Essay Example on Whether Walmart Helps or Hurts Local Economies

Published: 2019-02-03
Essay Example on Whether Walmart Helps or Hurts Local Economies
Type of paper:  Essay
Categories:  Economics Employment Walmart
Pages: 10
Wordcount: 2599 words
22 min read

Walmart as one of the largest retail companies in the world

Sam Walton's quote "Set high goals, encourage competition, and then keep score" appears as one of the hinges to the success of Walmmart. Although the entity sets high goals, it diminishes competition by engaging in corrupt deals and fails to maintain its focus on developing the local economies. Wal-Mart is one of the largest retail companies in the world. The company pioneered an innovative model of business coupled with a sophisticated supply chain that uses cost leadership as the strategy to win the customers. The organization is known for its low prices of goods compared to the competitors. With the aim of serving a large customer base in the world, the business grows both organically and inorganically to reach different market segments (Bonanno, Alessandro, and Stephan 278). In the process, it creates more employment opportunities and benefits the local governments through property and sales taxes. However, plans to start a new Wal-Mart's store in a given location are met with hostility from the local communities because it affects various sectors of the economy. Although the entity creates jobs and generates revenue for the government, it hurts local economies through the loss of small retail outlets, loss of employment for workers in competing businesses, diminished white collar jobs for persons servicing local and competing firms, and increased property and sales taxes among others.

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The company's ability to offer goods and services at lower prices than the competitors indicates that it poses a profound threat to the local businesses. Nearby retail establishments are likely to close due to intense competition and pressure from the customers to lower the prices. Notably, the company benefits from the large economies of scale which ultimately enable it to outperform small-scale businesses. In fact, the competing entities are compelled to downsize due to the reduction in the number of consumers. In particular, retailers selling apparel, hardware equipment, shoes, building supplies, and other building materials are greatly affected by the entrance of a big-box retailer such as Wal-Mart. The depressing effect of Wal-Mart on local firms impacts heavily on the community and citizens as it directly affects other entrepreneurs from thriving in a competitive environment leading to income inequality (Hicks, Michael, Stanley, and Lee 314). In the early 1980s, the advent of Wal-Mart led to the decline of small discount stores in the United States. Today, smaller enterprises are likely to close because of the advent of technology and the internet in which Wal-Mart reaches most of its customers through. In 2015, the firm employed approximately 1% of the American population and raised $486 billion in revenue. The existence of a supercenter in a location for 15 months causes a 40% to 50% decrease in small businesses (Wollschleger, Jason, and Jeremy 286). Therefore, price competition is not sustainable for local entities

The establishment of a new Wal-Mart store may create job opportunities but may also cause loss of opportunities to more than 50 retailers and 20 wholesalers within a period of 5 years. A typical Wal-Mart organization may employ approximately 350 individuals while a supercenter may have up to 500 workers. To a large extent, employees are on part-time basis and there is a need to balance job losses and new jobs in competing organizations. Persons servicing the local retail outlets lose their jobs upon the installation of a Wal-Mart shop in a local setting. This situation persists because the business procures its services in-house as opposed to the outsourcing strategy employed by the local businessmen. Notably, the creation of more jobs is often indicated in the community's wide earnings. However, Wal-Mart's employees are paid significantly lower than the others in similar smaller outlets. It appears that the company will not pay higher wages in the future as low expenditure on salaries is a strategy to maintain its cost-cutting approach. Moreover, the firm's hostility on workers' unionization limits the capability of the employees to negotiate for better salaries. As a result, the purchasing power of the local communities, who become of Wal-Mart's workforce, is greatly diminished. The problem of low wages, coupled with the loss of local jobs, is a threat to the economy of the local setting. The presence of Wal-Mart in the local environment causes low wages to the hourly associates in comparison with the amount earned in existing grocery stores. An estimated loss of $3 in hour for every worker affects the employees and the community as a whole. Although many people argue that Wal-mart contributes to the economic benefits of rural settings because of the provision of a wide range of services, it does not add financial advantage in urban areas which have high population. Due to the low income of the workers, majority of the local employees do not have adequate disposable income that they can spend to stimulate the economy (Haney 38). As a result, development in the cities and other areas is limited.

The healthcare plans for the employees

The business underfunds the healthcare plans for the employees causing them to postpone care. Therefore, the productivity of the workers is greatly reduced. Hence, it causes a negative impact on the local economy because an unhealthy population cannot contribute effectively to the well-being of the families and the nation at large. The overreliance on state-sponsored healthcare affects the economy negatively because it drains funds that would have been used for other development activities (Bonanno, Alessandro, and Stephan 279). Therefore, there is a need for the firm to stimulate the economy by funding the workers' healthcare programs.

