Wal-Mart and the Mom-and-Pops

Reihan writes:

As a concrete matter, what really matters is ... how do you feel about Wal-Mart? After all, Wal-Mart embodies the impact of free trade and of the transformation of the service economy. That part of the left that bitterly opposes Wal-Mart is in effect defending the balkanized, decentralized service economy of the past that delivered low-quality products at high prices. Now, they believe that they are in fact defending a "high-road economy," but mom-and-pops hardly represent "the high-road economy": quite the contrary.

That is, in part, right. Wal-Mart is the concrete expression of globalization, the transition from a manufacturing economy to a service economy, and a competitive strategy that relies on constantly slashing labor costs up and down the production chain. Where the specter of globalization lurks ominously and abstractly beneath your bed, Wal-Mart probably sold you your bed, your sheets, and your pillows, not to mention got you laid off from your job at Vlasic pickles. It's real, yo.

But Reihan's wrong to set up a dichotomy between the mom-and-pops and Wal-Mart. Here he's conflating two separate and unequal arguments about Wal-Mart. There's one, dealing with mom-and-pops, that's a cultural qualm. It laments the homogenization of the retail economy and the destruction of individualized, decidedly local, outlets. It's not an economic argument.

The second is an economic argument, perhaps best made by Barry Lynn, that frets over Wal-Mart's obsessive search for low prices, and the ripple effects that quest has on labor standards. If Wal-Mart won't let Crest raise prices a penny on toothpaste, how will they gives raises to their workers? If Wal-Mart will continually slash health benefits and rig the system to purge those who need health care, how can their competitors continue to spend the money on benefits for their employees? And on, and on. Wal-Mart is, far and away, the largest retailer in the world. Their size allows them to dictate what producers will charge and create rock-bottom prices that other retailers have to compete against, which essentially enforces Wal-Mart's low wage, low price vision on the rest of the economy.

The question, in all of this, is never "Wal-Mart or mom-and-pops," or "Wal-Mart: Yes or no?" It's whether Wal-Mart can be better. Whether their efficiencies and focus on low prices can merge with a business ethos that doesn't kneecap the middle class, screw their workers, and and create a ceaseless race to the bottom in product quality and worker standards.

The Wal-Mart Effect

There's an interesting twist to this Business Week article on the chaos Wal-Mart sparked in the consumer electronics industry when they began dropping their prices on flat-screen TVs. "Circuit City shares have fallen 24%, to $18.76, since the end of November," reports Business Week, "when the price war started. In the same period, Tweeter's shares declined 32%, to $1.72, near a 52-week low, and Best Buy's stock is down 9%, to $48.73. Shares of Rex Stores have been flat, down 0.7%, to $16.98."'

It's a standard tale, so mundane that it even has a cute descriptor: "The Wal-Mart effect." What's surprising about this particular version of the story is how the threat of Wal-Mart's full-bore entrance into a market allows them to dictate the standards without exposing themselves to the very pressures they've set in motion. "Despite its bold move last year, Wal-Mart currently is not the largest seller of flat-panel TVs. In fact, even though Wal-Mart set in motion the price drops, it has actually been a bit player in the high-definition TV segment. By most accounts, Wal-Mart had little to lose by dropping the price on the Panasonic TVs because it sold out its inventory nearly instantly."

Not so for the stores that specialize in consumer electronics, like Circuit City. "The Richmond (Va.) company lost $12.2 million in its fiscal fourth quarter ended Feb. 28, compared to a net income of $141.4 million in the same period last year. At Tweeter, where flat-panel TVs make up more than 51% of sales, the price declines hurt badly. Sales in its fiscal second quarter ended Mar. 31 declined 12%, to $139 million." They have to compete with Wal-Mart, even as Wal-Mart feels no particular need to compete with them.

Now, nothing Wal-Mart is doing here is wrong, illegal, or even unethical. They decided to slash prices on a product, and their competitors responded. But the company's sheer size means that relatively minor decisions in Bentonville can transform whole sectors of the economy. Wal-Mart sold out of their cheap Panasonics fairly quickly -- that ended it for them. But Circuit City laid off 3,400 workers and Tweeter is still reeling. And it's like that at every level, in every sector, of retailing now. Wal-Mart is almost a de facto central planning vehicle; not because that's their ambition, but because that's their size.

No Love For Wal-Mart?

I know I'm a rare defector from the belief that consumers all shop at Wal-Mart out of a deep-seated ideological affection for the company's labor practices, but even I'm surprised to see them coming dead last in a survey of consumer satisfaction. They're below the insurance industry!

