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- Published 8.08.07
It has been called Woods’s Law, after a historian called Thomas Woods. It is an apt description of what is likely to happen to the discussion over Wal-Mart’s 50:50 joint venture that was announced yesterday. Simply put, Woods’s Law states that someone will eventually call to curb or abolish any market innovation that is likely to benefit the poor. Ironically, it is the voices of those who claim to watch out for the interests of the poor that will be the loudest. Measured in GDP terms, Wal-Mart’s annual revenues of a little over $350 billion put the company among the 25 largest economies in the world. Its annual revenues exceed the GDP of Belgium, Argentina and South Africa. The deal between the global retail giant and Bharti Enterprises is likely to generate a politically charged debate about the impact on agriculture, farmers, rural communities, the effect on kiranas and small grocery stores, the merits of allowing foreign ownership of the retail sector and of globalization in general. The Telegraph believes that the impact of Wal-Mart’s entry is likely to be beneficial.
India is the largest producer of milk, grain and vegetables in the world. But close to 18 per cent of its grain and nearly 30 per cent of its vegetable output go to waste because of a lack of warehousing and storage facilities. Given the number of India’s poor, that is unconscionable. The entry of Wal-Mart is likely to see considerable investment in supply-chain infrastructure. Wal-Mart’s presence across the supply chain means it can go directly to producers, for whom contract farming will ensure risk-free returns for their harvest. For the consumer, it can set quality standards, establish warehouses, minimize spoilage, set up cold chains to ensure reliability and maintain inventory control to reduce waste. This scale of supplychain and logistics support is something that domestic retailers do not focus on at present, choosing instead to operate at the front-end of the business. By keeping costs down, a large retailer can increase the purchasing power of the population at large, and improve the standard of living among the nation’s poor and help them live more independent, autonomous lives. Woods’s Law may seem a self-indulgent formulation. But when governments get involved on the side of those calling for a reversal of market innovation, the results could get violent, as it happened in the case of McDonald’s entry, and that of Cargill, another foreign company. And as always, the poor suffer more than they otherwise would.