Walmart's Monopoly Power Increases Poverty

And taxpayers end up paying for it.

Photo credit: Mike Mozart

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I once talked to a state legislator (who shall remain anonymous), who said his successful campaign was based on telling his constituents that Walmart and Amazon had overrun their community, “and maybe being able to buy all that cheap crap wasn’t worth it.”

That quote was running through my mind as I read a new study about Walmart’s effect on local communities. The researchers found that the entrance of a Walmart Supercenter into a community resulted in an increase in poverty that lasts for a decade, requiring an increase in government safety net spending at the same time that tax revenue falls.

Specifically, they found:

• The opening of the first Walmart Supercenter in a county leads to an increase in poverty of around 2 percentage points, and poverty is 3 percentage points higher 10 years after the Walmart opening.

• Annual household earnings decline by $4,230 after a Supercenter opens, and that amount increases over the next 10 years.

• Supercenter openings increase safety net spending by $200 per household per year, in the forms of both direct government assistance and increased tax credits.

• At the same time, tax revenue falls by $920 per household per year.

• Those last two points result in “an average annual cost of $3 billion to public finances through this combination of increased transfer payments and reduced tax revenues.”

The researchers conclude that, “overall, our results indicate that local monopsony power increases households’ likelihood of poverty.”

Monopsony power, remember, is the inverse of monopoly power — it’s the power of buyers, in this case buyers of labor, to dominate a market and drive down the price they pay, which in this case is wages, benefits, etc.

Walmart’s monopsony power, then, by driving down the cost of labor, increases poverty and costs taxpayers all across a local community, harming everyone, not just those folks who happen to work at Walmart. (Yes, I know I used “monopoly” in the title of this piece, but that’s because it’s the term more people are familiar with, even if it’s not technically the most accurate word to describe Walmart’s specific brand of power.)

This is certainly not the first study to find that Walmart has a detrimental impact on local communities. I covered one two years ago that similarly found Walmart’s labor market dominance results in a loss of wages and jobs across local communities, and particularly in the retail sector.

But an interesting point in this new study gets at the quote I used above: The researchers found that the poverty increase associated with Walmart’s entry into a community is consistent even if you factor in that Walmart’s lower prices increased the purchasing power of local residents. Lower prices, then, were more than offset by decreased wages.

To boil it down completely: The ability to buy cheap crap did not make up for the loss of income caused by corporate dominance.

This is actually a very important finding for a very specific reason: In the view of antitrust law that has dominated for the last half century or so, the only thing that matters is consumer prices. So corporations such as Walmart, Dollar General, and Amazon have managed to evade scrutiny, even as they completely took over local markets, since low prices is their whole shtick.

But this research shows the myopia of that view: The benefits of lower prices can be more than offset by other harms caused by corporate consolidation and domination. Antitrust law is supposed to account for such harms, but because of a change in philosophy — not a change in any law — that hasn’t occurred for several decades.

Meanwhile, government becomes responsible for filling the gap left when monopolies refuse to pay a living wage, provide adequate benefits, or have acceptable health and safety standards for their workers, even as its own resources shrink.

So while local businesses may have somewhat higher prices, if they pay their employees more, buy from more local suppliers, and keep more money in the local community, as opposed to sending it out to shareholders somewhere else, they can provide more oomph to the economy, more than making up for the sticker price they charge, and decreasing the need for government to expend resources.

Indeed, one of the great disasters driving our politics today is that, in the quest for ever-lower prices, political leaders outsourced our manufacturing base to low-wage countries, allowed national retail chains to take over, and stood idly by while local businesses — in everything from general retail to pharmacies to restaurants — were driven into the ground. Antitrust law withered, and economic development became focused on throwing public dollars at dominant corporations that rarely kept their promises.

The result: Huge swathes of the country hollowed out by corporate power, turned into the modern equivalent of company towns where a few giant employers dictate terms to everyone.

The Biden-Harris Administration has started to turn the ship on the first problem, with the Department of Justice and the Federal Trade Commission filing antitrust cases due to the harms that corporations are able to inflict on workers. For example, as I explained briefly last week, the DoJ filed a statement of interest in a class-action lawsuit alleging that a Pennsylvania hospital chain, UPMC, uses its outsized power to drive down wages and working conditions across Western Pennsylvania.

Fully grappling with the monopoly power of firms like Walmart will require much more action from all levels of government, over a considerable period of time. But at least we have the numbers to show that such action is more than warranted, and that the ability to buy cheap crap was, indeed, not worth it.

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SHAMELESS SELF-PROMOTION: I had the amazing opportunity last week to interview Arizona Attorney General Kris Mayes, who is one of the best AGs in the country and is leading an antitrust revival in her state. You can watch it here.

I also spoke with the New Jersey Monitor about new legislation to ban the use of algorithmic price-fixing software in rental housing. You can give it a read here, and learn more about the issue from my previous coverage here and here.

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SIMPLY STATED: Here are links to a few stories that caught my eye this week.

• More communities and politicians are pushing back against new data center construction.

• 14 state attorneys general sued TikTok, alleging it uses addictive features to harm the mental health of children.

• Disney’s victory in an appraisal case could cost schools in Orange County, Florida, millions of dollars.

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— Pat Garofalo