Notes on Costco vs Wal-Mart

A meme has been going around Facebook regarding one of the left’s favorite comparisons, Costco and Wal-Mart.  You see, Costco pays a “living wage” and offers generous benefits and its employees frolic in sunshine and fairy dust.  Evil Wal-Mart on the other hand engages in brutal union suppression, denies workers their basic rights, and engages in wage-slavery.  And yet, Costco remains profitable!  See!  If only Wal-Mart wasn’t so evil, it too could succeed…. also.

The argument falls apart under serious scrutiny, as provided by The Daily Beast’s Megan McArdle.  The two businesses are vastly different and there is little reason to expect them to have similar employment policies.  Also, their (former) CEO was a committed progressive.

This article does a good enough job on its own, but I would also like to add a couple major points it did not seem to touch on.  Most of the articles sympathetic to Costco (you can find them on common leftist sites such as HuffPo or Slate) emphasize Costco’s profits, inferring this translates into great shareholder returns.  Is that necessarily the case?  Over the last year, Wal-Mart stock has outperformed Costco stock on price appreciation alone.  Its dividend yield is currently more than double Costco’s, and its beta is lower, making it a less risky investment.

But perhaps the most important point, and this cannot be emphasized enough:  No business anywhere is a make-work program.  The purpose of business is not to provide jobs, or to provide a certain level of income or standard of living to employees.  Period.  A company exists to create value for shareholders.  It accomplishes this by pleasing its customers.  The notion that a company could “afford” to pay its employees more is absurd.  To pay employees more than their market value is to essentially steal from the shareholders, or from the customers.

Please understand that all of this nonsense comes from the “stakeholder model” that is now being taught in business and ethics classes as the preferred mode of thinking about how a business should operate.  Under the stakeholder model, every stakeholder is considered equal.  The needs of the employees are seen as just as important as the needs of the shareholders.  The needs of the community and the government are seen as just as important as the needs of the customers.  This, of course, is nonsense.  It is leftist propaganda masquerading as factual information on how things can and should work.  Reality does not work this way.  I may do a longer piece on the “stakeholder model” later, as it is growing in popularity and relatively unchallenged.

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About Dude Where's My Freedom?

My name's Matt and I love Freedom.
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