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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Thursday, March 23, 2006

If It's Got a "Y" in It, It's Wal-Mart Day at Mises.Org

Freeman, Libertarian Critter's gone so far into the enemy camp, he's started numbering his anti-Wal-Mart posts now. In No. 4 of that series, he links to an interesting exchange at Mises.Org. Lawrence Vance baldly asserted, in a recent column:

Wal-Mart has never caused any firm to go out of business. Wal-Mart can't close down any store but one of its own. It is the customers who no longer do business with a company or shop at a particular store who put that company out of business or closed that store.

Roderick Long responded in the comments:

Well, yes and no. It's not as though Wal-mart is a pure market firm, operating with no government patronage. For one thing, Wal-mart often gets the land for its stores by eminent domain. Since land obtained by eminent domain is generally land obtained below the market price (i.e., below the price at which the owner would have sold voluntarily -- otherwise eminent domain wouldn't have been needed), Wal-mart's operating costs are lower than they would have been without government help.

So, sure, customers voluntarily choose to shop at Wal-mart because of its lower prices; but those lower prices have been made possible, in part, by theft -- so it's not exactly fair competition. If I got to steal my means of production I could offer lower prices too. (And eminent domain is only one of the many ways in which big corporations are aided by state violence.)

And if Wal-mart first uses government intervention to help it defeat its competitors, and then takes advantage of the absence of such competitors in order to offer employees lower salaries than they could if the competitors hadn't been wiped out, then Wal-mart's low salaries are not exactly a pure market phenomenon either.

To be sure, Wal-mart's success isn't due solely to state patronage; there's been genuine entrepreneurial skill involved too. Still, Wal-mart's success is rather tainted.

Another commenter acknowledged that their ED abuse was unfortunate, but suggested their innovative distribution model would surely result in lower prices with or without ED. Long responded, again:

Wal-mart's efficient "distribution model" is also subsidized by the fact that the highways are tax-funded, no? Federal funding for highways means (ceteris paribus) that businesses relying more heavily on long-distance shipping have a state-funded advantage over those who don't.

High-speed, high-throughput wholesale distribution models, including their latest "just in time" progeny, came into existence only after the U.S. government created a centralized, dependable, high-volume transportation system on a continental scale. Without the government-subsidized railroad system, there wouldn't have been any regional or national mass wholesalers, no large factories serving national markets, no mass retail chains after the turn of the twentieth century. This connection between subsidized transportation and large-scale distribution was only heightened by the post-WWI automobile-highway complex, and by the civil aviation system (created almost entirely with government money and government land seizure). So Wal-Mart's distribution system is piggybacked on one of the most mind-bogglingly huge social engineering projects in human history--by a revolution from above.

Now in fairness, I don't think Wal-Mart can be said to be any more guilty of collusion with the state than its big-box competitors. Wal-Mart surely does, as Roderick says, display some "entrepreneurial skill." But its skill is in how much more efficient it is than its competitors in exploiting an ecological niche created by state capitalism.

Of course, I've already beaten this dead horse until it could be used for dog food, with no further processing. But here's something new under the sun. This story comes from "JB," an anonymous small manufacturer in Wisconsin, who in the process of talking shop on a sales trip, wound up comparing notes on Wal-Mart with reps from a would-be Wal-Mart vendor (the Simplicity lawnmower manufacturer) :

According to the VP in our meeting, WalMart was all set to go with a specific model of Simplicity lawnmower. On the day they went to see the buyer in Bentovnille to get the final p.o. and go over a few minor changes to the graphics, the buyer suddenly let the VP (and owner and a few others that flew down)know that in order for the purchase to go through Simplicity would have to "cheapen-up" many of the parts, but not change the name or model number in comparison to what was sold at their "mom and pop"/other dealers.

So, in a nutshell, the buyer wanted to undercut all other vendors (which is understandable) not with volume, but with DECEPTION.

I have heard so many stories like this from so many different manufacturers, that I have a hard time seeing myself using WalMart as a vendor in the future. To me, this IS "the market" working - it won't start with consumers, it will start with vendors such as myself depriving WalMart of selection due to their behavior - if WalMart responds to the concerns, they will stay in business, if they don't, they will be Kmart in 30 years.

Yep, that's right. Apparently one way to have "always low prices--always" is to slap a fraudulent label on a cheap knockoff with substandard parts, and sell it as a brand name item with the same model number and everything. Uh, by the way, in a free market, even in a free market anarchy with voluntary court systems, this kind of thing doesn't fall under the ordinary rules of caveat emptor. It's called FRAUD. And under the rules of any free market legal order deserving of the name, it would result in the civil equivalent of the offendor getting his scrotum nailed to the wall.

10 Comments:

Anonymous P.M.Lawrence said...

Just yesterday (23.3.06) Lew Rockwell's site linked to its copy of another Mises posting about Wal-Mart.

There are several errors in this piece to do with how the author connects his examples with the Wal-Mart case and to do with the general lessons he draws from those examples in the first place. I plan on emailing him about them and ccing it to KC.

For this post here, however, the main point to notice is this: the author starts out by asserting what he calls is "essentially" what critics of Wal-Mart object to about it. Now, whether those critics are right or wrong about Wal-Mart, certainly the criticisms I have seen about it do not relate to the things he goes on to defend.

So either the author literally does not know what the criticisms are, or he is consciously attacking the feebler ones and editing out others. And he isn't even connecting the Wal-Mart case to his general ideas, let alone providing examples that substantiate the general ideas (they too are crawling with special reasons why things didn't work out perfectly).

March 24, 2006 2:33 AM  
Anonymous Stefan said...

You have a point about the fraud thing Kevin; however I still think you don't give caveat emptor enough consideration.

