Researchers not Buying the Wal-Mart Effect

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Wal-Mart’s reputation for lower prices seems to have had special appeal during these tough economic times, a perception that bodes well for the retail giant, which operates 3,800 stores and employs 1.3 million people in the United States alone.

But to what effect? Wal-Mart is a lightning rod for criticism. Numerous popular books warn of the troubling consequences once Wal-Mart sets up shop in your town — driving down wages, killing jobs, putting local stores out of business and, particularly, degrading the fabric of communities across the country. There are even watchdog groups dedicated solely to scrutinizing the company.

Some of the effects of Wal-Mart are agreed upon by economists. Wal-Mart’s entry does seem to drive down prices and hurt local retailers, though the effects on overall employment and small businesses generally are more heavily debated. (For example, one argument is that new small businesses spring up to replace the older ones.)

What economists have largely ignored are the bigger questions of what it all amounts to quality-of-life questions beyond traditional economic subjects of employment, prices and output.

Enter economics professors Art Carden (Rhodes College) and Charles Courtemanche (University of North Carolina, Greensboro), who set out on an ambitious research program to test Wal-Mart’s effects on four broad quality-of-life areas: social capital, obesity, leisure time and social and political values — what Carden calls “the squishier stuff.”

Overall, they find the following: Wal-Mart has no noticeable effect on social capital; its arrival seems to help people lose a little weight; people spend more leisure time with items they can purchase at Wal-Mart when the store comes to town; and Wal-Mart’s arrival does not change people’s values.

“A theme of our research might be that the hype about Wal-Mart is a little bigger than the reality,” Courtemanche said. “Wal-Mart has come to be seen as a symbol of everything evil about capitalism, and when you look at what does it actually cause, well, there are substantial price effects but not a whole lot much else.”

On the subject of social capital, Carden and Courtemanche were responding to a recent article in the journal of the American Agricultural Economics Association that found Wal-Mart drove down social capital — as measured by the number of social capital-generating associations (ranging from bowling alleys to chambers of commerce); voter turnout, tax exempt nonprofits, participation in the 2000 Census and religious adherence — in communities.

Not satisfied with the previous article’s approach, Carden and Courtemanche expanded on the prior study, using 20 different indicators of social capital (instead of five), ranging from playing cards to entertaining at home to visiting friends at the individual level and while still measuring things like the number of nonprofits, associations and voter turnout levels at the community level.

They also used multiple estimation strategies. One of the challenges of estimating the consequences of Wal-Mart entry is that the store does not choose its locations randomly but decides based on certain characteristics of different communities. If these characteristics are associated with particular deficiencies in social capital, this could give the appearance that Wal-Mart is degrading communities when, in actuality, its arrival is merely an indicator of a community having diminished levels of social capital.

Econometricians have various ways of trying to get around this problem, and Carden and Courtemanche tried several. Their thinking was that if these effects are real, they should show up under multiple econometric approaches.

What they found was that depending on how they set up their statistical measurement, the effects of Wal-Mart on different indicators of social capital bounced around, going from positive to negative, from statistically significant to statistically insignificant — all suggesting that while there might certainly be cases where Wal-Mart’s arrival had a negative impact on various aspects of social capital, effects were far from uniform. Their findings are reported in the January 2009 issue of Public Choice.

“As far as the data seem to say, we can’t find a systematic causal relationship between Wal-Mart penetration and different measures of stuff we think is important,” Carden said. “Any observed relationship between Wal-Mart and social capital is purely coincidental. We can take the thesis that Wal-Mart destroys communities off the table — until somebody proves us wrong.”

Carden and Courtemanche also investigated the relationship between Wal-Mart as well as other discount stores (Sam’s Club, Costco and BJs) on obesity. Carden initially thought that the big-box retailers for sure would make people a little fatter by making food cheaper and encouraging people to eat more. But the research found the opposite to be true: Wal-Mart’s penetration seemed to cause a slight reduction in obesity, especially among women and poorer people, though the effect was pretty small.

“Our finding is that people increase their consumption of fruits and vegetables and eat a less fatty diet relative to everybody else when Wal-Mart is more prominent,” Carden said.

The professors also find that not only do Wal-Mart and other big discounters reduce the price of fresh produce, making it more affordable, but cheaper prices also allow people to spend more money on healthier food.

The study did find some negative health effects — greater big-box penetration led to a slight decline in exercise, and those who drank and smoked before drank and smoked even more when retailers made their vices of choice cheaper. Overall, however, these effects do balance out to make for a slight weight loss associated with big warehouse retailers.

Carden and Courtemanche also examined the relationship between Wal-Mart and leisure time. They found that increased Wal-Mart penetration leads to people spending less time playing outside and spending more time watching DVDs (and other forms of entertainment they can purchase cheaply from Wal-Mart). However, they do not find any decrease in “cultural” activities, such as visiting art galleries or going to classical music concerts — “suggesting,” they write, “that Wal-Mart does not contribute to the ‘dumbing down’ of society.”

In a fourth paper, they find that Wal-Mart has no meaningful effect on the political or cultural values of a community.

So what does it add up to?

“The takeaway for communities is that the alleged negative effects are way overstated,” said Carden, who noted that the professors received no funding from Wal-Mart for their research. “But there don’t appear to be any positive spillover effects either, so any subsidies to Wal-Mart are just a transfer from communities to the largest corporation in the world.”

Courtemanche thought that with people feeling poorer in a sluggish economy, they might now shop at Wal-Mart a little more, as some research seems to suggest. And this might have some small effect on the ways in which people are able to spend their money. But Courtemanche feels pretty confident that it won’t have any drastic changes, contrary to what Wal-Mart’s naysayers might think.

“Wal-Mart and stores more generally have the ability to influence some choices about how we spend our time,” he said. “But they don’t have the ability to influence our deeper core values. They can’t really penetrate on a deeper level and lead to cultural change.”

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