Monday, January 3, 2011

Wal-Mart: The Damage It Has Done To Society

Wal-Mart was born in the small towns of Arkansas. The first stores thrived on the economic conditions found there. There was a ready supply of the poor and unemployed who appreciated the opportunity to earn a wage, no matter how low it was. The message they were pitched about how the company was on a mission to provide lower cost goods to “working” people in order to make their lives better resonated with them, particularly when they were described as “associates” in that enterprise. Unfortunately, the reality was more consistent with their legacy of generations of abuse and manipulation by the rich and powerful in the South. Wal-Mart combined a meek and obliging workforce with some clever retailing innovations to become the worldwide juggernaut it is today.

Two recent books describe the rise and expansion of Wal-Mart and detail the methods it has used.
The Retail Revolution: How Wal-Mart Created a Brave New World of Business by Nelson Lichtenstein

The Wal-Mart Effect: How the World’s Most Powerful Company Really Works—and How It’s Transforming the American Economy by Charles Fishman
Wal-Mart began with a need for a steady supply of poor people anxious to have one of their low-paying jobs. They also needed a supply of poor people who would appreciate and need the low prices they provided. Unfortunately, while the company and the Waltons have become fabulously rich and powerful, the basic business model has not changed. They continue to need a ready supply of poor people today, and their business practices have helped to ensure a supply that will never disappear.

From Lichtenstein:
“Like so many other employers of his time and region, Walton played fast and loose with minimum-wage regulations and overtime standards, not to mention new laws governing race and gender equality in the workplace. And of course Walton was a bitter foe of any union effort to organize his stores. In place of all this government regulation, Wal-Mart created a self-contained corporate culture, an ideology of family, faith, and folk communalism that to this day coexists in strange harmony with a Dickensian world of low wages, job insecurity, and pervasive corporate surveillance.”

“Even as Wal-Mart expanded beyond the Ozarks, the company consciously targeted the kind of low-income customers with which it had started.”
And how did the benevolent Walton empire share its wealth with its workers?
“Real wages at Wal-Mart actually declined in the years after 1978, tracking the 30 percent fall in the real value of the minimum wage during the next three decades.”
Wal-Mart’s abuse of its workers, and of labor regulations, is worthy of a whole book. It will be discussed in a subsequent post. There will also be a later discussion of Wal-Mart’s impact on its vendors and the world economy. We may also visit the massive gender discrimination suit that is wending its way through the courts.

The subject here is the impact of Wal-Mart’s arrival on local economies and the societal effects.

What kind of work force was Walmart looking for when it entered a town?
“Wal-Mart itself admitted, or rather boasted, that only 7 percent of the company’s hourly associates try to support a family with children on a single Wal-Mart income....To staff its stores, the company purposely seeks school-age youth, retirees, people who want a second job, and those willing or forced to work part-time....not since the rise of the textile industry early in the nineteenth century, when women and children composed the majority of the labor force, has the leadership of an industry central to American economic development consciously sought to staff itself with a workforce that it defined as marginal to the family economy.”
That does not look like an employment picture that would form the basis for a healthy economy. What in fact happened is that Wal-Mart blew into town and created a few hundred of these lousy jobs and drove out of business a large number of existing stores that could not compete with it. The net effect was trading good jobs for bad jobs. Essentially no net new jobs were created, regional income would decrease, and a lot of money would flow towards Bentonville, Arkansas. The region also faced the additional economic burden of providing health care for indigent Wal-Mart employees and their families. One should also not forget the tax breaks and other incentives that Wal-Mart demands for the privilege of their presence in the community.

Fishman provides a good record of this process. He points out that there is a surprising lack of academic studies of the economic impact of such a big player as Wal-Mart. That is partly because the company rarely makes data available to researchers. The few independent studies are not complimentary.

