Thursday, May 05, 2005

"Profit" Isn't a Four-Letter Word

The New York Times printed yet another Wal-Mart hit piece yesterday. As usual, the meme is to criticize the low wages that Wal-Mart pays its employees. I have a problem with this type of complaining (and reporting) for many reasons.

First and foremost, no company should be forced to pay workers anything other than what the free market dictates. If someone is hired to do a job, they have the freedom to take the job (or not), for the pay that is offered. Companies exist to provide products or services to their customers. No one starts a company with the intent of giving people jobs, and certainly not high pay for low-skilled positions. That just doesn't make good economical sense.

According to Wal-Mart, $9.68 is the average wage for full-time workers. The federal minimum wage is $5.15 an hour. What exactly is the problem? We aren't talking about brain surgeons here. These are cashiers, shelf stockers, and shopping cart, um, "valets." Again, not highly skilled positions.
If Wal-Mart spent $3.50 an hour more for wages and benefits of its full-time employees, that would cost the company about $6.5 billion a year. At less than 3 percent of its sales in the United States, critics say, Wal-Mart could absorb these costs by slightly raising its prices or accepting somewhat lower profits. (Emphasis mine).

So if Wal-Mart raises its prices, would they expect to gain or lose business? And if they accept lower profits, will shareholders be pleased or displeased? If sales stayed the same, this would wipe out 2/3 of Wal-Mart's profit (I guess that's "somewhat" lower). And it isn't a safe assumption to think that sales would remain constant if prices go up, usually the opposite is true.

Isn't it more likely that if Wal-Mart pays its employees 35% more (a very steep increase in their labor factor) it will hire fewer employees to do the same amount of work? So wouldn't fewer workers working be a bad thing? Wal-Mart doesn't operate in a vacuum, they have competition. Wal-Mart's actions will have consequences for their employees and shareholders in the marketplace.

So just who exactly is criticizing Wal-Mart for it's low wages? According to the Times' piece, "a coalition of lawmakers (doesn't mention who), community groups, labor unions, women's advocates, and environmental groups." Think any of them are conservative? Doubt it. This quote passes for good reporting at the New York Times (emphasis mine):

But Jason Mrkwa, 27, a high school graduate who stocks frozen food at a Wal-Mart in Independence, Kan., maintains that he is underpaid. "I make $8.53, even though every one of my evaluations has been above standard," Mr. Mrkwa (pronounced MARK-wah) said. "You can't really live on this."

Well if you can't live on that wage, go across the street and get a job at Costco. Or Target. Better yet, get yourself a college degree (and take some economics and accounting coursework while you're at it). You are worth what you negotiate.
Wal-Mart critics often note that corporations like Ford and G.M. led a race to the top, providing high wages and generous benefits that other companies emulated. They ask why Wal-Mart, with some $10 billion in profit on about $288 billion in revenue last year, cannot act similarly.
How are Ford and G.M. doing these days? They are hurting, big time. And if big corporations are hurting, do they hire new employees? No, in fact, they announce layoffs. I maintain that one of the reasons why the big automakers are in trouble is because of the unions, so to see unions complaining about Wal-Mart is no big surprise. And if "acting similarly" means laying off workers, I don't want Wal-Mart to follow G.M.'s lead.
Burt Flickinger, another retailing consultant, said it would be in Wal-Mart's long-run interest to pay better. "Wal-Mart's turnover will be close to half a million workers this year," he said. "By paying higher wages, Wal-Mart will make its employees happier and will reduce turnover. A lot of its new workers, for instance, don't know where to stock things. Higher wages will mean more productivity per person, and that should help raise profits."
How on earth did Wal-Mart become one of the largest, most successful corporations in the history of mankind without the help of "retail consultant" Flickinger? Talk about hubris! But he did mention the P-word, which brings me to my major point.


Companies must turn a profit. This simple fact is lost on the Marxist coalitions and most NY Times journalists it seems. If companies aren't profitable, they don't hire many employees. They won't open more stores, and they won't be in business very long. Profits are good. Profits are necessary.

I think we start down a very slippery slope when we start discussing "how much" profit is fair or just. Similarly, I was never comfortable with the notion that certain executives (or sports players) are overpaid. Or that certain corporations (Wal-Mart, Microsoft) are "too large" or "too powerful." I certainly don't want anyone telling me I'm overpaid, so I'm not going to do it to anyone else. Ditto corporations. If a company's profits are obscenely large, then the market has provided an opportunity for some other corporation to come in and do a better job for less money.

The constant harangue of Wal-Mart (or other large, successful corporations) ignores basic economic realities and in my view it is bad for business. And when we create or foster an environment that is bad for business, it is the worker that will be hurt most. The leftist agitators who claim to be for the working man are actually hurting him with their misguided goals.

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