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.

Tax Policies in a Small World

The cliché that the "world is small" has increasingly become fact and not merely a clever statement. In fact, one of the most important books on the changes the world has faced in recent years is "The World is Flat" by Thomas Friedman. In it, Friedman points out that the lag time between information and decision making is at a all time low. Not only do people know where the best places are for the best deal on a car or a TV, they know the best states and countries for doing business.

Ireland went from what was practically a "third world" country in Europe to one of the fastest growing economies in the world. That was directly linked to its efforts of pursuing the lowest corporate tax rates in the industrialized world. Meanwhile, in the same time frame, Japan's economic situation has only become more dire as it continued to pursue high tax policies and garnering the dubious distinction as having the worse tax environment for business among modern economies.

The problem facing governments is simple, because in addition to being able to find our information fast on changes in government policies, people are able to move capital at a more rapid rate than any time in history. This is particularly true for the very wealthy (who have the resource to move money), who are always a popular target for high tax policies. The problem is not only among countries, but among regional or state governments (depending on the country).

Take the problem facing Maryland. The Wall Street Journal notes that the state of Maryland was in a terrible fiscal crisis and the government decided to saddle the deficit on the backs of the rich and "created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were 'willing and able to pay their fair share.' The Baltimore Sun predicted the rich would 'grin and bear it.'" The article goes on to point out that a year after the tax increases, "One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a 'substantial decline.' On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates."

There is no doubt that the recession is playing a role in the problem of less revenue coming into the states. However, the amount of revenue that Maryland is losing far out paces the majority of the states in the union. The rich are people and not blocks of wood. Unlike an inanimate object, when people are attacked (in this case "the rich" in the form of high taxes) they "fight" (which is why they join the many other income groups adversely affected by government in protests) or they "flight" (capital leaving to find safer or more profitable places).

Obama has waged a war on those he deems affluent. This is beginning to include those who make less than $250,000 a year as seen in cigarette taxes and Cap and Trade. Even before many of Obama's policies have been put into law, businesses are responding. USA Today reports that Federal tax revenue "plunged" by the largest amount since 1981." There is no question that many of the dollars disappeared due to the recession, but there appears that much may have taken "flight" to safer places.

If the US is serious about increasing its revenues, it will need to develop tax policies that allow it to compete with other countries that are fighting to improve their economic circumstances. Just as companies have to compete with low prices, countries now have to compete with lower taxes.

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.

Horror Stories are the Tip of the Rationed Care Iceberg

Americans have been discussing concerns about rationed (or government driven) health care for years. In the early 1990s, when Bill Clinton pursued such a program, we heard daily about the problems of long lines and lack of doctors that were common in government programs. Now we are hearing stories about the much lower success rates in countries with government care when it comes to combating major diseases. This goes against one of the fundamental reasons people argue for government care -- without fear of cost, people will go to the doctor quicker, get diagnosed earlier (or better still do the things that will prevent disease), and live longer and healthier lives. The facts are not supporting this hypothesis:

• The average time frame between a general practitioner and treatment in Canada's socialized health care program is more than 4 months (17.3 weeks) according to the Frazier Institute.


• 20% of curable lung cancer patients in the UK die due to long waiting lists, according to the Manhattan Institute. This is also the case in other conditions as I can speak from my own personal circumstances in which I lost my grandfather and an aunt due to Britain's famous lines.


• According to Investors Business Daily: "In France, the supply of doctors is so limited that during an August 2003 heat wave — when many doctors were on vacation and hospitals were stretched beyond capacity — 15,000 elderly citizens died."


• According to Forbes Magazine, the prostate cancer survival rate in the US is 80 percent, in the UK it is 44 percent.

These areas are huge in and of themselves, but the bigger issue is the impact rationed care will have on the development of new drugs, technology, and other innovations in health care. The poor quality of service seen in socialized systems cited above are largely would be even worse if not for the innovations created by the US system. Imagine how much more difficult quality care will be to achieve when all but the most altruistic incentives for improvements disappear. The profit driven health care system of the US drives innovation.

The Federal Reserve Bank did an evaluation of the ten leading innovations of 2001. These included improvements and discoveries in several areas, such as changess in MRIs, development of drugs for high blood pressure and heart disease, cholesterol reducing drugs, innovations in breast cancer diagnosis, surgery for heart failure, eye surgery, and more. In the ten different major areas of discovery, the United States dominated the list with its involvement in eight. The only other countries that played a role were the United Kingdom and Japan, each having only two innovations each.

