In 1945, Sam Walton opened his first variety store and in 1962, he opened his first Wal-Mart Discount City in Rogers, Arkansas. Now, Wal-Mart is expected to exceed “$200 billion a year in sales by 2002 (with current figures of) more than 100 million shoppers a week…(and as of 1999) it became the first (private-sector) company in the world to have more than one million employees.” Why? One reason is that Wal-Mart has continued “to lead the way in adopting cutting-edge technology to track how people shop, and to buy and deliver goods more efficiently and cheaply than any other rival.” Many examples exist throughout Wal-Mart’s history including its use of networks, satellite communication, UPC/barcode adoption and more. Much of the technology that was utilized helped Sam Walton more efficiently track what he originally noted on yellow legal pads. From the very beginning, he wanted to know what the customers purchased, what inventory was selling and what stock was not selling. Wal-Mart now “tracks on an almost instantaneous basis the ordering, shipment, and delivery of literally every item it sells, and that it requires its suppliers to hook into the system, enabling it to track most goods every step of the way from the time they’re made and packaged in the factories to when they’re carried out store doors by shoppers.” “Wal-Mart operates the world’s most powerful corporate computing system, with a capacity (as of late 1999) of more than 100 terabytes of data (A terabyte is 1,000 gigabytes, or roughly the equivalent of 250 million pages of text.). Only the U.S. government maintains a bigger database.” Sam Walton was eventually considered “the most influential retailer of the century, and with good reason, for nearly every great retailer of the coming years would follow his business examples.” Industrial Revolution: When the Industrial Revolution took place in the United States, factories were now able to out produce consumer demand. For the first time, these new goods needed new ways to be sold, new ways to get to the public. “In New York, Philadelphia, and Chicago, the first department stores opened their doors. Railroads and telegraph wires snaked across the country, giving storekeepers a new way to order goods and get them on the shelves faster than ever before. A whole new industry sprang up to persuade people through advertisements with enticing pictures and clever slogans, to buy things they’d never known they needed, to turn America, in the phrase department store pioneer John Wanamaker, into the Land of Desire.” At the same time, large corporations became another “dominant form of business”, such as with U.S. Steel, Swift, R.J. Reynolds, and Procter & Gamble. Department stores such as Woolworth, Penney, Sears, A&P, and Kroger became known in the retail environment. Early Discount Approach: “The first small discount stores” started in the 1930s, developed in the years after WWII and really began to take off in the 1960s as “giant discount chains”.
A Brief history of Sam Walton the founder of Wal-Mart
Sam Walton wanted to build a company that both cared for people and would make some money. With his timely thinking he and his partners built a company that has not slowed down. While staying one step ahead of the ever-changing technology and methods of today’s fast paced business environment, Wal-Mart executives still rely on many of the traditional goals and philosophies that Sam embroiled on his company. The company has faced and is still facing a significant amount of controversy; however these have not contributed to any kind of downfall within the company. The future of Wal-Mart looks extremely profitable especially if they continue to increase its profits and rely on the beliefs that got them to the point they are at. In 1962, Sam Walton opened the first Wal-Mart store in Rogers, Arkansas. Wal-Mart was at one time included in Fortune’s list of the “10 most admired corporations.” The Wal-Mart Philosophy-Wal-Mart is successful not only because it makes sound strategic management decisions, but also for its innovative implementation of those strategic decisions. Many trace discount entrepreneur birth to1962, the first year of operation for Kmart, Target and Wal-Mart. But by that time, Sam Walton’s tiny chain of variety stores in Arkansas and Kansas was already facing competition from regional discount chains. Sam traveled the country to study this radical, new retailing concept and was convinced it was the wave of the future. He and his wife, Helen, put up 95 percent of the money for the first Wal-Mart store in Rogers, Arkansas, borrowing heavily on Sam’s vision that the American consumer was shifting to a different type of general store.
Wal-Mart is a national discount retailer offering a wide variety of general merchandise to customers. Wal-Mart stores offer pleasant and convenient shopping in 36 departments including family apparel, health and beauty aids, household needs, electronics, toys, fabrics and crafts, lawn and garden, jewelry and shoes. In addition, some Wal-Mart stores offer a Pharmacy Department, Tire & Lube Express, garden center, snack bar or restaurant, Vision Center, and One-Hour Photo Processing for convenience (http://www.walmart.com). Wal-Mart stores operate on an “Every Day Low Price” philosophy and are able to maintain their low price structure through conscientious expense control. While other major competitors typically run 50 to 100 advertised circulars per year, Wal-Mart produces only 12-13 major circulars per year (http://www.walmart.com). The cost savings associated with fewer circulars are passed on to the customer through lower shelf prices every day. Wal-Mart associates strive to provide exceptional customer service, a characteristic that is unique to the chain. Everything possible is done to make shopping at Wal-Mart a friendly experience (2000 Annual Report).
