Wal-Mart Revisited

Wal-Mart has its detractors on the left and the right. Liberals lament the "artificially low wages" and the "disregard for the little guy," be that person an employee or a business owner. Conservatives tend to dislike the company's passion for cheap products, which translates into huge imports from other parts of the world. Its fans note that Wal-Mart is noted for its ability to drive down prices and generally lowers employment in the areas it moves in to.

With that, I was intrigued by a recent article in Foreign Policy that discussed the impact that India's first Wal-Mart had this past summer in Amristar. Those opposed to the major stores feared that Wal-Mart was going to destroy the country's traditional culture. Foreign Policy, on the other hand, sees it as an indicator of major things to come on the economic front.

The article points out that Wal-Mart has started operations in 15 countries since 1991, and 13 of them have seen their economies explode. The average annual growth was a substantial 4.4 percent. In fact, the article demonstrates that over the last five years, the economies of Wal-Mart countries outside the United States have grown 40 percent faster than the world average.

Is this mere coincidence or is there something more to it? Does Wal-Mart provide the spark plug for these countries to explode economically or are they simply effective at doing their homework and know where the next great economy will be?

Foreign Policy argues that it is more of the latter than the former. Wal-Mart is very selective of the country's it chooses. Without a middle class, people who have money to spend but it is scarce enough that value truly matters, a country easily removes itself from the selection process. Wal-Mart wisely selects places that has a very large middle class, which helps to guarantee the country's future profits.

According to the World Bank, the number of the middle class in the devolving world should increase from should increase from 56 percent in 2000 to 93 percent in 2030. Next on the Wal-Mart radar screen are Russia and the countries of Eastern Europe, according to Foreign Policy.

The economic indicators of countries before and after Wal-Mart are impressive:

• Brazil has 352 stores and went from an average annual GDP of 1.3% before Wal-Mart to 3.8 percent on average between 2003 through 2007 after the store entered the scene.


• Japan has 371 stores and went from an average annual GDP of 0.5% before Wal-Mart to 2.1 percent on average between 2003 through 2007 after the store entered the scene.


• Even Mexico has enjoyed the Wal-Mart years with 1,242 stores and went from an average annual GDP of 1.7% before Wal-Mart to 3.3 percent on average between 2003 through 2007 after the store entered the scene.

It appears that those who hat Wal-Mart and despise its arrival to their country will likely find themselves crying all the way to the bank. Maybe countries would serve themselves well by developing policies that mirror Wal-Mart's criteria for expansion.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

Lies, Damnable Lies, and the Growth of GDP

The 3.5 percent jump in the Gross Domestic Product (GDP) has many (particularly in government) declaring that "the recession is over!" Tell that to the 10 percent of the population that remains unemployed and to the thousands of small businesses limping along in an economy that is still flat, at best. There is an old saying, "any increase is significant when you are starting at zero." That is a fair summation of the "jump" in the GDP.

Many who are well versed on what is going on in the political and economic front are far more cautious than those in politics with an agenda and those in the media who are die hard fans of those with an agenda. Many economists are approaching this increase in the GDP with a healthy amount of cynicism, which may be why you are seeing little about their criticisms in the media. But there are many with serious business and economic credentials that are pleading for caution.

RDQ Economics states that "We need many quarters of GDP running at this pace (or faster) to make significant inroads into reducing unemployment." Great point, jumping to conclusions about the recession will have us making 10 percent unemployment a reasonable expectation for a healthy economy. I do not believe any of us are ready for that.

Stephen Stanley, RBS stated that consumption played a big role in getting the increase, but the "details look less promising. About 40% of the increase in consumer spending came from motor vehicles, reflecting the transitory boost from the cash-for-clunkers program. As auto sales recede in the fourth quarter, consumer spending is likely to grow much less rapidly. Similarly, state and local governments seem likely to face tougher cutbacks with no further boost from the fiscal stimulus while defense spending is likely to cool. Meanwhile, residential investment looks likely to keep growing but at a less vigorous pace while business investment spending growth looks unlikely to improve much more until a clearer picture on consumer demand emerges." The increase is caused by government, which can only be sustained by continued increases in spending, which will only further destabilize the long term economy. Our GDP is built on a house of cards and Stanley's suggestion that the fourth quarter will see another decline makes perfect sense.

Guy LeBas, Janney Montgomery Scott, note that "The final handful of dirt on the Great Recession's grave: today's data provides a needed psychological end to seven quarters of shrinking economic output. While there's a great deal of uncertainty as to conditions for the coming few quarters and years, at least we can say the last few months have been good ones for output. We remain very much concerned, however, that the pace of consumer activity will slow sharply now that government spending incentives are expiring." Bottom line is that there is a genuine concern that the increase is driven by government smoke and mirrors, and not in a real increase in consumer demand.

Paul Ashworth of Capital Economics stated that "Our concern, however, is that all those positive factors will fade badly in the second half of next year. If consumption growth remains unusually lackluster, then GDP growth would slow to a crawl again." Ashworth, like many economists, recognizes that this demand is artificial and driven by the government. When the government pressure subsides, the GDP will likely shrink.

Millan L. B. Mulraine of TD Securities suggests that "with the significant fiscal and monetary stimulus providing the main impetus for this sharp rebound, we expect GDP growth in the coming quarters to be less robust as their impact wanes..." Again, government created GDP.

Finally there is John Silvia of Wells Fargo who noted that "Big contributors were consumer spending on autos - cash for clunkers - federal government, inventories and housing - tax credit… Core issue: how much of this is sustainable without Fed programs?" What an excellent question, one I wish was asked by more people in politics and the media.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

Rahm Emanuel...Accidental Genius?

I've enjoyed GQ Magazine for years. I'm not sure why, I rarely buy the clothes (they are too trendy), I never party where they suggest, and I generally hate their political perspectives. This continues to be true and was reinforced recently in the most recent issue in which they crown Rahm Emanuel as the new king maker of the Democratic Party. Who is Emanuel you ask? A former Clinton strategist who is the Chairman of the Democratic Congressional Campaign Committee.

The article sings Emanuel's praises and points out several key races where he "made a difference." But giving him credit for Republicans losing the Congress is similar to giving Al Gore credit for creating the Internet. Okay, maybe not that outrageous, but I think you get the point.

Who is responsible for the change in Congress? Several factors. The first is history, incumbents in the White House that make it to two terms virtually always lose seats (many in fact) on the 6th year of their term. Secondly, there is the media, which told us the economy simply wasn't good enough with its less than 5 percent unemployment, ridiculously low inflation, and significant growth in the GDP. Finally, there was the negative affects of the war (thanks again to the media's negative depiction). This was probably the single biggest factor. However, any (and certainly all) of these factors were far more important than Emanuel or his strategies. He is an accidental genius, if a genius at all.

I don't envy Emanuel, because I believe that Americans will likely come to their senses and this "genius" will become just another victim of history. I just hope the Congressman doesn't figure out the formula I describe in the paragraph above, because he will likely be depressed, because those factors had nothing to do with him. It may be unfair to say Democrats won in spite of him, but it would certainly be more accurate.

GQ and other publications with a liberal bent need a "hero" for these elections. They need a person to make the "miracle" of another Democratic victory. Hey, I know its Christmas, but it is easier for me to believe in Santa Claus than Emanuel. Emanuel is just a fad, for which GQ is famous for finding.