No One Makes You Shop at Wal-Mart, by Tom Slee, in a Nutshell
We think allowing people free choice and a free-market will keep everything running smoothly, but a reliance on individual choice has rendered the poor even worse off and given more power and wealth to those already at the top of the heap. How and why do we do this to ourselves? How can we stop making choices that end up hurting us?
Clashing Economic Theories
Keynesian (John Maynard Keynes)
– Government spending can carry economies through recessions and depressions. We must allow the government to stay in control of the market to make sure it works for everyone. (This sounds like a bad idea to a libertarian like me, but it actually makes a lot of sense.)
Chicago School (Milton Friedman, game theory)
- We must have a free market and allow individual consumer choices to dictate which stores are best for the people; the people should be in control. All decisions are the product of self-interested rational individual choices. The market is the pathway to prosperity and growth. Therefore – privatize and deregulate the market. The role of government is to get out of the way. (Q1,2)
In a free-market economy, corporations are not in charge, consumers are. People vote with their feet. It suggests that a bad company can’t possibly stay in business for long, and people must like what they choose, or else why would they choose it. (Q3)
Harmful companies often do well. Individual choice often fails to give us what we really want in the long term. And choice is only useful if it helps us to get what we want.
[I understand this as a common phenomenon in behaviour modification theory: People will always choose an immediate reward with a distant punishment, over a distant reward with no punishment. In other words, we have a lack of ability to resist short-term minor rewards that come attached to far away punishments to others, in favour of long term larger and more equitable rewards that are sustainable over the long haul. (Plato referred to this as the inability to adequately measure pleasure and pains in our lives. Measurement is the most important skill.) We need to keep long-term prosperity in mind every time we make a consumer decision. We need to learn to measure better.]
For example: If Jack shops at WalMart he gets cheaper products. It’s a wise decision for the short term. But over years of shopping at WalMart instead of supporting independent downtown stores, his downtown gets run down, his neighbours lose their jobs, and his life is adversely affected for good. He might even end up moving somewhere more prosperous not realizing the effect his choices had on this degradation. Not so wise now!
But Slee argues that Jack’s choices were actually perfectly sensible. Individual choice is not a guarantee of a happy ending. Choices are rarely made in isolation. They become quickly and intricately tangled, and their outcome is often not what we intended or hoped for. Jack made the best choices, but the choices ended up making him unhappy.
Our preferences are tangled; there’s no such thing as true individual choice (see below). We can make sense of the world by making the respectful assumption that people generally make the best choices they can in the circumstances they find themselves.
E.g.: Divorce – should two people be conciliatory in their pursuit of property and avoid a legal battle, or should they be aggressive and pay a lawyer to take the case to court? This is the standard prisoner's dilemma.
* If both are conciliatory with no lawyers, they divide all 50/50
* A lawyer will take 20%. If one of them is aggressive and the other conciliatory, the
aggressor will get it all less their lawyer’s fee (80%).
* If both are aggressive, they’ll split the property evenly, less each lawyer’s fee (30%).
Generally, it’s always better to be aggressive, or someone might screw you over! We can only be conciliatory with absolute certainty of the other person’s potential actions. But Jack and Jill would actually have been better off without a choice at all, if the government just divided their stuff up for them 50/50. Similarly, if we had no choice about shopping at local, independent stores for a certain percentage of our products, then our societies would be better off. But are we prepared to give up free choice? (Q4,5)
Externalities – the impact that a person’s choice has on others. This effect of one
player’s actions on another creates a lack of alignment between choice and
Preference and Best Replies – When choices are interdependent, then what we prefer to
happen is often not a true option for us. Our preference is the cause of our choice,
but not the outcome of it. Therefore, choices do not reveal preferences, but only best replies. People don’t really choose what will make them most happy, but just make a best reply to the world and the actions of others around us. If we make choices that harm people and the environment, it doesn’t mean we want to harm.
Equilibrium Outcome – When participants can’t improve their own outcome by
their actions alone. The end result of good individual choice is an equilibrium
outcome, but there’s no guarantee than this is the happiest outcome for each
Free-riding (Tragedy of the Commons)
[From a cultural anthropology view, free-riding is an instinctual drive towards survival of the individual at the expense of survival of the species.] Shopping at big box stores to the detriment of independent stores, the vitality of the downtown, and the local economy is like littering in your favourite park. We rely on others to live differently than we do. My one piece of garbage hidden behind a bush in the park has little effect, so I keep littering. But when we all do it, soon my park is a mess. This is free-riding. We benefit from our actions hoping that others will act differently.