Basically, in a free market people will sometimes (maybe often) want to engage in "risky" transactions where not all consequences can be easily explained or predicted. It is these situations for which caveat emptor protects one or both parties from liability. Maybe I want to buy apples that may or may not be poison from the cheap Mexican farmer. Maybe I want cars stuffed with sawdust. Or, more significantly, maybe I want to try an experimental drug to cure cancer. The important thing is that communication is clear and consistent between the two parties to the exchange, and the market will probably come up with lots of ways of ensuring that's the case.

March 24, 2006 3:35 AM  
Blogger iceberg said...

Kevin,

The transportation subsidy is brought up often in relation to Wal-Mart and other gargantuan firms, and I understand the implications of that; but how do you figure that in the free market it will be unlikely to have the equivalent transportation system owned privately? It could also very well be that Wal-Mart is overpaying today for the usage of those roads theoretically compared to what it might pay to use private roads.

Because I think this particular example is in exercise in futility, I find no reason to either be a shill for Wal-Mart, or to beat up on them when unnecessary.

March 24, 2006 4:06 AM  
Anonymous Wild Pegasus said...

Without eminent domain, I'm not sure how interstates and turnpikes get built. And even if they do, lorries account for something like 75% of the damage done to roads and road infrastructure, so a market raods company is going to slap stiff tolls on lorries to cover the damage they cause.

- Josh

March 24, 2006 9:24 AM  
Blogger iceberg said...

Josh/WP,

You bring up an interesting point. It's back to the old question of what is likely to occur under anarchy- cooperation or competition?

But you may find it interesting to note, that prior to government involvment in road building, there were hundreds of private road companies, just within New York state alone which were building private turnpikes left and right.

You may want to see Thomas DiLorenzo's "How Capitalism Saved America" which I read almost a year ago, so I don't exactly recall all the historical narrative that shows that private road building was possible without eminent domain. The explanation of how the cooperation occured was that the landowners were offered a financial stake in the tolls, so that it wasn't much issue of acquiring land rights.

He also mentioned there, (contrary to what you mentioned) that the tolls fluctuated on the basis of tire width to vehicle weight, so that a heavy truck with wide wheels which generally smooths out the road will pay less than vehicles with narrower tires which tend to rip ruts in the road.

His chapter on the North Pacific railroad also showed how a railroad company succeeded without huge land grants or subsidies and which privately funded their buyouts & buildouts.

Whether or not you buy Thomas DiLorenzo's argument, I still think it's a good enough question to make me hold back from criticizing transportation subsidies.

March 24, 2006 10:46 AM  
Anonymous Stefan said...

Yeah indeed; a big thing separating mutualists from traditional anarchists is that the anarchists want their workers-coop paradise to come about no matter what, with force if need be. Mutualists seem to think that without government the "worker's paradise" will arise naturally. If all these advantages that Walmart receives from the state are indeed trivial and/or sufficiently similar to what would happen in a free market, then mutualist arguments about the reduction of the size of the firm and the increase in worker's "solidarity" are bogus. It would probably horrify most of them if it turned out Wal-mart would actually be bigger and more powerful in a truly free-market.

March 24, 2006 12:59 PM  
Blogger Kevin Carson said...

PML,

It's especially telling that Thies juxtaposes railroads to W-M as an example of "economic progress," and then identifies globalization (and economic progress in general) with large firms coming into local markets, as market areas get bigger and bigger.

Stefan,

I don't have a problem with caveat emptor in cases where there's an inherent risk in buying untried technology, or normal variations in quality. But fundamentally misrepresenting the quality (or even identity) of a good is a different matter. Traditionally, the determination of fraud, negligence, etc., all fell under the common law of "implied contract," and hinged on what was considered a "reasonable expectation" in the particular jurisdiction. For example if you sell a car, with no further information, there's an implied warranty that it performs the basic functions of a car. A transmission stuffed with sawdust wouldn't cut it, unless the seller specified that defect (or strongly suggested it: "Warning: seller is not responsible for transmissions stuffed with sawdust").

iceberg,

As Josh suggests, the profitability of shipping by truck depends in part on the fact that trucks are not currently taxed on the basis of their damage to the roadbeds. And while I don't doubt that it would be feasible to operate modest-sized highways on a free market basis, on preexisting rights of way, the lack of eminent domain would set severe limits on expanding their volume. Without ED, we'd probably have a network of 2-lane highways like those in the former USSR.

I haven't read Dilorenzo's book yet, so take this FWIW. But offering a high enough price to persuade every landowner, individually, to come on board would likely be considerably more expensive than the prices paid for condemned land under ED, and the resulting amortization costs would significantly raise the operating costs of the highway. In addition, the vulnerability of such arrangements to individual holdouts would raise all kinds of transaction costs.

And of course, this all leaves out the even greater government role in creating the civil aviation system.

March 24, 2006 4:45 PM  
Anonymous P.M.Lawrence said...

In order to understand the road and air transport issues properly, you should remember that these are not subsidies but positive externalities from government efforts to assist military logistics preparedness (just as the German autobahns were). Think Eisenhower's 1919 march to the sea.

Pork barrelling has added an element of subsidy since then, but the point to think about is whether this government funding is optimal for its genuine, i.e. military, purpose in relation to the whole of the distortions made by raising the funds bearing in mind the spillover effects.

March 24, 2006 7:52 PM  
Blogger Bbo Wallace said...

One of the reasons I ceased to take LRC seriously (and this applies to several of my friends) is their worship of Wal-Mart and SUVS, and their complete inability to see that both are State-created behemoths.

March 25, 2006 4:37 AM  
Anonymous Chris Wage said...

You have probably seen this before, but there's an interesting article here about Snapper lawn-mowers "saying no" to Wal-mart..

March 25, 2006 1:07 PM  

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