How Corporations Use The Government To Reduce Competition

Contrary to popular opinion, big business is no big fan of competition, and in many cases, are the strongest supporters of regulations. Why, you ask, would they be so against competition and in favor of regulation? For the simple reason that those on top always want to stay on top, and competition, along with less regulations, significantly threatens that. It is a lot easier to stay on top if you don’t have to do all of the hard work of actually competing with other companies, and instead have governemnt eliminate your competition for you.

In this case, that company is Wal-Mart. The Wall Street Journal writes:

Wal-Mart Stores Inc. Chief Executive Lee Scott, whose company has become synonymous with low prices and, critics say, low pay, called on Congress to consider raising the minimum wage. …

The proposal to lift minimum wage is particularly likely to raise eyebrows. Though Wal-Mart pays above the current $5.15 an hour minimum wage — the average hourly wage among its 1.3 million U.S. workers is just under $10 an hour — some of its smaller competitors don’t pay as much. As a result, a boost in the minimum wage could pressure the profitability of Wal-Mart competitors.

“This makes it look like they’re doing something for labor, but with little cost to themselves,” says Lawrence Katz, professor of economics at Harvard University, Cambridge, Mass.

Now you may think that this is good hearted of Wal-Mart to push for this, but Wal-Mart knows economics, and the economics of the minimum wage are clear, raising the minimum wage hurts workers (the lower down the economic ladder you are, the more the minimum wage hurts you), hurts businesses, and overall hampers competition. But when you’re the big tortilla on the block, that is precisely what you want, not what you fear.

To explain this better, I quote from Llewellyn H. Rockwell, Jr., economist at the Mises Institute, who writes about Wal-Mart’s push to increase the minimum wage:

H. Lee Scott, Jr., the CEO of Wal-Mart, surprised many by calling for an increase in the minimum wage. And what accolades were heaped on him! The company was even cast in a new role, from the exploiter of workers to the responsible advocate of pro-worker policies.

And how selfless, for who has to pay such higher wages but companies like Wal-Mart? And thus do we see a corporation set aside its business interests on behalf of the long-term interests of society.

The whole thing befuddled Wal-Mart haters as much as it disgusted its free-market defenders. …

And yet, let us think this through. Might there be another reason Wal-Mart would advocate a higher minimum wage?

Before looking at the evidence, let’s do some a priori theorizing based on the history of US corporate regulation. Historians such as Robert Higgs, Butler Shaffer, Dominick Armentano, and Gabriel Kolko have chronicled how the rise of business regulation, including intervention in market wages, was pushed by large companies for one main reason: to impose higher costs on smaller competitors. …

Think of it this way. Let’s say you run a retail coffee shop that sells only “fair trade” coffee, which is expensive to acquire, but for which consumers are willing to pay a high price. All is going swimmingly until a competitor shows up and sells unfair coffee that tastes just as good for half the price.

Let’s say consumers begin to change their minds about the merit of your “fair trade” coffee and your profits fall. You must make a change to survive. You can compete by offering a wider range of choice. Or you can lobby the local government in the name of “social responsibility” (oh, such high ideals!) to require that all coffee sold in your town be “fair trade.”

Who does that benefit? Your company. Who does it hurt? Their company.

Moving from theory to reality, we find that this is precisely what Wal-Mart is up to. The hint comes from the news stories: “Wal-Mart maintains that it pays above the current $5.15 an hour minimum wage to its employees.”

Now, most readers might just look at this as a case of leading by example. Would that everyone were as fair as the wonderful Wal-Mart! But a second look suggests another interpretation, namely that it wants to slam its smaller competition, which will be seriously harmed by having to pay more for labor.

The current minimum is $5.15. According to studies, Wal-Mart pays between $8.23 and $9.68 as its national average. That means that the minimum wage could be raised 50% and still not impose higher costs on the company.

Wal-Mart itself makes even more elaborate claims on Walmartfacts.com: “The national average for regular hourly Walmart wages is nearly twice the federal minimum wage, and higher in urban areas.” If true, the national minimum could be raised by 100% and leave the company unaffected.

So who would it affect if not Wal-Mart? All of its main competitors. And the truth is that there are millions of businesses that compete with it every day. Many local stores have attempted to copy Wal-Mart’s price-competitive model, but face lower costs and can actually thrive.

