Who profits from rock-bottom pricing?

In the early 1990s, business owners on the island of Kodiak, Alaska, hired a consultant to analyze how much they'd be hurt by a proposed Wal-Mart. But in gathering data at their request, Kenneth Stone also discovered how the store was apt to help another local group: the poor.

"A lot of low-income people were practically begging the city to let Wal-Mart in," says Dr. Stone, an Iowa State University emeritus economist and 20-year researcher on Wal-Mart's national impact. "They were saying, 'We have to do something to lower our cost of living....' I believe that the lower prices do allow for a higher standard of living for low-income people."

Dr. Stone is far from a Wal-Mart cheerleader. His research documents at length how the world's biggest retailer has put countless shopkeepers out of business and thereby eliminated as many jobs as it has created. But he has found what other economic researchers have seen as well: Discount retail is a complex business with more winners, losers, and tough ethical tradeoffs than public debate routinely acknowledges.

Ethically minded investors are already familiar with discounters, the high-volume, low-price chains such as Target and Costco, who rank among the 10 largest retailers in America. But it is Wal-Mart, which tops the list with $258 billion in sales in 2003, that sets off the sharpest disputes. Shunned by some investors concerned about its antiunion attitudes and environmental impact, the chain nevertheless appeared in the portfolios of 33 socially responsible investment (SRI) funds in that same year, according to a study by the Natural Capital Institute.

For some, the discount domain is a place to make a statement as well as a profit. Christian Brothers Investment Services, for instance, includes Wal-Mart, Target, and Costco among holdings that pass its screening criteria for the firms' 1,100 Roman Catholic institutional clients. On behalf of shareholders, Christian Brothers urges discounters to select sites with sensitivity to local concerns, to promote women to top positions, and to monitor working conditions of overseas suppliers.

"We try to raise another perspective and get them to think about some of the things that they aren't necessarily attuned to because the market isn't attuned to it," says John Wilson, director of SRI at Christian Brothers.

Others see discounters forcing investors to ask tough questions of themselves. For instance, what is the social value of keeping prices low for essential items as food and clothing? Should employees get better compensation, even if it means higher costs for those who can't afford to shop elsewhere? When one group has to make a sacrifice, should it be employees, customers, shareholders, or local communities? Shareholders have a say on such issues, but reading the moral compass takes time and thought.

"The real question is, 'What kind of world do we really want to create?' " says Ruth Rosenbaum, executive director of the Center for Reflection, Education and Action, an advocacy center in Hartford, Conn., with a focus on low-income issues. "Are we designing a world that is economically beneficial for those who are able to hold shares in companies [by keeping labor costs low and stock prices high]? Or are we designing a world that is economically beneficial and therefore sustainable for most people?"

As Dr. Rosenbaum suggests, the moral task at hand might be to seek prosperity for all involved. But whether better pay and benefits for discount employees is a rising tide to lift all boats is a matter of debate, even among economists committed to reducing poverty.

Some recent research suggests the low prices and job opportunities offered at a new Wal-Mart store don't alleviate a community's struggles with poverty over the long term. Wal-Mart workers in California, for example, annually seek $86 million worth of public assistance, according to a 2004 study by the Labor Center at the University of California at Berkeley. If other big retailers in the state follow suit, the study projected, California taxpayers would have to foot another $410 million in healthcare services, food stamps, and other public costs.

Page: 1 | 2