Self interest has always driven innovation. The US has stood alone as a country that has made such a primary driver in changes in health care. It makes sense to wonder what the effects of worldwide health care socialism has already had on health care. Imagine what it will be like when the last bastion of innovation, the United States, loses the profit motive that has made this country the leader in health care discoveries for decades.

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.

Lessons About Taxation Remains the Same

Recently someone sent me a copy of a speech I gave around fifteen years ago in Warsaw, Poland. It appeared in Vital Speeches of the Day. It was funny, "Kevin, did you see this?" Yes, I'm familiar with it, after all I wrote it. His enthusiasm compelled me to sit down and to review to see if there were any lessons garnered then that would be useful now.




The basic thesis of the speech was that freedom works and I pulled many examples from both history and current circumstances (at the time). One lesson that stood out in particular was the miracle story of Japan. At the time I gave that speech in the early 1990s, Japan was the poster child of economic freedom and had one of the fastest growing economies in the world following infrastructural and economic disaster after World War II. The reason for that phenomenon, at the time I gave that speech could be summed up in three things about Japan:

• Japanese management and workers cooperate as a team to succeed in the market place, rather than oppose one another as in the case of labor unions. This is reflected in the fact that the Japanese have company unions rather than labor unions. Company unions are inclusive, when they say "us against them" they mean competitors. When labor unions say "us against them" they mean management. These subtle differences are crucial in the success of Japanese corporations.


• There is great emphasis on savings and investment. The typical Japanese laborer in urban areas saves approximately 20 percent of his income.


• Finally, the tax system encourages economic growth by staying very low. In fact, their taxes are the lowest of any industrialized country in the world.
  

Those who monitor current affairs know that Japan is now known for its economic stagnation and has suffered such for over a decade. Why the change in fortune? One does not need to look any further than point number three. Today, Japan has the highest tax rates of any modern economy. Meanwhile a European economy known for perennial economic weakness -- Ireland -- is one of the fastest growing economies in the world. The reason for its success is due to Ireland reducing its tax rates to among the lowest in the world.

Nothing is more effective in attracting capital and stimulating economic growth than lower tax rates. If the United States is serious about fostering economic growth and prosperity, it will demonstrate such by competing with other countries for businesses and jobs through lower tax rates.


Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Developing Countries Need Free Trade and So Do We

I am tired of the hypocrisy. I'm tired of the pleas by bleeding heart liberals about the need to send aid to developing countries on the one hand, but have vehement opposition to providing free trade, which is by far the most effective means of creating worldwide prosperity. The great thing about free trade, is that it also benefits our consumers too.

International aid often cripples developing countries by providing cheap agriculture products that makes it impossible for poorer countries to develop agriculture of their own. Often such aid never gets past the hands of corrupt governments who oversee the distribution of goods. The bottom line, traditional aid in its best implementation and intention always fosters long term dependence.

Free trade, on the other hand, fosters interdependence. The United States, which is the most prosperous country on the face of the earth, desires affordable goods. We want every economic group to be able to afford items that in the past was only afforded the most wealthy. This is achieved through "cheap labor." Meanwhile, poor countries want to improve their economic situation and see the jobs Americans won't do as a means towards that end.

Fundamentally, everything comes back to supply and demand. Developing countries have the supply of people, we have a demand for goods. Our disdain for "exporting jobs" to these developing companies goes back decades. I recall the song by Paul Revere and the Raiders, Cherokee Nation, which states:

"They took away our native tongue
And taught their English to our young
And all the beads we made by hand
Are nowadays made in Japan"

Cheap goods made in Japan? Not anymore and it is no longer a developing country, but one of the richest in the world that has to export jobs to Malaysia in order to satisfy Japan's consumer demand. We pulled Japan out of Post World War II poverty and devastation voluntarily while enjoying an improvement in our own quality of life. It is difficult to find the down side.

The jobs we are discussing as "exported" through cheap labor are largely mythical. I guess if we lived in a pure free market and applied the "quick as hell" employment theory (if we got rid of every government program, people would get a job....I think you get it), these jobs would be filled by fellow Americans. That is certainly a noble goal and one I could support, but don't see happening. So in the interim, Americans are able to enjoy a higher quality of life at a lower cost and foreign countries are becoming more prosperous, advanced, and free without a single taxpayer dollar. In essence, we can have our cake and eat it too.

The myth of trade deficits being damaging continues to persist in the context of this discussion. We are told that the silver lining to our declining economy is the fact the trade deficit is shrinking. That is because the US can't afford to buy as many goods as it did in the past. Where is the upside to that? Free trade benefits everyone by making rich countries richer and poor countries richer too.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

The Wealth Gap

One of my sons sent me an interesting article from MSN about the wealth gap in the world. The article title cannot help but grab your attention: "Got $2,200? You're Rich on a Global Scale."

