When I look at a downtown devastated by empty storefronts and For Sale signs, I see lost jobs, reduced property and sales taxes, and deteriorating infrastructure.
But when erstwhile presidential contender Steve Forbes looks at the same downtown, he sees the churning forces of the Free Market at work.
This is the economic version of a Rashomon experience -- where several people view what happened to this downtown with different eyes.
In his latest book, How Capitalism Will Save Us, Steve Forbes and co-author Elizabeth Ames rationalize the corrosive effect of stores like Wal-Mart on the rest of the retail sector by falling back on a theory first advanced nearly 60 years ago by an Austrian economist.
Joseph A. Schumpeter, who died in 1950 (the same year Rashomon premiered), published his Capitalism, Socialism and Democracy eight years before his death. His theory of the "creative destruction" at the core of capitalism has been used by every right-wing economist and politician since as a way of excusing the enormous wastefulness inherent in the Free Market system. Schumpeter described the "process of industrial mutation -- if I may use that biological term -- that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism."
Wal-Mart is the essence of retail mutation, incessantly destroying the existing merchants class -- firms both large and small. To Steve Forbes, this destruction "may have hurt some businesses, but it has created opportunities for other entrepreneurs, in addition to lowering costs for consumers" -- except for those millions of American consumers in manufacturing and retail who lost their jobs as a result of Wal-Mart's "creative destruction" of their livelihood. I can picture a textile worker in North Carolina telling his family that he lost his job at the mills because of the industrial mutation of capitalism.
In a recent Forbes magazine article adapted from his new book, Steve Forbes describes me as "one of (Wal-Mart's) most vocal opponents," and quotes me as saying in a Huffington Post story that local citizen's groups have killed many chain store developments. "Norman and others may be patting themselves on the back for helping to protect America's mom-and-pop businesses from the giant retailer," Forbes writes. "The problem is that America's small businesses did not need their 'help.'"
As proof of the positive effects of Wal-Mart, Forbes asserts that when Wal-Mart comes to town, nothing bad happens. He cites an anecdotal report from two researchers in Morgantown, West Virginia, who watched as their "popular downtown area was wrought with empty storefronts." The researchers observed that these vacant stores eventually were filled by new businesses, "such as coffee shops, art galleries and law firms." "This process of creative destruction is able to increase economic efficiency by the reallocation of resources," the researchers claim. The anecdote shows how little they--and Forbes--understand the retail sector.
What happened in Morgantown is not unusual. Many downtowns today have been converted from destination points for basic community commerce, such as grocery stores, hardware stores, and department stores, to a random collection of boutique stores and professional offices. This is a major 'trading down' of retail activity, an enormous loss of vitality for these core commercial areas. There is no net gain in this "creation" of niche businesses.
Wal-Mart has been compared to a retail plague: it makes every business sick, and kills off the weak. The exchange of a grocery store for a law firm or an art gallery is not an equal trade -- it is a net loss on many levels for a commercial area. This phenomenon has been reported in many studies about big box stores over the past twenty five years. Most recently, a 2007 study by an MIT researcher (What Happens When Wal-Mart Comes To Town) concluded that "Wal-Mart expansion from the late 1980s to the late 1990s explains about 40% to 50% of the net change in the number of small discount retailers, and a similar percentage for all other discount stores."
A similar study in 2003 by the group Retail Forward concluded that "for every Wal-Mart supercenter that opens in the next 5 years, 2 supermarkets will close their doors." And a research brief from the UC Berkeley Center for Labor Research in 2007 found that "Wal-Mart store openings lead to the replacement of better paying jobs with jobs that pay less. Wal-Mart's entry also drives wages down for workers in competing industry segments such a grocery stores."
Steve Forbes says that "markets are spontaneous 'ecosystems,' creation and destruction can occur in ways -- and in sectors -- that people can't anticipate." Many city and town officials certainly did not anticipate the destruction of their downtowns by big box chains -- but now that it has happened, the laboratory theories of Joseph A. Schumpeter are of little consolation to them.
The real world economic lesson is that Wal-Mart cannot save us, and neither can its apologists like Steve Forbes.
Al Norman is the founder of Sprawl-Busters. He has been helping communities fight big box sprawl for 16 years. His books include "Slam Dunking Wal-Mart" and "The Case Against Wal-Mart."