Wednesday, July 2, 2008

The Lesson to Be Learned from Wal-Mart

I am a regular food shopper at a Wal-Mart Supercenter about 5 minutes away from where I live. In addition to being closer than other supermarkets, the prices there are in many instances dramatically lower than at the other major supermarket chain that competes in my area. Wal-Mart claims that an American family shopping there saves $2,500 yearly which in my experience is believable. That’s a lot of money! — especially for a family that has to struggle to put food on the table. So I think we can all agree that there is at least something good about Wal-Mart.

Or maybe not. With the possible exception of Enron, it would be hard to think of any other company whose mention results in such utter contempt by seemingly so many people. It is a normal happening for communties to pass around petitions to keep Wal-Mart out if word comes out about plans to build there. I have spoken to more than a few people who have said in strong terms that they would never shop in a Wal-Mart. Wikipedia offers a lengthy article titled Criticism of Wal-Mart. But wait! There’s more! You can watch the trailer of filmmaker Robert Greenwald’s scathing 2005 documentary Wal-Mart: The High Cost of Low Price in this link.

Most recently, I read an interesting response to a Web article discussing who may be the one to someday replace Wal-Mart as our largest retailer which I would like to share with you here (with some corrected spelling and typos).

CRR-Pro said...
Anyone who is not afraid of Wal-Mart and their already damaging effect on our economy needs to study more. Vlasic and Hanes are just two of the major companies that are nearing bankruptcy because they made supplier deals with Wal-Mart. Don't let the folksy attitude fool you...once Sam Walton was in the ground, his heirs embarked on world dominance, using economies of scale in ways economists never thought of, paying low wages, and not offering health benefits to employees who need it most. A large number of their employees are also on welfare because they don't make enough to support a family. They destroy local economies, putting mom and pop stores out of business. Any good university business school teaches about the evils of their strategies. Every new store employees 250 people, while eventually putting over 300 local people out of work. As they grow, the local economy slowly dies. It is not jealousy, just business sense. The have taken globalization to new heights, while helping to strengthen the Asian economy, which uses large amounts of crude oil and copper, thus creating demand-pull inflation, bring oil prices where they are today. As they grow larger, and Asia does as well, our economy suffers. 75% of what they sell is NOT made by Americans. They force suppliers to move out of the country, taking jobs with them. Wake Up.

Since this condenses a lot of the complaints about Wal-Mart into a single rant, let’s discuss some of those points along with a few others here.

Buying power is a good thing…to a point. It means that a large buyer like Wal-Mart can negotiate favorable deals with suppliers which are good for consumers if they pass along some of the savings to us. But while we all know about the dangers of ‘monopoly’ where one seller has too much control of the market, there is another term called ‘monopsony’ where one buyer has too much control over a seller. So for companies like Vlasic and Hanes mentioned above who have made deals with Wal-Mart for them to buy a huge amount of their output, they may discover that they have made a deal with the devil where continual buyer demands for lower and lower prices can literally squeeze the life out of them. Or force them to resort to using less expensive labor and materials from outside the US to stay afloat. Critics have pointed out that Wal-Mart which today sells (according to the writer) 75% imported merchandise is a far cry from as recently as the 90s when they had their “Buy American” campaign featured at their stores. But while the loss of US jobs is an important issue, the more we import what we buy from China and third world countries, the more likely it becomes that what we pick up off the shelf may have been produced without any regard to the safety and welfare of the workers — or for that matter the safety of the product itself!

Paying low wages and not offering health benefits may indeed be true for Wal-Mart but is also true for many other companies that may not have the same visibility as Wal-Mart. Just like consumers who want to pay the least they can for what they buy, businesses want to pay the least they can for their labor. And if that means that they can get away without paying for health benefits, so much the better for them. The point here is that as long as they are not breaking any immigration or minimum wage laws, what they are doing is perfectly legal even if many of us find it to be disagreeable.

Effects on local economies and putting mom and pop stores out of business is probably more of an issue in the rural areas where Wal-Mart originally located their stores. Owners of mom and pop stores do not have the buying power of a behemoth like Wal-Mart so there is no way they can compete head-to-head solely on price. Those that still survive have convinced enough consumers that the more personalized service or unique products they offer makes up for what they may lack in price competitiveness. Many years ago, the advent of the supermarket put a lot of mom and pop grocery stores out of business. But small specialty grocery and convenience stores still flourish in many places despite the supermarkets.

But perhaps the biggest source of Wal-Mart’s poor reputation with many concerns their labor relations issues. They have had to face a large number of lawsuits for poor working conditions and are notorious for their anti-union tactics.

So there are more than enough reasons for the critics of Wal-Mart to feel the way they do. But I would like to present an argument that the problem isn’t really with Wal-Mart but rather the system in which it operates. Although some companies choose to care more about their workers than others, for-profit companies exist to make as much profit as they can while not breaking the law. And furthermore, some companies will even break the law if it means making more profit and feeling they can get away with it. So while some people would like to shame companies like Wal-Mart into paying more, providing better working conditions, offering more health benefits, etc. it’s unrealistic to expect them to change their ways just to please our sense of fairness. So this only leaves us to look at the system Wal-Mart operates in.

From the election of Ronald Reagan to the present, the mostly conservative political climate in the US has tended to be considerably more supportive of business than labor. The thinking is that businesses should be able to do their thing without interference from ‘excessive’ regulation and having to put up with those pesky unions. And while laws and government agencies still exist to supposedly provide protection for workers against discrimination, poor working conditions, or illegal anti-union tactics, the chronic lack of funding and manpower to do their jobs effectively have left them as toothless watchdogs unable to protect anybody — and many companies, Wal-Mart included, appear to have taken full advantage of that!

But it appears that the political pendulum is finally starting to swing the other way — especially if the Democrats recapture the White House. For example, instead of trying to persuade or shame companies into providing health insurance for all of their workers, the government may come up with a way for it to help provide health insurance where it was previously unavailable from employers. And a more pro-labor administration may allow more workers to organize with less fear of retribution from their employers if that is the only way they can effectively bargain to get decent wages and working conditions.

So while having “Always Low Prices” is certainly a good thing, we also need to remember and look out for the well-being of those who do the work that makes those low prices possible. More than anything else, that is the lesson to be learned from Wal-Mart.

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