Wal-Mart Reconsidered

Even if it doesn't help small businesses, does it really hurt them?

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When I blogged about Wal-Mart last week, I got some nice skepticism in the comments section regarding the suggestion that Wal-Mart is not a ravager of local businesses but could in some instances be a boon to them. For example, "Dan from CA" said, "I have experienced first hand when ever large corporations like Wal-Mart, Costco and Home Depot come into a neighborhood. It always has hurts the small business."

He's definitely expressing the conventional wisdom. And the idea that Wal-Mart, with its severely discounted prices, is a force that few small businesses can compete with makes intuitive sense. But it's often the case that our intuitions don't hold up against evidence.

That might be the case here. Russell Sobel and Andrea Dean of West Virginia University have recently released what they call "the first rigorous econometric investigation" of Wal-Mart and its influence on the small-business sector. They were unable to find any statistically significant impact on the size or profitability of the U.S. small-business sector by Wal-Mart. According to Sobel and Dean, any negative impact on small businesses that compete with Wal-Mart was outweighed by the entry of completely new small businesses into the economy.

This is just my conjecture, but if Sobel and Dean are correct, here's one reason that this could have happened: Wal-Mart's business model has not only made goods available at unprecedented low prices for its shoppers, but it also has had a downward effect on retail prices generally. That gives consumers more money to spend and, as a result, frees up resources that can be used by entrepreneurs to start businesses in completely different sections of the economy that do not compete with Wal-Mart.