It’s a similar situation to the effect of public vaccinations. We need a significant number of kids to be vaccinated for a disease to be stopped. If we rely on people to choose this route, most will rely on others to do it, and the disease will win. So it’s compulsory. So are helmets, seatbelts, and sober driving. Environmental protection is not, so it suffers.
Because we can’t control others or really know what they’ll do, we act in our own best interest. If a line of soldiers is to advance, many will run away instead to save themselves, and more will die, unless they know this behaviour will be punished. (Q8)
We need to legislate fines for pollution in order to save the environment. We need to legislate fines for the shift towards shopping at big box stores in order to save cities. We need governments to end urban sprawl. We need unnecessary solo car-travel to be heavily taxed or fined.
If we leave it all up to public choice, the market will not ensure that we get what we want in the long run. Individual choice often leaves us miserable and baffled by the outcome.
[But aren’t governmental officials just people too who are working for their own benefit (even if, in theory, they shouldn’t be). How much power do we really want them to have? Can the public be shown possible outcome scenarios and vote on these restrictions in a series of public referendums? But even then, how will we vote?] (Q9)
Free-market theory suggests that cities evolve to reflect preferences of their inhabitants. Do we all really want car-centered suburbs that render it difficult to have effective public transportation, make services expensive, encroach on farmland and protected natural environments, affect ground water supplies, and decimate the city center?
If everyone took busses to work, the roads would be empty, and the busses would move faster, so everyone would get to work faster. But if most people are on the bus, a person can get to work even faster still by driving a car (and free-riding on others’ bus habit), and there’ll be plenty of parking. Everyone thinks like this, so everyone drives – slowly. If (as happens in Central London) every private driver on the city streets between certain hours in the morning and afternoon were to be fined for every trip, then the costs would begin to outweigh the benefits for many people and traffic would diminish. Fines and taxes eliminate the ability for people to free-ride.
Shopping at large stores at the outskirts of town results in an erosion of the city center and increases traffic and pollution throughout the city. Many think that the success of big-box stores is the voice of consumer sovereignty speaking, and to prevent the growth of power centers would be to restrict freedom of the companies and consumers. But, many people who shop there might wish the stores didn’t exist. They’d shop in town if they didn’t think there was a huge savings to be had elsewhere. But even though they don’t intend to neglect the downtown, once its population slips below a critical point, the whole infrastructure can unravel.
Since Wal-Mart has a large portion of the market, it’s an essential customer for suppliers. So it can dictate terms to them and get discounts. The suppliers are stuck. In order to undercut other suppliers and get the Wal-Mart account, they have to cut costs, pay workers less, and use sweatshops. If all the suppliers hold out, Wal-Mart would have to back down. But it’s in the short-term interest of each supplier to try to offer the best deal. So all the suppliers lose. (Chapters did even worse – it created it’s own supplier.) (Q10)
The City Council:
Big-box stores need land to be rezoned by city councilors. If they say no, the store might be positioned just outside their boundaries in a neighbouring district, taking citizens farther away from the core, in which case the original city loses business but gains no property taxes. It would be best for all cities to prohibit power centers, but it’s better for each city to get the power center than have it established next door. (Q11)
Why we need so much new stuff. (The Arms Race Analogy)
As soon as one person has something newer or nicer than we have, we get shifted down the social hierarchy. We need to keep consuming in order to just maintain our place as others keep consuming. Even non-conformists have to evolve away from the norm once people adopt non-conformist attire. If we all agreed that clothes, car, houses, etc don’t really matter, we could stop. But, because we can’t trust one another, that will never happen. An SUV is safer on the road if all other vehicles are small cars (even taking into consideration their roll-over problem). As soon as everyone drives an SUV, they’re no longer safe. Then the safest vehicle will be a Hummer, until everyone drives Hummers. It never ends.
The Collective Action Problem
Because we’re all tempted to free-ride, it’s difficult for groups to act collectively towards a common goal, even if the goal is brief – even to save a life. (It’s similar to the bystander effect and mob mentality or groupthink. We hope others are more altruistic.)
Game-Theory Solution: Tit-for-Tat (Q12)
After the first move, act co-operatively. If someone acts aggressively, act equally aggressively. If they start to co-operate, forgive them and respond co-operatively again.
Small communities tend to co-operate more than big cities, and thus keep out big-box giants, and have smaller homes and vehicles because they don’t compete with one another as much. But this conformity also breeds intolerance and discrimination.
