No-one makes you shop at Wal-Mart: a review

In No-one Makes You Shop at Wal-Mart Tom Slee takes on a big job - to challenge the view that free markets invariably make us better off.
He does this not by claiming that people are stupid, or by whining about unfairness, or by mumbo-jumbo calls for a new economic paradigm of the sort that pollute the Guardian. Instead, he applies orthodox economic principles in beautifully clear terms. For example:
The prisoner's dilemma causes a "race for status" in which each individual works harder than he'd like.
Co-ordination games create monopolies and superstars based upon little merit - everyone buys Microsoft not because it's best but because everyone else does.
Asymmetric information means that predictability trumps quality. This leads to diverse problems such as the unemployed being unable to price themselves into jobs; to old-boy networks; to the failure of quality local restaurants or art-house films.
Some things - a town of diverse small shops, or an unpolluted environment - just cannot be chosen by individuals. So the market cannot fulfill our preferences for them.
These failings - and Tom gives many more -  provide an argument for government intervention, and for scepticism about whether we should introduce market forces into the public services.
There are, however, three issues Tom is vague about. One is: just how widespread or important are these market failures? For example, the market for used cars works better than Akerlof's theory of asymmetric information predicts. Is this just an isolated example of how markets work better in practice than in theory, or does it show that Tom is too pessimistic?
Second, the strongest case for free markets is not that they maximize well-being. It's that markets are a way of processing countless dispersed pieces of information on people's tastes and technologies. Sadly, Tom never addresses this Hayekian argument.
Third, market failure is only part  of the story. There's also  government failure. The choice we have is often not between badly functioning free markets and well-regulated markets, but between badly functioning free markets and badly regulated markets.
These, though, are quibbles, for our purposes. No-one Makes You Shop at Wal-Mart is a good counterweight to  the "MarketThink" view that markets work perfectly. It's a valuable reminder that scepticism about markets can be compatible with clear thinking and economic literacy. And it's wholly accessible to non-economists too. Opponents of the market could do a lot worse than to use this as their inspiration.
Update: Tom replies (very generously) here.

Comments

[james higham]

...predictability trumps quality... It does, particularly in the minds of North Americans - the global McDonalds syndrome - and leads to the demise of diners,for one. But also in the equation must be 'price'and 'cleanliness'. I suspect price is the one which trumps all others.

[Not Saussure]

Isn't it also the case that if a large Wal-Mart opens up in your area and only 25% of your customers (and 25% of the customers of a lot of other smaller stores in the Wal-Mart's typically very large catchment area) decide they're rather shop there, the effect on your turnover is likely to put you out of business, thus leaving the other 75% with no choice in where to shop?

That, at least, is the experience of a friend of mine up near Lake Eyrie, who tells me neither she nor many of her neighbours in their small town actually wanted to start driving the best part of 50 miles each way to do their weekly shopping when Wal-Mart opened up in the area, but enough people, both where she lives and in the surrounding towns, did to close almost all the smaller stores in a year or so.

[Terri]

Not Saussure cites a typical experience. Since the arrival of a large supermarket in my area, the local shops (including a perfectly adequate Co-op) have been replaced by nail parlours, mobile phone shops and boarded-up windows, despite plenty of local determination to boycott the supermarket.

There's another factor, though: the bigger a competitor becomes, the more resources they have to weight the outcome in their favour. For the first year of its existence, the new supermarket offered astonishing bargains that dried up once competition had been eliminated. Its opening also coincided with a new one-way system and parking restrictions that made anything beyond light shopping in the High Street impossible. Coincidence? Perhaps, but I doubt it.

Something that can't be put into economic terms is the subtly alienating effect of this kind of competition on community and relationships.

[AJE]

"No-one Makes You Shop at Wal-Mart is a good counterweight to the "MarketThink" view that markets work perfectly."

It's a shame that this book appears to go after an easy target: that markets working perfectly means perfect markets. It's a misunderstanding of what a market is - a process. The first question must be Can Walmart's competitors freely compete? and secondly Is the firm that prospers the one that's best serving the pressing needs of the consumer?

[tom s.]

AJE - I'd like to think I don't deal with the issue in such a straw man way. I think Chris's use of "perfectly" here is a shorthand for "pretty well" - at least that's what I'm arguing about.

And I would say that the third question is "if Wal-Mart wins because it addresses our immediate consumer needs, what happens to the other needs we have as citizens (for a reasonable city), as consumers who care about the working conditions of the people who make our stuff, and so on". I don't think the market addresses these problems at all - which is perhaps what Terri is saying at the end of the comment before yours.

[tom s.]

- and, Chris, thanks for the generous and perceptive review.

[AJE]

"Perfectly" and "pretty well" are both value-judgements made about a given state of affairs. Hence you've not avoided the straw-man at all, and your confession to never having read Hayek underlines this.

[Dipper]

so AJE unless you've read Hayek you cannot have an opinion on whether having only one store in your town is a good thing or not?

[AJE]

Of course you can have an opinion, it just won't be a very informed one.

To write a book on the subject of individualism and free markets without reading Hayek is shocking.

[tom s.]

Well, I might say that dismissing a book without reading any of it is shocking too, if I hadn't done it so many times myself.

And personally I figure that writing a book about the idealizations of the free market without studying the way similar idealizations are used and not used in the natural sciences is shocking, but hey, people do it all the time.

So I'm uninformed, I admit. We all are. My fondest hope is that at least I'm uninformed in a different way from so many others.

[Dipper]

"The first question must be Can Walmart's competitors freely compete? and secondly Is the firm that prospers the one that's best serving the pressing needs of the consumer?". Both issues addressed in NMYSAWM in the discussion on the Canadian Book Shop section.

Most arguments of this sort come down to my arguments vs your assumption. Economics seems to start with the assumption that people act as individuals in their own best interests, whereas Tom's book investigates whether people are better off if they co-operate, and how that co-operation may be achieved.

[Kevin Carson]

No one makes me buy pasteurized milk--except that the state has so reduced the range of choices that if I want milk at all it has to be pasteurized.

Likewise the state, by subsidizing distribution costs and promoting economic centralization, has artificially reduced the range of choices so that there are far fewer small, local retailers available.

[AJE]

http://thefilter.blogs.com/thefilter/2006/11/no_one_makes_yo.html