‘Creative Destruction’ Follows Wal-Mart, for the Better

Published October 8, 2008

John Garen, chief economist at the University of Kentucky, says the growth of new businesses to replace ones that close after Wal-Mart moves into a town emphasizes the importance of “creative destruction,” the principle that economic growth requires older businesses and processes be replaced by newer, more efficient and effective ones.

“Each quarter the U.S. economy historically destroys about 7.5 percent of its jobs, but creates about 8.2 percent new ones,” Garen said. “This is a messy process, but it pays off in many positive ways. People end up getting the products they want and are willing to pay for, which helps increase workers’ paychecks.”

Dun & Bradstreet reports that during the most recent fiscal year Wal-Mart spent nearly $1.98 billion for merchandise and suppliers in the small state of Kentucky alone, which the financial analysis firm says resulted in 48,514 supplier jobs in the state—more even than the total number of associates employed by Wal-Mart in the commonwealth.

It’s also wrong to claim, as some critics do, that new businesses opening as a result of Wal-Mart are somehow inferior to the ones they replace. Sobel’s report shows “uniform positive growth for the ‘quality'” of sole proprietors in terms of both real net income and revenue.

As Wal-Mart has grown, so have revenues and profits of small business owners, the reports show.

— Jim Waters