Wednesday, August 16, 2006

Wal-Mart didn't really need Chicago anyway

From August 16th, 2006 Wall Street Journal Article "Big Box Rebellion", responding to a new Chicago law,
Target was the first big chain to react, recently cancelling plans to open a new superstore in a run-down area on the city's North side. Only a few months ago the project was hailed by city leaders as an anchor for redeveloping that depressed neighborhood. Now it gets to stay depressed. Wal-Mart has also announced that its plans to build 20 new stores in the city over the next five years are "on hold" until the wage issue is resolved.

This isn't what the politicians said would happen when they mandated that certain mostly non-union "big-box" retailers pay a minimum of $13 in wage and health benefits by 2010, or more than two-and-a-half times the national minimum wage...

The entire "living-wage" movement is the latest product of upper-income politicians who want to stick it to non-union companies in the name of helping the poor. But the working poor lose twice in Chicago: first, in lost retail jobs and then in less access to low-cost goods. Alderman Carrie Austin, who represents the area where the Target store was supposed to locate, puts it this way: "My colleagues are saying, 'Don't worry they [the big box retailers] will come.' Well, mine just left."
There is a contradiction in thinking that lawmakers didn't realize until they actually saw the effect of their actions. Commonly, blamed for "exploitation" of the working class, big box retailers actually help the working class first by providing jobs, and second by figuring out how to deliver the lowest cost goods possible to stretch the working dollar. Retailers cannot simultaneously hurt the community and help it. Punish them for being bad, which they are not, and you'll get to find out just how good they were.

The other thing these lawmakers missed was that any entity that makes investments, whether an individual or corporation, has options. Would Wal-Mart like to have a store in Chicago? Sure, but only if it's a good investment, i.e. only if it can make an above average profit. Investment choices are driven by returns, i.e. profits. A money-losing store is something no investor will invest in, regardless of location. If Chicago wants to turn its city into a bad investment option, well then don't be surprised if investment capital dries up. Now, who really needs who? and who is the bad guy in this senario?

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