Monday 20 April 2009

Walmart and Gazowhat

Free market preachers never tire of giving examples of Soviet retail giants and government distribution agencies which constricted choice, eliminated competition, destroyed efficiency, destroyed the Soviet system and won USA the Cold War.

Perhaps, but I don’t remember reading any populariser laying the same blame of recent crashes at the door of giant MNCs like Walmart, P&G and GM.

These are not government bodies, obviously, but they are surely gigantic. Why should they not invite all the ills of planning and obesity to visit the economies they operate in?

For what competition can realistically exist in a land where Walmart decides, say, that all men should wear the same shirt, stitched in the same cut and and at the same cost in Bangladesh and Guatemala.

One can argue that Walmart, in spite of its size, is not a monopoly. It must compete with This-mart and That-mart. But do we really believe that a system where mammoth sellers club each other in bloody price wars can offer real choice to buyers? If P&G has brand A does Lever have any choice but to offer its cousin, A1 – never mind the billions spent in ads to differentiate them?

Now, lack of (real) choice (i.e., discernibly different benefits) should mean that buyers have no clear preferences and loyalty, and, consequently, no reason to pay any premium to anyone.

In other words, irregular and, at best, wafer thin profits throughout any given industry. If profits exist, they’d probably be in the coffers of niche brands, which have minimal roles in the the giant Western economies.

Imagine linked treadmills all around, the entire mass (mess) going nowhere. 

Doubtlessly such a view is simplistic and illiterate. Is it wrong too?

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