The seen vs unseen in the Walmart saga

The anti-Walmart coalition claims that if the Competition Tribunal allows Walmart’s private bid to buy out Massmart to go ahead without any conditions the result will be “thousands of potential job losses”. This is a curious position. We know that whenever Walmart enters a new market, prices on average decline because of Walmart’s substantial bargaining power, which enables it to source the cheapest goods from across the globe. Some goods and services will no doubt come from local companies, both established and newly created, because local producers have a transportation advantage and are able to fulfil orders in a more timely fashion. There is also local expertise and knowledge that give domestic suppliers an advantage. Moreover, Walmart may actually like some of the goods and services that South Africans produce, which could expand our domestic capacity base as we enter into foreign markets.

If the government wishes to solve the unemployment problem it can do so overnight. Simply force all mining companies to abandon any form of technology and force miners to use spoons. This will draw the entire unemployed population into formal work. Of course it will take aeons to extract a minimal amount of mineral at a prohibitively high cost and the mines will quickly go insolvent, but the unemployment problem will be solved (for at least a short while). This would, of course, be a ridiculous proposition and a gross misallocation of scarce resources that would add no productive capacity to the economy.

Similarly, when a more efficient retailer enters the market, it can only be in the public’s best interest. To the extent that Walmart does indeed lower domestic prices, individuals are able to save the difference and invest in productive areas of society or simply spend their money on other items that they desire. These savings and expenditures in other areas of society create jobs in those sectors and in their input suppliers. It is naïve and short-sighted to view the economy as being in one homogeneous and static state. The introduction of Walmart should be welcomed by all, including unions who will benefit from the higher living standards that their members will enjoy as a result of the increased competition and lower prices that Walmart brings.

Author: Jasson Urbach is an economist with the Free Market Foundation. The views expressed in the article are the author’s.

FMF Policy Bulletin/ 10 May 2011