Pyrhic Victory for Collectivism

The blogosphere is all over the latest battlefield outcome in the War on Wal-Mart, in which the collectivists have prevailed. Maryland passed their punitive payroll tax bill that wallops, handily enough, Wal-Mart solely.

There are alot of things that can be said about this and I wouldn't want to cover them all (and I have a busy day today), but I have a very stong feeling of what the outcome will be. Wal-Mart will do one of two things:

1. Reduce their presence in Maryland to where they have less than 10,000 employees. The majority of these job losses will come as store closings, but perhaps they have non-store jobs that can just be moved across the border to Pennsylvania, Delaware or Virginia.
2. They will indeed raise the healthcare spending per employee to 8% and offset the increment by peeling back other components of compensation, like retirement benefits and cash wages. Workers could wind up with the greatest healthcare but less cash in their pocket and less in their 401Ks.

I think #2 would be the least likely outcome because it is the least tenable. Wal-Mart would lose their best workers and embitter those that remained. Layoffs would be painful to the unfortunate workers whose jobs were legislated away, but those who remained would have their current compensation intact, so option #1 looks more likely.

Looking at a map of Wal-Mart's stores in MD, it looks like they are heavily clustered around Baltimore and only a handful of stores are outliers. A conceivable strategy would be to move the Hampstead and Westminster stores to Pennsylvania, close the Bowie store, consolidate the remaining presence around Baltimore to fewer stores, and move all non-store jobs out of the state. With these moves, it seems likely that they could get their total Maryland employment down below 10,000.

It is sad to see this come to pass, but the Maryland legislature cannot legislate away the laws of supply and demand so they must have foreseen the consequences of their actions. Marylanders don't have a right to Wal-Mart's jobs or Wal-Mart's services, so they will get only so much of these things as the law allows.

Many feel that Wal-Mart will simplytake their lumps and go along with the law. I disagree. Their business model absolutely depends on the current cost structure, and even the slightest break in their cost structure discipline would begin a long term deterioration of their business. They will not allow that. Finally, the very nature of a large retail operation like Wal-Mart means that they are not married to a current set of locations. They have to go where the people are, so they are in the business of opening and closing stores all the time. Pursuing option #1 doesn't entail anything radical on their part, just doing more of the same thing they do all the time.

I hope that the Maryland legislators that voted for this have a good explanation to give the roughly 7,000 workers who will see their jobs go away.