The artcle points out that the world's three richest people are worth more than the 48 poorest countries combined. That is a very serious gap, we are informed. Further, the article points out that the top 2% of the population makes more than half of the world's household wealth.

I believe that these articles are truthful in content, but often have an agenda beyond being informative. Often we come to moral conclusions about right and wrong when it comes to information such as this, without understanding the larger economic issues.

The question articles like this might want to address is, why are some countries wealthy and others are not?

Why is the United States the richest country in the world?

Why is Japan among the world's most affluent, yet it has virtually no natural resources of its own ("natural resources" is one of the excuses used by some to describe why some countries are affluent and others are not)

Why is Singapore, which is one of the most densely populated countries in the world, prosperous when Somalia (which has a density that is similar to the US) is one of the poorest countries in the world? We have been told that people cause poverty, but it isn't working in this and many other scenarios.

The answers to these questions are far more useful than the issuess offered in the article and the answers point to the power of free enterprise. The countries that are affluent and enjoy far more wealth, also have stronger committments to private property, lower government cost for doing business (fewer regulations, licensing laws, or taxes), and generally smaller (or at least more efficient) governments. Conversations on how the world's poorest countries could pursue such an agenda of their own, would make those countries far richer and would make for more interesting content.

Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Pearl Harbor: The Date of Infamy

Franklin Roosevelt's Declaration of War against the Empire of Japan is one of my favorite speeches from the 20th Century. The line, "December 7th, 1941 - a date which will live in infamy" - is the most memorable of the speech and one of the best recalled in US history. However, the speech only begins there.

In this speech, relatively short by modern standards, Roosevelt persuasively and eloquently makes the case of war. In a chilling fashion he does an inventory of Japan's offensives. And, although the US was clearly a victim in this shameless act of aggression, Roosevelt maintains a position of strength. In essence, he doesn't cower, but says "you are missing with the wrong country."

Like I said, the speech is short, so I don't want my thoughts to be longer than the presentation itself; so here are the words of Roosevelt. His reminders, in light of our current conflict are very helpful today:

"Mr. Vice President, Mr. Speaker, members of the Senate and the House of Representatives: yesterday, December 7th, 1941 - a date which will live in infamy - the United States of America was suddenly and deliberately attacked by naval and air forces of the Empire of Japan.

The United States was at peace with that nation, and, at the solicitation of Japan, was still in conversation with its Government and its Emperor looking toward the maintenance of peace in the Pacific. Indeed, one hour after Japanese air squadrons had commenced bombing in the American island of Oahu, the Japanese Ambassador to the United States and his colleague delivered to our Secretary of State a formal reply to a recent American message. And while this reply stated that it seemed useless to continue the existing diplomatic negotiations, it contained no threat or hint of war or of armed attack.

It will be recorded that the distance of Hawaii from Japan makes it obvious that the attack was deliberately planned many days or even weeks ago. During the intervening time the Japanese Government has deliberately sought to deceive the United States by false statements and expressions of hope for continued peace.

The attack yesterday on the Hawaiian Islands has caused severe damage to American naval and military forces. I regret to tell you that very many American lives have been lost. In addition American ships have been reported torpedoed on the high seas between San Francisco and Honolulu.

Yesterday the Japanese Government also launched an attack against Malaya.

Last night Japanese forces attacked Hong Kong.

Last night Japanese forces attacked Guam.

Last night Japanese forces attacked the Philippine Islands.

Last night the Japanese attacked Wake Island.

And this morning the Japanese attacked Midway Island.

Japan has, therefore, undertaken a surprise offensive extending throughout the Pacific area. The facts of yesterday and today speak for themselves. The people of the United States have already formed their opinions and well understand the implications to the very life and safety of our nation.

As Commander-in-Chief of the Army and Navy, I have directed that all measures be taken for our defense.

But always will our whole nation remember the character of the onslaught against us. No matter how long it may take us to overcome this premeditated invasion, the American people in their righteous might will win through to absolute victory.

I believe that I interpret the will of the Congress and of the people when I assert that we will not only defend ourselves to the uttermost but will make it very certain that this form of treachery shall never again endanger us.

Hostilities exist. There is no blinking at the fact that our people, our territory and our interests are in grave danger.

With confidence in our armed forces - with the unbounding determination of our people - we will gain the inevitable triumph - so help us God.

I ask that the Congress declare that since the unprovoked and dastardly attack by Japan on Sunday, December 7th, 1941, a state of war has existed between the United States and the Japanese Empire."