Today, Sam’s gamble is a global company with more than 1.3 million associates worldwide and nearly 5,000 stores and wholesale clubs across 10 countries. The “most admired retailer” according to FORTUNE magazine has just completed one of the best years in its history: Wal- Mart generated more than $256 billion in global revenue, establishing a new record and adding more than $26 billion in sales. The company earned almost $9.1 billion in net income and grew earnings per share by more than 15 percent.
But it all started with an understanding of what consumers want from a retailer.
“The secret of successful retailing is to give your customers what they want,” Sam wrote in his autobiography. “And really, if you think about it from the point of view of the customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience.
“You love it when you visit a store that somehow exceeds your expectations, and you hate it when a store inconveniences you, or gives you a hard time, or pretends you’re invisible.”
While other discounters such as Kmart quickly expanded across the country in the 1960s, Sam was able to raise the funds to build only 15 Wal-Mart stores. Wal-Mart got the boost it needed in 1970 when its stock was offered for the first time on the New York Stock Exchange. The public offering created the capital infusion that grew the company to 276 stores by the end of the decade. By focusing on customer expectations, Wal-Mart was growing rapidly in 11 states.
In the 1980s, Wal-Mart became one of the most successful retailers in America. Sales grew to $26 billion by 1989, compared to $1 billion in 1980. Employment increased tenfold. At the end of the decade there were nearly 1,400 stores. Wal-Mart Stores, Inc. branched out into warehouse clubs with the first SAM’S Club in 1983. The first Supercenter, featuring a complete grocery department along with the 36 departments of general merchandise, opened in 1988. Wal-Mart had become a textbook example of managing rapid growth without losing sight of a company’s basic values. In Wal-Mart’s case, the basic value was, and is, customer service.
Ironically, technology plays an important role in helping Wal-Mart stay customer focused. Wal- Mart invented the practice of sharing sales data via computer with major suppliers, such as Proctor & Gamble. Every time a box of Tide is rung up at the cash register, Wal-Mart’s data warehouse takes note and knows when it is time to alert P&G to replenish a particular store. As a result, Wal-Mart stores rarely run out of stock of popular items.
Wal-Mart Stores, Inc. is principally engaged in the operation of mass merchandising stores. At January 31, 2002, the Company operated 1,647 discount stores, 1,066 supercenters, 500 SAM’S clubs and 31 neighborhood markets in the United States. Internationally, at January 31, 2002, the Company operated units in Argentina (11), Brazil (22), Canada (196), Germany (95), South Korea (nine) Mexico (551), Puerto Rico (17) and the United Kingdom (250), and, under joint venture agreements, in China (19). The Company operates through three segments, the Wal-Mart Stores segment, the SAM’S Club segment and the International segment.
Wal-Mart’s influence on the U.S. economy has reached levels not seen by a single company since the 19th-century rise of Standard Oil, economists and historians say. Even if you don’t shop at Wal-Mart, the retail powerhouse increasingly is dictating your product choices – and what you pay – as its relentless price-cutting helps keep inflation low.
Wal-Mart is the top seller of groceries, jewelry and photo processing. It is moving into banking, used-car sales, travel and Internet access. It averages 100 million customers a week.
Anyone whose stocks rose in the late 1990s owes Wal-Mart, the world’s biggest company. It alone accounted for as much as 25 percent of the U.S. productivity gains from 1995-99, says consultant McKinsey & Co. Such gains drove corporate profits, thus stock prices. Wages in retailing, one of the biggest sources of new jobs in the ’90s and current decade, are also affected by Wal-Mart.
“I joke we’re all going to be working for Wal-Mart someday,” says economist Mark Zandi of consultant Economy.com.
Although Wal-Mart is hitting speed bumps because of growing labor challenges, employment lawsuits and higher costs, few doubt it will stop besting competitors as it expands. While other retailers such as Home Depot, tech giants such as Microsoft and manufacturers such as General Electric played big parts in the 1990s productivity gains, Wal-Mart, with its massive buying power and technology advantage, played the biggest role, economists say. As it grows, its influence, largely unknown to consumers, will continue to seep into more parts of the United States and the global economies.