There are many ways to compete with Wal-Mart. Not all shoppers like sprawling stores. Others like better service with more experts on the floor. Others just hate crowds. But a main way to compete is to hire lower-priced labor. This could mean that your employees are from a “lower” rung on the social ladder, but they too need opportunities. The savings can be reflected in other amenities that Wal-Mart does not offer. There can be non-standardized products otherwise not available. The location might be better. Even prices for goods can be lower.

Even similar stores such as K-Mart can pay lower wages, and that can make the margin of difference. K-Mart pays over a much wider range, as low as $6.75 an hour. A major competitor is mainstream grocery stores, where workers do indeed start at minimum wage. Target too pays starting employees less than Wal-Mart, if the Target Union can be believed.

Now, if Wal-Mart can successfully lobby the government to abolish lower-wage firms, it has taken a huge step toward running out its competition. The effect of requiring other firms to pay wages just as high as theirs is the same as if the company lobbied to force other companies to purchase only in high quantities, to open large stores only, or to stay open 24 hours. By making others do what Wal-Mart does, the company manages to put the squeeze on anyone who would dare vie for its customer base.

But predictably, the politicians are all to willing to jump on the bandwagon, and support the minimum wage, a regulation that will benefit Wal-Mart, and directly harm the poor and unskilled worker.

Division of Labor has more.

6 Responses to “How Corporations Use The Government To Reduce Competition”

  1. DD says:

    Increasing the minimum wage as Walmart is trying to do will hurt small businesses and will make it harder for new companies to start up. Can anyone say ‘monopoly’?

    The jump is too high…..from $5.15 to an average of $8.00 + ?

    It figures, Walmart already hurts small businesses by getting their ‘bulk’ prices.

  2. DD says:

    Thanks for the lobby info…..good to be informed. 🙂

  3. irasali says:

    why is walmart so evil?

  4. In this case, it’s not just Wal-Mart, it is also those supporters in the government that are also pushing for a raise in the minimum wage…

    It takes two to tango…

  5. DD says:

    If Walmart wants to raise minimum wage, why don’t they start showing their passion for it by giving their ‘minimum wage workers’ a raise? 😕

    Pff. 🙄

    I see the writing on the wall…..imagine…..few unique shops/businesses and a walmart on every corner………….then once they lobby for their own agenda……BAM — they can lobby to lower due to ‘natural disasters/war time’ or whatever they want to lobby for.

    When 9-11 took place……Boeing did this to their “Union” workers.

  6. grandpa stole bets says:

    Program on the emergence of civilization.

    “14 species of large animals capable of domesitcation in the history of mankind.
    13 from Europe, Asia and northern Africa.
    None from the sub-Saharan African continent. ”
    Favor.
    And disfavor.

    They point out Africans’ failed attempts to domesticate the elephant and zebra, the latter being an animal they illustrate that had utmost importance for it’s applicability in transformation from a hunting/gathering to agrarian-based civilization.

    The roots of racism are not of this earth.

    Austrailia, aboriginals:::No domesticable animals.

    The North American continent had none. Now 99% of that population is gone.

    AIDS in Africa.

    Organizational Heirarchy
    Heirarchical order, from top to bottom:

    1. MUCK – perhaps have experienced multiple universal contractions (have seen multiple big bangs), creator of the artificial intelligence humans ignorantly refer to as “god”
    2. Perhaps some mid-level alien management
    3. Evil/disfavored aliens – runs day-to-day operations here and perhaps elsewhere

    Terrestrial management:

    4. Chinese/egyptians – this may be separated into the eastern and western worlds
    5. Romans – they answer to the egyptians
    6. Mafia – the real-world 20th century interface that constantly turns over generationally so as to reinforce the widely-held notion of mortality
    7. Jews, corporation, women, politician – Evidence exisits to suggest mafia management over all these groups.

    Movies foreshadowing catastrophy
    1985 James Bond View to a Kill 1989 San Francisco Loma Prieta earthquake.

