Wal-Mart and Health Care

Megan McArdle observes:

I find it hard to believe that none of the liberal commentators breathlessly celebrating Wal-Mart's "capitulation" on national health care have even entertained the most parsimonious explanation:  that Wal-Mart is in favor of this because it raises the barriers to entry in the retail market, and hammers Wal-Mart's competition.  Yet somehow, this appears nowhere in any of the analysis.  

Wal-Mart is always going to have a seat at the table when employer mandates are discussed, because Wal-Mart is the nation's largest private employer. Target and Macy's probably won't have a seat at the table. So Wal-Mart can influence the rules in ways that benefit Wal-Mart at the expense of the competition. This is partly because the regulators often cycle into jobs at the firms they regulate, but also simply because the regulator's attention is finite, so being consistently at the table allows you to shape their views over time.

Michael Cannon explains with numbers:

... the lobbyist explained the reason for Wal-Mart’s position: “Target’s health-benefits costs are lower.”
I have no idea what Target’s or Wal-Mart’s health-benefits costs are.  Let’s say that Target spends $5,000 per worker on health benefits and Wal-Mart spends $10,000.  An employer mandate that requires both retail giants to spend $9,000 per worker would have no effect on Wal-Mart.  But it would cripple one of Wal-Mart’s chief competitors.
So yesterday’s news that Wal-Mart is publicly endorsing a “sensible and equitable” employer mandate — i.e., a mandate that hurts Target but not Wal-Mart — didn’t come as a surprise to me.  It merely confirmed what I learned in a cab on the way to the airport: Wal-Mart has gone native.  That great symbol of the benefits of free-market competition now joins its erstwhile enemies among the legions of rent-seeking weasels who would rather run to government for protection than earn their keep by making people’s lives better.

Plus there's this from McArdle:

Also not considered:  Wal-Mart cut a deal with the SEIU in exchange for the SEIU leaving it alone.

I think the unionization point is significant even if there is no Wal-Mart--SEIU deal. When unions have tried to organize Wal-Mart, they've always used health benefits as one of their selling points. If there's a public option (or, better yet, a single payer plan), Wal-Mart gets to defang a strong argument for unionization at the tax payer's expense.

But there's something else going on here too. Cannon claims that "Wal-Mart is a capitalist success story." (Or, I guess, he thinks it used to be.)

In fact, however, Wal-Mart has been suckling at the government teat for decades, transferring costs to the tax payer whenever possible.

Indeed, Wal-Mart is heavily dependent on government subsidies. Wal-Mart routinely gets sales and property tax abatements when it opens a new store, to cite but one example. According to a 2004 study (albeit one funded by a union) the subsidies can amount to as much as 12 million dollars per store. Additional de facto subsidies come when uninsured or under-insured Wal-Mart employees get health care at government expense. Supporting government-run health care looks like a sop to the politicians who control the subsidy tap.

I examined Wal-Mart's dependence on government subsidies back in 2006 for TCS Daily, writing that:

... both the left and right implicitly cast Wal-Mart in the role of free market capitalist. What's missing from the debate is the extent to which the Wal-Mart story really is the antithesis of laissez-faire capitalism. When you look under the rug, it turns out that Wal-Mart is a beneficiary of corporate welfare.

When Wal-Mart plans a new store, it typically asks local and county governments for an array of benefits, principally in the form of various economic development subsidies:

• Infrastructure assistance in the form of new or expanded roads and utilities servicing the store location.
• Sales tax abatements.
• Property tax abatements.
• Income tax credits.
• Enterprise zone treatment for the store location.
• Eligibility for job training programs.
• Eligibility for tax exempt industrial revenue bond financing.
• Economic development loans and grants.

In some cases, Wal-Mart benefits directly from such subsidies. In others, the benefits initially go to the real estate developer who owns the land on which the store is built, but are then passed on to Wal-Mart in the form of reduced rents or a lower land sale price. In 2005, for example, the Dallas City Council approved a plan "to grant the developer half of the sales tax revenue that the Lake Highlands Wal-Mart produces specifically for the city of Dallas, up to $1 million." ...

In a very real sense, Wal-Mart thus is in part a creature of big government. From this perspective, Wal-Mart's recent hiring of long-time Democratic operative Leslie Datch and significant increase in contributions to Democratic politicians comes as no surprise. (Of course, as Timothy Carney has argued, it may also be that Wal-Mart is now using big government not just to boost its own growth but as a tool to squash competition.)

In sum, Wal-Mart is just doing what it does best: dumping costs on taxpayers.

Comments

[Greg]

the last sentence is somewhat biased as all new stores of any size ask for those same benefits. To state that what Wal-Mart does best is to dump costs on taxpayers is too simplistic for this site. I would expect better, more reasoned thoughts.

[Tom O'Brien]

I think this discussion is missing one other thing. If the feds (like MA) set-up a pay or play system, they will get the math way wrong.

In MA an employer had to pay something like $800/yr if they did not extend coverage. Coverage costs $5,000/yr. So, all the employers cancel their health plans and happily dump those HC obligations on the state's plan which promptly (and predictably) runs WAY over budget.

So if I'm Wal-Mart and I can reduce the cost of and outsource all the hassle of healthcare at the same time. Why not? I'd be for it too.