We all agree with Kyoto, but because of free-riding, nobody’s really implementing it. Canada signed up, hoping to cut greenhouse gas emissions in 1990 by 6% by 2012, but by 2004 emissions rose by 20% instead due to failure of individuals to choose to act.
Time destroys our ability to correctly deduce costs of our actions: (Plato said this too.)
If we’re trying to lose weight, but there’re chips in front of us, eating the chips gives us pleasure rated at 2/5, but not eating them is a greater pleasure of 3/5. Yet we almost always eat the chips. The pleasure of not gaining weight from eating chips is delayed. The delay cuts the pleasure value in half: 1.5/5 instead of 3. So we eat them. And so we drive to the store, and don’t bother to turn off lights, and crank the heat or A/C. And we don’t vote.
Since many people will shop at Wal-Mart because they believe their individual purchase won’t make a difference (free-riding), collective actions such as publicity campaigns and boycotts are needed. If their fate is left to individual actions, corporations will always get an easy ride. Publicity helps us realize that each choice can make a difference because others are choosing this way too, and by bringing peer pressure to bear on individuals. Starbucks in BC sell a lot more fair trade coffee than the company in Ontario just from activist campaigns that ask consumers to always ask for the fair trade coffee. (Q13)
BUT whoever cares least about the world or their neighbourhood, wins. If you just follow the path of least resistance until that path is closed off, and let others fight these battles, then you can ride on their coattails all the way to the end. If you’re not part of the solution, you’re part of the problem, but it’s more personally cost effective that way.
We think that popular stores are the best or else they wouldn’t be so popular. But that’s because we mistakenly believe the best option is the most public option. It’s survivorship bias that implies the highest performers are the most visible. But often, stores are popular by chance, and that chance popularity keeps them expanding. We don’t hear about the great ideas that gained no popularity; we don’t consider the whole sample, just the winners who won the way people win lotteries not due to merit, intelligence, hard work…
Predictability trumps quality. Once we know a product, we’ll choose it over an unknown product with claims of superiority. In this way we’re in the market for lemons (poorly-made products). We’ll support a company we know even when the quality of the products goes downhill and an alternative is available. We want to do what’s popular.
As partners in an exchange move from equality to inequality the exchange moves from bargaining to exploitation. Whoever has fewer needs of the other, wins. Exchanges between unequal parties call for altruistic actions, not bargaining. (Q14)
1. What are two pros and cons of governments controlling the market (corporate decisions around growth, location, pricing, pollution, working conditions, etc.)?
2. In your opinion, how much power should governments have over corporations? Should they have total control, or get out of the way of big business?
3. What is “marketthink”?
4. Why do people make choices that harm them in the long-run…
a. according to behaviour modification theory?
b. according to Plato?
c. according to Slee?
5. Why is it hard for people working together to be honest and helpful of one another (conciliatory)?
6. What does Slee mean when he says our choices don’t reflect our preferences?
7. What is free-riding?
8. Give three current examples of the government preventing free-riding.
9. How would you vote on each of these issues if this were a real vote?
a. Corporations will no longer be allowed to build at the outskirts of town.
b. Corporations must pay all workers worldwide a living wage.
c. Consumers must buy at least 60% of all products from downtown stores.
d. Fines of $15 will be given to anyone driving on a city street between 7-10 am and 3-7 pm unless shown to be absolutely necessary (can’t bus).
e. All children must have complete vaccinations before starting school.
f. Fines of $150 will be given to anyone caught littering in a public place.
g. Anyone caught driving under the influence will lose license for a year.
h. Companies caught polluting the air or water will be fined $6 billion.
i. Citizens using more than 600 kWh of electricity monthly will pay triple on energy used over that amount.
j. Voting in all elections is mandatory.
10. If all of Wal-Mart’s suppliers got together and decided they wouldn’t negotiate lower than 8 cents for a product. What is likely to happen when negotiations begin? Why?
11. Why do cities often allow urban sprawl from power centers at the outskirts of town?
12. Give an example of the tit-for-tat solution working to stop an “arms race” for new stuff. And explain a situation in which it wouldn’t work at all.
13. Why do you think the west coast is so much more environmentally concerned than here?
14. Analyze these scenarios:
a. Jill fell down an abandoned mine, and Jack happened to wander by. He offered to get her out for a price of $10,000. Why do we see this as a corrupt bargain?
b. Is trading organs for immigration papers (from Dirty Pretty Things) a free-exchange bargain or exploitation? Explain.
c. The IMF offers loans to struggling countries in exchange for profits from privatized health care and education. Is this a free-exchange bargain?
Cross-posted from Project Earth Blog, January 4, 2010