“Everyone knows Wal-Mart,” says Jim Hoopes, a business history professor at Babson College, “but nobody has a real sense of how big and how powerful it is.”
Few companies have moved so far so fast. Founded 40 years ago in rural Arkansas by Sam Walton, Wal-Mart has swelled to 4,300 stores in nine countries and annual revenue near $250 billion. Its computer network, a critical part of its success, rivals the Pentagon’s.
It is now the biggest customer for many of the world’s leading consumer-products companies, including Kraft, Gillette and Procter & Gamble. At P&G, Wal-Mart accounts for 17 percent of annual revenue, up from 10 percent just five years ago. That makes those companies more dependent on Wal-Mart’s success, more vulnerable should it stumble and more likely to respond to Wal-Mart’s requests for lower prices and product changes.
The chain’s buying power is so immense that 450 suppliers have opened offices – many in the 1990s – near Wal-Mart headquarters in tiny Bentonville, Ark. As many as 800 more such offices are expected in the next five years. Sales representatives want to be near Wal-Mart buyers to beat the competition, says Rich Davis, a local economic development official.
Wal-Mart is increasingly affecting:
P&G is dumping weak brands, such as Crisco and Jif peanut butter, sold to J.M. Smucker last year. It wants to focus on heavy hitters, such as Tide detergent, most desired by Wal-Mart and other big retailers, P&G says. That strategy helped P&G boost fiscal second-quarter net income 14 percent year-over-year to $1.5 billion, it said.
Other companies have tweaked products so that they pass muster with Wal-Mart. Video-game maker Planet Moon Studios two years ago wanted an industry group to give its “Giants” game a teen rating. Why? So it would be carried by Wal-Mart and others. Planet Moon changed the color of blood in the video to green from red, toned down the language and put a bikini on a topless character, says CEO Bob Stevenson. Without those changes, he says, “The risk to sales was too high.”
Wal-Mart is also challenging its suppliers by developing more of its own products, called “private labels.” It stepped up that effort in the mid-1990s as it expanded into vitamins, batteries and bathroom tissue. Its Great Value grocery line has 1,475 items, up from 194 two years ago.
Wal-Mart says it is committed to keeping shelves full of well-known brands such as Kellogg’s cereal and Tide. But, in general, private-label profits run as high as 30 percent, vs. 15 percent on brand-name items, says Burt Flickinger, managing director of consultant Reach Marketing.
Private-label products also promise Wal-Mart more profit as the chain expands abroad, because U.S. brands don’t have the same clout there. In Europe and the United Kingdom, where Wal-Mart is battling for Britain’s Safeway grocery chain, private-label goods are 50 percent of its sales vs. 25 percent in the United States.
Big food companies including Kraft, which gets 10 percent of its revenue from Wal-Mart, have not been able to raise prices as quickly as they once did because of Wal-Mart’s demands, says Jonathan Feeney, a consumer products analyst at investment firm SunTrust Robinson Humphrey. Kraft declined to comment.
History has shown that suppliers suffer if they run afoul of Wal-Mart. Rubbermaid raised the prices it charged Wal-Mart in the mid-1990s because of an 80 percent jump in the cost of a key ingredient in its plastic containers. The retailer responded by giving more shelf space to lower-priced competitors, helping drive Rubbermaid into a 1999 merger with rival Newell, says John Mariotti, a former Rubbermaid executive. “Rubbermaid earned Wal-Mart’s wrath by not giving it the best deal,” he says.
Wal-Mart’s impact on wages was first felt in rural towns in the South and Midwest where Wal-Mart got its start. Often, it became the biggest employer overnight, setting wage rates for all retailers, experts say.
Now, its impact on retail employment has spread nationwide, contributing to slower wage growth throughout the sector, economist Zandi says.
Pay for retail workers rose 43 percent from 1990 to 2001, vs. 50 percent for non-retail workers, according to Bureau of Economic Analysis data. No one knows exactly how big a part Wal-Mart played, Zandi says. But its influence is “undeniable” because it created more jobs in the 1990s than any other company, he says. More retail jobs are on the way. Wal-Mart plans to add 800,000 workers in the next five years. U.S. retailers are expected to add 3.1 million jobs by 2010, the government says.
Manufacturers, which pay more, will add fewer than 600,000 jobs in the same period. Labor unions that represent factory workers are alarmed. They say Wal-Mart, in demanding ever-lower prices from suppliers, has helped drive thousands of U.S. manufacturing jobs abroad, where labor costs are lower.
