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August 24, 2006

Why Wal-Mart Matters

I'm of the opinion that how to handle Wal-Mart is among the top two or three most important issues facing the country. The conversation hasn't caught up to it, and the arguments being had mostly miss the mark and collapse beneath their own short-sightedness, but the mega-retailer's impact on the economy, ubiquity across the country, and aggressiveness in using its size will eventually force a reckoning proportionate to its power. Which is why it's such a disappointment to see Jonah Goldberg's sneering, superficial treatment of the subject in today's LA Times (particularly considering the brilliant op-eds the LA Times has been publishing this week!).

Goldberg's column decries WMDS -- his acronym for (I'm serious here) "Wal-Mart derangement syndrome," and his argument goes like this: 127 million people (!!!) shop at Wal-Mart every week, so attacking the store is "electoral asininity." In addition, Hillary Clinton was on their board of directors when the company was fighting for survival in the late-80's and Teresa Heinz Kerry owns stock in corporation. Meanwhile, Wal-Mart does indeed have low prices. So, all the liberal whinging over the company's policies make for "horrific politics, silly public policy — but a joy to watch." QED.

It took me a second read-through to realize this, but what's so remarkable is that, at no point in the column, does Goldberg actually restate the progressive critique of Wal-Mart. He literally never does it. A casual reader would have no clue what worries liberals about Wal-Mart (save that they're "deranged"). But in case you are interested, it goes something like this: Wal-Mart pays wages barely above the minimum and significantly below the average large retailer. Compared to Costco, or Target, Wal-Mart's salaries, benefits, and worker relations are atrocious. The question is not "Wal-Mart, yes or no?" but whether Wal-Mart can do better on all these metrics. Obviously, they can. Various analyses have found that raising the price of each product by a penny would allow for far better worker compensation packages.

But that radically understates the actual problem. What's worrisome about Wal-Mart is that, like GM and Ford once did, they are setting the norms for the coming (or current?) economy. One in every five retail sales is done at their cash registers; they're larger than the next five retailers combined. Indeed, for major producers, Wal-Mart is just about the only market that matters, which allows them to dictate the production methods, employee relations, and business strategies all the way up the food chain. In action and effect, Wal-Mart is an active monopsony -- a seller able to dictate the price to its producers. They've forced Coke to change their secret recipe, Kraft to lay off thousands of employees, and Vlasic to declare bankruptcy. And because Wal-Mart so obsessively pursues the lowest possible prices, they're not only depriving their own workers of generous benefits and compensation, they're making it literally impossible for their producers to do so, as Wal-Mart won't abide by the minor cost differences on-shore production and respectable benefits demand. It's a real problem, and it should be discussed in a serious way (As Barry Lynn did, in what I think is the best magazine article published in the last year). Goldberg, by chortling over the political downsides faced by Democrats, isn't helping matters.

Cross-Posted at Tapped

August 24, 2006 | Permalink

Comments

In other words, "It's electoral suicide for the Democrats to say rude things about Wal-Mart, because millions of people buy from them every week. Now, off to denigrate that tiny fringe element of the US economy, the movie business!"

Posted by: ajay | Aug 24, 2006 11:43:00 AM

Um... time to dust off those anti-trust laws?

Posted by: no one | Aug 24, 2006 11:53:43 AM

Ezra: not to be snide (oh, hellwivit, I'll be snide!), it's Jonah Goldberg: what on Earth do you expect?
Unlike the other gem Op-Ed you linked to, Jonah's Wal-Mart piece really isn't a traditional newspaper Op-Ed essay at all: it's a blog post - written in the standard blogger's style: short on analysis, long on sneer, insult and put-down; written for an audience whose ideological/political prejudices are a given, and designed to make the author look smart, and any who would disagree mere "moonbats". Feh.

That said, Andrew Young's comments (if accurate) surely must win the booby prize for "stupidest public statement of the week"- he really should know better than that.

Posted by: Jay C | Aug 24, 2006 11:56:26 AM

Of course he doesn't restate the progressive critique. The great success of the conservative (take that however you wish) movement has been to make outlandish claims and set up straw men (a Bush White House specialty) in completely matter-of-fact voices while avoiding any semblance of engaging with the other side. That is how we got here in the first place. To engage the progressive critique in any way is to admit that we might have a point. Heaven

Posted by: jhupp | Aug 24, 2006 12:03:36 PM

That was supposed to end, "Heaven forfend," to quote the esteemed Tony Blankley.