Wal-Mart causes negative fiscal impacts on the economy of the local area it is located because it replaces the local government's sources of property and sales revenue. Although the entity generates revenue for the authorities, a close assessment reveals that it leads to the collapse of other firms that the local government relied on for tax money. The exit of the local businesses from the market hurts the economy to a large extent. Moreover, the local government is required to implement new services to cater for a large big-box business such as Wal-Mart. Additionally, the low unit prices that Wal-Mart offers could contribute to low sales tax revenue to the authorities, especially if the organization causes a substitution effect in which buyers shift from high-priced local retailers (Wollschleger, Jason, and Jeremy 286). Also, in regards to property tax revenue, Wal-Mart may not cause an additional level of income for the authorities if it acquires a facility in which another business operated from. Notably, acquiring a new property would also cause a negative trend on the downtown district shopping centers, which contribute a significant amount of revenue to the economy. To be sure, the positive impacts associated with Wal-Mart would be offset by the negative results of its establishment. Although the business may realize increasing profits, it may cause harm to the local economy. Importantly, additional services should be provided by the local government to a large facility such as police, waste management, fire protection, and maintenance costs can offset the property tax revenue contributed by Wal-Mart. The company is known for its complex property tax as well as real estate arrangements. It appears that the business uses the approach to evade tax which indicates that the local community does not benefit from its presence (Haney 38). Therefore, the locals are compelled to pay more for additional services provided by the government at their expense. Research illustrates that the entry of a supercenter such as Wal-Mart translates into lower per-acre tax than when mixed businesses are in place. The local individuals should not view the entry of Wal-Mart as panacea to the economic struggles. Although the big box retailer may lead to several economic benefits, county planners should not view it as the only option. In fact, there is a need for the government to intervene by mandating and structuring the operations of large retailers.

Largely, Wal-Mart uses a centralized system of procurement in which most of the goods are purchased outside the United States and stored within special locations in the country. Instead of creating more jobs in the U.S., in particular, in the local settings, it exports manufacturing jobs to countries that are characterized with low environmental standards and labor costs (Hicks, Michael, Stanley, and Lee 314). Although it has negotiated with workers in China, it has failed to implement a good relationship with its employees in the United States. Therefore, it does not benefit the local economies of the different states in which it operates.

The introduction of Wal-Mart

Importantly, the hostility that exists between Wal-Mart and local retailers breeds the emergence of hate groups and political instability that affect the community. Notably, local businesses play a pivotal role in promoting civic engagement, and fostering acceptable values in the community (Collins 89). Therefore, the introduction of Wal-Mart leads to the breakage of the civic relationship due to hatred and protests that stirs confrontation among business owners, the leadership, and community leadership (Haiven 240). As a result, the local economy is hurt because such habits only lead to the destruction of peaceful co-existence which is vital for the local economy. Apart from the negative political impacts, Wal-Mart reduces economic growth in the communities that it is located. Research demonstrates that an addition of about $9 million involving healthcare costs is incurred whenever a big-box retailer enters (Newman, Benjamin, and John 990). Moreover, due to the poor workers' compensation structures and hostility towards employees' unionization, retirement benefits and pensions diminish. Therefore, Wal-Mart employees exert pressure on the local government because they demand a large amount of public assistance which may be higher than the collected sales and property tax revenue. Worse still, the entity applies unsustainable economic models that may affect the community in the future (Haney 38).

Wal-Mart's policy on workers' safety and environmental conservation face criticism because they do not take into consideration of the needs of the local community. In 2013, the Occupational Safety and Health Administration noted some violations in regards to environmental safety. Wal-Mart lost in a case involving the night lock-ins' in which a woman filed a class action suit for being locked in. Although the business has introduced measures to improve store safety, there is a need to consider if it implements them for the benefit of the workers and the local individuals. Apart from poor safety policies for workers, critics argue that the firm does not have a credible program for animal welfare. Notably, the failure to respect human and animal rights' affects can affect the economy because the business can achieve supernormal profits at the expense of the members of the local city.

