Waste Not, Want Not

The NYTimes had a long story in the Sunday Business section about Wal-Mart and their green initiatives. The lede was all about the history behind Wal-Mart's decision to "go green." By going green, the company committed itself not only to putting products with lower footprints on the shelf but also to building the shelves themselves (and their stores in general) in a greener manner. While undoubtedly helpful in reducing the environmental load relative to the past, the impact of Wal-Mart and their program is not entirely clear. Responding to advocacy groups, and with the leadership of the then CEO, H. Lee Scott, they drank the green Kool-Aid.

In came the fluorescent bulbs. In 2007 alone, Wal-Mart sold more than 100 million of them. For a manufacturer, selling a bulb that lasts longer means fewer sold. But it would hurt to lose Wal-Mart as a customer. So G.E. and others ramped up production of fluorescent bulbs.

It is not at all clear that Wal-Mart lost anything by promoting compact fluorescents (CFL's). The cost of CFL's is higher than the cost of incandescent bulbs over the life of the CFL. The savings to the customer come back over the lifetime in reduced energy costs. It is the utility that is losing on this deal, not Wal-Mart. The next paragraph points to another facet of their green program.

By selling only concentrated liquid laundry detergent, an effort it began last year, Wal-Mart says, its customers will save more than 400 million gallons of water, 95 million pounds of plastic resin, 125 million pounds of cardboard and 520,000 gallons of diesel fuel over three years.

In one sense they are only now learning what Toyota has learned. Waste is always costly whether it is the customers buying goods that contain less material or whether the savings come in the production system. Unless the production of concentrated detergents is significantly more expensive that for traditional formulations, the new products should be cheaper than the old ones. Any time that much waste can be wrung out of the process, there should be savings. I haven't been to a Wal-Mart to check on the price of these improved detergents, but I suspect that such savings may not have been passed along. I am not criticizing the actions, but I am a bit skeptical of the implications that Wal-Mart is doing this to be a good citizen or respond to environmental group pressures. They are to be commended for every move they make to reduce the environmental footprint all along the supply chain. But I will not stand up and cheer until they figure out how to make money while, at the same time, they teach their customers to reduce consumption in the first instance. By making goods available cheaply to masses of consumers, they are contributing significantly to the overall efficiency of the economy. But where is all the capital that this creates going? If it is going primarily to more production and more consumption, then all the greening at Wal-Mart is of little consequence in the long run. As Keynes (much in the news these days) said, "Long run is a misleading guide to current affairs. In the long run we are all dead." Unless we can reduce the global footprint, the long-run is likely to be a lot shorter.