At the moment, I’m reading No Logo by Naomi Klein. It’s a long winded and slightly out of date book, but the author has passion and she is able to hit on some striking insights about the global economy, even with her minimal economics background.
In the most recent chapter she discusses the expansion strategies of Walmart in the ’70s and Starbucks later in the early ’90s. Walmart would spread “slow and thick” like molasses, setting up a distribution center on the edge of town, and then filling in a tight radius around it with shopping centers taking advantage of low transportation costs to under price existing stores. Starbucks, on the other hand, would blanket a whole city in coffee shops, saturating the market and forcing smaller shops with higher average costs to shut down. Most people don’t like “big box” stores or chain stores and long for the nostalgia of the small, independent firms. As an economist, I want to know if these expansion strategies are actually doing any harm to the public, or if they are just providing another convenient focal point for generalized bellyaching.
It just happened that my office mate had been extolling the virtues of Walmart’s business strategy to a pair of undergraduates the other day. Fancying him a bit of an expert, I posed my research question: Do the competition strategies of global chains and franchises actually pose a threat to human welfare, or is it just the romance of the small business that makes people complain so much? Over and over he defended Walmart as a champion of economic competition and capitalist success. He said to me that people are free to make choices, and if they choose Walmart, or they choose a Starbucks latte despite its awful bitterness and obnoxious price, then they are casting their support for these firms with their money. I said to him just because people buy a product does not mean that they like the firm they bought it from; it just happens to be the best choice available. He then said to me,
“What, do you mean to say that people are just crazy and that they are going around doing things that they don’t intend to do, or they don’t understand what they are doing and somehow you know better?”
I learned two things from my discussion with my office mate. First, I learned that even professors of economics get very emotional about the implications of their research on real life. My office mate grew up in a country that was heavily regulated from every angle by corrupt governments. Rife with delays, poor quality, poor service, and not particularly inspiring prices, his country serves as (personal) proof that anything that isn’t free market capitalism must be socialism and also awful. The second thing I learned from my discussion is that our economic system is equipped to handle people showing preferences for available goods through their purchasing habits, but it is not remotely equipped to handle people expressing preferences over what goods are actually available, or where they come from or who provides them.
So this is my next mission: I want to understand why people hate chains so much, and yet still buy the majority of their stuff from them. Why do people resist the entry of chains into their cities so strongly if they are bringing, like Walmart, lower prices for the same goods? Shouldn’t that be a good thing?