The store contributes to economic decline of a particular locality especially if it engages in bribery and corrupt practices. With the aim of expanding to overseas markets and remote places without due compliance, Wal-Mart is associated with several cases of bribery. For instance, Wal-Mart de Mexico grew because the officials of the company bribed the authorities. Therefore, if the business violated the law to access entry into the region, then it is likely to participate in other corrupt deals and activities to safeguard its interests. As a result, revenue through sales tax is lost. Largely, the local community is affected not only because of the lost revenue but also because of the negative publicity of the area through the media. Immediately after Wal-Mart de Mexico opened, the firm's lawyer wrote to the headquarters in Bentoville to raise concerns about the corrupt activities. However, in 2006, the entity shut down the case even in the knowledge that the investigators filed credible evidence about the issue (Angotti, Tom, and Sarit 56). Still, the firm constructed a Sam's Club in a densely populated area in Mexico near BasU­licaT de Guadalupe without acquiring construction license, urban impact assessment, environmental permit, and traffic permit. However, investigations reveal that approximately $765 000 was paid as a bribe to facilitate the process. First, in an area that has low supply of clean energy and electricity, the entry of Wal-Mart limits the establishment of other entities because of the competition for a scarce resource. Second, it is evident that the chain store attracts the middle class individuals who require large parking lots and wider roads, which eat into the country revenue (Newman, Benjamin, and John 997). Bribery and corruption have far-reaching negative economic impacts in a locality (Haiven 248).

Newer job opportunities

Some experts argue that Wal-Mart supercenters create jobs, increase sales tax revenue, and promote business growth in the areas they are located. For instance, research indicates that individuals in California benefited with the introduction of the business because of the reduced level of taxable retail sales (Angotti, Tom, and Sarit 56). In addition, resident entrepreneurs received more retail licenses than before. Apart from the increase in sales revenue, property tax revenue tends to improve with the establishment of a Wal-Mart store. In fact, proponents demonstrate that individuals who secure employment in the facility receive higher wages and salaries than those employed in the conventional retail outlets (Angotti, Tom, and Sarit 67).

Although Wal-Mart creates newer job opportunities, it displaces others due to the closure of smaller establishments. In addition, the increase in the salary level of a single person or a particular group of people does not translate to economic benefits in the short run. Moreover, it appears that such workers are overworked and subjected to poor working conditions before they can attain the salary level. Despite the increase in the issue of new licenses for local retailers, the new entities are edged out of business in less than 15 months of the installation of Wal-Mart because the former provides a range of goods and services at a lower cost (Collins 89). The idea that both sales and property tax revenue increases with the emergence of Wal-Mart is untrue because per acre increase of the components is low.

Wal-Mart hurts local economies because the increase in revenue through sales and property tax is offset by the amount spent in providing additional services such as security and roads upgrade. Also, the company offers lower compensation than normal retailers; thus, reduces their purchasing power. Additionally, the entry of the firm creates a barrier for other retail organizations as well pushes out the existing businesses. The cases of bribery and corruption in Mexico indicate that firm has a poor policy and would engage in unethical practices by violating the law. As a result, it endangers the existence of retail incubators because of its financial muscle, therefore, leads to economic decline. Moreover, protests against Wal-Mart disrupt unity and cohesion in the area that it operates causing a sense of insecurity and antagonism, which impacts negatively on the public image of the place.

Works Cited

Angotti, Tom, and Sarit Platkin. "Walmart and gateway estates ii: a predator is poised to destroy jobs in east new york." (2011).

Bonanno, Alessandro, and Stephan J. Goetz. "Walmart and local economic development: A survey."T Economic Development QuarterlyT 26.4 (2012): 285-297.

Collins, Jane. "5 Walmart, American consumer-citizenship and the erasure of class."T Anthropologies of Class: Power, Practice, and InequalityT (2015): 89.

Haiven, Max. "Walmart, Financialization, and the Cultural Politics of Securitization."T Cultural PoliticsT 9.3 (2013): 239-262.

Haney, Matthew R.T The impact of Walmart on community outlook: A study of two communities in Texas. Diss. 2009.

Hicks, Michael J., Stanley R. Keil, and Lee C. Spector. "Mom-and-pops or big box stores: Some evidence of WalMart impact on retail trade."T Economic Development QuarterlyT 26.4 (2012): 311-320

Newman, Benjamin J., and John V. Kane. "Backlash against the tBig Boxt Local Small Business and Public Opinion toward Business Corporations."Public Opinion QuarterlyT 78.4 (2014): 984-1002.

Wollschleger, Jason, and Jeremy R. Porter. "A tWalMartizationtof religion? The ecological impact of megachurches on the local and extra-local religious economy."T Review of religious researchT 53.3 (2011): 279-299

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