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August 28, 2006

Wal-Mart: Round Two

Sebastian Mallaby's obtuse column about anti-Wal-Mart sentiment among Democrats offers me a welcome opportunity to expand on some comments I made last week. Then, referring to a Jonah Goldberg column on the same subject, I said that "how to handle Wal-Mart is among the two or three most important issues facing the country." A lot of folks ceased reading right there, dashed to their blogspot pages, and penned silly posts accusing me of not taking "Islamofascism" and health care seriously enough. Yes, if only I paid more attention to health care.

Nevertheless, the fault was mine: It was the sort of assertion I should have stuck at the argument's close, not its introduction. But here's the point: It's not about Wal-Mart. Many on the left and the right make is to believe this is primarily about how much H. Lee Scott pays his cashiers. It isn't. Rather, Wal-Mart is setting the norms and standards for the coming service economy. Where GM and Ford played this role for the manufacturing sector -- and the unions forced them to use their power to create the American middle class -- Wal-Mart is assuming primacy for manufacturing's successor, and doing so without the union involvement or commitment to high wages that their predecessors exhibited.

That's a serious concern, and it reaches into every corner of the economy. Take health care. Wal-Mart's paltry offerings -- far beneath what Costco or Target (we'll come back to them) have traditionally offered -- offer them a massive competitive advantage against the competition. So let's say you're a midsize retailer with national ambitions. You essentially can't offer a decent benefits package because Wal-Mart doesn't, and you can't allow their prices to remain substantially below yours (where they'll already rest thanks to Wal-Mart's economy of scale).

Target is a great example here: They used to offer terrific benefits, but have now resolved to move entirely to HSA's. They couldn't compete against Wal-Mart by offering comprehensive insurance, so they stopped. Or take the supermarket chains. A couple years back, Southern California saw a massive grocery strike, as the three major chains colluded to destroy benefits and lower wages in order to compete with Wal-Mart's low labor costs. The striker's lost, the supermarket's were too afraid of Wal-Mart's advantage to give in.

Again, this isn't about Wal-Mart. Rather, it's about every company that competes with them, and every producer who sells through them. In the first case, Wal-Mart is driving down worker salaries and benefits by so resolutely grinding their own associates into the dirt. So rather than watching the service economy mature into a middle class conveyor as the manufacturing industry did, it's moving in the opposite direction -- and given the decline of manufacturing and the softness of worker salaries, what choice have workers than to accept their lot? Something is better than nothing, but something remains inadequate.

In the producer's case, the prices Wal-Mart demands have forced them to not only cut labor costs, but have often forced them offshore. Used to be that producers could pay their workers decently and keep production domestic by passing higher costs down the line. Wal-Mart's size and market share keeps them from doing so, and it's thrown the whole relationship out of balance -- at least where the workers are concerned. So when I worry over Wal-Mart , I'm fretting over the shift to a low-wage, low-benefit service economy. Wal-Mart's size and power makes the two indistinguishable.

Crossposted at Tapped

August 28, 2006 | Permalink

Comments

Translation: race to the bottom. We already have outside pressures from abroad being driven by companies forum shopping for the lowest cost country in which to find labor, and in turn, forcing Americans who are used to higher wages, benefits, labor standards and environmental safety to compete with countries who see labor as one step above indentured servitude.

Is this because we are less productive (which is a market factor)? check out ny times article on productivity.

add to this a new internal pressure created by companies like wallmart.

Posted by: akaison | Aug 28, 2006 11:37:02 AM

Good article by Malcolm Gladwell in the August 28th New Yorker on demographics (workers vs retirees) in the context of company health insurance and pension plans. He concludes that spreading the pool as widely as possible (thus national health insurance) is the best way to go. Although this is in the economic interest of the big old companies who once offered good plans (but NOT "overly generous" plans -- it's just that there are lots of retirees, none of whom is getting rich on a pension or has lavish health benefits), e.g., General Motors, it's not in the interest of big new companies who have never had to offer good plans (e.g., WalMart). What happens is that the government picks up the pieces from big old companies declaring bankruptcy to get out from underneath their commitment to their retirees. So why not just pre-empt the whole charade with national health? Gladwell cites "class consciousness" on the part of the company directors; he could also have cited the other usual suspects: insurance companies, established doctors, etc. (Not the young med school grads making 75K working for an HMO and having an accountant scrutinize their every move.)

Posted by: John Protevi | Aug 28, 2006 11:58:27 AM

WalMart spends over $1,200 a month for employer-based health insurance in Pittsburgh from UPMC for some workers. Are you suggesting that UPMC which is the insurance company for most unions in Pittsburgh is so bad?

