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Evan Davis on... the WalMart effect

Updated Saturday 21st February 2009

After The Bottom Line looked at WalMart, Evan Davis was keen to find out what a declining economy has done to the WalMart effect.

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Copyright The Open University

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Copyright The Open University

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Nice to have someone from Walmart - “the global Walmart empire” - in the studio with us today, because Walmart has been cited as having a large effect on the global economy in the last few years.

The Walmart effect was the ability to source and to take products, particularly from China, made in China - low cost products - and to deliver them to western consumers. Logistically it was an important task; sourcing is a particular skill and Walmart did it extremely well, and it drove down prices, it gave us disinflation in the western world as those goods came to the west and competed away high cost items that originally had been made here.

It was a driving force to the global economy. And I was quite interested to discover whether that Walmart effect that’s been written about in economic treaties around the planet for the last few years, whether that effect is still alive and well or whether the changing exchange rates that we’ve seen in the global economy, the decline in the dollar relative to the Chinese currency, the very much more rapid decline in the pound as well against the dollar… whether that meant that the Walmart effect still worked.

Would the price of those goods coming from China still be low enough to comprise a Walmart effect? And in addition, would the requirement for consumers, in the west, in the States and in the UK to start saving, would that mean the Walmart effect no longer was very important because we wouldn’t be able to afford to buy the things that China was supplying?

As you might expect, Andy Bond of Asda didn’t think it was all over because, of course, the global recession means that the Chinese want the work, they want to do the exports so the prices aren’t going up, the prices are still, if you like, are still out there, the deals are still out there to be made.

But the Walmart effect probably won’t be talked about as much now we’re in a global recession, now we’re in a period of saving in the western world rather than spending, but it’s been a very important thing in the global economy for the last decade.

 

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