George McGovern has always appeared to be one of the dying breed of socialist dinosaurs. But even he understands enough about politics to get what the problem is with the current attacks on Wal-Mart.

It can be galling to hear companies argue that they have to cut wages and benefits for hourly workers — even as they reward top executives with millions of dollars in stock options. The chief executive of Wal-Mart earns $27 million a year, while the company's average worker takes home about $10 an hour. But let's assume that the chief executive got 27 cents instead of $27 million, and that Wal-Mart distributed the savings to its hourly workers. They would each receive a bonus of less than $20. It's not executive pay that has created this new world.

I understand the attraction of asking business — the perceived "deep pockets" — to shoulder more of the responsibility for social welfare. But there are plenty of businesses that don't have deep pockets. Many large corporations operate with razor-thin profit margins as competitors, both foreign and domestic, attract consumers by offering lower prices.

The current frenzy over Wal-Mart is instructive. Its size is unprecedented. Yet for all its billions in profit, it still amounts to less than four cents on the dollar. Raise the cost of employing people, and the company will eliminate jobs. Its business model only works on low prices, which require low labor costs. Whether that is fair or not is a debate for another time. It is instructive, however, that consumers continue to enjoy these low prices and that thousands of applicants continue to apply for those jobs.

Now notice that statistic -- Wal-Mart has only a 4% profit margin. Raise costs, and either prices will go up or jobs will go down -- or both.

Now McGovern uses that to support socialized medicine, an increasingly progressive tax rate, and more transfer payments. He is, of course, wrong on those issues, not recognizing that such policies ultimately fail wherever tehy are tried. But the essentially capitalistic notion he supports regarding Wal-Mart is correct, and i praise him for that.

Posted by: Greg at 09:52 AM | No Comments | Add Comment
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