Wednesday, November 29, 2006

In Defence of Wal Mart

Barack Obama, the Democratic Senator from Illinois and 2008 presidential hopeful, has publicly stated his objection to the Wal Mart Corporation’s business tactics. Obama claims that Wal Mart does not fairly compensate their workers, that they do not provide enough financial support for their employees to “send their kids to college and save enough for retirement.” Obama fails to realize, however, that not only is he wrong about a corporation’s social responsibility, he is wrong about Wal Mart’s effect on the working class in the United States. Wal Mart helps the poor.

It is true, as Obama claims, that Wal Mart drives down wages. One study, for example, found that Wal Mart lowered retail wages by $4.7 billion in 2000. Such a number, as high as it seems, pales in comparison to the amount that Wal Mart causes consumers to save – a staggering $263 billion in 2004, or $2,329 a household. Considering that all workers are consequently consumers, it is illogical to assert that Wal Mart does not help the poor.

Regardless of how much savings Wal Mart generates, it is true that the wages Wal Mart pays to some employees does not adequately support the dignified lifestyle that Americans expect – savings on consumer goods or not. The blame, however, cannot be placed on Wal Mart. It is not Wal Mart’s responsibility or duty to be socially conscious; its job is to secure profit. It is the government’s job not, in that case, to persecute Wal Mart, but to help those individuals not wealthy enough to support themselves. The fact is that Wal Mart creates jobs, and gives jobs to those who would previously not be employed.

The solution, therefore, is not to harangue Wal Mart on the evils of its wage-policies. Wal Mart sets its wages on simple supply and demand, the market principles that drive the notorious efficiency and productivity of the American economy. Instead, the government must aid those in need. An increase in the minimum wage has been proposed. That would be a mistake – it would only serve to prevent unskilled individuals from being employed. Instead, compensation must be given to those employed, but not earning enough to live decently. Not only would such compensation help those working get out of poverty, but it would also provide an incentive for unemployed to seek work.

The solution, coincidentally, already exists. Unfortunately, due to its relative complexity, it has not been advocated to the electorate (and thus not received as broad support by politicians) as much as a simpler concept such as the minimum wage. The solution is the Earned Income Tax Credit. The EITC, called “one of the biggest poverty-fighting tools in recent years” by economist Charles Wheelan, uses the income tax system to subsidize low-wage workers so that their total income is raised above the poverty line. A worker getting $11,000 a year, for example, might get an additional $8,000 through the EITC. The EITC, although it does not support the unemployed, does greatly help those employed, but earning very little. It thus compensates, for example, Wal Mart employees without compromising the efficiency of the corporation.

Wal Mart has been vindicated as an evil corporation. In truth, it is everything but – it is simply performing its duty as a business in America. Wal Mart has created jobs nation-wide and drove down retail prices across the entire sector. Its vindication is entirely unjustified. Instead of blaming Wal Mart for the plight of low-earning workers, we should turn to the government, and demand that in lieu of pushing ineffective policies such as the minimum wage, that the EITC be expanded.

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