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Jewish World Review
Jan. 3, 2006
/ 3 Teves, 5766
The Wal-Mart model
The American economy continues to surge ahead, though you won't read much about it in mainstream media. Economic growth in the third quarter was 4.1 percent despite Hurricane Katrina! the 10th consecutive quarter with growth over 3 percent. Unemployment is 5.0 percent lower than the average for the 1970s, 1980s, or 1990s. Since April 2003 the economy has created a net 5.1 million new jobs. Core inflation is only 2.1 percent, and gas prices, which surged above $3 a gallon after Katrina, are now down around $2. Productivity growth for the five-year period of 2000-2005 is 3.4 percent, the highest of any five-year period in 50 years.
This is a remarkable performance and owes something surely to the Bush tax cuts and to Alan Greenspan's stewardship at the Federal Reserve. But it also tells us something broader about the American economy. Mainstream media coverage about the economy tends to be full of bad news, especially during Republican administrations, and to focus on economic problems. But over the longer term the story of the American economy is one of success. A quarter century ago many economic commentators said that the era of low-inflation, high-job-creation economic growth was over. In the ensuing 25 years it has come to be the norm.
The negative bias of economic coverage can be seen in stories about the current No. 1 private-sector employer in America, Wal-Mart, and the No. 1 employer back in the 1970s, General Motors. The GM story is genuinely grim: The company is laying off thousands of workers and closing plants and is threatened with bankruptcy. Stories about Wal-Mart tend to focus on allegedly low wages and healthcare benefits, and to say less about the company's continual profitability and the low prices that benefit consumers. These companies are not entirely comparable; they're in different businesses. But some of the differences between them illustrate why the American economy, which seemed to have run out of gas 25 years ago, is now doing so well.
One big difference is this: General Motors' business model was designed for a static economy; Wal-Mart's for a dynamic economy. From the 1930s, GM as one of only three major automakers was able to pass along to consumers the high costs imposed by wages, pensions, and health benefits negotiated with the United Auto Workers. When emerging foreign competition started to make life tougher for Detroit executives in the 1970s, they tried to insulate themselves with government tariffs and domestic-content requirements. More recently, they've tried to offload their high healthcare costs onto the government. Wal-Mart, in contrast, started off with many retail competitors and has sought more, by taking on supermarkets. It competes by holding down costs and prices for consumers.
Quick reaction. Wal-Mart has been much more skilled at adapting to market conditions. Its computers keep it instantly apprised of sales, and its distribution system keeps stores stocked with items consumers want. Someone making a 3-ton car cannot adapt so quickly, but even so it still takes GM years to get new models on the market and often they're not what consumers turn out to want.
Then there are employment costs. Yes, Wal-Mart does not pay high wages or provide healthcare benefits to all employees. But not all workers today want full-time jobs (they may want to be home when kids return from school) or health insurance (many are covered by a spouse's policy or Medicare). And Wal-Mart promotes from within: You can work your way up from the store floor to management ranks. GM and the UAW, in contrast, insist on a sharp line between labor and management, with all employees working full time and getting full benefits. That made sense when almost all workers were men supporting families. But it is a poor fit with a labor market in which many workers are women, teenagers, or retirees seeking extra income.
In retrospect it's not so surprising that 25 years ago, when GM was deemed the prototypical firm, experts were pessimistic about the American economy. They failed to foresee that more nimble firms like Wal-Mart would rise and would supply the amazing resilience that has enabled the American economy to thrive, as Greenspan has observed, even when hit by calamities like September 11 and Katrina.
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Hard America, Soft America: Competition vs. Coddling and the Battle for the Nation's Future
America is divided into two camps, according to U.S. News and World Reports writer and Fox commentator Michael Barone. No, not Red and Blue, though one suspects Barone may taint the two groups in the hues of the 2000 presidential election. Barone's divided America is one part Hard, one part Soft. Hard America is steeled by the competition and accountability of the free market, while Soft America is the product of public school and government largesse. Inspired by the notion that America produces incompetent 18 year olds and remarkably competent 30 year olds, Barone embarks on a breezy 162-page commentary that will spark mostly huzzahs from the right and jeers from the left. Sales help fund JWR.
JWR contributor Michael Barone is a columnist at U.S. News & World Report. Comment by clicking here.
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