Freeman

ARTICLE

Stopping Government Sprawl

Respecting the Free Market and Property Rights Increases Living Standards

FEBRUARY 01, 2001 by TIMOTHY D. TERRELL

Timothy Terrell is an assistant professor of economics at Wofford College in Spartanburg, S.C.

In a scene that is repeated countless times each year in cities all over the world, a local government is preventing a landowner from building a legitimate business on his property. Tom Winkopp, owner of a 50-acre site in Clemson, South Carolina, wants to put a Wal-Mart Supercenter on his land. Last year, citing nonconformity with the Comprehensive Plan for the town of Clemson, the city council denied him permission to build the superstore.

Behind the petty tyranny of the city council are over 30 local businesses and an interest group called Citizens for Responsible Growth in Clemson (CRGC). Their motives are understandable. The story of businesses’ using government to suppress more efficient competition is an old one. In the end, consumers lose. Even though consumers are more numerous than business owners, their disorganization and less intense personal interest in the outcome hinders their defense against anticonsumer politics.

The small but vocal CRGC has rallied opposition to Wal-Mart (dubbed “Sprawl-Mart”) by coupling a fear of large firms with a misunderstanding of economics. Remarkably, the Wal-Mart opponents take some of the economic advantages of superstores and turn them on their heads.

First, CRGC frets about the impact a new Wal-Mart might have on local employment. The group cited a study showing that for every job Wal-Mart created, one-and-a-half jobs were lost in other local businesses. (Other studies have shown negligible effects on the level of employment.) Even if the study were analytically sound, this would be something to be applauded, not condemned. It means that Wal-Mart can sell what people want and use fewer resources in the process. We must remember that jobs per se are not the ultimate goal of the economy. We want what can be purchased with the income from jobs. Even if Wal-Mart’s efficiency produced a slight decline in the demand for labor (and consequently, wages), the offsetting effect of lower prices might allow people to enjoy higher living standards.

Second, the proposed 30.1 acres of paved surface that would allow customers adequate parking is condemned as an eyesore and a cause of slightly increased temperatures in the surrounding area. The neighbors will have a case only if they can prove strict causality (that the Wal-Mart itself is responsible for any increase in temperature) and show that they suffer actual harm from the heat or the new view of the Wal-Mart. Most important, the neighbors’ claims are best taken up in a court under tort law and not as a problem a city council can regulate around. In any event, Wal-Mart is not likely to over-pave. At $75,000 an acre for the property, Wal-Mart has no incentive to purchase and pave more parking lot than customers want.

The very size of the Wal-Mart is listed by CRGC as one of the top ten reasons to prevent the superstore from being built. It would be 204,000 square feet, larger than the entire downtown commercial district and four times the size of the largest retail store currently in Clemson. Here the Wal-Mart opponents are portraying a strength as a weakness. Wal-Mart is efficient partly because it puts a wide variety of goods under one roof so that people don’t have to get into and out of cars and wait in several stores’ check-out lines. Physically handicapped individuals, pregnant women, and families with small children can appreciate the benefits of reducing the number of stops.

The bottom line is that consumers love Wal-Marts. If they didn’t, you can bet that existing businesses (fronted by “concerned citizens”) wouldn’t be putting up such a battle in city council meetings to stifle the competition.

Infrastructure Questions

The only point we might concede to Clemson’s anti-Wal-Mart group centers on the provision of adequate infrastructure. Building a Wal-Mart would require improvements to the adjacent roads—which in our system of socialized roads means passing a burden on to taxpayers. Road work alone could cost over $10 million, and Wal-Mart agreed to pay only a fraction of that (of course, one could argue that the $600,000 in sales taxes and the $35,000 in property taxes that Wal-Mart would pay every year might entitle it to some services). Ideally, the public dispute over who will pay could be sidestepped by privatizing the roads. Economist Walter Block and others have shown that private ownership of roads would produce a healthy competition among road owners that reduces congestion and accidents. (See his and Michelle S. Cadin’s “Privatize Public Highways,” The Freeman: Ideas on Liberty, February 1997.)

