American cities are starting to weigh up
the pros and cons of ‘big-box’ retailers
By Professor David Barron*

24 August 2006: Not so long ago, America's big cities were so desperate to attract commercial development they gladly would have given away the store to get one. But not now, as Wal-Mart and other super-retailers recently discovered. On 25 July 2006, the Chicago Board of Aldermen passed an ordinance requiring big-box retailers - those with $1 billion in sales and 90,000 square feet of shopping space in their stores - to give their employees a living wage. By 2010, the stores would have to pay workers US$10 an hour and provide an additional $3 in benefits.

Despite strong support from local unions and merchants, and concerns that an influx of low-paying big-box retail jobs could do more harm than good, the mayor has threatened to veto the measure, and some are talking about asking the courts to strike it down if it's enacted. They say the new law is not only unfair but also bad policy. It would, they argue, deprive the city of sales taxes, force consumers to pay higher prices, take jobs from poor people, and push new development to the suburbs.

But whatever one thinks of the merits of this debate, the fact that Chicago is even having it is important. Other cities, including Boston, are already thinking about following the aldermen's lead: As Wal-Mart contemplates its first store in Boston, city councilors Chuck Turner and Felix Arroyo have said they plan to explore an ordinance similar to Chicago's. This surge of interest in regulating big-box retail shows that, at last, America's cities are beginning to think of themselves as choosers rather than beggars. They have emerged from decades of decline with newfound financial strength, and they are now beginning to assert their public powers to decide the kind of cities they want to be.

In the course of condemning the proposed ordinance, The Wall Street Journal noted the change in urban fortunes that lies at the root of the Chicago debate. "Not so long ago, desperate cities were trying to lure businesses by declaring themselves low-tax and low-regulation enterprise zones," the Journal's editorial page observed. "Now with these wage and benefit mandates, the cities are declaring themselves anti-enterprise zones."

But do we really want our largest cities to continue to act as if they must cede their public powers in order to attract private business? And why should they, now that their economic circumstances have improved so dramatically?

After steadily losing population in the decades following World War II, Chicago grew by roughly 4 per cent between 1990 and 2000. Its residents now make up about a third of the metropolitan area, which is one of the four largest regional economies in the nation. Chicago is no longer in decline-and it is taking its future in its own hands. It has led a bold effort to rethink how it will provide affordable housing. It has just completed one of the most impressive urban public works initiatives in recent times in the form of Millennium Park. And thanks to clever planning and zoning, it is often hailed as America's greenest city.

But Chicago is hardly alone in this regard. Many of the biggest US cities are also gaining residents, rediscovering their waterfronts, reviving long-ignored neighborhoods, and acting as if their future is no longer wholly beyond their control. Boston's population is not growing like that of some of its competitors, but the city is clearly on an upswing. Fifty years ago, Boston was on track to become Buffalo. Now, as a center for bio-tech, education, and finance, it's on the verge of becoming-some would say has already become-a global city.

Given this urban revival, it is hardly surprising that private investors who once shunned urban areas now want access to them. Toll Brothers, one of the nation's largest suburban homebuilders, is looking to central cities, including Boston, for new development opportunities. It only makes sense, then, that the quintessentially suburban retailer-the big-box store-is doing the same.

In fact, Wal-Mart's plan to open a store in Chicago is part of a larger effort to open 50 new stores in urban areas, which the company has dubbed ‘jobs and opportunity zones’, a none-too-subtle effort to recall "the low-tax and low-regulation enterprise zones" of the 1980s that The Wall Street Journal remembers with such fondness.

But today's economic context is very different from that of two decades ago. Now, there are fewer new markets for big-box stores to expand into, not only because many suburban markets are saturated but also because some suburban communities are much less willing to junk their zoning and planning rules to accommodate superstores surrounded by vast parking lots. Hercules, Calif., outside San Francisco, recently used eminent domain to take Wal-Mart-owned land when the retailer would not develop in conformity with the local land-use plan. As suburban retail markets become more competitive and less hospitable, urban ones seem newly enticing. Bolstered by immigration, and benefiting from their new cultural cachet, many cities are increasingly attractive places to do business.

And so, with demand for urban locations higher, cities-as free marketers should be the first to realize-are no longer willing to sell themselves at any price. The Chicago Sun-Times, in the process of condemning the aldermen's action, hit on just this point: "[They] think the dense Chicago market is too attractive for the retailers to pass up, especially since most suburban areas already are saturated. They're taking a risk that Wal-Mart and Target are bluffing." Exactly right. The aldermen are betting that big-box retailers will build even if the ordinance becomes law, but it's a safer bet than the Sun-Times allows. After all, the new measure does not bar big-box retailers from doing business in the city. It just requires that they provide employees high enough wages and benefits so that the city won't have to make up the difference through the social services it provides.

In that way, the proposed measure is a lot like the linkage ordinances that Boston helped to pioneer two decades ago. Those measures required new, large-scale office developers to contribute to a housing trust fund in order to shoulder some of the burdens-particularly the increased demand for housing that comes with new jobs-that new construction imposes on a city.

Like new office buildings, big-box retailers also bring burdens along with benefits. Some studies show they may depress wages in related businesses or threaten small, usually family-owned retailers. In many cities, including Chicago, it is the growing immigrant neighborhoods, chock-full of such small family-run establishments, that are re-knitting the urban fabric and producing significant amounts of social capital. A law restricting big-box companies from using low wages to support price cuts that might force these important community retailers to close is arguably a tailored response to a reasonable concern. Certainly it's hard to say that Chicago is acting recklessly.

Which is why, if the Chicago ordinance passes, it would be a mistake for courts to strike it down. Some suggest that such a measure is discriminatory, but that same argument failed to win the day in an otherwise successful suit against a similar law that Maryland enacted. Like that measure, this one also identifies an open-ended class of retailers, not just one company. And there's something hollow in Wal-Mart, which used to ask for special local tax treatment, now complaining about being unfairly singled out.

Others say that decisions like this should be made nationally so as not to create a patchwork of regulation. But that argument has it exactly backwards. The impact of these stores is felt much more acutely within a city than in the national economy. Before we set rules for big-box employers nationwide, why not let local communities experiment with regulations of their own that seek to balance their costs and benefits? Chicago's mayor has suggested that the proposed ordinance is itself insufficiently attentive to local needs. He's proposed leaving it up to each ward within the city to set the terms for big-box development.

The Chicago debate is not really just about Wal-Mart, nor is it even about how big-box retailers should be regulated. It's also about our cities-both how we should think about them and how they should think about themselves. And for those who believe that a strong nation needs strong cities-a view that a growing body of research supports-this renewal in urban self-confidence is a welcome development indeed. For that reason, efforts to strip Chicago and other cities of the legal power to make decisions like this one should be rejected. They would stifle a long-dormant debate about the future of our cities before it has even had a chance to get off the ground.

*David Barron is a professor at Harvard Law School, where he specializes in state and local government law and constitutional law. His essay was first published in The Boston Globe