Big Box Economics and Climate Change — Is Consumption Killing Us?

This is about large international retailers as a broad category, but I will focus primarily on Walmart, as there is robust data on the firm. When analyzing the question, are international retailers good for America, we need to get deeper to the heart of what that means. What is the economic best case scenario for the United States? Is it a middle class lifestyle that affords 2.3 children, homeownership, annual vacation, and some savings that leads to retirement at 65? Is it the wealthiest Americans furthering the already growing accumulated wealth divide between them and the rest? Could it be that a level economic playing field where wealth is more evenly distributed is the best outcome? Or is the future economic reality uglier and more complicated than any of these?

Most economic indicators suggest that international retailers are largely good for the short-term microeconomic interests of low and middle income Americans, primarily in terms of the direct impact on their wallets. The ability to obtain goods and services at low prices and in convenient locations keeps the economic engine running. Additionally, international retailers are good for the short-term macroeconomic interests of society at large, e.g. entry level jobs on up through corporate six figure positions, and a highly profitable business model, coupled with low consumer prices, leads to U.S. economic growth. The operative phrase, in both the former and the latter example, being short-term. While the data suggests that international retailers, in the short-term, are good for the US economy, what is the long-term outlook? I posit that from the 10,000 foot long-term view, international retailers may be the single largest threat to humanity broadly. Why? Because consumerism is the largest contributor to climate change, responsible for 60% of global greenhouse gas emissions, 50–80% of the land, material, and water use on Earth.(1) Couple that with the practices of the largest retailers who prey on human psychology to keep consumers consuming and the ingrained habits of consumers who are too oblivious to change. All of these unchecked consumer behaviors are contributing to anthropogenic climate change, and the effects of climate change will fundamentally change the way humans exist on earth. But more on this later.

To help understand the whole picture, we must dive into the microeconomic impact of big box stores on households, such that we can weigh it against the possible negative externalities of climate change. So, what do the local microeconomics of a big international retailer look like? The results are mixed. In some cases, a more complex economic environment emerges in places where a Walmart or other international retailer locates.(4) Studies have found that many times a slew of secondary retailers follow in a Walmart’s wake, because in the long run, small retailers offering similar products to Walmart can’t compete and are largely replaced. But firms like McDonald’s, Verizon Wireless, Starbucks, Autozone, and other specialty and boutique retailers position themselves to capitalize on the high volume of consumers. Many times these secondary retailers are locally owned franchises and offer diverse shopping and employment opportunities to the surrounding community. However, are these employment opportunities strengthening the local economy? Historically, studies have found that Walmart is single handedly responsible for price setting lower and lower wages, and largely contributing to inflation in the economy more broadly. But this wage strategy may be changing. Walmart has been toying with paying increased wages in an effort to find and retain better workers…and it may be working!(10) While the dust hasn’t yet settled on the wage increase gamble, it is in Walmart’s sights to have higher employee retention in an industry that is infamous for high turnover. Other studies found that the introduction of a Walmart actually increased home values 2–3% in the surrounding neighborhoods within ½ mile.(13) This is a marked advantage to localities with a bigbox store. Other outcomes are not so rosey. Perhaps not surprisingly, the addition of a Walmart also leads to a 43% rise in obesity in a surrounding area.(14) Whether or not a more obese population is good or bad for the local economy is probably up for debate. On the one hand, obese people tend to need more medical attention, so they will typically contribute to the economy by purchasing medical services and products, but they also live shorter lives, on average, and therefore do not contribute to the economy for as long. Again, the results are mixed.

Now let’s look at the broader impacts of international retailers on the U.S.and global macroeconomy. Is U.S. consumption of goods through international retailers a net positive or negative? Walmart alone is the largest company on Earth, employing 2.3 million people across 27 countries in 11965 stores, and if it were a country it would be the 25th largest economy on the planet. That is no small impact, and if you add the next 9 in the top 10 retailers — Costco, Kroger, Walgreens, Tesco, Carrefour, Amazon, Metro Group, Home Depot and Target — the economic impact of global retailers is staggering.(16) As an industry, retail contributed to $24 trillion to the global economy. As the single largest economy, the U.S. consumes a lion’s share of that economic pie. The other area in which international retailers contribute to the broader economy is the development of technologies for logistics and distribution. In 1977, Walmart began using electronic cash registers, streamlining the POS (point of sale) interaction, and pushing the retail industry in that direction. In 1987 Walmart had the largest privately owned satellite system in the world, which, in hindsight, makes them look incredibly forward-thinking. And in 2005 Walmart brought the Radio Frequency Identification (RFID) technology into their stores, allowing employees to quickly identify a plethora of product information instantly. (18) They were able to know in what quantities and when various products were being purchased, down to the individual store and with the precision to track any one of the 150,000 individual items in the store. The industry followed in lockstep, fundamentally changing how retailers track product data. There are some less stellar results on the U.S. macroeconomy resulting from international retailers. Aside from forcing wages down as an industry price setter, Walmart and other international retailers do indeed put small similar retailers out of business. Most economists would argue that putting poorly competing firms out of business is actually a good thing for the economy on whole. One would be hard pressed to argue that international retailers, on average, are anything but elemental to the U.S. economy.

