Wal-Mart and Health Insurance: The Theories of the Case

I find it hard to believe that none of the liberal commentators breathlessly celebrating Wal-Mart's "capitulation" on national health care have even entertained the most parsimonious explanation:  that Wal-Mart is in favor of this because it raises the barriers to entry in the retail market, and hammers Wal-Mart's competition.  Yet somehow, this appears nowhere in any of the analysis.  These are the explanations that they found more plausible:

1.  Wal-Mart wants to change its image, which is better accomplished by securing a massive regulatory mandate than by, say, insuring more employees, or setting up a happy-face charitable foundation.

2.  Wal-Mart wants to make its voice heard in the process, which is better accomplished this way than by paying lobbyists.  Also, Wal-Mart is hoping that the federal government will deliver health-care cost control, which is something the company that gave us $4 prescription drugs couldn't hope to do on its own.  Controlling health care costs is, of course, a big worry for a company that I'm told does not insure many of its employees.

3.  Wal-Mart is flummoxed by unpredictable health care costs for all the workers it apparently isn't covering.  Because if there's one thing that we've learned over the years, it's that when the government gets involved, health care costs become totally predictible. 

Also not considered:  Wal-Mart cut a deal with the SEIU in exchange for the SEIU leaving it alone.

Yet, even in liberal academic literature, it is a commonplace that regulations disproportionately benefit several types of firms:

a)  Incumbents
b)  Market leaders
c)  Firms with the most employees

Regulation has a very high fixed cost for compliance; the larger the firm, the more dollars/employees over which to amortize the fixed cost.  Meanwhile, market leaders have disproportionate bargaining power, and tend to get better rates from suppliers than smaller competitors.  Finally, a high fixed cost means either that it's harder to initially enter the market, or (if there are exemptions for the smallest firms) harder to grow.

On the other side, there is regulatory capture.  Wal-Mart is always going to have a seat at the table when employer mandates are discussed, because Wal-Mart is the nation's largest private employer.  Target and Macy's probably won't have a seat at the table.  So Wal-Mart can influence the rules in ways that benefit Wal-Mart at the expense of the competition.  This is partly because the regulators often cycle into jobs at the firms they regulate, but also simply because the regulator's attention is finite, so being consistently at the table allows you to shape their views over time.   Again, this isn't some kind of crazy right-wing analysis; regulatory capture was first diagnosed by a Marxist historian named Gabriel Kolko.

All of which is to say, Bootleggers and Baptists should be required reading in all schools.  When you find strange bedfellows in politics, don't look for a surprising outbreak of spontaneous virtue:  looking for the hidden conspiracy.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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