Walmart, out-sourcing and high gas prices

April 23, 2006 | By | 1 Reply More

For the past decade or two, American consumers have enjoyed low prices at Walmart, which imports many of its products from China.  Simultaneously, American companies have enjoyed low prices by out-sourcing service jobs to India and manufacturing to China.  Americans, both consumers and business leaders, believe they have saved money by doing this.  And, in the short term, they have.

Unfortunately, actions often have unexpected consequences.  This is due, in part, to the fact that actions do not happen in isolation, but rather occur within the context of larger systems that operate dynamically — usually to negate change.  Systems do this through feedback, usually negative feedback that tends to either return the system back to its original state or to undermine the original advantage.  Everyday examples abound: 

  • Cities build more roads to reduce traffic congestion, but then more people move in to take advantage of the roads and soon traffic is back to where it was. 
  • A peaceful beach offers quiet relaxation, but then more people find out about it and soon the peaceful quiet is gone. 
  • Antibiotics are invented to fight infection, but then bacteria develop resistance and soon infection rates return.

The same thing happens in the business world and, in fact, is now happening to Americans who believed they were saving money by shopping at Walmart and exporting jobs:  all that demand for goods and services from China and India has greatly expanded the economies of those countries, to the point where they are now rapidly growing their demand for oil.  The inevitable result:  global oil prices have exploded.  Who is to blame?  All those Americans who believed they were saving money by shopping at Walmart and exporting jobs.  In the short term, they did save money, but now the system is responding to negate those savings:  Americans now pay a lot more at the pump.

For more information about system dynamics, a field credited to renowned MIT professor Jay Forrester and which has been applied to a wide range of problems in both the public and private sector, look here.

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Category: Current Events, Economy, Politics

About the Author ()

Grumpypilgrim is a writer and management consultant living in Madison, WI. He has several scientific degrees, including a recent master’s degree from MIT. He has also held several professional career positions, none of which has been in a field in which he ever took a university course. Grumps is an avid cyclist and, for many years now, has traveled more annual miles by bicycle than by car…and he wishes more people (for the health of both themselves and our planet) would do the same. Grumps is an enthusiastic advocate of life-long learning, healthy living and political awareness. He is single, and provides a loving home for abused and abandoned bicycles. Grumpy’s email: grumpypilgrim(AT)@gmail(DOT).com [Erich’s note: Grumpy asked that his email be encrypted this way to deter spam. If you want to write to him, drop out the parentheticals in the above address].

Comments (1)

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  1. Erich Vieth says:

    "Systems do this through feedback, usually negative feedback that tends to either return the system back to its original state or to undermine the original advantage."

    Here's another example: Iraq. The original theory: lob lots of bombs and the problem will simply go away.

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