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16 December 2017 00:06 (South Africa)
Opinionista Ivo Vegter

Welcome Walmart

  • Ivo Vegter
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

The entry of Walmart into South Africa scares a lot of people. It has led to a perfectly absurd spectacle before the Competition Tribunal, in which competitors are whining about competition, and the government is putting the dampers on trade, industry and economic development.

You have to hand it to them. For sheer farce, you can't beat the South African government. Witness the perfectly nonsensical spectacle that ensued after the Competition Commission ruled there was no reason to prevent a buyout by Walmart of Massmart, the group that brought you emporiums like Makro, Game, Dion's and Builder's Warehouse.

The spectacle of a Competition Tribunal being asked to rule that more competition is bad for competition is patently absurd. That it is being asked to do so by one government department that exists to promote trade and industry, and another that is responsible for economic development, is farcical.

We should all ignore them, and the Tribunal should reject the application with contempt. It is good for us that they're scared. The problem is that most economic analysis, and almost all of it at government level, looks only at very immediate effects, such as potential job losses at Massmart (a prediction the company disputes), or potential harm to local producers because of growing imports.

However, the economy isn't quite that simple. It is a highly integrated network of causes and effects, and what appears to be a negative effect for one – being competed out of business, or out of a job – is very much a positive effect for many more – who now see their hard-earned money stretch a little further.

Walmart is one of those excellent companies that is a catalyst for such processes. It has a reputation for selling things at low prices. If its advertising is to be believed, it prides itself on this, and rightly so. Low prices mean that consumers, many of whom are quite poor, will have a little more left over after buying their month's groceries than they otherwise would have had. This really does, to quote Walmart's slogan, permit them to live better.

It frees up money that they can use to save, invest, or spend on other needs. Those needs might be urgent, such as healthcare or education. They might be beneficial, such as charity. They might merely extend to an extra bar of chocolate at the weekend. But however they choose to spend it, it will do two things: it will make them better off, and it will stimulate production and create jobs elsewhere in the economy. In short, Walmart's trade and industry will create economic development in the rest of South Africa.

If the purpose of economic activity is to produce what humans need and want, in the best possible way and at the lowest possible cost, then why is anyone objecting when exactly that happens?

These criteria might sound simplistic, but they are not. For example, what we “need and want” is a complex animal. So is how we judge “the best possible way”. It is just as much the purpose of economics to provide me with a niche beer of higher quality than I can get from South Africa's largest mass-production brewery, as it is to produce cheap beer in volume for those who are less fussy about their liquid refreshment. It is just as much the purpose of economic activity to provide you with a dentist who gives you short-notice appointments and lots of novocaine, than it is to provide me, who isn't afraid of dentists or can't afford the luxury to care, with affordable dental care. It is just as much the purpose of economics to soothe the environmental guilt of the sanctimonious classes as it is not to make a labourer (or worse, an unemployed labourer) pay for expensive luxuries such as recycling or organic farm produce.

Competition is how the market determines what people want, and how best to produce it. Some people won't be seen dead at Walmart. For others, the ability to buy a wide range of adequate goods at the lowest possible prices is far more important in their lives than to have lovely jars of handmade sauces available for exotic dinner parties. Some people won't be seen dead in a cheap Chinese shirt. For others, saving a few rand is rather more important than strutting around in designer couture, and much more important than ending up with the same quality at a higher price, just because some companies' profits are protected at the cost of others.

If competing retailers are afraid of Walmart, this signals that all consumers stand to benefit. This goes even for those who don't buy at Walmart, because instead of letting another retailer get away with inefficiency that adds unnecessary costs to what they sell, or letting it charge profit margins that benefit nobody other than shareholders, vigorous competition from someone like Walmart will punish them or force them to improve their processes.

The same argument goes for producers. Sure, producers will feel the pinch. But since when is it good for an economy that things get produced at higher cost than they possibly could be? Why should consumers pay to keep people in business who do not produce what consumers want, at the best possible prices? With a player like Walmart in the market (and the same goes for Pick n Pay, Shoprite Checkers or Woolworths) consumers are able to rely on someone who understands the producer landscape, and can raise the collective buying power to make a difference. By arguing that this is bad for producers, you are arguing that it is fair for producers to exploit the ignorance or gullibility of customers with less clout.