Boy, those Detroit teacher unions hair is on fire. With their stike BattleCry today of, "No Contract - No Work.". The poor children of Detroit. The teachers have to pay 20% of their bloated union health insurance premiums from Blue Cross. So now these poor union teachers will be paying over $300 a month for dangerous employee-based insurance and the total premium is over 5 times more for the poor tax payer. That's $1,500 a month guys. HSA portable insurance is available for less than $300 a month total cost in Detroit for a 30 year old couple and 2 kids. The NFIB Health Savings Account is selling the best. Maybe the Detroit school district should get HSA insurance and buy all employees a new Hummer. But then Blue Cross would be angry.

Governor Granholm (D-MI) is totally lost in Michigan. Republican Billionaire Dick Devos (R-Hero) will be the new Governor.

ITS TIME for a change in Michigan.

Posted by: Ron Greiner | Aug 28, 2006 12:08:27 PM

Absolutely Mister Greiner, and there is naught finer way to promote one's ideology than running to the door's of the opposition and berating them in a manner in the tradition of the finest high school students and ending upon the flourish of a campaign advertisement, no matter what!

Posted by: Paludicola | Aug 28, 2006 12:30:08 PM

Governor Granholm (D-MI) is totally lost in Michigan. Republican Billionaire Dick Devos (R-Hero) will be the new Governor.

Hopefully there are enough voters in Michigan who remember what the last repub governor did to my home state and will not vote Devos into office. Aside from being a repub he is also big into the largest pyramid scheme in the country - whowhee, that's a qualification for governor.

The change MI needs is recovery from King John and his disasterous policies that destroyed her economy.

Posted by: DuWayne | Aug 28, 2006 12:39:33 PM

So is Dick DeVos going to govern Michigan by way of expanding his Ponzi schemes?

You conservatives deserve to be fleeced if he's your hero.

Posted by: Dr. Squid | Aug 28, 2006 12:49:22 PM

You conservatives deserve to be fleeced if he's your hero.

The rest of Michiganders do not. I pray that they will have enough sense not to elect Devos. . .

Posted by: DuWayne | Aug 28, 2006 1:07:51 PM

It is labor arbitrage. Walmart needs underpaid workers who are also their customer base. They manage this by taking the marginal wage differential between American and Chinese workers and converting it into American consumer debt, credit card and mortgage debt.

Walmart may not even be important. Henry Ford understood that really big business needs to create its own customers. A neat way to look at it is that China is loaning money to American workers so they can buy Chinese products. Walmart is only the middleman, the broker for the products while the Treasury Dep't is the broker for the money. As usual, the brokers make money while transferring the risk.

China absorbing the debt helps to keep Chinese inflation(wages) down. Should Americans by weird miracle be able to pay in cash, Chinese inflation would skyrocket, Chinese wages increase, the arbitrage advantage disappear, and the circle would collapse.

The dollar must be kept cheap and 1-2 percent real interest rates (after inflation) is a very cheap dollar. The inflation must be channeled into something that isn't wages, an inflation sink like housing. As housing collapses...

We got troubles. But Walmart doesn't create jobs, anymore than Wall Street creates jobs. Chinese manufacturing creates jobs, and Walmart handles the paperwork.

Posted by: bob mcmanus | Aug 28, 2006 2:43:10 PM

bob

interesting take- you collapse the issue of wallmart as being just a variant of globalization that doesn't protect the American worker . good point there. your point about debt is also a good point- have you ever tried explain this to a conservative friend who is bitching to you abut their wages, debts and cost of benefits? I have- it's like talking to a wall because they say "but I like my products cheap." This is really a something for nothing mentality right now in the US.

Posted by: akaison | Aug 28, 2006 3:06:16 PM

DuWayn: On your blog you wrote, //I am a high school drop-out who could do literally anything I chose with an education - I am that smart. I am fighting to change my situation and it may work out but that is besides the point. Nothing I have done is my son's fault. He didn't ask to be brought into the world with parents who cannot provide for him the way he deserves to be. So this health care "debate" gets me very emotional and makes me very angry.//

DuWayne, you are a 30 year old construction guy in Oregon who says he can't afford insurance. Spend less time here being wrong and you would have more time to take care of yourself.

Also DuWayne: That Medicaid is very dangerous stuff for children because they can just kick you off. But you know that.

Posted by: Ron Greiner | Aug 28, 2006 3:18:04 PM

Here's a novel idea.

Don't like the laws on required benefits? Then legislate and get something passed instead of just whining about it over and over and over and over and over and over and over..

