Don't blame Wal-Mart for the Wal-Mart economy.

Commentary about business and finance.
Oct. 8 2003 5:58 PM

Don't Blame Wal-Mart for the Wal-Mart Economy

Low wages, the trade deficit, the collapse of U.S. manufacturing—the business press says Wal-Mart's responsible. Actually, you are.

Wal-Mart, so long celebrated as the exemplar of everything wonderful about American capitalism—its homespun billionaire founder, its customer care, its relentless discounting, its brilliant use of technology—has suddenly become the Beast of Bentonville. The business press is blaming Wal-Mart for the woes of the entire economy, from the spike in the number of uninsured, to the rising poverty rate, to the flood of Chinese imports that are ravaging U.S. manufacturing.

The Wall Street Journalled its Sept. 30 issue with a well-reported article about how the retailing giant controls health-care costs. "Wal-Mart makes new hourly workers wait six months to sign up for its benefits plan and doesn't cover retirees at all." It won't pay for flu shots, child vaccinations, or contraception, which many other firms cover. By keeping deductibles high, Wal-Mart manages to spend 30 percent less per employee on health care than its competitors. And because so many companies try to benchmark their costs to Wal-Mart, its penny-pinching ways could lead to a spiral of declining benefits for all retail workers.

Business Week's Oct. 6 cover story recited a familiar litany of Wal-Mart sins—it forces local rivals to close, dominates suppliers, and acts as a chicken-fried culture czar—but added a few new gripes. "Its $12 billion in imports from China last year accounted for a tenth of total U.S. imports from that nation." What's more, Wal-Mart "is widely blamed for the sorry state of retail wages in America." On average, Wal-Mart sales associates earn $8.23 an hour—a wage that, when annualized, falls below the federal poverty line for a family of three.

One expects such complaints from Barbara Ehrenreich—one of her dead-end jobs was at a Wal-Mart, after all—but not from publications that have acted as cheerleaders for the trends and strategies that Wal-Mart has used to great advantage: free trade, flexible labor forces, customer focus, and smart use of information technology.

Wal-Mart makes a tempting target simply by virtue of its size. It has $245 billion in annual sales. Every week 138 million shoppers visit Wal-Mart, which is now the nation's largest grocer and third-largest pharmacy. Last year, 82 percent of American households made at least one purchase at one of Sam Walton's discount palaces.

Now, Moneybox holds no particular affection for Wal-Mart. But I think it's more a symbol of these woes than a cause. Bagging groceries and working a checkout line has never been a ticket to a middle-class career complete with comprehensive benefits. For the vast majority of Wal-Mart workers, being an associate is more like a temporary job than a career. Turnover is massive—about 44 percent of Wal-Mart's 1.4 million employees will leave in 2003.

In the Wall Street Journal, a union official lamented that "When General Motors was the biggest company, it raised the bar on benefits and wages. … Now Wal-Mart is the biggest, and it has lowered the bar." Of course, when General Motors ruled the earth, it operated in a comparatively benign, competition-free environment. It could afford to be generous. Today, GM—along with Ford and DaimlerChrysler—stands as a case study of what happens when a company continually raises benefits while failing to grow. The Big Three are essentially social insurance institutions trying to support themselves by selling motor vehicles.

Faulting Wal-Mart for America's wage stagnation is also unfair. Retail is an industry not known for developing employee skills. No matter how much it needs workers, Wal-Mart won't offer defined benefit pension plans or health insurance coverage for retirees. And neither will virtually any retailer that relies largely on low-skilled, temporary workers.

Suppose Sam Walton had spent his life as a farmer, and Wal-Mart never existed. Would baggers at Winn-Dixie and shelf-stockers at Costco be making a living wage and have great benefits? Would Kmart have avoided bankruptcy? Would small grocery stores in small-town downtowns be thriving? The answer to all three questions is likely no. More likely is that other companies would have married discounting—which existed before Wal-Mart—to free trade, weakening unions, and better technology.

There's no question that workers without skills find it difficult to get paid as well as they once did, that employers are more reluctant to supply comprehensive health benefits, and that Chinese imports are pummeling American manufacturers. Wal-Mart thrives in part by contributing to or piggybacking on each of these trends, but they were all well underway before Wal-Mart took the United States by storm. Who should we blame for the other 90 percent of Chinese imports?

How about you, for one? After all, Wal-Mart is a mere pass-through for its customers—one that takes a slim margin for the trouble. At Wal-Mart, the customer is king, everyone else be damned: competitors, employees, and the domestic manufacturing base. Everything Wal-Mart does—particularly its low prices—is done in the name of slavish devotion to consumer demand. And every day, millions of Americans ratify Wal-Mart's strategy by shopping there. Stores don't kill economies, consumers do.


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