Friday, December 12, 2008

Wal-Mart's Virtues

Wal-Mart's Virtues

After my discussion of how Wal-Mart's $4 prescriptions were causing competitive response at Albertson's, a reader pointed out that in the aftermath of Katrina, Wal-Mart and Home Depot did a better job than FEMA of helping with recovery. Another reader pointed me to this discussion:

Wal-Mart Way in Disaster Preparedness/Response: Policy Implications

Biot Report #569: November 27, 2008 Printer Printer Friendly

Is centrally directed emergency response and recovery from a natural disaster the only viable option anymore? This belief “seems to be faulty,” judging from the poor response from the federal government and the comparatively effective response from private retailers after Hurricane Katrina, argues economist Steven Horwitz, Ph.D. “Big-box retailers such as Wal-Mart were extraordinarily successful in providing help to damaged communities in the days, weeks, and months after the storm,” he declared. (1-3)

Bolding below is by author (MRO).

  1. Private Sector Performance during Katrina Event
  2. The assumption behind centralized government (especially federal) solutions, such as financing and directing both the response to and recovery from natural disasters is the belief that “the private sector’s profit motive would thwart the charitable impulses generally regarded as essential for effective relief,” says Dr. Horwitz. However, “the private sector’s involvement in the response to Hurricane Katrina…has provided strong reasons to be skeptical of this argument,” he cautions.
    The major media and political actors focused on the failures of the Federal Emergency Management Agency (FEMA), while the successes of the private sector received much less publicity after Katrina. The effective responses mounted by the private sector deserve greater consideration, asserts Dr. Horwitz. “During the Katrina relief efforts, the more successful organizations were those that had the right incentives to respond well and could tap into the local information necessary to know what that response should be” (more below). (3)

    Indeed, many private firms responded effectively to Katrina, but Wal-Mart, the world’s largest retailer, was exemplary. (4) Wal-Mart “arrived in the New Orleans area long before FEMA and had the supplies that the community needed,” writes Horwitz. “Both President Aaron Broussard and Sheriff Harry Lee of Jefferson Parish in suburban New Orleans lauded Wal-Mart’s work. In an appearance on Meet the Press, Broussard noted that Wal-Mart had delivered three trailers of water only to be turned back by FEMA and quoted Lee in saying, “if [the] American government would have responded like Wal-Mart has responded, we wouldn’t be in this crisis.” (5)

I am not suggesting that we abolish FEMA and other government agencies responsible for disaster relief. Private relief organizations, such as the Salvation Army and the Red Cross, also performed valuable functions as well. But it should be no surprise that for-profit institutions did a better job than the federal government on this. To quote Adam Smith in The Wealth of Nations (1776):
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard for their own interest.
Self-interest is sometimes not enough to solve all social problems, but we should never lose sight of the fact that the profit motive (even if "concern for the community" is the stated reason for doing good) is more certain to motivate than a bureaucrat doing his job--not in the case of Bush's useless FEMA flunkie, Mayor Nagin, and the useless of Governor of Louisiana, not doing his job.

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