Posted by: jhupp | Aug 24, 2006 12:04:16 PM

Millions of people fill up their tanks at an Exxon station every week, but that doesn't mean they get mad if you say something bad about big oil companies.

There was a time, when Wal-Marts were mostly in small towns, that a lot of white proles identified with Wal-Mart, regarding it as 'theirs'. But now that Wal-Mart is ubiquitous that cultural identification is less strong. No doubt lots of people who shop at Wal-Mart wish they treated their staff better, especially if those people know someone who works at Wal-Mart.

Posted by: kth | Aug 24, 2006 12:14:04 PM

What Jay C said. I don't think it's appropriate usage to describe a piece by Jonah Goldberg as a 'disappointment'.

It took me a second read-through to realize this, but what's so remarkable is that, at no point in the column, does Goldberg actually restate the progressive critique of Wal-Mart. He literally never does it.

Two words: Liberal Fascism. Anyone who could put those two words together (at all, much less as a book title) is pretty clearly incapable of comprehending the progressive critique of, well, anything.

That aside, you do a great job summarizing the problem with Wal-Mart here.

Posted by: Tom Hilton | Aug 24, 2006 12:57:26 PM

...Wal-Mart won't abide by the minor cost differences on-shore production and respectable benefits demand.

I am interested. Where can I find some accurate information on these 'minor cost differences'?

Posted by: Fred Jones | Aug 24, 2006 1:02:47 PM

He maybe right- I don't know. But, its not relevant to the question of whether Walmart is contributing to a race to the bottom in this country. For example, the fact that Walmart employees in many states such as NY use the public healthcare system (which is tax payer subsidized) because Walmart refuses to do so. Many people thinkt hey are getting a 'deal' but in some ways, Walmart gives with its cheap products in one hand, and then takes through the various indirect effects in the other. He is, in other words, like most modern conservatives making a short term hedonistic argument about what feels good. It could be electoral death to get in the way of what feels good to Americans but I am not sure its better for us in the long term to ignore the impact of lower wages, no benefits etc on the fact that the rest of us would then have to subsidize and pay for these lack of benefits and low wages whether at the register or tax time.

Posted by: akaison | Aug 24, 2006 1:40:05 PM

Jonah clearly listens to radio commentator Paul Harvey who never fails to include a heart-warming Wal-Mart story in almost every broadcast these days.

The fact that Goldberg represents the intellectualism of the right is profoundly heartening and frightening.

Posted by: christian | Aug 24, 2006 2:16:31 PM

BTW, Andrew Young did indeed say some stupid shit this week.

Posted by: christian | Aug 24, 2006 2:17:35 PM

Ezra, I too was surprised by this line: "Which is why it's such a disappointment to see Jonah Goldberg's sneering, superficial treatment of the subject in today's LA Times "

How on earth can you be shocked that Jonah Goldberg, Michelle Goldberg's NRO trained son wrote, a cheap-shot filled, polemic, lacking any modicum of reasoned analysis?

That's what he does - cheap shots. He's put in the LA times, not because he's worthy, but for some bizarre reason our major papers believe that you have productive debate if you put in someone from "both sides". And they define both sides as meaning, one educated journalist, moderate democrat and a few looney right wingers carefully nurtured by the right wing hate machine. Look at how Brooks, Goldberg, Krauthammer got where they are: Weekly Standard to NY Times, NRO to LA Times, TNR to Wash Post.

And yes, I meant to put TNR in that list. Post Sully and Kelly, it sure belongs there.

Posted by: Samuel Knight | Aug 24, 2006 2:18:00 PM

I tried to Google some background as to how / when WalMart forced Coke to change their recipie & came up dry; can you give some background on that one, Ezra?

Posted by: fiat lux | Aug 24, 2006 2:28:05 PM

I'm of the opinion that how to handle Wal-Mart is among the top two or three most important issues facing the country.

Wow, Ezra. We have a disastrous foreign policy that's making the US nothing but enemies, skyrocketing medical costs of an aging population, right-wing theocrats poised to illegalize abortion, and an incipient police state driven by the "Wars" on Terror/Drugs; but how to handle Wal-Mart is among the top two or three issues facing the country.

I'm not saying I'm a fan of Wal-Mart's labor policy, but get some damn perspective, Ezra.

