Wal-Mart: The Good, The Bad, and The Ugly

WAL-MART: THE GOOD, THE BAD, AND THE UGLY….Ezra Klein comments on Wal-Mart’s plan to start selling a wide array of generic prescription drugs for as little as $4 for a 30-day supply:

Some of my right-wing readers may think this’ll make my head explode, but Wal-Mart’s embarking on a new initiative to use its size and weight to bargain down the prices on generic prescription medications. In other words, the company I always accuse of acting like a monopsony is now going to use their might to act as consumer advocates on health care ? which will be good for consumers and bad for Pharma. Hooray!

This is actually worth unpacking a bit, because no one ought to be surprised by Ezra’s reaction. Roughly speaking, there are three things that keep Wal-Mart’s prices low:

  1. A spectacularly efficient supply chain and logistics system that’s the envy of the industry.

  2. A willingness ? in fact, an almost palpable enthusiasm ? for using their enormous size to beat the lowest possible prices out of their suppliers.

  3. A scorched-earth campaign to prevent unions from organizing at Wal-Mart sites, thus keeping wages and benefits as low as possible.

I’m speaking only for myself here, not Ezra, but I’m pretty sure liberals like us don’t have any problem with #1, and not much of a problem with #2 either. Needless to say, we also don’t have a problem with Wal-Mart selling stuff as cheaply as possible. That’s good for everyone.

It’s really only #3 we have a problem with, because Wal-Mart is so big that their low wages have a depressing effect on all service sector wages. If they allowed workers to unionize and genuinely bargain for wages, that’s all it would take to keep us liberals happy. (Well, and maybe fixing stuff like this and this too.) Keep in mind that payroll for hourly workers at Wal-Mart amounts to less than 10% of sales, which means that even a significant increase would only force them to raise prices by 2 or 3 cents on the dollar ? and they’d still have great logistics and enormous leverage with their vendors, which means their prices would still be lower than everyone else’s.

So: Efficient operations, no problem. Economies of scale, no problem. Cheap generic drugs, hooray!

But: Poverty-level wages and benefits, big problem. That’s the wrong way to keep prices low.

UPDATE: It’s a good thing I was only speaking for myself, not Ezra. He thinks there are big problems with #2 as well.