Wal-Mart Supports Mandatory Health Coverage (Out of Kindness, I Suppose)
There’s got to be a fascinating story behind the “why.” Wal-Mart would never acknowledge this, but there seems to me little doubt that all the pressure campaigns over the years, the documentary films exposing the company’s dubious practices, and all that kind of thing, led the company to a posture in which it decided it has to change its image.
A simpler alternative explanation: Wal-Mart is already providing health insurance for its employees at enormous expense and would love to have its competitors forced to do likewise.
Big firms routinely lobby for government regulations that increase barriers to entry into their business and make it harder for others to compete with them. That Wal-Mart can do that in this instance while coming off as altruistic is an added bonus.
Update (Steve Verdon): In the comments some are wondering if perhaps this is overly cynical. Frequent commenter Odograph notes that the popular perception is that Wal-Mart has a reputation for not insuring its employees. The problem is that this ignores the current political climate. We have a Democrat president, and the Democrats control both the House and the Senate, and the latter with a filibuster proof majority.
Now, you are a Wal-Mart executive do you suggest the company sit on the side lines in the upcoming health care reform debate or do you try to shape the debate to get the best deal you can? I think the latter is the most likely. So, if you think health care reform is coming why not go ahead and try to get the best deal possible? How about a mandatory requirement that Wal-Mart’s competitors also have to provide health care coverage to employees. Wal-Mart is a big company with a huge work force. Such a work force is likely diverse enough so that on average Wal-Mart’s health care costs will be lower than a smaller competitor. If this is the case, then the mandatory health care requirement could drive Wal-Mart competitors out of business. Less competition means that Wal-Mart has more market power. Not just as a seller, but also possibly as a buyer as well.
Now, lets jump in the way back machine to the late 1800s. How did John D. Rockefeller make his fortune? One factor was getting very good deals from rail roads for shipping his oil and kerosene. In one scandal that came out not only was Rockefeller getting rebates for his product, but his competitor’s products as well. Rockefeller had agreed to act as an enforcer for the rail roads in forming a cartel to raise freight prices. Try to chisel on the cartel and Rockefeller would not ship oil and kerosene on your rail road. These deals helped allowed Rockefeller to undercut his competitors and eventually buy them up. And at the same time the price of kerosene dropped from 56 cents in 1965 to 26 cents by 1870. Hmmm, gobbling up competitors and lowering prices…hmmm geee that sounds familiar.
This is a pretty clear example of rent seeking to me. If the health care reform/regulatory bus is about to leave the station, as America’s largest employer do you sit in the station or get on and try to direct which way the bus goes? Of course the latter.
UPDATE (James Joyner): Cato’s Michael Cannon says a lobbyist told him this was happening a year ago.
“Target’s health-benefits costs are lower.”
I have no idea what Target’s or Wal-Mart’s health-benefits costs are. Let’s say that Target spends $5,000 per worker on health benefits and Wal-Mart spends $10,000. An employer mandate that requires both retail giants to spend $9,000 per worker would have no effect on Wal-Mart. But it would cripple one of Wal-Mart’s chief competitors.
And Wal-Mart and Target can each absorb the blow more easily than a mom-and-pop or a regional startup.
UPDATE (James Joyner): Megan McArdle observes,
Regulation has a very high fixed cost for compliance; the larger the firm, the more dollars/employees over which to amortize the fixed cost. Meanwhile, market leaders have disproportionate bargaining power, and tend to get better rates from suppliers than smaller competitors. Finally, a high fixed cost means either that it’s harder to initially enter the market, or (if there are exemptions for the smallest firms) harder to grow.
On the other side, there is regulatory capture. Wal-Mart is always going to have a seat at the table when employer mandates are discussed, because Wal-Mart is the nation’s largest private employer. Target and Macy’s probably won’t have a seat at the table. So Wal-Mart can influence the rules in ways that benefit Wal-Mart at the expense of the competition. This is partly because the regulators often cycle into jobs at the firms they regulate, but also simply because the regulator’s attention is finite, so being consistently at the table allows you to shape their views over time.
Steve Bainbridge examines in some detail the degree to which “Wal-Mart has been suckling at the government teat for decades, transferring costs to the tax payer whenever possible.“