Posted by: Brock | Aug 24, 2006 3:28:36 PM

b.c walmart is one of the points causing the race to the bottom for the middle class. if they middle class goes all other issues go with it

Posted by: akaison | Aug 24, 2006 6:46:29 PM

Long Akaison - With wal mart we have workers rights issues, healthcare issues, welfare policy issues, and even cultural issues - rolled into one, neat package. How we deal with wal mart is going to have implications on the lives of nearly every American - the daily lives, mind you. The issues you mention are huge - but so is this.

Look at it this way, wal mart has more direct impact on more Americans live right now, than any of the issues you mentioned, excepting health care and that is part of wal marts impact now and will be a huge part of how we as a country deal with what they do. For more perspective, though I don't remember the figures, wal mart directly effects a percentage of our entire economy.

Posted by: DuWayne | Aug 24, 2006 9:44:44 PM

We cannot consider the issue of Walmart to be one solely of domestic policy. The vast majority of the items sold in Walmart stores comes from outside the USA, particularly China. Their practices toward their employees and producers are just as harsh, if not more so, to the myriad of producers in countries all over the word as they are to the better-known producers here in the USA.

Consider that Walmart is a huge part of the US economy, and that quite a bit of the money that flows into Walmart goes through to other countries. Therefore, Walmart represents a not insignificant portion of our trade deficit with countries such as China. Our trade deficit and the relationships that our corporations have with countries such as China absolutely have influence upon our foreign policy.

If we didn't have a petroleum economy, we wouldn't be in Iraq. We wouldn't have been there 15 years ago, and we wouldn't have been there 6 years before that. As a nation we care about the Middle East because they gots the oil.

China may not have oil, but they are essential to Walmart's operations, and Walmart is essential to the US economy. So China, no matter what happens to its citizens, is going to be treated with kid gloves by the US government, no matter who is in office or what they might say on the way there.

Posted by: Stephen | Aug 24, 2006 11:04:15 PM

workers rights issues, healthcare issues, welfare policy issues, and even cultural issues

... economic sustainability issues, environmental section, the addiction to oil even over and above traditional shopping malls ...

... economic sustainability issues, industrial development section, the destruction of swathes of industries in pursuit of ongoing wholesale price reductions ...

... economic sustainability issues, international balance of payments section, resting our CPI on the continued reliance by the Bank of China on the US Dollar as its primary foreign exchange reserve currency, even after they have already put the system in place to shift focus quietly and without fanfare if they decide to ...

... so, yeah, more than one or two issues tied up with Wal-Mart.

Posted by: BruceMcF | Aug 24, 2006 11:49:53 PM

ezra, good post.

I think the scariest thing about Wal-Mart isn't just their ends justify the means approach to winning the market, but their apparently malicious intent they have against the market place.

It isn't just that they have to be the biggest and the best and are willing to beat every other business to death to do it--but that they always seem to do it in the most violent (figuratively speaking) way.

What does that say about the state of business practices in Wal-Mart? So much for the notion of "a little friendly competition," eh?

Posted by: Tony | Aug 25, 2006 2:11:32 AM

Wal-mart is the single largest retailer and employer in the US. They wield monopsony power over our producers. They're of almsot transcendental importance. ON the Coke stuff, from Barry Lynn's article:

Coca-Cola is the quintessential seller of a product based on a "secret formula." Recently, though, Wal-Mart decided that it did not approve of the artificial sweetener Coca-Cola planned to use in a new line of diet colas. In a response that would have been unthinkable just a few years ago, Coca-Cola yielded to the will of an outside firm and designed a second product to meet Wal-Mart's decree.

Posted by: Ezra | Aug 25, 2006 8:20:24 AM

For those who find Wal-Mart's business and employment practices objectionable, they are perfectly free to shop elsewhere and pay higher prices. For all its vaunted economic power, Wal-Mart's highest market share nationwide for the types of products it sells is 27% in Springfield, MO.

With respect to health insurance, Wal-Mart has been criticized for offering meager benefits even after an employee becomes eligible for them despite recent improvements in its offerings. However, if one looks at the one-third of people who lack health insurance that make too much to qualify for Medicaid but not enough to afford it on their own, the vast majority work in low wage service industries like retail, restaurants, and hotels. If the going market wage rate in these industries is between the minimum wage and $10 per hour or so, it is hard to expect employers to cough up another $5.00 per hour to pay for comprehensive family health coverage. If all of these industries tried to tried to provide comprehensive health coverage and raised their prices enough to cover the cost of doing so, demand for their products and services would likely decline sharply.