Fishman presents a jobs study by Emek Basker.
“In the first year after a Wal-Mart opens, it adds one hundred new jobs to the typical county. Basker immediately writes, ‘Recall that the typical Wal-Mart store employs 150 to 350 workers.’ So even as Wal-Mart is opening, it is putting other people out of business....In the years after Wal-Mart arrives, retail employment falls gradually, so that five years after Wal-Mart’s arrival, there are only a total of fifty new retail jobs, again despite the fact that the new Wal-Mart store typically employs hundreds....Basker also found that a county will typically lose twenty wholesale jobs in addition after Wal-Mart arrives....Wal-Mart’s success comes mainly at the expense of retailers already in business in a county.”
Fishman also provides data from a classic study by Ken Stone of the effects of Wal-Mart stores in Iowa.
“Stone found that in Iowa’s Wal-Mart towns, general merchandise sales grew 44 percent five years after Wal-Mart’s arrival....across the rest of the retail landscape, the arrival of Wal-Mart coincided with a swath of destruction. Grocery stores lost 5 percent of their business after five years, specialty stores lost 14 percent of their business, and clothing stores lost 18 percent of their business—all while total sales were rising 6 percent, mostly due to Wal-Mart.”

“In towns that were nearby but didn’t have a Wal-Mart, Wal-Mart vacuumed customers away....In the years from 1983 to 1993, small Iowa towns, with populations between five hundred and a thousand, lost 47 percent of their total retail sales, apparently as people simply drove to Wal-Marts to shop. And during that same period, as Wal-Mart grew from no stores to forty-five stores in the state, 43 percent of all stores selling men’s and boy’s clothing went out of business. Nearly half of an entire retail category in a state was wiped out.”
One might read all this and say that this is all for the long-term good. This is what capitalism is all about—the increased efficiency provides lower costs and will benefit the community. Unfortunately, that is another urban (rural?) legend propagated by conservatives. The Economic Policy Institute (EPI) looked into Wal-Mart’s wage and pricing decisions and came to this conclusion.
“Wal-Mart could raise wages and benefits significantly without raising prices, yet still earn a healthy profit. For example, while still maintaining a profit margin almost 50% greater than Costco, a key competitor, Wal-Mart could have raised the wages and benefits of each of its non-supervisory employees in 2005 by more than $2,000 without raising prices a penny.”
The economic principle at play here is not efficiency, it is greed.

As for the question of whether low cost goods benefit the general public enough to tolerate all of Wal-Mart’s other harmful effects, EPI provides this chart.

The fraction of consumer goods that can be purchased at Wal-Mart is becoming a small part of a consumer’s expenses.

The bottom line is provided by a study by Stephen Goetz.
“What the study discovered is so startling, it’s hard to absorb: They found that once you control for everything else, U.S. counties that had a Wal-Mart just before 1989, or that added one during that decade, had higher poverty rates than counties that were Wal-Mart free.”
The poverty level was falling nationwide over the period of this study.
“In counties with a Wal-Mart, the rate of poverty fell 10 percent more slowly than it would have without a Wal-Mart during that decade.”
So much for the economic benefits of Wal-Mart’s form of capitalism.

Surveys indicate that as many as 8 percent of consumers refuse to shop at Wal-Mart. Let’s see if we can’t get that number a little higher.

Wal-Mart treats its employees little better than migrant workers. We shall return to that subject soon.


  1. Nicely written, Rich. What you didn't mention that is equally important is the role Wal-Mart played in building China, Inc. at the expense of America and the rest of the West.

    I was in Shanghai earlier this year. While there, I had dinner in a fancy restaurant some 50+ floors up. While gazing out over downtown Shanghai, it occured to me: this is the city that Wal-Mart built. A city roughly twice the size of NYC was, in large part, created by the constant demand for Chinese goods in the USA.

    As I've gotten older, I've become somewhat proficient at analyzing people, ideas, businesses, etc., and coming to a conclusion as to whether they are a net plus or minus for society. I've never not thought of Wal-Mart as a big net minus.

  2. Thanks for the comment. I have one more post planned on Wal-Mart which will doscuss its effect on its vendors. China will come up in that discussion.


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