Wal-Mart-hating interventionists are running out of reasons to hate Wal-Mart. Incapable of making any kind of coherent argument that America''s biggest retailer is harmful to consumers or workers, they are now rewriting American
business history. including the history of
antitrust regulation. to vent their hatred of an institution that has done more to help the poor than all the
government welfare programs devised in Washington.
A case in point is the cover of the July 2006 issue of Harper''s magazine that demands: "Break Up Wal-Mart!" Inside is a jumble of inaccuracies, fabrications, and
economic mythology in the form of an article by one Barry C. Lynn entitled "Breaking the Chain: The Antitrust Case Against Wal-Mart." Lynn is a "fellow of the
New America Foundation," which claims to espouse "new ideas" for public policy. In this case, Lynn espouses the "new idea" of applying nineteenth-century antitrust law to twenty-first century commerce.
The article begins with a straw-man caricature of
market exchange. Ask yourself this: The last time you went to the store to buy a carton of milk, did you engage in a death "struggle" against other customers, as well as the merchant? Did you "grasp and elbow" your way to the milk aisle and then back to the checkout? Did you "shout and shove" your way through the store, amidst hundreds of others doing the same? Or did you simply pay for the milk, receive a "thank you" from the checkout clerk, after which you returned the pleasantry?
If you answered "yes" to the first three questions then you agree with Lynn about the essential nature of market exchange, or "laissez faire," as he labels it. You would also be speaking absurdities.
After grossly mischaracterizing free-market exchange, Lynn doesn''t even wait until the second paragraph to present an incorrect rendition of business history. "From Adam Smith onward," he declares, "almost all the great preachers of laissez faire … accepted the need to use the power of the state" to battle monopoly so as not to "throw off basic balances," whatever that may mean.
In reality, as opposed to Lynn''s theory, from Adams Smith on (and before that), monopoly was always understood as being
created by government. Indeed,
The Wealth of Nations was a critique of mercantilism, the system of
state-sponsored monopolies, protectionism, and monetary superstition that plagued European economies at the time (1776).
Lynn gets Adam Smith completely backwards. For example, in the famous passage in
The Wealth of Nations where Smith remarks that businessmen "seldom meet, even in merriment," where the conversation does not turn into some sort of rhetorical conspiracy against the public, in the very next sentence he says that any laws to prevent such meetings would be inconsistent with liberty and justice. He was not a trust buster, as Lynn would have us believe.
Moving on to paragraph two, Lynn complains that the Reagan administration "eviscerated America''s century-long tradition of antitrust enforcement…" Tell that to Bill Gates and other victims of the federal government''s nonstop persecutions of successful businesses under the guise of antitrust. Lynn seems oblivious to the easily discovered fact that the budget of the US Federal Trade Commission is more than triple what it was in the last year of the Reagan administration; that there are still thousands of private antitrust lawsuits filed every year, and that growing armies of government bureaucrats, always seeking to justify their existence and expand their budgets, are employed not only by the FTC but also by the Antitrust Division of the US Department of Justice and by state attorneys general, who also regulate "monopoly."
Lynn, whose resume identifies him as a business consultant, blames General Motors''s current economic woes on "intense competition" while ignoring the role of labor unions and massive government regulation in destroying one of America'ations. He is in a panic over the fact that there is "consolidation" in the iron ore and glass container industries, and the fact that Nike and Adidas "split a 60 percent share of the global market" for sneakers. In doing so he ignores the past half century of research — and experience — on and with
corporate mergers.
Beginning in the 1960s economists began to discover the old learning that "industrial consolidation" is typically caused by the fact that in many industries there are simply one or a few firms that are just better than the others at serving the consumers. This was widely understood at the time the first federal antitrust law, the Sherman Antitrust Act of 1890, was passed, and is why virtually the entire economics profession was against it (see Thomas J. DiLorenzo and Jack High, "Antitrust and Competition, Historically Considered,"
Economic Inquiry, July 1988).
By the early 1980s literally hundreds of peer-reviewed journal articles and books on the subject could be cited by Yale Brozen in his landmark book, Concentration, Mergers, and Public Policy . Lynn seems oblivious to all of this research. His only comment on it is to mock a statement by a former University of Chicago law professor who referred to the research as "science."
Lynn also fails to understand that in a market economy it is the consumer who is in charge, ultimately. In the absence of government mandates, no business can become "powerful" (a word that he uses repeatedly) or profitable unless it can
persuade consumers to buy its product, period. Failing to understand this freshman-level economic lesson leads Lynn to make dozens of silly statements about companies like Wal-Mart that "fence off entire marketplaces" and "issue decrees" to their suppliers (like "supply us with products that our customers will like").
Wal-Mart has undeniably been a glorious economic blessing for its mostly low- and middle-income customers; has created hundreds of thousands of new jobs; has enriched thousands of small business owners who supply its products; has invented many new and superior management techniques; and has been a driving force of a large segment of the entire US economy. In addition to all these benefits, and more, Wal-Mart has also compensated for the government''s assault on competition. This assault has taken the form of anti-corporate takeover legislation and regulation.
During the late 1980s and 1990s dozens of states passed laws that made it more difficult for corporate takeovers to occur. They were the result of lobbying efforts by corporate executives who wanted legal protection from competition for their own jobs. The essence of the "market for corporate control" is that if a team of corporate executives is mismanaging a company, being lax in their work ethic, and generally causing the company to be "undervalued" and therefore less profitable than it could be, groups of investors can challenge that management through proxy battles and other means of acquiring ownership.
If successful, a takeover will throw out the incompetent managers and replace them with a better team. It doesn''t always work out that way, since no one is omniscient, but the market for corporate control is nevertheless an important free-market institution that serves to greatly benefit customers, employees, and shareholders by encouraging efficiency in business operations.
All of those laws and regulations that handicapped the market for corporate control weakened this important element of the competitive process, rendering many American corporations less efficient and less competitive on international markets than they could be.
Enter Wal-Mart. One thing Wal-Mart is known for is demanding that its suppliers follow a similar business model to its own, which involves a no-stone-left-unturned approach to cost cutting. If you want to sell a zillion items in Wal-Mart stores, Wal-Mart executives will say to their suppliers, then you''ll have to com
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