For those who advocate full taxpayer funding of healthcare, whether single payer or premium support vouchers, it is incumbent upon them, I believe, to be honest and upfront about the magnitude of the increased tax burden on the middle class that would be necessary to finance such a program. I believe that a few years back, Uwe Reinhardt estimated it would cost 10%-12% of income to finance a basic Kaiser like system for everyone who is not already on Medicare or Medicaid.

Posted by: BC | Aug 25, 2006 10:30:03 AM

For those who find Wal-Mart's business and employment practices objectionable, they are perfectly free to shop elsewhere and pay higher prices. For all its vaunted economic power, Wal-Mart's highest market share nationwide for the types of products it sells is 27% in Springfield, MO.

Oddly enough, though I object to their practices I do shop at wal mart. That does not mean I cannot object to what they do. And you don't consider that or even a twenty percent market share to be signifigant? That is compared to every other supermarket, clothing store, elctronics store, movie and music store. Sorry, but that is economic power - big power.

For those who advocate full taxpayer funding of healthcare, whether single payer or premium support vouchers, it is incumbent upon them, I believe, to be honest and upfront about the magnitude of the increased tax burden on the middle class that would be necessary to finance such a program. I believe that a few years back, Uwe Reinhardt estimated it would cost 10%-12% of income to finance a basic Kaiser like system for everyone who is not already on Medicare or Medicaid.

Compared to what many are paying now that is actually an improvement. Except, instead of paying comperabley or more to insure just themselves, they would be contributing to the health care of others. It would cost very few Americans any more than they already pay. And it would cost even less people signifigantly more than they already pay. And for those who would be paying signifigantly more, they can demand that their employer raise their pay by less than the amount previously contributed to health insurance and more than cover the difference. The high and the low is that it would be very easy to take a portion of what Americans have been paying for health care and transfer it to nationalized health care and more than cover the cost.

Posted by: DuWayne | Aug 25, 2006 12:46:41 PM

Glad to see you posted on this. I thought Golberg's peice yesterday morning was one of his absolute worst and shouldn't have even gotten by his editors. He suggests that anyone who has a problem with Wallmart is suffering from Bush Derangement Syndrome (wait -how did he? -ummm) and this is fundamentally related to an upcoming drubbing of the netroots and Ned Lamont. Hell, I don't mind somebody arguing that Wallmart's good for America, it's promoters are correct that there are benefits, but there are some basic coherence parameters I'd like to see the times enforcing.

Posted by: Mavis Beacon | Aug 25, 2006 1:58:23 PM

Throughout retailing over the last 15 years or so, consolidation was the trend. In most retailing categories now, the market seems to only have room for two viable, solidly profitable competitors. In discount retailing, it's Wal-Mart and Target with K-Mart / Sears an also ran being managed for cash flow. In warehouse clubs, it's Costco and Sam's with BJ's a distant 3rd place regional player. In home improvement, it's Home Depot and Lowe's, though thousands of small hardware stores still exist. In drug retailing, it's Walgreens and CVS with Rite Aid a struggling third, and in electronics retailing, its Best Buy and Circuit City. In conventional supermarkets, three players can survive comfortably in most markets with the #4 and #5 competitor often falling by the wayside when a supercenter (usually Wal-Mart) comes in.

The large companies that supply all of these organizations have generally sustained their returns on equity and capital at a fairly consistent rate during that time. I think all of this consolidation throughout the retail sector has been a net positive for American consumers.

With respect to Wal-Mart's health benefits, I don't know to what extent they differ from or are inferior to Target's - Wal-Mart's closer competitor. If there is a gap, however, and closing it would require Wal-Mart to raise its average prices by 2% or less, I strongly suggest they should close it. With their competitive advantages in logistics and information systems, not to mention buying power, they would still be the low cost producer, but their price advantage vs. Target would be smaller.

Posted by: BC | Aug 25, 2006 4:10:42 PM

"Compared to Costco, or Target, Wal-Mart's salaries, benefits, and worker relations are atrocious."

Very weird. I just went and looked up the WalMart and Costco annual reports.

Walmart spends a larger portion of it’s turnover on wages than Costco does. Strange don’t you think?

Posted by: Tim Worstall | Aug 26, 2006 8:37:22 AM

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