Wal-Mart is good for the poor

That's the basic conclusion of Jason Furman's essay "Wal-Mart: A Progressive Success Story" posted at the Center for American Progress website: Productivity is the principal driver of economic progress. It is the only force that can make everyone better off: workers, consumers, and owners of capital. Wal-Mart has indisputably made a tremendous contribution to productivity. From its sophisticated inventory systems to its pricing innovations, Wal-Mart has blazed a path that numerous other retailers are now following, many of them vigorously competing with Wal-Mart. Today, Wal-Mart is the largest private employer in the country, the largest grocery store in the country, and the third largest pharmacy. Eight in ten Americans shop at Wal-Mart. There is little dispute that Wal-Mart?s price reductions have benefited the 120 million American workers employed outside of the retail sector. Plausible estimates of the magnitude of the savings from Wal-Mart are enormous ? a total of $263 billion in 2004, or $2,329 per household. Even if you grant that Wal-Mart hurts workers in the retail sector ? and the evidence for this is far from clear ? the magnitude of any potential harm is small in comparison. One study, for example, found that the ?Wal-Mart effect? lowered retail wages by $4.7 billion in 2000. But Wal-Mart, like other retailers and employers of less-skilled workers, does not pay enough for a family to live the dignified life Americans have come to expect and demand. That is where a second progressive success story comes in: the transformation of our social safety net from a support for the indigent to a system to that makes work pay. In the 1990s, President Clinton fought for expansions in support for low-income workers, including a more generous Earned Income Tax Credit (EITC) and efforts to ensure that children did not lose their Medicaid if their parents took a low-paid job. The bulk of the benefits of these expansions go to the workers that receive them, not to the corporations that employ them. Attempts to limit the spread of Wal-Mart and similar ?big box? stores do not just limit the benefits of lower prices to moderate-income consumers, they also limit the job opportunities that Wal-Mart and other retailers provide. More puzzling is that some progressives have described Medicaid, food stamps, the EITC, and public housing assistance as ?corporate welfare.? The right response to Wal-Mart is not to scale back these programs but to expand them in order to fulfill the goal of making work pay. Read the whole thing. One quick cavil -- while Clinton deserves credit for the EITC's passage, I've always thought of the idea behind it as a conservative one. Furman's analysis is of a piece with Global Insight's study of Wal-Mart's effect on the U.S. economy that was released last month: Global Insight reviewed a wide range of previous studies that indicated that the efficiencies that Wal-Mart has fostered in the retail sector have led to lower prices for the U.S. consumer. These results were supported by statistical analysis which found that the expansion of Wal-Mart over the 1985 to 2004 period can be associated with a cumulative decline of 9.1% in food-at-home prices, a 4.2% decline in commodities (goods) prices, and a 3.1% decline in overall consumer prices as measured by the Consumer Price Index-All Items, which includes both goods and services. The main driver of this impact was a 0.75% improvement in the overall efficiency of the economy. Increased capital intensity and lower import prices were secondary drivers. The 3.1% decline in the price level was partially offset by a 2.2% decline in nominal wages, so that the net effect was to increase real disposable income by 0.9% by 2004. To be fair, Global Insight also invited outside papers, some of which are more critical of the Wal-Mart effect. Needless to say, having John Kerry's principal economic advisor issue such a pronouncement has roiled other progressives. Matthew Yglesias has posted what looks like the most honest reply -- which is that the danger of Wal-Mart to progressives is not a question of economics but but politics. If Wal-Mart helps to weaken the power of unions, then it degrades one of the chief organzational pillars of the left.