Relatedly, I was at an AEI event on Wal-Mart where Michael Barone sagely explained that voters didn't want Democrats to shut down Wal-Mart, and so all these Democrats attacking the company are pursuing the modern equivalent of the nuclear freeze campaign from the 80s. That's, uh, one interpretation. Of course, the question has never been an existential one. Search the landscape, there's no such thing as an "End Wal-Mart Now" campaign. There's a robust campaign to force them to pay higher wages and offer better health care, significantly safer ground for Democrats, but center-right pundit types tend to forget the word "wages" when they begin sniffing about all the class warfare.

A particularly hilarious example of why they ignore or distort the wage issue came when some AEI functionary stood up to forthrightly address the issues of Wal-Mart's $15,500 average full-time wage. That's probably a lot of money in Dayton Ohio, she said, and Wal-Mart hires single mothers who would -- I'm not making any of this up -- otherwise become prostitutes. In the next room, you could hear satire dying.

The Wal-Mart Way

Wal-Mart is moving towards widespread implementation of new employee scheduling software. Sounds innocent enough -- the software tracks customer habits over seven week periods, and reschedules workers for each one. Moreover, it also creates a range of daily possibilities, allowing Wal-Mart to schedule workers to be on-call during surges, or send them home during lulls, or implement a variety of other strategies to create a more flexible, adaptive, workforce. All sounds routine enough, right?

But pity the workforce. The new software will make advance scheduling and reliable paychecks a thing of the past. According to The Journal, "experts say [the program] can saddle workers with unpredictable schedules. In some cases, they may be asked to be "on call" to meet customer surges, or sent home because of a lull, resulting in less pay. The new systems also alert managers when a worker is approaching full-time status or overtime, which would require higher wages and benefits, so they can scale back that person's schedule...That means workers may not know when or if they will need a babysitter or whether they will work enough hours to pay that month's bills. Rather than work three eight-hour days, someone might now be plugged into six four-hour days, mornings one week and evenings the next."

Brave new world. And one that can be used to push out older, more experienced, better-paid workers. "Some longtime workers," the Journal reports, "also say they believe managers use the system to pressure them to quit. After working 16 years at a Wal-Mart in Hastings, Minn., Karen Nelson says managers told her she had to be open to working nights and weekends. After she refused, her hours were trimmed, though they have been restored in recent months. 'The store manager said he could get two people for what he pays me,' says Ms. Nelson, who earns about $14.50 an hour." Take a highly-paid veteran and begin shaking up their shifts, demanding nights and weekends, and scheduling erratically, and soon you'll have a former highly-paid veteran.

This isn't, it should be said, an initiative unique to Wal-Mart. Other retailers, from Radioshack to Payless, have given the system a shot, though with varying degrees of ferocity. But Wal-Mart's adoption will make it standard. The whole enterprise underscores the dangers of the service economy, with its relentless focus on efficiency and terrifying absence of concern towards its workers. Given that service jobs are slated to be the fastest-growing over the next decade or so, a central focus for progressives will have to be endowing those workers with the bargaining power and voice to demand -- and receive -- better treatment. We talk about the need for better wages and benefits a lot, but workplace treatment is a critical component as well. The import of regular scheduling and predictable paychecks should not to be taken for granted.

At Tapped, too.

You Know Better

Sigh. Come on Jane Winterspeak, no Democrats are focused on putting Wal-Mart out of business. The anti-Wal-Mart movement -- including Wake Up Wal-Mart and Wal-Mart Watch -- want to see the employer unionize, pay better wages and benefits, and stop choking out their suppliers. No one I know, including me, wants to see the largest corporation in America shutter its doors, deprive all manner of rural areas of their only nearby shopping center, fire 1.3 million people, drive a slew of suppliers out of business, and throw the economy into havoc.

The question is never Wal-Mart: Yes or no? The question is whether Wal-Mart's business practices, when mixed with its gargantuan size and clout, are having negative impacts on the economy, and if so, in what ways they can be changed. It's worth noting here that Wal-Mart itself recently decided its business practices were having negative impacts on the environment and committed themselves to a full-on greening. So obviously there's room for improvement, and the company has not achieve perfection in any and all ways. Nor is it necessarily true that such improvements would force them to lay off large numbers of workers: It's perfectly possible that Americans can handle a couple cents more per item, and better labor standards would allow Wal-Mart to expand into urban and blue areas that have thus far resisted their entry.

Update: That post was written by Winterspeak, not Jane. Thousand apologies.

Well Knock Me Over With A Feather!

Remember Wal-Mart's big, exciting, PR-friendly program to lower prescription drugs prices? A bait-and-switch.

