Friday, August 18, 2006

The Free Market Includes the Freedom to Fail

Wal-Mart is going through another bashing. This time, it's not the unions, it's the banking regulators. Wal-Mart wants to open a kind of bank. Why? To lower their credit transaction costs. Of course, there is great resistance among other bankers and credit processing companies, for obvious reasons; and they are doing their best to lobby the government to stop Wal-Mart from doing so.

[Thanks to for the photo.]

Now, I've had my own business, and I know how hard it is to find a good credit card processing company outside the Big Few, whose fees are astronomical. I cannot imagine how many billions Wal-Mart must pay for their service, even though they obviously have a special deal.

In an article at, Nick Godt and Robert Schroeder explain that "[c]ommunity banks fear Wal-Mart will have the same impact on local banks as it did on many local retailers which, unable to compete with the giant retailer's pricing, have shrunk or been forced out of business."

And thank goodness for that. It's called inefficiency. It also means that, just like Wal-Mart's cheaper manufacturing prices, their credit processing savings will be passed along to customers. If some expensive and inefficient credit card processing company goes out of business, -- hey, dem's the breaks.

People forget one of the principal tenets of a free market. Failure in a real free market arena is part of the game, not something to be avoided. Open competition is the only valid playing field, and anyone who accepts the idea of free competition must accept that there are winners and losers.

In fact, that's the whole point. If we don't let Wal-Mart into the bank boxing ring, that's tantamount to declaring last year's champions as the winners forever. That's not a free market; that's monopoly privilege.

Let Wal-Mart show the others they won't be bullied around. That's the best way to get the competition to lower their prices and clean up their act.


Anonymous Jon Taylor said...

I had never thought about it, but with the amount of credit card transactions they make, Wal-Mart must have some really cheap credit card processing! Does Sam's Club offer merchant accounts? I know Costco does, and Wal-Mart has their own credit card, so it's probably something to look into (for me anyway!).

6:39 PM  

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