    They can affect the weather and Hurricane Katrina was accomplished for many reasons and involves many interests, as anything this historical is::
    1. Take heat off Sheenhan/Iraq, protecting profitable war machine/private war contracts
    2. Gentrification. New Orleans median home price of $84k is among the lowest in major American cities, certainly among desirable cities.

    Our society gives clues to the system in place. We all have heard the saying “He has more money than god.” There is also an episode of the Simpsons where god meets Homer and says “I’m too old and rich for this.”

    This is the system on earth because this is the system everywhere.

    I don’t want to suggest the upper eschelons are evil and good is the fringe.

    But they have made it abundantly clear that doing business with evil (disfavored) won’t help people. They say only good would have the ear, since evil is struggling for survival, and therefore only the favored could help.

    The clues are there which companies are favored and which are disfavored, but they conceal it very hard because it is so crucial.

    I offer an example of historical proportions:::

    People point to Walmart and cry “anti-union”.
    Unions enable disfavored people to live satisfactorly without addressing their disfavor. This way their family’s problems are never resolved. Without the union they would have to accept the heirarchy, their own inferiority.
    Unions serve to empower.
    Walmart is anti-union because they are good. They try to help people address and resolve their problems by creating an enviornment where there are fewer hurdles.

    Media ridicule and lawsuits are creations to reinforce people’s belief that Walmart is evil in a subsegment of the indistry dominated by the middle and lower classes.
    Low-cost disfavored Chinese labor is utilized by corporate america to maximize margins. They all do it. Only WalMart gets fingered because they are the ones who help, and those who seek to create confusion in the marketplace want to eliminate the vast middle class who have a real chance and instead stick with lower classes who may not work otherwise. So they dirty him up while allowing the others to appear clean.

    The middle class is being deceived. They are being misled into the unfavored, and subsequently will have no assistance from their purchases with corporate america.

    I believe the coining of the term “Uncle Sam” was a clue alluding to just this::Sam Walton and WalMart is one of few saviors of the peasant class.

    Amercia is a country of castoffs, rejects. Italy sent its criminals. Malcontents.
    Between the thrones, the klans and kindred, they “decided” who they didn’t want and acted, creating discontent and/or starvation.
    The u.s. is full of disfavored rejects. It is the reason for the myriad of problems not found in European countries. As far as the Rockafellers and other industrialists of the 19th century go, I suspect these aren’t their real names. I suspect they were chosen to go and head this new empire.

    Royalty is the right way to organize a society. Dictatorships and monarchies are a reflection of the antient’s hierarchical organization.
    Positions go to those who have favor with the rulers, as opposed to being elected.
    Elections bring a false sense of how the world is. Democracy misleads people.
    Which is why the disfavored rejects were sent to the shores of America::To keep them on the wrong path.

    Jesus Christ is a religious figure of evil. These seperatist churches formed so they could still capture the rest of the white people, keeping them worshipping the wrong god.
    And now they do it to people of color, Latinos and Asians, after centuries of preying upon them.

    Simpson’s foreshadowing::Helloween IV special, Flanders is Satan. “Last one you ever suspect.”
    “You’ll see lots of nuns where you’re going:::hell!!!” St. Wigham, Helloween VI, missionary work, destroying cultures.
    Over and over, the Simpsons was a source of education and enlightenment, a target of ridicule by the system which wishes to conceal its secrets.

    Since Buddism doesn’t recongnize a god, the calls are never heard, and Chinese representation is instead selected by the thrones.
    Budda was the Asian’s Jesus Christ::: bad for the people. “They came up at the same time for a reason.”

    Jews maim the body formed in the image of “god”, and inflicted circumsision upon all other white people, as well as the evil that is Jesus Christ.
    I think about how Jews (were used to) created homosexuality among Slavics, retribution for the Holocaust.
    Then I think of the Catholic Church and its troubles.
    What connection is here between Jews and the Catholic church???
    If it is their sinister motives that’s behind the evil that is Jesus Christ are they being used at all?
    Perhaps it is them who are pulling strings.
    Their centuries of slavery in Egypt proves their disfavor. The Jew leaders decided to prey on the up-and-coming Europeans to try to fix their problems with the ruling elite, a recurring aspect of their methodology.

    I believe Islam is the one true religion, and those misled christians who attack “god”‘s most favored people will pay dearly one day.

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