You Go, Wal-Mart

Daniel Gross makes a great point about Wal-Mart's Great Registration Drive of 06:

It is disproportionately African-American. African-Americans are about 11 percent of the American population and vote overwhelmingly for Democrats. According to this CNN exit poll, they went for Kerry by an 88-11 margin in 2004. But African-Americans constitute nearly 17 percent of Wal-Mart's employees and 18 percent of sales workers. Encouraging more middle- and lower-income African-Americans to vote in states like Arkansas, Oklahoma, and Mississippi would almost certainly be a net positive for Democratic candidates.

We know, as well, that women tend to vote disproportionately for Democrats. In 2004, according to CNN, women (and working women) voted for Kerry by a 51-48 margin. Women are substantially overrepresented in Wal-Mart's workforce. About 60 percent of all employees are women. And three-quarters of its sales workers are female—a higher proportion than at other retailers. All things being equal, more women voting will boost Democratic candidates.

Finally, Wal-Mart's workforce is disproportionately composed of lower-income workers. Barbara Ehrenreich says Wal-Mart's mean wage is $9.68 an hour, which comes out to about $20,000 a year on a full-time basis. In 2004, again according to CNN, those with incomes under $15,000 voted for John Kerry by a 63-36 margin, and those with incomes in the $15,000-$30,000 range voted for Kerry by a 57-42 margin. More lower-income Americans, many of whom are women and African-American, voting would benefit Democratic candidates.

There are Democratic groups. Wal-Mart may think that employees are aching to defend their employer at the polls, but low wages, poor health care, 24-hour availability, and a preference for part time work may not leave Wal-Mart's "associates" quite so enamored with their employer. While you often hear Wal-Mart and its defenders brag that nine kajillion workers apply per open position, there's a difference between unskilled workers needing jobs and unskilled workers liking their jobs, or thinking they're being compensated fairly and generously. And Wal-Mart's turnover rate -- about 40-50 percent of their workforce -- is among the highest in the retail industry, evidence that folks aren't quite adoring their work conditions. Costco, by contrast, reports a turnover rate of half that.

Economics And Me

I want to spend a couple minutes directing attention to this post of Ryan's, in which he attempts to defend the honor of the free market in the face of scurrilous attacks from, well, me. As a disclaimer, Ryan's a really bright guy, and he runs a great blog -- but this post happens to aptly illustrate a certain strain of thought I've been tangling with lately.

Anyone paying attention to this site will know I happily deviate from the orthodoxy favored by full-throated, anti-government, free marketeers. I routinely call for greater government intervention in health care, fret over Wal-Mart's monopsonistic might, and wonder, loudly and regularly, if the coming service economy can possibly sustain a decent society without government or union intervention. Katy bar the door!

In the post Ryan's referencing, however, I merely noted the illogic of the stock market cheering Republican elections despite doing historically better under Democrats. This spurred Ryan to write: "I don’t get this. What did the markets do to Ezra? There is a difference between being a Republican or a conservative and appreciating economics–often a very large one." Indeed there is. And it's terrifically unsettling that merely noting a political quirk within markets is enough to get one kicked out of the economics appreciation club.

There is, I think, little more beautiful or elegant in life than markets. Even Wal-Mart -- in fact, especially Wal-Mart -- is an awe-inspiring entity, gorgeously efficient and innovative and strong. But markets fail. As Ryan notes, there's a whole body of economic literature on when, why, and how that happens. And even a beautiful beast can attack if not watched and restrained. However, to note that markets have outcomes oriented towards ends not eternally or intrinsically constructive for society is somehow beyond the pale. To worry that the unceasing obsession for cost reductions by the greatest economic force in our age might harm labor standards and supplier autonomy somehow ejects you from polite company. Why?

No economist I know of would argue that the free market's primary incentive isn't profit. Few that I know of would argue that the quest for profit, at all times and conducted in all ways, benefits society. Indeed, it's a Harvard medical economist, Rashi Fein, who warned that "we live in a society, not an economy." It's a warning we may want to take a little more seriously.

There is nothing wrong with markets, but there is not everything right with them, either. Lord knows there's no more efficient way -- at least that we've thought of -- to conduct an advanced economy. But in an advanced society, or as some economists have called it, an affluent society, the common good should come before the bottom line.

That's a platitude, to be sure. What the common good is and when it transcends or conflicts with the hunt for profit is open for vigorous debate. But too often, the very act of entering that discussion, of questioning those priorities, of wondering whether H Lee Scott really has my best interests at heart and why corporate profits are skyrocketing while wages stagnate, too often such utterances are enough to close the discussion on grounds of insufficient appreciation for the awesomeness of markets. Too often, believing the interests of society are not only distinct from, but superior to, the unchecked will of the economy is considered a marginal, rather than obvious, idea.

There is, I think, a difference between appreciating economics and deifying it. Often a very large one. And often a very ignored one. I appreciate economics. I regularly interview economists, pore over articles in economic journals, and pick through reams of economic data. But I always try to retain perspective: As intellectually seductive and important as the discipline is, it is not an end in itself. Some -- like my libertarian friends -- may believe that it's pretty damn close, that the road to the good society runs through unchecked free markets. But many who disagree -- Ryan, I think, among them -- seem to forget that disagreement when a layman dares question the invisible hand's grip on society.

New York Times Smash!

The Times has a fantastic editorial on Wal-Mart's plans to screw its workers over. A taste:

For instance, Steven Greenhouse and Michael Barbaro reported yesterday in The Times that employees at several Florida stores say that managers are barring older employees with back and leg problems from using stools they had sat on for years.

Other employees are complaining of sudden scheduling changes they say are skewed to chase out long-term employees, and wage caps that act as a disincentive for those longer-tenured workers. In a stunning deployment of corporate doublespeak, a memo to store managers describes the wage caps as a way to maintain “internally equitable pay levels.” It is true that if everyone is making the same everyday low wages, a perverse form of equality is established among them.

The company says it is not trying to encourage long-term employees to leave, and that the caps encourage them to move up if they want higher pay.

How charming. It's worth noting the fatuousness of the "move up" rationalization. There are, to say the least, fewer managers than clerks, and more stockboys than supervisors. Wal-Mart would like to imply that the reason workers are languishing in low-level positions is an unwillingness to accept promotion. Of course it is. While there's nothing wrong with having fewer supervisory roles than entry-level positions, there is something wrong with working to subtly eject the sick and the old from low-level jobs by denying them stools, and capping the pay of those jobs so dedicated employees who aren't promoted can't continue to advance their own living standards. And that doesn't even get into the company's widespread discrimination against women.

Wal-Mart Gets Mean

Hopefully, folks aren't getting tired of hearing me talk Wal-Mart, as odds are the chatter won't let up anytime soon. How could it, when each new day brings news this worrisome? Word from the retailer now is that Wal-Mart is set on converting its workforce to a heavily part-time, salary capped, labor pool.

Workers will never receive annual raises if their pay is at or above the cap, unless they move to a higher-paying job category. Wal-Mart says the caps will encourage workers to seek higher-paying jobs with more responsibility.[...]

No matter how hard people work, “we won’t get anything else out of it,” said Mr. Gonzalez, who earns $11.18 an hour, or about $23,000 a year, after six years with Wal-Mart. “The message is, if I don’t like it, there is the door. They are trying to hit people who have the most experience so they can leave.”

In the confidential memo sent to Wal-Mart’s board last year, M. Susan Chambers, who was recently promoted to be Wal-Mart’s executive vice president in charge of human resources, questioned whether it was cost-efficient to employ longtime workers. “Given the impact of tenure on wages and benefits,” she wrote, “the cost of an associate with 7 years of tenure is almost 55 percent more than the cost of an associate with 1 year of tenure, yet there is no difference in his or her productivity.”

Meanwhile, investment analysts and store managers tell the New York Times that Wal-Mart wants to double the proportion of its workforce that's part-time, moving it from 20 percent to 40 percent. Part-time workers, of course, make lower wages, are offered stingier benefits, and must work at the company's pleasure -- they've neither stability nor agency in their hours. Welcome to Wal-Mart's policy of "open availability," which demands 24-hour availability for work and puts those who decline or can't make it on the bottom of the list for future hours. All of which is just great for parents -- they'll have neither enough time or money to properly care for their children.

So Wal-Mart is not only demanding that work takes total primacy in the lives of their employees, but if the employees have the gall to accept the deal and do their best, they're capping salaries in order to ensure the position doesn't mature into decent wages and worthwhile benefits. These are the labor practices of the largest employer in the world, and these are the labor costs every competitor -- from supermarkets to clothing centers to hardware stores -- will have to compete against. Which they will do by aping them -- there's no other way to survive.

Folks forget sometimes that unions aren't just there to argue for better benefits and salaries, but better working conditions, more stability in hours, more respect for seniority, easier interfacing between family and work. They exist, in other words, to ensure that employers uphold their end of the "work hard and get ahead" bargain. Except, unions don't really exist anymore, and they certainly don't at Wal-Mart. And this is the result.