Friday, August 1, 2008

Regulators, mount up

I came across an interesting tidbit today. Apparently, although Walmart is very strongly anti-union, it tends to support minimum wage laws and minimum wage increases. The theory is that Walmart competes on the fact that it has a better supply chain and better negotiating power than smaller competitors. Since wages make up a smaller part of Walmart's costs, higher employee salaries would hurt smaller shops more. So, Walmart lobbies for higher minimum wages in areas where it faces competition from smaller retailers.

I think this is an example of how even an otherwise well-functioning market can incentivize participants to break it. Can we really expect rational politicians to resist passing a law that both appeases the interest of large corporate donors and makes them look good to populist voters? How do you fix a situation in a capitalist democracy where everyone thinks it's a good idea to break the system, even though the average citizen will be worse off afterward?

1 comment:

Justin M Ross said...

I provide an alternative theory, since I cite your post I'm just letting you know it's out there: