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Pride Is Costing Wal-Mart and Washington

Stocks in this article: WMT

Last week, the council, caving to political pressure, passed an ordinance aimed at Wal-Mart. It requires companies operating in spaces of more than 75,000 square feet and whose sales are more than $1 billion annually to pay a minimum wage of $12.50 an hour. The current minimum wage in Washington is $8.25 an hour. And for unionized businesses, the ordinance doesn't apply.

The accompanying rhetoric was laughable. For example, $12.50 an hour is called a "living wage" by its proponents, which ignores the obvious -- if it is a "living wage" for Wal-Mart, then why doesn't it apply to fast-food chains or other retailers?

When Wal-Mart got wind that the council was likely to pass the ordinance, it returned to its proud and bullying ways, and threatened publicly to abandon the three stores in planning and reconsider whether to open the three stores under construction.

The council became defensive and stubborn. Councilman Vincent Orange said the council should not condone "poverty wages" and kowtow to such threats.

Councilman Marion Barry, perhaps not the best spokesman for honesty and integrity -- he's an ex-felon who faces sanctions from the council for not disclosing payments from constituents, said, "They have held us hostage, we're not going to take it."

In the end, pride on both sides has turned the win/win into a lose/lose. For Wal-Mart, six profitable stores are now in limbo. But for the residents of certain neighborhoods in Washington, it is much worse.

One blogger wrote, "1,800 jobs at $8.25/hour is still superior to 0 jobs at $12.50/hour," and Wal-Mart has said that its average U.S. hourly wage is $12.57.

So for now, no jobs, no economic redevelopment, no charitable contributions, and Washington consumers must drive to Maryland or Virginia to benefit from Wal-Mart's low prices.

It isn't too late. The mayor has yet to sign the bill or veto it. Both sides could swallow their pride and compromise, turning the current lose/lose back into a win/win.

Robert Barone's firm, Universal Value Advisors, has a position in Wal-Mart.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Robert Barone is a partner, economist and portfolio manager at Universal Value Advisors, an investment advisory firm in Reno, NV.

He previously held positions as an economist for Cleveland Trust Company and as professor of finance at the University of Nevada. During his tenure at Comstock Bancorp in 1996 he became a Director of the Federal Home Loan Bank of San Francisco, serving as its Chair in 2004.

Barone also served as Director of AAA of Northern California, Nevada and Utah and a Director of its associated insurance company. He currently serves on AAA's Finance and Investment Committee. Along with his son Joshua, he founded Adagio Trust Company in 2000. Barone received a Ph.D. in Economics from Georgetown University.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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