Tuesday, February 27, 2007

Thoughts regarding Wal-Mart in India

Wal-Mart is looking to enter the Indian retail market - a huge area of opportunity for a number of global retail chains. While this story was covered by a number of media outlets, the Reuters article above focuses, at least partially, on the fact that many shopkeepers are protesting Wal-Mart's possible entry into India, fearing that they will not be able to compete and, thus, lose their livelihoods. This is a distinct possibility and I certainly don't want to sound as if I am heartless, but the article prompted some thoughts:

  1. First, assuming Wal-Mart (or another global chain) moves into the market and forces some shopkeepers out of business, will it not at the same time be creating many jobs that these people could obtain and therefore still support themselves? I understand, of course, that the people who lose their livelihoods will not necessarily be the same ones who gain employment, but they very well could be and, even if they are not, the overall creation of jobs will boost the local economy in such a way that more jobs will be created in other industries, thus providing further opportunity for employment. Think of the American situation - there are thousands of Wal-Mart stores around the country that have doubtless put many smaller operations out of business. Has unemployment soared? Quite the reverse - unemployment is extremely low (especially compared to most other industrialized countries in the world). Thus, the idea that greater efficiency means greater unemployment has certainly not been realized in the US and I am unaware of a reason to think that it will be in another market. Thus, the issue is not entirely one of whether or not the shopkeepers will be able to find jobs, but rather, whether or not they will be able to maintain supporting themselves in the manner in which they currently do (and, presumably, wish to), which admittedly is a legitimate concern, but one that pales in comparison to the straw-man concern of rampant unemployment.

  2. Second, one shopkeeper was quoted as asking how he is supposed to compete with Wal-Mart when they can sell things for wholesale prices, with the implication that, since he can't and that the result is that he will not be able to stay in business, that Wal-Mart should not be allowed to operate in such a manner. Question: what if it weren't Wal-Mart but simply another shopkeeper that were able to undercut him? Should that other shopkeeper be barred from doing so (and thereby support his family)? Why should one private party be favored by the government over another?

  3. Which leads to the third point: while the shopkeepers, I would hold, have a human right to pursue economic activities as they see fit, they do not have a right to actually engage in whatever form of economic activity they feel inclined to regardless of economic realities. That is, while I believe they have every right to establish a business and try to make it work, they do not have a basic right to be able to operate that business even if doing it means that the government must disallow other from pursuing their economic interests because they would conflict or otherwise interfering by setting price floors, etc.

  4. Fourth, while Wal-Mart selling things for less than the shopkeepers can would be a detriment to the individual shopkeepers, it will be a huge benefit for consumers in the area who perhaps cannot afford many of the goods that they either need or want. Thus, the shopkeepers qua consumers will actually be benefited by this in some way, on top of the fact that the common good of the general public would be better served by greater availability of goods. If, on the other hand, Wal-Mart (or anyone else) were not allowed to operate in such a manner that the shopkeepers would be undercut, the public would have to pay higher prices for all manner of goods.

    Consider the case of a poor family whose livelihood is not dependent on the retail sector. They would, of course, be better served by lower prices for food, clothing, and medicine. To deny them access to these things simply because some people prefer to be shopkeepers as opposed to supporting themselves through some other form of employment (see point 1), would be quite contrary to good sense, to say nothing of potentially unjust given the situation of the consumer.

    Furthermore, consider the fact that, if a retail chain were to drive consumer prices down, consumers would have more money to spend, possibly on non-retail products, thus helping the local economy in other industries.

  5. Fifth, the article mentions how some fear that Wal-Mart could cause the unemployment of 40 million people who depend on the retail industry for their livelihood. This seems like nothing more than fear mongering since, unless every one of those 40 people depend on the "last mile" portion of the retail industry, i.e., the actual retail outlets (in which case the first point applies), then their jobs are not really at risk because Wal-Mart is not simply going to create goods ex nihilo, it's going to buy them from many of the same sources from whom shopkeepers currently buy them. Of course, there is the argument that Wal-Mart will streamline supply chains and engage in other activity that will make many of the jobs in these fields unnecessary, but that starts to get into another issue: should an economy (or rather, the body of rules, etc. that regulate it) be setup in such a way as to encourage inefficiency and waste simply to employ more people? That seems absurd for many reasons.

  6. Sixth, speaking of waste, the article mentions how investment in infrastructure and supply chain management that would accompany the entrance of Wal-mart or another global chain into the market would vastly reduce the amount of spoilage that currently occurs - a figure possibly as high as 40%. Think about that. 40% of all of the food that is being shipped to consumers is spoiling on the way because of poor infrastructure. Countless people are going hungry each day while 40% of the food supply simply rots in transit. Solving this would, again, entail that a lot of small shopkeepers lose their businesses and have to find employment elsewhere. I don't think that is too high a price when you consider the impact a 66% increase in the amount of available food would have on a developing society. The idea that these infrastructure improvements should not be made because they necessitate the entrance of a global retail chain into the market seem ludicrous - on top of the fact that they demonstrate a lack of economic sense and preference for a small number of shop keepers to be able to run their own shops over a large number of parents being able to feed their children.

I believe that covers everything I have to say for now. I have to admit that I have not thought through all of the various aspects of this issue and am perfectly willing to revise my position if convinced I am wrong. Again, I don't want to come across as cold-hearted and not caring about the fact that the livelihood and way of life for many people is at risk. It's just that those concerns are outweighed in my mind by the greater common good that I think will result as well as the fact that allowing Wal-Mart or any other private party from operating in the market is simply not an injustice to the shopkeepers - as I mentioned in point 3, they don't have some sort of right to own their own shop regardless of economic realities that must be safeguarded by the government. On top of that, as I have said in previous posts, I believe that private parties should be allowed a very wide latitude in terms of freedom of choice when it comes to how to operate. Not allowing private parties to operate because the government wants to protect established businesses of other private parties seems to be the real injustice.


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