Once again, Wal-Mart is being used as a political football. On the left, politicians and pundits use Wal-Mart as the poster child for living wages and mandatory health care benefits. On the right, Wal-Mart is held up as a paragon of corporate efficiency.
Interestingly, however, 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."
It's hard to find reliable numbers on the total value to Wal-Mart of such subsidies. The leading report is Shopping for Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth by Philip Mattera and Anna Purinton was published by a left-leaning advocacy group and funded in part by one of the very unions trying to unionize Wal-Mart's work force, which will suggest to some a need for caution. Yet, even if one applies a substantial discount to Mattera and Purinton's results, Wal-Mart is still doing quite well at the public trough:
- In a sample of subsidy deals for individual stores, they found subsidies ranging from "$1 million to about $12 million, with an average of about $2.8 million."
- In a survey of Wal-Mart regional distribution centers, they found that "84 of the 91 centers have received subsidies totaling at least $624 million. The deals, most of which involved a variety of subsidies, ranged as high as $48 million, with an average of about $7.4 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.)
Wal-Mart's defenders likely will argue that the long-run benefits to local communities outweigh the costs of the subsidies. On this question, reliable data is almost impossible to find. Yet, there are a couple of arguments against giving this defense too much weight.
First, it's clear that Wal-Mart plays off one community against another. When it comes to locating a new store, one city can be played off against another (or against unincorporated areas). As with any auction, the resulting inter-jurisdictional competition may lead cities to "over-pay" by giving Wal-Mart excessively large subsidies.
The problem is not just that competing cities bid up the price. Rather, if there are enough competing jurisdictions, one may see the so-called "winner's curse" come into play. In any auction, the winner will be the party with the highest reservation price. By definition, the winner thus is not only the party that puts the highest value on the item being auctioned, but also is the party most likely to over-value the item. After all, if the universe of bidders looks like a bell curve, is the bidder further to the right likely to be the one with the best estimate of the item's worth?
Second, we know that cities often over-estimate the economic benefits to be gained in return for such subsidies. A leading analysis of convention center feasibility studies, for example, found "consistent over-estimates of convention and tradeshow growth." As a result, "the competitive situations of new or expanded centers may be more difficult than predicted" by their boosters. There's no reason to think city or county analyses of the economic benefits of a Wal-Mart store or distribution center are any more reliable.
In sum, informed debate requires one to view Wal-Mart not as a rugged free market capitalist, but as a leading recipient of corporate welfare. If one is on the left, one thus might insist that Wal-Mart provide a so-called living wage in return for its subsidies. If one is on the right, one might call for abolishing such subsidies. In either case, however, we at last will be debating the real issues.
