek to raise taxes on the rich shop at Wal-Mart and Sam's. They flocked to Wal-Mart stores because of the low prices, the service and the quality. In short, Sam Walton figuratively built a better mousetrap than his competitors, and with their many billions of dollar votes American consumers demonstrated that they preferred his product over all others.

Those who continued to patronize other department stores and shops benefited too, as these stores were forced to lower their prices and improve their product lines and services to remain competitive. The billions of dollars of personal wealth amassed by the Walton family are balanced by the cumulative benefits Sam Walton generated for virtually all American consumers.

In the process of making Sam Walton rich, American consumers impoverished many of his competitors. Every dollar spent at Wal-Mart was a dollar and a quarter not spent for similar merchandise at Sears, K-Mart, Penney's or any of the other large chain department stores. More important, it was a dollar and a half not spent at local small businesses.

Some owners of small businesses, unable to take advantage of Wal-Mart's huge economies of scale, sought to prevent Wal-Marts from being built in their local communities. Wal-Mart's everyday low-price strategy, they argued, would put them out of business. They were half-correct: Wal-Mart's competitors lost business. But let's get cause and effect straight: Wal-Mart never put anybody out of business, American consumers did.

Businesses that lose their competitive edge to a more efficient rival have three options. They can: (1) change their product or service mix to more accurately reflect what they do best; (2) exit the market, or (3) petition consumers and/or the state for protection against ''unfair competition.''

The first two responses enhance consumer welfare. To the extent consumers voluntarily purchase more expensive, lower-quality goods produced by domestic manufacturers, no self-respecting economist would argue with their choices. As the Nobel laureate George Stigler and his University of Chicago colleague Gary Becker put it, ''De Gustibus Non Est Disputandum.'' However, should the state regulate to protect domestic firms from ''unfair competition,'' the results are higher prices, reduced choice and lower quality and service for American consumers.

Every effort by small businessmen to forestall the building of a Wal-Mart is an attempt to shoot the messenger rather than pay heed to the message. Local economies do not go to pot when Wal-Marts are built. Quite the opposite; Sam Walton once said, ''There was a lot more business in those towns than people ever thought.''

Without question, each Wal-Mart and Sam's store alters the structure of local unemployment. The sons and daughters of local businessmen and women no longer follow in their parents' proprietary footsteps. Now they, and other local workers, go to work for Uncle Sam (Walton). Thus the overall rate of local unemployment is generally not adversely affected. We may feel sorry for the personal losses suffered by the owners of those no-longer competitive small firms, but the aggregate benefits reaped by consumers utterly swamp their losses. If it were not so, Sam Walton would never have received the Presidential Medal of Freedom.

When small businesses ask local zoning boards and planning commissions for protection from the ''unfair competition'' of a new Wal-Mart store, their pleas are identical to those of the automobile companies, the textile and steel industries, sugar producers and other domestic industries seeking to restrict foreigners from selling these products in America. To kick Japanese and other foreign producers out of American markets is to deny the benefits of Sam Walton-esque competition.

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