Those who feel threatened by Walmart's entry into South Africa are admitting that they're less efficient, and therefore, that they make customers pay more for goods and services than they ought to. We should cheer the fact that they're afraid. Why would anyone want to extend protection to them so they can maintain their profit margins at the cost of South African consumers?

Likewise, the arguments about labour are short-sighted. Sure, Walmart has a reputation for not paying staff a lot. Fine. Don't work there, then. Or start there, learn stuff, and move onwards and upwards.

Why should a government force consumers – many of whom are poor or don't have jobs themselves – to subsidise higher wages for a few? The lobbyists and unionists and bureaucrats will say that those higher wages come out of corporate profits, but that's just another example of the “local effect” error. Where do profits come from? From revenues. And where do revenues come from? Out of the wallets of customers, that's where.
Besides, isn't a low-paying job better than no job at all? (Don't answer that, unless you're unemployed and have enough self-respect not to want to leech off society.)

By leaving more money in the pockets of consumers, economic activity in all sorts of spheres will be stimulated. If inefficient producers or jobs, instead of becoming more efficient, are lost, then the resultant savings will promote production and jobs elsewhere in the economy. And even if it doesn't, there still is no moral justification for placing a burden on low-income consumers in order to subsidise the inefficiency of others.
In all respects, the investment by Walmart in South Africa will improve the domestic economy. It will make South Africa richer, in the only way that matters: by the yardstick of consumer prosperity, not the special interests of a few producers.

So, turning back to the farce playing itself out before the Competition Tribunal. Do we want competition, or don't we? Do we want trade, industry, and economic development, or are the government departments responsible for those things in fact opposed to them?

"It's important to stress that … this intervention should not be construed as opposition to foreign direct investment," the Trade and Industry Deparment's acting director-general, Lionel October, told Business Day.

Not? So why are you worried about the foreign purchase of a “unique South African technology that adds a local component in auto manufacturing”, in the case of Kansai Paint's proposed acquisition of the ironically named Freeworld Coatings? Why did you block Bharti Airtel's acquisition of the South African multinational corporation MTN, because the latter could “lose its national character”? Why are you spouting nonsense about “opening the floodgates to imports that would undermine domestic manufacturers,” in the case of Walmart?

Don't lie. The Department of Trade and Industry is clearly opposed to foreign direct investment and trade, and is perfectly willing to act to prevent it. Similarly, the Department of Economic Development is opposed to economic development, and will sally forth before any tribunal, commission or court that will hear it, in order to clamp down on any sign of this insidious evil.

This is nothing other than classic protectionism. Protectionism has always come at the cost of consumers, and has always resulted in a less efficient, less competitive productive sector. It has produced economic stagnation and in some cases, like the infamous “Smoot-Hawley Tariff Act”, even exacerbated economic depression.

Don't support the anti-competitive, protectionist meddlers in government and the union movement. They claim to protect our interests, but they don't. They prevent us from acting in our own best interests, in order to protect the profits of crony-capitalists and special-interest groups. They won't stop until we've all been bled dry, and the only stuff South Africa still produces is a poor selection of overpriced, low-quality, uncompetitive junk that none of us can afford, and only South Africans buy, because there's a law that says we have no right to choose. Just like the good old days, when, in order to watch the censored, dubbed junk our political masters spoon-fed us on television, all we could buy were low-quality, overpriced National brand TV sets.

I'd like to propose a little bureaucratic renaming. The Department of Trade and Industry would more honestly be called the Department of Crony Protectionism. And the Department of Economic Development? How does Department of Economic Stagnation and Poverty Planning sound?

Give our political overlords the finger, and welcome Walmart to South Africa. For every little bit they shave off a groceries bill, South Africans will be a bit better off.

That is cause for celebration, not a tribunal.

PS: Here are a couple of handy tips. To remove a label from clothing, don't just rip it. Cut it close to the stitching with a small, sharp pair of scissors. Also, take house brand sauces and condiments and decant them into a pretty flask or jar for on the table. Nobody ever needs to know that you shop at Walmart too.)

  • Ivo Vegter
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

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