The Plural of Anecdote II: Wal-Mart's Impact on Mom and Pop
Part I of "The Plural of Anecdote" is here.
Here is one of the claims made by Wal-Mart critics, in this case WalMart Watch, that is addressed head-on by economists Russell Sobel and Andrea Dean in their recently published working paper "Has Wal-Mart Buried Mom and Pop?: The Impact of Wal-Mart on Self-Employment and Small Establishments in the United States"
Wal-MartWatch, one of the largest Anti-Wal-Mart organizations, features an academic article claiming that in Iowa, Wal-Mart’s expansion has been responsible for widespread closings of ‘mom and pop’ stores, including 555 grocery stores, 298 hardware stores, 293 building suppliers, 161 variety shops, 158 women’s stores, and 116 pharmacies.
Here is Sobel and Dean's argument in a nutshell:
Wal-Mart is big enough to have significant macroeconomic effects. Hausman and Leibtag (2004), for example, find that the Consumer Price Index (CPI) is biased because of the failure to specifically account for Wal-Mart. ... because of its sheer size, if Wal-Mart has a negative effect on small business activity, this effect should be discernable in aggregate U.S. data.
They continue by noting that if Wal-Mart is big enough to have the effect that critics claim, then the data ought to show it:
... because Iowa is a fairly representative state in the sample, an extrapolation would suggest that ...the overall size of the small business sector in the United States should have fallen by about one-third relative to days prior to Wal-Mart’s expansion across America. Has this one-third reduction in U.S. small business activity really happened? If so it should be clearly visible in the raw data on U.S. small business activity, and this is the first evidence we will examine.
In short, their results show that:
1. During the same period that Wal-Mart grew from a single Arkansas store into the nation’s largest retailer, the self-employment in the US grew from 11% to 16%. If Wal-Mart had the effect critics claimed then that rates should have fell as the number of Wal-Mart stores increased.2. Between 1985 and 2002, while the number of Wal-Marts grew from about 750 to about 2700, the number of retail establishments with 1-4 employees and with 5-9 employees stayed level. In other words, as the authors put it “There are just as many small establishments in the United States today as there were twenty years ago, before the invasion of Wal-Mart.” If Wal-Mart critics were correct, these numbers should have dropped dramatically.
Regarding the “raw data” they justifiably conclude:
The aggregate time series data examined in this section would seem to be at significant odds with the magnitude of the estimates from previous research on this issue. We see no evidence, in the raw aggregate data on small business activity, that Wal-Mart’s expansion into the U.S. economy has drastically reduced the rates of self-employment or the number of small employer establishments. In fact, the raw data seem to pretty clearly reject the popular hypothesis extrapolated from previous work that Wal-Mart has reduced the small business sector in the United States by almost one-third. In the raw data this reduction simply isn’t there.
They admit, however, that far from the end of the story, these results are merely suggestive and that additional analysis is required:
This doesn’t mean that Wal-Mart might not have slowed the growth of these sectors, or have had a small and/or hard to identify impacts, however, and that is why in the next section we turn to a more rigorous cross-sectional analysis to see if this remains true at a less aggregated level.
The next post in this series will examine the result of the “more rigorous cross-sectional analysis” that was undertaken.
Tags: WalMart | WalMart Watch
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Comments
Good post. I'll look forward to the next!
Posted by: McCain | November 21, 2006 9:54 PM
[N.B.--below, from the perspective of one living within spittin' distance of WallyWorld Central who has dealt with anti-WallyWorldites for a couple of decades.)
This is all very interesting, but ultimately irrelevant in my examinatiion of the arguments put forth by anti-WallyWorldites. The really interesting thing to me is that anti-WallyWorldites almost all come from or are strongly associated with people who share the same faux liberal (really, dictatorial reactionary) philosophy that seeks to stiffle competition at all levels.
Indeed, it amuses me to hear people from a philosophical camp (if one can call groups of people who refuse to examine their own precepts "philosophical") that also seeks to stifle scientific inquiry into such as whether global warming exists, if so to what degree and if so whether it is genuinely influenced (and to what degree) by human activity.
Not only that, but the same camps of people advocating "preserving small businesses" also seem to be from the same general class of persons who want to save the whales/snail darters/spotted owls while at the same time campaigning for a neo-Darwinian view of the development of life/evolution.
Inconsistent, much? But it never helps to point out that protectionism for small businesses is anti-evolutionary (especially if I've confirmed that the person I'm arguing with is a religious neodarwinist :-)).
I know I probably ought to be more interested in gathering hard data to either refute or deny the claims of anti-WallyWorldites, but since their shrill noise emanates from a class of persons who have proven themselves not worth listening to in other areas, please forgive me for simply turning a blind ear (*heh*) to their cant.
Still, the info you discuss here is interesting. It pretty much confirms the shirt tail observations I have made over the last 20 or so years. Indeed, the people I hear complain most about WallyWorld being bad for small businesses locally are... successful small business people. *heh* I've stopped bothering to point out that they have managed to survive and even thrive (with WallyWorld Central just a hop, skip and jump down the road from here), because it has never done any good to point that fact out to these successful small business people... Cos their arguments have always been all emotional, never factual.
Posted by: David | November 21, 2006 9:34 PM