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Con: Big-box ordinance unfairly targets one retailer

Dialog: Super-Sized Controversy

W. Erik Bruvol

Sunday, January 23, 2011

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Two of my favorite stores in all of San Diego are a bookstore and an adjacent specialty game store. The bookstore, Mysterious Galaxy, is staffed by a group of employees who know my name and can recommend the perfect book. The game store stocks specialty games and sponsors organized events. My day is made brighter when I have time to visit.
They also have been located for several years less than 400 yards from a large Walmart, the nation’s largest seller of books and games. The fact that all three can survive in the same neighborhood speaks to what is wrong with the city of San Diego’s so-called big-box ordinance.
Supporters of the ordinance purport that it is not a ban. They argue that it just requires “study” and “economic analysis.” How can having more knowledge before the council makes a decision be a bad thing?
However, the actual effect will be to put up insurmountable hurdles. The parameters of the required “economic impact analysis” are particularly imprecise and are not grounded in conventional economic theory. The assumption lodged in the ordinance is that businesses in a given area never change how they operate or the mix of goods they sell. Such a fundamental error is likely intentional. It opens the door to politicizing research efforts and will result in endless litigation. Walmart is likely to choose to save itself the headache and forgo further investment in San Diego. The ordinance is effectively a ban and claiming otherwise is politics at its most cynical.
The ordinance also reflects a misunderstanding about the nature of the free market. At the core of modern capitalism is the innovation of firms seeking to win and retain customers. My favorite stores have come to do things that Walmart can’t – hire and retain knowledgeable staff, set aside floor space for gaming tables, and special order products from small book and game publishers. In turn, Walmart’s advantages are price and large inventories and, leveraging these advantages, it continually looks for ways to drive costs further down and ensure that goods in demand are available. As all three of these retailers have competed, they each have filled those niches in which they do something the others cannot.
Ironically, the businesses and their employee unions that have pushed hardest for the big-box ordinance, the traditional grocers such as Albertsons, Ralphs, Stater Brothers and Vons, are themselves strongly focused on innovation and change. Supporters of the ordinance conveniently forget that as these grocers have increased the volume of sales from alcohol, baked goods and prepared foods. This has threatened certain wine merchants, bakeries and restaurants. Maybe in the spirit of the big-box ordinance the San Diego City Council could next try to prohibit the grocers from further disruptive innovations. After that, the council could take up the concerns of buggy whip makers over these new contraptions called automobiles.
Seventy years ago, Joseph Schumpeter popularized the idea that capitalism involves creative destruction as firms rise and fall, innovate or die. No doubt the marketplace can be scary. Small-business owners put their heart, soul and dreams into their stores. Consumers who are here today may be gone tomorrow. Preferences change and new competitors enter the marketplace.
However, by trying to use public policy to advantage one set of retailers over another, the San Diego City Council erred in its thinking and sought to fight against inevitable change. When the subject comes once again before them, the council members should change course and rescind this poorly constructed ordinance.
Bruvold is president of the National University System Institute for Policy Research, an economic and public policy think tank focused on the San Diego region.