Ironically, CRGC claims to be supporting the free market as they simultaneously fight for government restrictions on private property. “Our group does not object to the free market. We support it wholeheartedly as the foundation of the American economy,” its Web site proclaims. Yet CRGC attacked Wal-Mart using one of the most egregious governmental assaults on the free market in the post-1865 United States—antitrust law. Wal-Mart, it pointed out, was found guilty of predatory pricing in its home state of Arkansas. But this, too, is a groundless concern. Antitrust authority Dominick Armentano has shown quite succinctly that predatory pricing is a “benign process,” and that “there is no obvious reason why antitrust regulation should restrain such occasional practices that clearly benefit consumers.”

Apart from the definite benefits to consumers, what would a Wal-Mart do to existing Clemson businesses?

Building a Wal-Mart in Clemson could help the local economy in general by allowing its retail sector to compete more effectively with the neighboring towns. Currently, many people in Clemson eschew the parking difficulties of the downtown area for a 15-minute drive to Wal-Marts and other stores in the neighboring towns of Seneca, Easley, or Anderson. People who might be drawn to a Wal-Mart in another town are also going to patronize other businesses in those towns—like restaurants and gas stations. Furthermore, the presence of a Wal-Mart may attract some new residents who like to have convenient shopping nearby. This has a spillover effect on other businesses. In the interests of protecting certain existing businesses from competition, the city council could be hurting the broader Clemson economy.

In Auburn, Alabama, another southern college town very similar to Clemson, a prosperous downtown peacefully coexists with two nearby Wal-Marts. In fact, Auburn’s downtown has staged a remarkable turnaround since Wal-Mart’s arrival. Clothing stores, restaurants, bookstores, variety and gift stores, and barber shops thrive and even maintain some quaint small-town traditions. (Don’t try to get a haircut in downtown Auburn on a Wednesday.)

To be sure, some town governments have been able to hammer out downtown “revivals” by spending millions on renovations. Funnel enough tax dollars into any area and the appearance might improve. Yet the alternative uses of that tax money would almost certainly have produced greater benefits.

In many respects, downtown businesses rely on a tight relationship with the local government for their prosperity. Superstores have a lower degree of dependence, which may explain Wal-Mart’s difficulties with Clemson’s city council. Downtown businesses typically rely on government-provided parking, sidewalks, landscaping, and lighting, and a higher-than-normal concentration of police protection. In contrast, superstores and shopping malls provide their own parking lots, lighting, sidewalks, and even some degree of security.

It’s not hard to discern which system works better. While downtown areas are notorious for their parking shortages and, in many larger cities, their crime, superstores and shopping malls typically have ample, well-lit parking and a generally peaceful shopping environment. Consumers vote with their dollars, often leaving a decaying downtown propped up by protectionist city councils beholden to local “old money.” New stores are more likely to appear just outside the city limits, where taxes are lower and zoning is less restrictive or nonexistent.

A city council wishing to support a downtown renewal consistent with free-market principles could do so by relinquishing two things for which city councils have an insatiable appetite: tax money and control. The key could be lowering taxes on downtown businesses and turning over the parking space and other infrastructure to private firms. Perhaps an association jointly operated by downtown businesses could take responsibility for maintenance and improvement of downtown infrastructure. Or, in a small town like Clemson, perhaps a single company could purchase the entire downtown—buildings, streets, and all. This would give a downtown area some of the qualities of a shopping mall that are evidently so pleasing to consumers.

With the incentives that private ownership and management would provide, market forces could produce a downtown revival without the bungling protectionist intervention of local government. At the same time, freeing property owners like Tom Winkopp to build what consumers demand would increase living standards—and distinguish city councilmen who are true friends of liberty.

ASSOCIATED ISSUE

February 2001

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