Sometimes Low Prices...Sometimes

Times being what they are, Christmastide has become a bargain hunt as people seek to stretch their hard-won and limited gift-giving dollars. In such circumstances, the image of the Wal-Mart “happy face” bouncing around the store and knocking down prices is particularly appealing. After all, shopping, even in good times, is about trying to get a good bargain. However, one might might ask if the prices are really all that low. They are indeed perceived to be low, but perception and reality are not always the same things. There is in fact a whole science devoted to creating the perception of low prices without having to deliver the reality.

One way to create this impression is the use of “signposts” and “blinds.” Signposts are items like milk and light-bulbs for which the average shopper is likely to know the going price. These products are often sold by the “big-box” stores below their cost. This accomplishes two things: it creates an impression that the whole store contains bargains and it puts pressure on independent retailers and helps to drive them out of business.

But signposts are only 5% of the merchandise. The rest are “blinds,” goods for which the shopper is likely to have only a vague notion of the market price. For the blinds, the buyer is likely to judge the price by the signposts and assume there is a bargain when in fact there is not. This is only one of the techniques used to divorce appearance from reality. These techniques are detailed in Stacy Mitchell's Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America's Independent Businesses.

The High Cost of Low Prices

Ms. Mitchell challenges the Wal-Mart swindle on grounds other than prices. These stores involve a high cost to our economy, to our communities, to the environment, and to the very fabric of out democracy. By concentrating retailing power in a handful of mega-corporations, we have created monopsonies. Monopsonies are just like monopolies, except that is applies to “one-buyer” rather than “one seller.” Most of those who produce products for the retail market are dependent on getting shelf-space at Wal-Mart, Costco, Lowe's, Office-Max and similar mega-retailers. This gives enormous negotiating power to the big-box stores. In fact, the discussions between the producers and these mega-retailers cannot be called “negotiations” in any real sense of that term; the power is all on one side. Hence, the big-box stores dictate to the producers; they dictate where their goods will be made, how they will be made, what price they will carry, what costs of retailing the producer will bear, and many other things besides, things that would never happen in a real negotiation, where the power between the sides was roughly equal.

The thing that the retailers most demand is that the producers off-shore their production. Wal-Mart and others maintain a list of Chinese and other foreign manufacturers that the producers are encouraged, or even required, to use. These stores have been a big force in the destruction of American manufacturing.

They have also been a big force in the destruction of American business. The stores destroy local commerce, built on a dense network of independent businesses. These businesses are part and parcel of their local communities; they participate in civic affairs, they support local projects, they buy the ads in local papers, they support the high-school football team, and enrich community life in hundreds of ways.

What About the “Free” Market

Despite all these problems, one might counter that this is simply the way capitalism works, and that no one can complain because some people have found a better business model for retailing. Alas, this argument fails on two grounds: one, the creation of monopsonies is counter to the free market, and; two, the big-box retailers are creatures of government subsidies. Concerning the first point, all free market theory depends on the “vast number of firms” assumption, the idea that no firm is powerful enough to affect prices; production (and retailing) is spread over so many firms that each one is a price-taker rather than a price-maker. But clearly, the big-box stores are price-makers, and thereby make a mockery of any coherent free-market theory.

But aside from that, the big-box stores are practically creatures of government power. Ms. Mitchell details the many subsidies they receive from cities desperate for development. These numbers are startling enough. However, the author actually ignores the bigger subsidies that these firms receive from the federal government and even foreign governments. Indeed, the big-boxes could not exist without the “freeway” system, a system which is actually a series of subsidies from the cities to the suburbs. (See Free Markets, “Free”ways and Falling Bridges.) Further, they receive huge subsidies as a result of Chinese currency manipulation (See Subsidizing Wal-Mart.)

Bad Business

It would seem that these stores are at least good business models; that is, they grow fast and make a lot of money for the investors. However, it often turns out that what is good for an investor is bad for the economy. Any business can make a lot of money by firing its workers and outsourcing production to low-wage countries. But if every producer does this, a conundrum arises: when the business fires its workers, it also fires its customers; as G. K. Chesterton points out, these are the same people, and you cannot pay a man like a pauper and expect him to spend like a prince. Now, it may seem as if we have been doing just that for the last 30 years, for while the median wage has stagnated, families are buying more “stuff” than ever.

How do we accomplish this hat trick? By two methods. The first was to put more family members to work. More and more homes became two-income households. But even that was not enough to sustain consumption. For the last 20 years, we have made up the difference between the stagnating wage and increased consumption by the extensive use of consumer credit. In other words, we have created a plastic economy, an economy built on credit cards. But this is a house of (credit) cards, and like all such houses, it is destined to collapse. That, in fact, is what we are witnessing at this very moment.

Fighting Back

The triumph of the Big-box stores may seem inevitable, but it is not. Rather, it is destined to fail, and that quickly. Our task is to decide how we will rebuild the economy along more sane and rational lines. In the meantime, these stores can be defeated. Once communities understand their real impacts, it proves to be very easy to keep them out. Ms. Mitchell recounts how many communities have defeated the great powers, and in the meantime rebuilt there own community retailing base.

The Big Box stores really are a government-sponsored swindle, but their days are numbered because the economic model that supported them was never sound to begin with. Distributists understand instinctively that such models will not work. Now the rest of the world will learn the same lesson. I advise everybody who wants to fight the power of these stores and to rebuild out shattered economy to read Ms. Mitchell's book.