Walmart and productivity
America’s retail productivity performance has all been achieved in stores newly built since 1990, not in existing stores.
The new stores are the “big boxes” such as Wal-Mart, Home Depot and Best Buy, large new buildings set up on greenfield sites at interstate highway junctions, in suburbs and, increasingly, in inner cities. As these new stores reap the rewards of their size, openness and accessibility and drive smaller stores out of business, they bolster the average productivity of the US retail sector as a whole.
While countries differ, Europe has many ways of stifling modern retailing, from green belts and land-use restrictions to laws that prevent companies from lowering their prices. These make life difficult for new, more efficient retailers in order to protect small, traditional merchants. This is one of many cultural chasms across the Atlantic. Many Europeans could not care less about retail productivity and instead are adamant that Europe must avoid the US’s unregulated land use and starvation of public transport, which have produced its overly dispersed, energy-wasting metropolitan areas.
This is interesting in a couple of ways.
First, it helps to resolve a puzzle I’ve been pointing out for some time. If US productivity growth is so strong, why is employment in tradables like manufacturing shrinking so fast? On this account, the productivity growth is mainly in nontradables.
But the second point is more important. Retail productivity is very hard to measure. For example, measured retail productivity declined in Australia when shopping hours were extended – the extra convenience wasn’t taken into account in the statistics. By Gordon’s account, the apparent efficiency of big, edge-of-town stores is offset by a lot of negative externalities, and higher travel costs borne by consumers, and other road users. As I observed here and here the US has experienced a big increase in distances travelled, even compared to Australia and this has been accompanied by an increase in road deaths, giving the US one of the highest rates of road death in the OECD, about 50 per cent higher than Australia’s. And all of this reflects the fact that road use in the US is substantially underpriced, as was noted in a recent Chicago Fed letter.
Of course, there’s no easy way of telling whether the costs I’ve mentioned outweigh the benefits that are measured in the retail productivity statistics. Since so many of the costs are externalities, the success of WalMart in driving out the competition doesn’t prove anything. But it’s disappointing to see a fine economist like Robert Gordon fall back on cliches like ‘cultural chasm’ in relation to outcomes that are largely the product of economic policy. And, whatever the net balance, it’s clear that the measured growth in retail productivity is an overestimate.