We have established that international retailers lead to mixed results at the small and local scale and are mostly a boon for the macroeconomics of the U.S. But we also know that consumerism is the largest contributor to greenhouse gasses. So what are the economics of climate change? It turns out that the ramifications of runaway consumerism may truly be the silent killer, and may lead to enormous societal expenditure. Let’s imagine sea level rise of 2 feet by 2050 (estimates vary, but this is feasible and may even be conservative). This would lead to massive human coastal population displacement, leading to the largest refugee crisis Earth has ever known.(9) What will that cost the US economy? According to a 2007 issue of Environment and Urbanization, 634 Million people live within 30 feet of the ocean worldwide. That same study pointed out that two thirds of major cities, over 5 million people, are situated in low lying coastal areas.(9) Swiss Re reported that the economic cost of sea level rise to Florida alone will top $33 billion by 2030. It’s possible it will be 10 times that by 2050. A Nature study found that the entire state of Delaware could be underwater by 2500.(9) That’s a big levy! So what are the macroeconomics of climate refugees? I guess we all should make room for Floridian retirees in our basements and spare bedrooms. I hope they can find a job at the local Walmart.

The next major climate economics issue is that of possible apocalyptic ecological collapse that could lead to global starvation.(7) The oceanic fisheries are beginning to collapse as climate change leads to ocean acidification and hypoxia. Without diving too deep (no pun intended), the acidification will affect many of the foundational species in the ocean, e.g. phytoplankton, coral reefs, coastal species, and deep ocean species.(11) If the ocean ecology continues down this path, it could be a cascade effect up the food chain. No more clams and oysters, no more mackerel, and no more tuna. The ocean is the foundation of the earth’s ecosystem, and if it collapses, the land ecology is not far behind. Since our food comes from these diverse ecosystems, it looks like climate change might be the next fad diet. But what is the raw economic cost of hundreds of millions of people starving in the streets? One study found that child malnourishment cost the Malawi economy 10.3% GDP, and a larger 12 country study found a 3.1% GDP loss associated with undernourishment in African Nations.(8) Since the GDP of the US. economy is far and above that of African nations, the economics of under or malnourishment in the U.S. may be different, but likely catastrophic.

Why are Walmart and the other international stores culpable? The habit of consumerism is largely exacerbated by big box store predatory marketing narrative dating to the 1950s, instilling a, keeping up with the Joneses, mentality and by preying on the baser human instincts to prepare for harder times, like squirrels burying nuts in the fall.(12) When people are feeling afraid or anxious or competitive, they buy stuff, and the international retailers know this and capitalize on it. Additionally, international retailers prey on human vanity by pushing products to make us more beautiful and feed our egos. Humans fundamentally want to find a mate and spread their genetic code, and it seems that odiferous bottled chemicals and skin perfecting pastes, according to retailers at least, will aid in that endeavor. The international retailers are also complicit in the throwaway nature of consumption, designing products to fail in order to keep consumers consuming. The pipeline of goods, from extraction, through use, to disposal is startlingly fast. 99% of goods produced end up in the landfill within 6 months! (2) But is there an alternative to the habits of consuming? Can there be careful, considerate, compassionate, consumerism? There are some modern thinkers who believe that there is a better sustainable way to consume. Marie Kondo, author of “Spark Joy” argues that the possessions in our care must literally spark joy in our lives. If the goods do not meet this litmus test, then they should not be purchased, and if you own something and it fails the test, give it away. It’s likely that many would consider this a radical view, and that is probably rational. The point Kondo is making is an important one, however. Consumers are just as culpable in consumerism-related climate change through their behavior as the international retailers are in pushing the products.

