Creative Destruction

Dean and Sobel report that the universal belief that Walmart drives “mom-and-pop” shops out of business is statistically unsupported. Their research suggests, that while Walmart does cause some directly competing small businesses to fail, those particular failures are completely counterbalanced by the entrance of new small businesses through the process of creative destruction. This article presents a different side of how the entrance of Walmart actually affects a community. Walmart’s entrance into an economy actually spurs innovation by driving out old inefficient businesses, leaving newly vacated commercial real estate available at lower prices. More affordable rents decrease the barriers to entry for new and more innovative businesses and these new companies have to be more specialized because of their proximity to Walmart. Overall, with the entrance of a new Walmart store into a community, entrepreneurialship is stimulated, businesses become more efficient, and consumers save more.