Whether or not corporations should care about social issues is often debated, notably in series of essays from Bill Gates, Larry Summers, and others, published in a book called Creative Capitalism. But when you see the positive impacts that a highly image conscious Walmart is having in China, it certainly suggests those pushing for socially conscious corporations may be correct.
A recent article in the Washington Post highlights some of these positive impacts:
Wal-Mart’s suppliers have been forced to get serious about pollution, Ma said. “Wal-Mart says if you’re over the compliance level, you’re out of business. That will send a powerful signal.”
In many cases, Wal-Mart is first trying to bring firms up to government standards. Ma added that suppliers “may not care about government fines, they may not care about exposure. . . . But they care about the order from the buyers.”
In a country without sufficient private property rights and an effective government needed to deal with pollution externalities, a company like Walmart can enforce behavior that brings the level of pollution closer to a socially optimal level. The amount of environmentalism that Walmart demands probably has a closer correspondence to what the people would demand from a democratic government, or would arise in a system with perfect property rights and efficient pigouvian taxes, than the status quo that would exist without Walmart.
A well-functioning economy needs laws and the institutions to enforce them. In China the enforcement of laws can be subject to the often corrupt or rent seeking local communist party officials. What Walmart seems to be doing is using it’s massive supply chain to provide local companies with strong incentives to obey the law in a way that local governments can’t or won’t. This is another aspect of globalization and Walmart that I think is underappreciated.
If I’m right that Walmart’s social conscience is having a positive impact on China, then we also have the tireless Walmart critics of the last 20 years to thank. They were wrong that the old, non-socially-conscious Walmart was doing more harm than good -amoral globalization is better than no globalization- but their criticisms may have helped create a Walmart that does even more good than before.