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2008-01-21
Minneapolis, MN Fed Bank Finds No Link Between Wal-Mart & Good Economic Impacts

When two employees at the Federal Reserve Bank of Minneapolis released a study in the January issue of the fedgazette called "The Wal-Mart Effect," its findings -- if you can call them that -- created a predictable effect in the media. "Wow,' whistled a columnist for the Elmira, NY Star-Gazette. "Someone actually spoke the unspeakable -- the late Sam Walton's company isn't that bad after all -- and backed the statements up with solid facts." But the"solid facts" in this study were built on some very fragile assumptions. The authors repeatedly footnote their narrative to caution readers about interpreting the results. They use the euphemism "host of caveats" to temper their findings. The Bank examined 40 small counties across six states in the bank's Ninth District (MI, ND,SD,WI, MT, MN) that had a Wal-Mart come to town between 1986 and 2003, and compared them with 49 similarly sized counties in the same geographic area that didn't have a Wal-Mart. Researchers chose counties as the economic unit to study, because "various socioeconomic effects from Wal-Mart likely spill over a much larger territory than the home municipality. Though county borders are imperfect at best, they offer a broader and more realistic territory to gauge change." In fact, county borders are a blunt instrument, and not very useful in searching for the impact of one giant store on one small town -- which is where most of the damage occurs. In a county -- even a small one -- the impact is dispersed across many players, and the loss of a couple of key local retailers will not be revealed. In addition, market trade areas and counties have little or nothing to do with one another. A huge store on the edge of one county, may draw shoppers away from another county, but it will never show up in a study from the Fed Bank. The former is economic, the latter is political. The authors further weaken their case by noting that their selection of 49 non-Wal-Mart Counties was "not a truly scientific control group and, as such, cannot be said to represent county outcomes where Wal-Mart is absent." The Fed Bank concluded that Wal-Mart can be helpful or harmful, "though which it is depends on the circumstances." If a community has a rapidly growing population base, it can more easily absorb a giant supercenter. But if the population is stagnant, the retail pie is not growing. In such circumstances, "Wal-Mart is no different from any new business -- large or small -- coming to town and competing with incumbent businesses for finite spending in a community. Wal-Mart just competes for a larger share of it, and within a bigger geographic area." The larger the lens you use to study Wal-Mart, the most diffuse the local impacts appear. It's like gazing at the night sky through sunglasses. The Fed Bank has perceived something, but dimly. The study concluded that "Firm growth, employment and total earnings were somewhat stronger in Wal-Mart counties and, in some cases, even in the retail sector." But Wal-Mart has little, or no impact, on decisions made by employers outside the retail sector. In the aggregate, studies have shown that the U.S has lost millions of manufacturing jobs because of outsourcing to China -- but such exported jobs will not appear in a county-level study of Minnesota or Montana. Looking at the growth of retail establishments ("firm growth") shows just how slippery such analysis can be. In Kandiyohi County, Minnesota, there were 1,059 retail establishments in 1985, compared to 1,395 in 2005. The number of retail firms grew overall by 31.7%. But inside of that growth number, the number of small businesses with 4 or fewer workers increased from 620 establishments in 1985 to 731 in 2005, a jump of 18%. Large establishments with 100+ workers rose from 14 in 1985 to 27 in 2005, a 92.9% jump. The percentage increases here at not the issue: it's the number and size of firms that matter. The 111 new small businesses generated at best a total of 404 new jobs, while the 13 large firms with 100+ employees generated at least 1,300 additional jobs. Large companies added three times as many jobs as the smallest companies. The Fed Bank would say that retail establishments grew in Kandiyohi County -- but inside that number the big companies were dominating growth in the retail sector. The study found that Wal-Mart had no effect on growth in population and income per person. Why should it? People do not move to live near a Wal-Mart, and if anything, the company has a downward impact on wages. The Fed Bank learned that in counties without a Wal-Mart fared better in total compensation -- wages plus benefits like health care and retirement contributions -- for wage and salary workers. This "fits with the long-term trend of firms offering workers more (and more expensive) benefits over time, while Wal-Mart has been chastised for its employee benefits" The Fed Bank found other dark statistics: poverty rates declined in most counties, but poverty rates didn't improve as much in Wal-Mart counties. Some counties with a Wal-Mart had strong growth, and other Wal-Mart counties had slow growth -- but Wal-Mart's presence explained little of the disparity. The researcher's main finding is that "Wal-Mart has a slightly positive effect on counties where the retailer decides to set up shop. But the effects are small; one could call the results mostly a wash. As a result, maybe the most concrete -- and surprising -- conclusion is that Wal-Mart's presence (or lack thereof) has little or no predictive power regarding the economic success or failure of a county." The Fed expected to find much higher levels of business closures to show up in Wal-Mart counties, "but the data don't bear that out." Yet they admit that "several limitations prevent any strong conclusions regarding general merchandise stores," because the number of firms in this category is comparatively small at the county level." The fact remains, general merchandise stores declined in non Wal-Mart and Wal-Mart counties, because Wal-Mart does not impact, say, car dealerships, but it slams any retailers that sells what it sells -- and the impacts don't fall into neat county borders. The "take away" from this new report is that Wal-Mart is, economically speaking, a wash. Tell that to the local officials across America who have memorized the Wal-Mart script which promises new jobs and revenues inside every supercenter, even as they watch the "old" store two miles away being abandoned, or the existing supercenter down the road losing sales to its own parent company. A the authors explain, "The presence or absence of Wal-Mart is neither an obvious anchor nor a hot air balloon for business growth in a county."

What you can do: If the media had the patience to read beyond the "hot air balloon" section of this new report, they would have found this statement: "None of these fedgazette findings can be considered the last word on the Wal-Mart effect because they are not 'causal' in nature; that is, we cannot say that Wal-Mart is directly responsible for any particular outcome -- positive or negative -- in the counties investigated." That stunning disclaimer should have been the opening line of the report. But it gets worse: "This analysis merely offers correlated facts. Proving a causal relationship between Wal-Mart and local economic trends is rife with complications. Indeed, such complexity is one of the reasons controversy continues to swirl around the company. The Fed Bank study amounts to little more than a caveat against such exuberance. As the Fed Bank explains, "Given some positive and some negative outcomes, it's probably safest to say that Wal-Mart's net imprint on a county's health appears to be smaller than most perceive." The authors admit that other factors -- such as education levels, infrastructure investments, local business mix, geographic good fortune -- "play a larger role in determining the long-run growth prospects for the 89 counties studied here than whether the bogyman dressed as Wal-Mart showed up at the community door." When you cut away the many "confounding factors" in this study, the authors confess that they can't pin any particular outcome on Wal-Mart. This is one of the more useful non-conclusions of the report: "the findings don't tell us whether Wal-Mart's presence (or lack thereof) is responsible for either positive or negative outcomes over the period studied. Proving a causal relationship between Wal-Mart and local economic trends is beyond the scope of this analysis." So the Fed Bank has produced a study that delivers no punchline. The Fed Bank had its own warning buried in its statistics. "Hoping for some easy answers to the Wal-Mart effect?" the Bank wrote. "Better shop elsewhere." The study only proves the following economic aphorism: Wal-Mart is the absence of economic good.














 
 
"Norman has become the guru of the anti-Wal-Mart movement" ~ 60 Minutes

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