TO'B

[OT]

"sales and property tax abatements" do not make you a rent seeker nor is it anti-capitalist.

Leaving 18th (and 16th) century notions of what free market capitalism aside, seeking to REDUCE payments to government does not put you in the same bucket as, say, a private company receiving government grants to study product development - very common in BioTech, for example.

As for the trope of having un/der-insured workers seen publicly available/funded healthcare would make ANY business, including my high-tech employer, a suckler on the government teat.

-OT

[AD]

I hope I'm not the only Sam Walton fan who is now reconsidering my commitment to shopping at Wal-Mart? Their sell-out needs to have consequences.

[Rockefeller]

When the profits for every business are determined in Washington DC the inevitable result will be that the free market forces companies to spend their efforts making profits...in Washington DC. Who is John Galt?

[Keith D. Milby]

"In sum, Wal-Mart is just doing what it does best: dumping costs on taxpayers."

Interesting...

In that corps like Wal-Mart as well as any other company don't actually pay taxes, but simply collect them.

This to me does not seem to be a bad thing. If the company is not having to collect the tax, we are not having to pay the tax, so we win. Right?

Taxes can only, ultimately be paid by the consumer of the products and services offered by corporations.

The consumer tax would ultimately rid us of all this confusion.

[Jim G]

Wal-Mart is just doing what any smart businessperson would do. They're taking money wherever they can get it. "All contributions gratefully accepted." Their stockholder's wouldn't have it any other way. The problem, if it is a problem, is with the govt's that hand out the money in order to get companies to do other than the most economically efficient thing. Additionally, one thing that nobody has mentioned is that WalMart was given a few million in startup money from the state of Arkansas years ago.

[Bob Gnarly]

All companies seek to lower their operating costs when they locate a facility that employs hundreds or thousands of people. Tennessee recently offered GM $20mm worth of benenfits if they would reopen the Spring Hill plant.

If it costs Wal-Mart $12mm less to put a store in Nashville than it does in Charlotte, the store is likely going to go to Nashville and the benefit of Nashville's citizens.

This is the reason jobs and people flee business-unfriendly places and emigrate to business-friendly environments. In the end, a place that uses incentives to attract business will have higher employment and a broader tax base (though it may take a number of years to recoup initial tax breaks).

I don't think any of this makes Wal-Mart 'anti-capitalist'. It is just standard, and smart, business practice. 12mm in tax breaks and subsidies may translate to 12mm in sales and promotions they can offer to their customers, which in turn generates value to its shareholders.

The point about hurting competition through employer mandates is more telling, though again it is not unusual for any business to attempt to maintain their hold on a market. The rarer case will be a company that attempts to decrease regulation on both them and their competition. After all, Wal-Mart is in business to increase shareholder value, not act as some kind of capitalist touchstone.

It might even be the case that the millions of forum-goers and editorial writers who have long attacked Wal-Mart as the great Satan are getting what they've preached all along.

[John Moore]

I too am disappointed at the reasoning in this post.

So far, WalMart has been doing what any capitalist company would do: optimize its return on investment in the environment it finds itself. If part of that involves a deal with the local government, that's because the local government believes such a deal is in the interests of its voters (barring corruption). While the practice of making such deals by local governments is clearly a bad thing, the practice of WalMart in seeking and using these deals is rational and reasonable.

Walmart is, indeed, a capitalist success story. It built from nothing to a huge corporation, in the processing becoming the nations largest employer (i.e. providing lots of jobs) while reducing the cost of goods and services to consumers. It made a lot of money for its stockholders (my little bit, started in the '70s, grew into a much larger little bit, for example). They developed crucial innovations in reducing supply chain costs, as a pioneer in aggressive integration of cutting edge automation with their business practices.

WalMart has been and is a great company.

To excoriate WalMart is simply wrong. The problem is government, not WalMart.

[Rix]

And with public health care, Wal-Mart need not provide family insurance. Only insurance for the employee themselves. Families will go on the public plan.

[Tank]

The equation of a) not providing a large number of employees with b) government subsidies strikes me as dubious at best. Doing so requires some curious assumptions about labor markets. Also, by that logic, I take it that any employer of someone who qualifies for the EITC is guilty of rent-seeking? It would seem to require the same odd assumptions about how labor markets function.

[Joe L]

What some of you fail to realize is that Wal-Mart's obligation is not to you or me UNLESS we are shareholders. They are simply taking advantage of what the system has prepared.

To expect them to fail to capitalize on the availability of local government largesse is completely unrealistic and naive.

Principles are great, but shareholders want results.

[bill reeves]

walmart is going where taxes are least. The tax incentives are tax cuts. Would you have walmart refuse tax cuts to the expense of its customers or go to the places where taxes are highest?

Anyone who does otherwise is a fool and this site should know better.

[Basil]

Joe L has it right. If the tax abatements are an issue, then the tax authorities (under the pressure of their constituencies) should say no. Walmart can then figure out whether it's still cost-effective and profitable to do business in that location.

Walmart, like the major sports teams, are doing this because it makes good business sense for them. They are acting in their (and their owner/shareholders') best interest. The people should simply act in their own best interest.

Walmart would not receive any "purity points" were they to desist from asking for the tax and other changes.