Summary:
Media claims that Wal-Mart and China are having a destructinve effect on local businesses are ubiquitous. Christian Broda (University of Chicago) argues that China and Wal-Mart benefit the poor far more than the rich. As a result inequality between the rich and the poor has actually decreased in the last decade, rather than increased. Trading allows everyone, and especially the poor, to buy things that they could not otherwise afford. (Published: 03/06/08)
Notes:
- Media reports of job losses to China and the destructive effect of Wal-Mart on local businesses are ubiquitous
- Lawrence Summers and Martin Wolf: recently highlighted the dangers of having high-income countries turn against globalisation
- Not the case that inequality in these high-income countries has risen as a result of globalisation
- How rich you are depends on two things
- how much money you have
- how much the goods you buy cost
- Unfortunately the conventional wisdom on US inequality is based on official measures that look only at the first half, the income differential
- National statistics ignore the fact that inflation affects people in different income groups unevenly because the rich and poor consume different baskets of goods.
- Inflation of the richest 10 per cent of US households has been 6 percentage points higher than that of the poorest 10 per cent in the period 1994-2005
- Why has inflation for the poor been lower than that for the rich?
- In large part it is because of China and Wal-Mart.
- Poor families in America spend a larger share of their income on goods whose prices are directly affected by trade – such as clothing and food – than wealthier families
- The higher a person’s income, the more they spend on services, which are less subject to competition from abroad
- China
- Prices of consumer goods in US stores have fallen most heavily in sectors where the Chinese presence has increased most (canned food, cotton shirts,...: negative inflation)
- In sectors where there is no Chinese presence, inflation has been more than 20 per cent
- Wal-Mart
- Superstores sell the same products as traditional shops but at much lower prices.
- Today the poor buy roughly twice as much of their non-durable goods in these stores as the rich do.
- Poor consumers have therefore been the biggest beneficiaries of Wal-Mart’s coming to a town.
- really worrying that, in spite of these facts, we have had a backlash against China and Wal-Mart in the US
- trade sceptics: no point in buying cheaper goods if you have lost your job
- but America’s unemployment rate is about 5 per cent, close to its record low
- Trading allows everyone, and especially the poor, to buy things that they could not otherwise afford.
