House of worship?

Photographer: Joe Raedle/Getty Images

The Church of Wal-Mart

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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I got a lot of responses to my post last week on Wal-Mart's decision to raise the minimum wage many of its employees earn to $10 an hour next year. One variety of response stood out: the folks who said "Wal-Mart is doing this because it's good for its business."

It stood out because it is almost right, but not quite. The correct statement is that "Wal-Mart is doing this because it thinks it's good for its business." Never ignore the possibility that Wal-Mart could be completely wrong.

I remark on this because some of the arguments I saw verged upon what I've come to think of as "corporation theology": the belief that if a corporation is doing something, that thing must be incredibly profitable. This is no less of a faith-based statement than the Immaculate Conception of Mary. Yet it is surprisingly popular among commentators, not just on the right, but also on the left.

For example, way back in the early 2000s, I wrote an article about potential class-action lawsuits against fast-food companies (the lawsuits actually materialized just a few months later, were dismissed by an exasperated judge and faded into obscurity). I interviewed many, many folks in the anti-obesity movement, including some fairly famous authors. And I asked one of the authors what I thought was an easy question: "I loved your book, but I'm struggling with something. You have a lengthy section about fast-food advertising, and I haven't been able to find the studies that show fast-food advertising causes kids to increase their consumption of fast food. Could you point me to them?"

The author seemed taken aback, almost confused by the question. It emerged that they hadn't looked at any actual studies, but corporations spend huge amounts of money advertising to children, so obviously, it must do something.

This left-wing writer was evincing considerably more faith than I have in the American corporation. Corporations do dumb stuff all the time -- for decades, even. Moreover, advertising has multiple purposes. It can of course induce you to consume more of a product, but frankly, no matter how much Pepperidge Farm advertises, it's probably not going to dramatically increase America's consumption of prepackaged cookies. So why does it advertise? Because it wants you to choose a Milano instead of an Oreo or one of them newfangled biscotti.

This is corporation theology. Of course, you also see it on the right -- arguments that if some product were good or desirable, a corporation would already have provided it. The entire history of human progress argues against this theory.

As these two examples suggest, corporation theology gets trimmed to personal and ideological convenience, as all theologies often are: A liberal is capable of simultaneously believing that market failures abound in industries he or she would like to regulate, and also that Costco knows how to run Wal-Mart's labor policy better than Wal-Mart does; a conservative, the inverse. Both are wrong. Corporations, like all human institutions, are great engines for making mistakes. The only reason they seem so competent is that companies who make too many mistakes go out of business, and we don't have them around for comparison.

Wal-Mart's decision to raise its minimum wage is undoubtedly what it believes to be the soundest business strategy. Many of its investors disagreed. But we won't know whether this was good for business until we see what happens to its profits a few years down the line. And frankly, we may not know even then, what with all the other changes going on in its market. Business, unlike theology, rarely offers final answers.

  1. No, no, don't e-mail me to tell me about your favorite study of this subject. I've seen some studies, all of which seemed to me to be absurdly weak (badly designed; plus, if fast-food advertising works so well on kids, how come public health advertising doesn't?). But this is beside the point. The point is that this author believed that advertising must work, because after all, companies do so much of it.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net