Posted by: Fred Jones | Aug 28, 2006 4:36:17 PM


That's a serious concern, and it reaches into every corner of the economy. Take health care. Wal-Mart's paltry offerings -- far beneath what Costco or Target (we'll come back to them) have traditionally offered -- offer them a massive competitive advantage against the competition. So let's say you're a midsize retailer with national ambitions. You essentially can't offer a decent benefits package because Wal-Mart doesn't, and you can't allow their prices to remain substantially below yours (where they'll already rest thanks to Wal-Mart's economy of scale).

This is all wrong, you can't offer a generous benefits package because workers prefer cash. Otherwise your workers would accept less in wages and you could compete perfectly well.

Again, this isn't about Wal-Mart. Rather, it's about every company that competes with them, and every producer who sells through them. In the first case, Wal-Mart is driving down worker salaries and benefits by so resolutely grinding their own associates into the dirt. So rather than watching the service economy mature into a middle class conveyor as the manufacturing industry did, it's moving in the opposite direction -- and given the decline of manufacturing and the softness of worker salaries, what choice have workers than to accept their lot? Something is better than nothing, but something remains inadequate.

Walmart couldn't be driving down wages if there wasn't a surplus of unskilled labor. Tens of millions of unskilled immigrants is a more plausible culprit but of course you prefer to blame Walmart rather than deal with that reality.

Posted by: James B. Shearer | Aug 28, 2006 5:20:20 PM

The amount of argument that has been provided seems to suggest that there's something more to this than some manically ideological obsession at work. I think it is unwise of you to so easily and happily believe something that makes it easier not to merely disagree, but also discard as idiots who need only, so your behavior suggests, be dealt with when you feel like indulging in indignity and snark.

Your statement could easily be turned around to portray you as fixating on an immigration hobby horse rather than facing reality. You neither provide little detail and no evidence for your position nor provide analysis and data to counter Mr. Klein's point, leaving us with nothing to discuss but your rudeness and seemingly poor character.

So, as I seemingly often must ask, what was the point?

Posted by: Paul A. Brömmer | Aug 28, 2006 5:33:04 PM

Don't like the laws on required benefits? Then legislate and get something passed instead of just whining about it over and over and over and over and over and over and over..

Hey, Fred - remember the word "democracy"? Debtae, laying out and exploring the facts, *is* action - it's the first step towards legislation.

I realise you'd mush rather be in a place with, you know, less talk and more leather uniforms and military parades. If only Bush could get an extra term, you might even get there.

Posted by: Phoenician in a time of Romans | Aug 28, 2006 6:41:39 PM

james- i find your post the most amusing in a while. economic activity isn't a certainty. I know some of you view the market as some kind of God like force with universal laws that never change, but that just makes you poor students of history

Posted by: akaison | Aug 28, 2006 6:55:58 PM

Posted by: James B. Shearer | Aug 28, 2006 2:20:20 PM Walmart couldn't be driving down wages if there wasn't a surplus of unskilled labor. Tens of millions of unskilled immigrants is a more plausible culprit but of course you prefer to blame Walmart rather than deal with that reality.

Right back at you ... do you seriously believe that there would be tens of millions of illegal immigrants if there were not large numbers of employers acting as illegal employers?

Unskilled illegal immigrants are not competing in the labor markets that Wal-Mart is hiring from if they are not hired out of those labor markets. And that is the choice of the employer.

Posted by: BruceMcF | Aug 28, 2006 7:25:42 PM

Hey, Fred - remember the word "democracy"?

Yes, I do. That's where the people promulgate the rules via elected representatives....exactly the course of action that I suggested.

Most 'causes' die. Most are not adopted. If yours has merit, don't be afraid to put it before the people's representatives.

Oh, that's right. You don't have the support so it's "Waaaaaaaaaaaaaa.....Waaaaaaaaa....."

Posted by: Fred Jones | Aug 28, 2006 7:25:48 PM

good post - i could smell wankerness in Mallaby's op-ed on the Metro this morning, but needed someone more wonkish than I on these things to articulate it

Posted by: publius | Aug 28, 2006 7:41:59 PM

BruceMcF, I didn't say anything about "illegal". Many of the unskilled immigrants dragging wages down are working here legally. As for the laws against hiring workers who can't work here legally, they are a farce. Employers are allowed by law to accept any of several easily faked documents as proof of legal work status and no attempt is currently being made to enforce even these very weak laws anyway. Would I support real laws against employing illegals with real enforcement and real penalties? Of course, but I don't expect any support from the left for such laws.

Posted by: James B. Shearer | Aug 28, 2006 8:00:24 PM

Posted by: bob mcmanus | Aug 28, 2006 11:43:10 AM China absorbing the debt helps to keep Chinese inflation(wages) down. Should Americans by weird miracle be able to pay in cash, Chinese inflation would skyrocket, Chinese wages increase, the arbitrage advantage disappear, and the circle would collapse.