Powerful reminders. War is challenging, but often necessary, when our country is attacked without provocation. Let us never forget the lessons of this December day.

Kevin Price is host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Get your free subscription while visiting here.

Toyota: The Rising Sun Continues

Japan is known as the "land of the rising sun" and its chief auto maker, Toyota, continues its towering rise. This morning I was watching the Today Show and it was announced that the car maker has surpassed GM as the largest automobile producer in the world this past quarter. This is something that everyone in business and politics has been expecting for years. That time has come.

A half a century ago, there were a "Big Three" -- GM, Ford, and Chrysler -- that dominated the marketplace and no one imagined Toyota (or any other foreign auto maker) eclipsing any of them. Admittedly it is only one quarter, GM is still number one over all, but the slide for US car builders is expected to continue.

Why the decline of US auto makers? The cause is multi-fold:

* US auto makers are not nearly as nimble as their Japanese competitors. They are typically behind the curve and limping behind Japan when it comes to change.

* Japan has taken a surprisingly safe approach to auto making that gives the consumer assurances of the quality of product. It sounds "boring", but Japan's predictability in style and substance (e.g., engineering) has made it the up and coming "king of the road."

* The devastating impact of Big Labor. Unions have hampered these companies with salary and benefit packages that make it impossible for US companies to successfully compete. This is likely the number one reason.

The above are just a few examples, but Japan will continue to torment US auto makers and I expect its prominence to becomes permanent. That is destined to happen if the US doesn't do the things necessary to be competitive.

Ford Employees Learning Economics 101

I know this is going to sound harsh, but the economic realities that Ford employees are discovering are the same lessons everyone must learn in order to thrive in our current economy. During an interview on ABC News Nightline an employee was asked about the cause of the company's decline. She replied it was because Americans selfishly bought foreign cars at the expense of their fellow Americans. The interviewer asked a question that was shockingly perceptive in our current political environment, (paraphrase) "could it be that Americans don't want to pay for the amazing salaries and benefits that you boasted about earlier? Wouldn't they rather pay for the lower cost of buying a car made by Toyota with lower wages and benefits?" (One thing all the Ford employees discussed was how good it was for them financially).

The look on her face was amazing. It was like she had a "V-8" moment, but the negative type, not the one you see in the commercials. She said "the benefits are amazing, but I hate to think that is why they did it." But that is exactly why we -- all of us -- "did it." The economy is a lot of things, but it isn't personal. The invisible hand that Adam Smith discussed in the 18th century is alive and well today. People actively make self interested decisions daily, even as we criticize the ability of other countries in competing against us. The invisible hand, a force we can't see but is all so powerful, creates supply and demand, and controls our economy unless harassed by government.

A great example of this is Wal-Mart. If everyone I talk to about this "job exporting," "people exploiting," "made in the USA destroying" company is telling the truth, this company should be on the brink of bankruptcy and not, arguably, the most economically powerful company in the world. But people, even as they drive to the "hated" store, will decry the injustice of goods made by cheap labor and walk out with not a single item made in the USA (with the possible exception of a tag that was made in a US territory). In essence, they cry all the way to the bank in savings.
Is this a bad thing? Certainly not, in my opinion. Our country has an unemployment of only 4.7 percent, that is virtually zero unemployment when you consider the large number estimated who are voluntarily unemployed (seasonally employed, criminals, etc., equals around 4 percent). Because we are free to get what we want, largely from where we want, we are able to get Ford Escorts for only $14,000 (since they make much of their cars in "cheap labor" countries rather than $60,000 a year (which is what they would likely cost if made bumper to bumper in the US). I'm able to eliminate poverty voluntarily and long term in countries like China and India through my purchases (like we did in Japan 40 years ago) without the United Nations taking my money through redistribution as that organization is attempting to do (leading to corruption and international welfare dependency). We are able to truly take advantage of the law of comparative advantage (things being made were they most make sense economically) and the whole world benefits from it.

I believe people should give up the notion of stopping the imports and embrace them. They are making us richer, not poorer (by the way, our longest period of trade surpluses was during the Great Depression; trade deficits mean we can afford more than other countries; not a bad thing). Instead of grumbling about our imports, we should appreciate the good things we are doing for the world economy and simple common sense with our purchases. We don't make these purchase because they are bad, but because they are good for everyone.

What about the nice Americans who lost their jobs at Ford, GM and other companies? The reality is, most of them will quickly find themselves back on their feet, with either new jobs or created businesses as they pursue becoming their own boss. This loss, though sad, will be temporary, but the American resolve the prosper is permanent.