Globalization Helps More Than Redistribution
Over the weekend I spoke on a panel at the Millennial Success Conference hosted by GenFKD. FKD stands for “Financial Knowledge Development”; the organization is funded at least in part by The Home Depot founder Bernie Marcus, who beamed in a video message about entrepreneurship.
The panel was on “Millennial Identity,” and under the tutelage of RCP’s David DeRosiers, I sat alongside fellow Millennials Elizabeth Plank, Spencer Carnes, and Gabrielle Jackson. We generally agreed the defining historical moments for Millennials were 9-11 and the financial crisis of 2008, events creating profound turbulence for our generation. During the Q&A portion a member of the audience asked how we balance the notion of corporate responsibility--specifically mentioning Apple’s labor practices in China--while in pursuit of success.
Jackson, a thoughtful, rising star in DC, mentioned how she was faced with this quandary while working at a PR firm whose client included Wal-Mart. This flummoxed her a bit since she’d previously spoken out about the corporate behemoth’s labor practices. Wal-Mart is a frequent target for critics who question the fairness of its wages and health care offerings and its unparalleled ability to drive mom-and-pop stores out of business.
While there wasn’t time, I wanted to expound on that scenario a bit to bring in another economic consideration, and that is the significant "consumer surplus" wrought by Wally World driving down prices to rock bottom. Sure wages are low, but on balance the economic gains are wonderful for consumers. And since consumers of Wal-Mart goods tend to be the poorest among us, that’s an added net benefit to society.
As I’ve written elsewhere, as one of eight children in a low-income family money during my early childhood, Wal-Mart greatly enhanced the quality of our lives. Yes, people complain about the quality of the products vs. traditional mom-and-pop shops, but if those products were above our price point, they were totally irrelevant for us. And that meant higher-paying jobs at those mom-and-pop shops were out of reach for many workers, too.
Quantitatively, my story is one of millions that aggregates to some $50 billion in savings for American consumers each year, according a study highlighted by Gregory Mankiw, chairman of Harvard University’s Department of Economics. That means $50 billion more in Americans’ pockets to be used for many other purposes, whether education, travel, business creation, you name it.
The study’s authors, economists with Massachusetts Institute of Technology and the United States Department of Agriculture, write that “while we do not estimate the costs to workers who may receive lower wages and benefits, we find the effects of supercenter entry and expansion to be sufficiently large so that overall we find it to be extremely unlikely that the expansion of supercenters does not confer a significant overall benefit to consumers.”
They break out consumers by income bracket and show that supercenters have, in economicspeak, increasing “compensating variation,” as a shopper’s income declines. In plain English, that means the personal economic benefit grows in a powerful way--nearly 50 percent from the highest to the lowest brackets.
Like any firm believer in free markets, I despise crony capitalism and unsafe, exploitative labor and environmental practices around the world. We live in an imperfect world, though to cite Rev. Martin Luther King, Jr., “The arc of the moral universe is long, but it bends towards justice.” The Millennial generation is infused with a profound reverence for social justice; I would argue that globalization enhances social justice around the world. For every cherry-picked, soulless mogul, there's also a Bill Gates curing diseases and alleviating poverty.
If we take the world’s current GDP of roughly $85 trillion and divide that by 7 billion people, that's a scant $121 per person per year, not enough to live well. We need to increase GDP rather than enacting redistributionist, sclerotic policies in the utopian hope of creating social justice. Global poverty can be slain through government reforms that allow free markets to flourish and increase global GDP. Yet some 1.5 billion people still live under communism, and India’s a massive democracy plagued by crony capitalism and red tape. While we abhor the nightmare scenes such as collapsing factories in Bangladesh, the developed world shows us the exciting possibilities. And Wal-Mart is certainly one of them.