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Tuesday, August 1, 2006

Wal-Mart Wasn’t Always the Biggest

John Semmens ([email protected]) is a transportation policy analyst at the Laissez Faire Institute in Arizona.

Editor’s note: As we went to press, and as if to illustrate the point of the following article, Fortune released its 2006 list of largest corporations, showing Exxon Mobil, not Wal-Mart, on top.

For all the gnashing of teeth over the current dominant position of Wal-Mart in the standings among America’s largest corporations, one might think that it has held the top ranking forever. It hasn’t. Wal-Mart has been the top-ranked firm in the Fortune 500 only since 2002. It has been in the top 500 only since 1995. Other corporations have held the top ranking for most of the last 50 years.

Back in 1955 Fortune Magazine published its first Fortune 500 listing of the biggest businesses in America. General Motors topped that list. At the time some people believed that General Motors was “too big.” More than half the cars sold in America in 1955 were manufactured by GM. Congress launched investigations of GM’s purported attempts to monopolize the American automobile industry.

GM was simultaneously accused of pricing its cars too high for many working Americans to afford and so low that they threatened to run their competitors out of business. Sensible people might marvel at the reasoning behind this type of accusation. The notion that prices could be both too high and too low defies logic. Nevertheless, our lawmakers have crafted antitrust rules designed to fight such practices. In fact, the antitrust code is fairly comprehensive in terms of the type of pricing schemes that are deemed to be in violation of the law.

Prices that are too low are considered “predatory.” That is, these low prices are perceived to be aimed at forcing rivals out of business so the “predatory” firm can monopolize the industry. Prices too high are considered evidence that the offending firm already must have monopoly power—how else could it enforce such a high-price policy? Prices that match those of competitors are viewed as evidence of conspiracy—how else could supposedly independent firms post the exact same prices?1

Since there is no pricing option left uncovered by antitrust laws, every business in America is potentially subject to investigation and prosecution.

Under badgering from Senate inquisitors in 1953, Charlie Wilson, the chairman of General Motors, asserted, “I thought that what was good for the country was good for General Motors, and what’s good for General Motors is good for the country.”2 While it may have been a bit presumptuous for Wilson to conflate the good of GM with the good of the nation, it is hardly evidence of evil. Yet the statement inspired demands for government action to humble this corporate giant. Legend has it that a chastened Wilson decided that his company would never sell more than 50 percent of the cars in America.

Exxon has been GM’s longtime rival for the top spot in the Fortune 500. By 1975 Exxon became the largest American business. Political events in the Middle East drove the price of oil up. As a vendor of this now scarcer commodity, Exxon vaulted to the top of the rankings. By 1978, though, GM was back on top. GM and Exxon took turns sharing the top spot until 2002, when Wal-Mart took over the lead.

The alternative to success is failure. This is the ultimate fate of most businesses. Three out of every five business starts end in bankruptcy within five years. Only a tiny minority of new businesses grows into the huge corporations that make up the Fortune 500. Once a business makes the list, there is no guarantee it will stay there.

If we look at just the top ten on the first Fortune 500 list from 1955 and compare it to the most recent list, we find only three holdovers. Seventy percent of the firms in the top ten in 1955 have been displaced by other firms. Famed economist Joseph Schumpeter likened the top ranks of business to a hotel where the guests are always changing.3

Human beings are lazy and greedy (or energy-conserving and ambitious—if you prefer less negative-sounding descriptions of the same phenomena). People can satisfy other people’s desires by providing products and services that cater to the inherent laziness of the species. In a true free market, to the extent that a business aptly discerns those desires and efficiently fulfills them, it will prosper. Firms in an unfettered marketplace become the biggest because they have effectively fulfilled more desires than their rivals.

Since no one firm can corner all the individuals within its organization, it will have to do constant battle to try to fend off those who have their eye on its current piece of the economic pie. If there is money to be made by serving human wants, firms will endeavor to serve them. Successful businesses spawn imitators and rivals aiming to cut themselves a piece of that pie. In the free market, the only way to cut oneself a bigger piece is by offering a better value.

Within the mixed economy Wal-Mart rose to the top by offering consumers better value—as perceived by freely choosing customers. How long Wal-Mart will stay on top is unknown. It possesses no patent on vending merchandise. Other businesses are free to copy its techniques, and several have. There are also innovations that threaten Wal-Mart’s main mode of business. More and more people are becoming comfortable with shopping on the Internet. Wal-Mart’s “big box” stores may be shunned as more shop from the convenience of their own homes.

As people become wealthier the lure of “always low prices, always” may dwindle. The attraction of “upscale” lifestyles may divert customers away from Wal-Mart. Target, a key Wal-Mart rival, has been accelerating its growth by offering trendy-but-affordable designer merchandise. That Target’s sales have been rising twice as fast as Wal-Mart’s in the last year has caught the attention of Wal-Mart’s management,4 and it is aiming more at upper-income shoppers.5 Whether this will be successful, though, is a big question. When you’ve created such a dominant position for yourself as a low-price vendor, it may be difficult to convince buyers that you can also offer upscale merchandise.

In the market the competition never ends. The race is never over. There is never a final winner. Any lead can be, and most probably will be, overtaken at some point in the future. Rather than fret over the current standings, people should take advantage of the products and services offered by competing business—rewarding those that serve them best as a spur to the improvement of all.


  1. Edward W. Younkins, “Antitrust Laws Should Be Abolished,” Le Québécois Libre, February 19, 2000,
  2. David Hartman, “What’s Good for General Motors . . .” Chronicles Magazine, May 2002,; also General Motors, Wikipedia,
  3. Daniel Gross, “Who Needs Harvard?” Slate (Jan. 12, 2005),
  4. Wal-Mart Takes Aim at Target,” MSNBC,
  5. Parija Bhatnagar, “’s Going Upscale,” Money Magazine, November 18, 2004,

  • John Semmens is a research fellow at the Independent Institute and research project manager in the Arizona Department of Transportation Research Center.