It’s often thought, at a political level, that the way to resolve an issue of constituent choices, in this case unfettered consumerism, is by simply educating the population and letting them make a rational decision that is in their best long term interest, but may be in their worst short term interest, but economists know that people are not necessarily that rational. Policy strategists also must face the need to aid a transition away from a consumption based economy. But this is a politically deadly pill to swallow. Try getting re-elected while telling consumer addicted voters that they must change. But is there an alternative to consumption economy? So how do policymakers fix the selfish choices of consumers and the predatory practices of international retailers, all while remaining politically viable? Since history shows that in most cases humanity is largely reactionary to cataclysm rather than proactive, it’s likely that climate refugees will need to be at our figurative, and perhaps literal, doorstep and that people will need to be starving in the streets before any truly substantive change is enacted. My personal cynicism aside, there are threads of hope. The Paris Climate Accords are one bright spot in the international arena, where 190+ countries are working together to combat climate issues. The latest dire IPCC report may spark global action, but maybe not. Perhaps, if the energy used to create and distribute all the goods is clean, the issue will largely be avoided. On the economic front, a carbon marketplace proposal, called “The Conservative Case For Carbon Dividends,” which aims to design a market-based solution to carbon, was put in front of the Trump administration, but received no serious consideration.(15) The proposal would put a progressively steeper tax on carbon that would be distributed to low and middle income Americans as a dividend, more than offsetting the price inflation caused by the tax. But carbon is only part of the problem. strip-mining, over fishing, clearcutting rainforest for avocados and coffee, and human encroachment all need to be addressed from the consumer perspective. Humanity needs to ask itself the tough question — does the prospect of climate change accelerated by consumerism warrant any action at the expense of the economy? This is a question that we will struggle with over the next decades. The economic decisions and actions of individuals and governments are hard to predict, so I guess we’ll meet on the other side, or maybe not.

I originally published this on linkedin : https://www.linkedin.com/pulse/consumption-climate-change-walmart-good-america-killing-maxwell-roe/

Citations

  1. “ Consumerism Plays A Huge Role In Climate Change” Susan Jacobs, Februrary 4, 2016, http://grist.org/living/consumerism-plays-a-huge-role-in-climate-change/
  2. “The Story Of Stuff Project” December 2007, http://storyofstuff.org/movies/story-of-stuff/
  3. “Employee Retention — How to Retain Employees” The Wall Street Journal, September 12, 2008 http://guides.wsj.com/small-business/hiring-and-managing-employees/how-to-retain-employees/
  4. “The Urban Neighborhood Walmart: A Blessing Or A Curse?” Uri Berliner, Debbie Elliott and Chris Groskopf April 1, 2015, http://www.npr.org/2015/04/01/396757476/the-neighborhood-wal-mart-a-blessing-or-a-curse
  5. “When Walmart Comes To Town What Does It Mean For Workers” Jennifer Ludden, Yuki Noguchi, April 2, 2015 http://www.npr.org/sections/thesalt/2015/04/02/396892753/when-wal-mart-comes-to-town-what-does-it-mean-for-workers
  6. A conservative Estimate Of The Walmart Effect” Robert E. Scott, December 9, 2016, http://www.epi.org/publication/the-wal-mart-effect/
  7. “The Sixth Extinction” Elizabeth Kolbert, February 11, 2014
  8. “New Study Reveals Huge Impact Of Hunger On Economy Of Malawi” World Food Programme, Sarah Rawson, May 13, 2015 https://www.wfp.org/news/news-release/new-study-reveals-huge-impact-hunger-economy-malawi-0
  9. “Sea Level Rise” Wikipedia, https://en.wikipedia.org/wiki/Sea_level_rise
  10. “What Walmart’s pay-rise experiment says about the future of low-wage work”,Economist, R.A, October 17th, 2016, http://www.economist.com/blogs/freeexchange/2016/10/not-always-low-wages
  11. “4 Effects of Ocean Acidification on Marine Ecosystems” The National Academies of Sciences, Engineering and Medicine, https://www.nap.edu/read/12904/chapter/6#60
  12. “Why We Shop”,Bret S. Stetka, MD; Kit Yarrow, PhD, November 19, 2014, http://www.medscape.com/viewarticle/814649
  13. “The Unexpected Effects of Walmart Coming to Town”, Brad Tuttle, June 4th, 2012, http://business.time.com/2012/06/04/the-unexpected-effects-of-walmart-coming-to-town/
  14. “Walmart Makes You Fat. No, Seriously, It’s Been Proven”, Jim Worsall, january 29th, 2015, https://www.forbes.com/sites/timworstall/2015/01/29/walmart-makes-you-fat-no-seriously-its-been-proven/#7eb0d057407b
  15. “A Climate Solution Where All Sides Can Win”, Ted Halstead, April 2017, https://www.ted.com/talks/ted_halstead_a_climate_solution_where_all_sides_can_win
  16. The Worlds Top 10 Retailers”, William Carpenter, December 24th 2015, http://www.investopedia.com/articles/markets/122415/worlds-top-10-retailers-wmt-cost.asp
  17. “An introduction of the macroeconomics of Walmart”, UK Essays, March 23rd, 2015, https://www.ukessays.com/essays/management/an-introduction-to-the-macroeconomics-of-walmart-management-essay.php
  18. “45 Years of Wal-Mart History: A Technology Time Line” Thomas Wailgum, October 17th 2007, http://www.cio.com/article/2437873/infrastructure/45-years-of-wal-mart-history--a-technology-time-line.html