Do You Want To Build a WalMart? Local Policy and Creative Destruction

Do You Want To Build a WalMart? Local Policy and Creative Destruction

I’m not a super-skilled do-it-yourselfer. I am good with basic electrical work (installing ceiling fans and chandeliers, fixing/replacing wall outlet boxes and light switches) and basic plumbing (bathroom and kitchen sinks; toilets). I’ve laid composite flooring and painted my share of rooms, too.

But I’m not a wizard. Just good enough to know I am going to need help figuring out exactly what I need to do in the case of many do-it-yourself projects.

Fortunately for me, I have two big-box hardware stores (different brands) within a relatively short drive of my home. There, I usually can find what I need (though surprisingly not always exactly what would be best for the job, or, less surprisingly, the best quality), including decent advice.

My sense is that the quality of the advice has diminished somewhat over the 13 years I’ve lived in this area and shopped at these big box hardware stores.

I think I know why, though my evidence is purely anecdotal. I often found superior advice at these stores in the early years from a particular cadre of employees: former owners or long-time employees of small general and specialty hardware stores. They had come to work at the big box retail store after their business or previous employer had been made unprofitable by the very big box store in which they now were working.

I think we generally paid less attention to the impact on hardware stores than we have paid to the impact on all retail of Walmart. Indeed, Walmart has become the icon of . . . big boxism? It also has become the target (no pun intended) of many community protests against the effect of big box stores on local retail. In recent years, Walmart has spawned a cottage industry of economic studies trying to assess whether perception is reality. Do these big box operations actually have a negative effect on local mom-and-pops and smaller-scale companies?

To understand the research, one needs to understand the concept of “creative destruction,” originally articulated by Joseph Schumpeter early in the last century.

Schumpeter argues that successful innovation in the market (e.g., a new product, a new process for producing a product, a new approach to selling a product) will cause some competitors to be destroyed. In a Darwinian sense, it’s survival of the economically fittest, and less efficient competitors will lose market share to the more efficient innovator. Those who cannot or will not make the necessary adaptations quickly enough die off.

That’s the “destruction” part.

But this shaking up of the market also creates new economic opportunities. For example, the success of Henry Ford (and others) in making the automobile the preferred mode of transportation wiped out urban-area businesses involved in horse-and-buggy work. One didn’t need stables, or wheelwrights, or groomsmen any more (among many other businesses). On the other hand, new opportunities for business ventures to support the automobile were discovered and developed: gas stations, auto mechanics and, more recently, auto detailing services, among many others.

Schumpeter had a generally optimistic view of this process of innovation and creative destruction. Short-term losses in businesses and employment would be less than longer-term gains in efficiency (which reduces costs) and new businesses and employment. New life would spring from the ashes of the old . . . new and, in some ways at least, better life.

Along the way to this new growth, however, one thing is certain. To quote Russell Sobel and Andrea Dean, (whose 2008 study of the creative destructive effects of Wal-Mart generally supports Schumpeter’s theory):

To be clear, there is no question that certain specific small businesses fail because of the entry of a Wal-Mart store and that Wal-Mart has negative impacts on other major retailers like Kmart.

(Has Wal-Mart Buried Mom and Pop?: The Impact of Wal-Mart on Self-Employment and Small Establishments in the United States. Economic Inquiry 46,4: 677.)

Winners and losers. Always, winners and losers.

What local governments cannot avoid is the role they play in setting the rules that will influence who the winners and losers will be. Zoning laws either facilitate or inhibit the entry of big box stores, just as they once facilitated or inhibited the emergence of strip malls, then regional malls. Choosing to invite the big box in means choosing to launch a particular economic process of creative destruction. Blocking their entry means inhibiting that process.

The question is, what are the implications for our communities of these economic fights to the death?

Next: What Rises from the Ashes of Big Box Business?