Low Prices
Another success of market economies is the steady reduction in the real prices of ever-higher-quality goods and services resulting from the relentless struggle of suppliers for increased market share and profits, by reducing production costs and passing those efficiencies on to consumers in the form of ever-lower prices. Consumers obviously like lower prices, and one would think that the market’s success at providing them would be widely appreciated. But this is not quite true. If appreciation is measured by shopping behavior, then it is clear that low prices are appreciated in the marketplace. This appreciation does not always carry over, however, into the realm of public opinion.
For example, Wal-Mart is the most successful retailer in America because of its “everyday low prices,” serving tens of millions of customers every week. But this popularity is not reflected in public opinion polls. A national poll conducted in 2005 by the firm Zogby International found that 56 percent of American adults agreed with the statement “Wal-Mart was bad for America. It may provide low prices, but these prices come with a high moral and economic cost.” The criticism of Wal-Mart focuses on the claims that it (1) exploits its employees by paying them low wages with meager fringe benefits, and (2) harms communities by bankrupting local businesses and destroying the jobs they provided. These criticisms are part of a long history of successful firms being criticized by those wanting political protection against the wealth-creating discipline of the marketplace.
Like Wal-Mart, many successful companies have paid, and continue to pay, rather low wages because they have found ways to employ low-skill workers more productively and at higher pay than other employers. In the case of Wal-Mart, this is reflected in the fact that every time it opens a new store, there are far more job applicants than available jobs. This is good news for workers and consumers, with the former earning higher pay than in their best alternatives and the latter receiving better goods and services at lower prices. Of course, all successful companies put some competitors out of business and destroy the jobs they provided. But this is the market discipline that is constantly redirecting resources, including labor, out of employments where they produce less value and into employments where they produce more. Unfortunately, criticism that successful firms create low-paying jobs and cause bankruptcy and layoffs resonate with the public because seeing real and imaginary costs associated with market discipline is much easier than understanding how that discipline is essential for increasing prosperity. And public concern over the “high moral and economic cost” of low prices, along with the political influence of organized interests that work to foster and inflame that concern, leads to policies that reduce market discipline and put a drag on economic growth.
In the case of political opposition to successful retailers that lower prices, the effect has been primarily to delay their expansion. But there are more costly examples of politicians and their special-interest clients claiming that the market’s success at lowering prices is a problem requiring a government solution that reduces our freedom and prosperity. Political restrictions are imposed on our freedom to buy low-priced foreign goods because of the belief that free markets in those goods drive down American wages and destroy American jobs. Price-support programs keep agricultural prices artificially high because many are convinced that free markets in agricultural goods would destroy the family farm and threaten a stable food supply. And antitrust suits are brought against efficient firms that lower prices because it is widely thought that such firms will bankrupt their competition and become monopolies.
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