On Tuesday June 4th consumer choice in San Diego suffered a severe blow. The majority of members of the City Council passed an ordinance that prohibits the construction of large retail establishments that sell both general merchandise and groceries. Directed at Wal-Mart, which has perfected this form of retailing and which has conclusively demonstrated that many consumers prefer to shop that way, the vote flew in the face of both public opinion and good economics.
What is sad is that the City Council already has all the tools it needs to make sure large retail stores do not negatively impact a neighborhood. The construction of a Wal-Mart Supercenter within the City of San Diego would almost assuredly require an environmental impact report that would analyze the impacts of the proposed development on traffic circulation, land use and community character. The City Council would have the opportunity to conduct an in-depth examination of those impacts and determine whether they could be adequately mitigated. The concerns of the community would be voiced at public hearings and, as needed, the development altered to reduce or eliminate any negative impacts.
Yet the ordinance layers on additional prohibitions. In a decidedly inappropriate and potentially illegal use of zoning laws to try to protect one business (traditional supermarkets like Ralphs and Vons) from another (Wal-Mart), the majority enacted an outright ban on Supercenters in the City of San Diego.
During this debate proponents of the ban have argued that large retailers are somehow “bad for communities” or that “good jobs are being replaced with bad jobs”. This flies in the face of the consensus in the economic literature that the entry of Supercenters into a market can reduce grocery bills by between 4% and 15%. Ordinary citizens win when they can buy a week’s worth of food for $100 instead of $115. They have an extra $15, the result of competition in the marketplace, that are available to be spent on other goods and services.
Another concern is what a ban on Superstores will mean for the City’s treasury. According to HHC Publishing, in 2006 the average annual per-store sales at Wal-Mart Supercenters was $96 million. Making the very conservative assumption that only two-thirds of the sales at one of these stores are from taxable merchandise, an average Supercenter generates $600,000 in sales tax that flows to the municipality in which it is located. If the ordinance ultimately becomes law, a smart strategy for neighboring jurisdictions like Chula Vista, the County, Escondido, and East County cities would be to approve Supercenters on their border with San Diego and seek to capture some of spending done by City residents. If that happens San Diegans will lose twice, with sales tax dollars lost to other jurisdictions and San Diego residents having little say over how the impacts of these stores are mitigated.
In a final ironic twist that demonstrates the adage that government all too often tries to address yesterday’s supposed problem with heavy-handed solutions that come too late, on June 6th the Wall Street Journal ran a lead article that discussed how the big national grocers are successfully doing what we would expect them to do when faced with a competitor like Wal-Mart – reinventing themselves to offer consumers a different shopping experience. Their sales are up and consumers are saying that they are shopping for the items, such as ultra-fresh produce or prepared meals, that big retailers don’t do a very good job in providing. “Creative destruction,” when a company refocuses on its core competencies so it can better compete, is at the heart of modern capitalism which is what makes it such a positive force of change.
What next? As of publication Mayor Sanders’ veto seems iminent. So too does the override of that veto by the same majority. Consumers can only hope that Wal-Mart or some other group makes good on its promise to begin the process of gathering signatures to place this issue before the voters so that consumers have more choices and can realize the benefits of greater economic freedom.
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