Bob, these are external account transactions. A substantial amount of the Chinese capital outflows required to balance the Chinese trade surplus is the accumulation of US dollar reserves by the Bank of China. That accumulation is necessary to maintain the low exchange rate of the Yuan against the Dollar (roughly 4:1 discrepency between actual exchange rate and estimated purchasing power parity rate).

You seem to be conflating how the purchasing power is created within the US with how US purchasing power is able to acquire Chinese goods so cheaply.

Posted by: BruceMcF | Aug 28, 2006 10:42:02 PM

It often surprises me that people would criticize your focus on this issue as thought it were somehow to the exclusion of 'islamofacism' (crappy little term anyway). As far as I can tell, the two are intricately intertwined as the neo-liberal economics quintessentially embodied by Wal-Mart are one of the primary causes of regional downward mobility. Wal-Mart and the reckless pursuit of low-prices, low-wages is doing enormous damage to economies outside of our sovereign borders. The U.S. military enforcement of such an ideology may be precisely why we are experiencing so much backlash.

The Hindsight Factor

Posted by: urthwalker | Aug 29, 2006 6:54:33 AM

"You seem to be conflating how the purchasing power is created within the US with how US purchasing power is able to acquire Chinese goods so cheaply."

Yeah, I am. Free me from my error. Much of recent American purchasing power has derived from various forms of domestic debt:credit cards, refinancing, mortgages, housing bubble. That debt is cheap in part because Chinese (and others, like oil states) excess reserve accumulation has kept US long rates down.

So yeah, the circle I see is Chinese reserve accumulation financing American consumption allowing China to be an export economy. What am I missing?


Posted by: bob mcmanus | Aug 29, 2006 9:31:49 AM

A Monetary Rule for China ...Ronald McKinnon via Mark Thoma, today

"The premise of such arguments, that yuan appreciation would reduce China's large and growing trade surplus, is widely held but wrong. The trade imbalance between China and the U.S. results from China's high savings combined with the opposite tendency in the U.S., neither of which is predictably affected by changing the yuan-dollar exchange rate.

China's inflation is, however, predictably affected by sustained exchange-rate changes." ...McKinnon

Now the problem I am having here is that "China's high savings" and "the opposite tendency in the US" are not completely disconnected, and in fact may be causally related. China's high savings is in part reserve accumulation of dollars (and probably much higher than the official numbers, according to Brad Setser), which I understand is not insignificant as a portion of Chinese GDP. And American low savings is in part made possible by the Chinese reserve accumulation. This relationship, as far as I can tell, is not mentioned in the article.

I admit to being out of my league and over my head, but I am trying.

Posted by: bob mcmanus | Aug 29, 2006 10:12:08 AM

Liberals are so uninformed. You all say that WalMart's health insurance is no good but in Pittsburgh WalMart offers employees UPMC, just like the teachers unions do. So you are all lost.

Don't worry about China either, they are in good hands. I told you that you could trust me because I wear a Fortis ring. News for the liberals:

Fortis considers heightening stake in Chinese bank

Europe's leading financial institution Fortis is considering putting up stakes in the major banks of China as its Chief Executive Officer Jean-Paul Votron metwith government heads and banking officials in Beijing on Tuesday.

In a meeting with Chinese Vice-Premier Huang Ju, a member of the Standing Committee of the CPC Central Committee, Votron said the Belgium-based Fortis group plans to carry out its expansion outside Europe "fundamentally in China."

"The best way to do this is setting up joint ventures with Chinese companies," Votron said.

Votron indicated strong interest in taking part in the reform of Chinese state-owned commercial banks, which have begun the transformation into share-holding companies in 2004.

Votron said Fortis is confident of becoming a good partner withthe Chinese commercial banks, hoping that the European financial service provider will combine its international expertise with theextensive distribution network of the Chinese banks.

Vice-Premier Huang said the Chinese government welcomes Fortis and other international financial groups to take part in the reform of the country's financial sector. He expressed the wish that Fortis will expand cooperation with Chinese banks.

------------------------------------

As soon as all these Chinamen have Fortis VISAs in their pangtongs the world's economy will be safe.

Posted by: Ron Greiner | Aug 29, 2006 11:29:30 AM

Don't like the laws on required benefits? Then legislate and get something passed instead of just whining about it over and over and over and over and over and over and over..

Well, see fred, when liberals want to see something change they debate various aspects of the issue and come up with something that might be effective and then try to push it through the legislature. We don't just come up with soem halfassed idea likely to fail and then when it does, whine about how government always fails. Short - we discuss it to find the best solution so we can make government work for the people - your team fucks everything up so you can "prove" government always fails.

Posted by: DuWayne | Aug 29, 2006 2:15:40 PM

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