Now they worry about Wal-Mart’s push into the unionized supermarket industry. Wal-Mart has no unions. That means its employees earn less than those at competing supermarkets, says the United Food and Commercial Workers.
Wal-Mart’s hourly pay averages $7 to $8 an hour, vs. $11 at Kroger, Safeway and other competitors with unions, says UFCW spokesman Greg Denier.
Not true, says Wal-Mart spokesman Tom Williams. While he would not disclose wages, which vary by market, he says Wal-Mart pay is close to or equal to union wages.
Productivity. Wal-Mart’s key role in the 1995-99 economic boom came partly because of its legendary use of technology to analyze costs and speed delivery of goods from its 30,000 suppliers to dozens of sprawling warehouses, say retail and financial analysts.
Wal-Mart says it has the nation’s biggest private satellite communications network, one that links stores to Bentonville by voice, data and video. Suppliers tap directly into Wal-Mart’s computers to track sales of everything from soup to nuts, which improves inventory controls and cuts costs.
Other retailers, including Kmart, tried matching Wal-Mart’s tech prowess but failed. Kmart filed for bankruptcy-court protection last year and is cutting 67,000 jobs and closing nearly 30 percent of its stores.
Wal-Mart also teaches manufacturers to be more cost-effective so product prices can stay down. For example, Wal-Mart might suggest that a supplier cut its labor costs by shipping toasters in their cartons, rather than packing them in bigger boxes and shrink-wrapping them onto shipping pallets, says James Champy, chairman of Perot Systems’ consulting unit, which advises Wal-Mart suppliers.
Such close communication between a retailer and supplier is unusual. But it’s being adopted by more companies, including Dell Computer, as U.S. businesses seek more productivity to better compete globally.
“It’s where the future of business has to be,” Champy says.
That future may also include fewer companies. To achieve economies of scale, more consumer products companies are merging. Wal-Mart’s demand for low-cost products partly influenced Kellogg’s purchase of Keebler in 2001, and the merger of Kraft and Nabisco in 2000, analyst Feeney says.
Is Wal*Mart good for America?
[After reading this piece, please check out the additional material post here, including my correspondence with the filmmaker, Hedrick Smith.]
I knew from the outset that Frontline (the always left-leaning investigative documentary series on PBS) was probably not going to do a fair job of answering the question, “Is Wal-Mart good for America?” but I was still enraged by the blatant bias and ignorance of the piece. It amazes me that a program can put out such simplistic crap and still maintain a good reputation as one of the most prestigious series on television.
The opening teaser section of the show, in which they show brief clips of footage, tried to come off as a balanced set of pro and con arguments but the fear mongering was already palpable. Wal-Mart, according to the narrator is a, “growing controversy” (growing because of media reports like this one that feed off one another!). The clip they choose to end the teaser section with is particularly laughable, featuring one of their “experts” (later identified as Alan Tonelson, of the US Business & Industry Council) saying, “The lowest prices have to lead to the lowest wages and to job loss. And to lower living standards.” This is willful economic and historical ignorance in action. Free markets lead to lower prices and higher quality. That is why we live longer and have more stuff than any people before us. To “think” that high prices mean a high standard of living is not thinking; it is emotionalism and irrationality run amok. Yet this is the level at which most of the program functions.
Next, we are taken to a mass Wal-Mart shareholder’s meeting that is conducted like a pep fest. While I too do not feel comfortable in such settings, I was taken aback by the reporter’s description of these people as, “the faithful.” No matter what else you might believe on the subject, is it faith or imperial fact that Wal-Mart is doing well for its shareholders? Since the answer is clearly the latter, why pretend that it is the former? The reporter, Hedrick Smith, wants to paint Wal-Mart supporters from the get-go as irrational — motivated by “faith” rather than reason — but only succeeds in demonstrating how irrationally biased he is.
The ominous tone continues, comparing Wal-Mart to the much demonized Standard Oil of J. D. Rockefeller and lamenting the fact that manufacturers once held the power but now retailers are more influential. While there are many things that could be dissected from this, I’ll just make two important points: 1) They are proving that a free market is fluid. Things change and no one holds on to “power” forever in a capitalistic society because it is not “power” so much as it is success that gives particular companies or segments of the economy more influence at any given moment. 2) Success is only possible by providing things that consumers want to purchase. The ultimate power in a free society — a society with options — lays with the people who make the final choices. But that is clearly not how Frontline wants to frame the subject, which is somewhat ironic (since they are trying to ram a view of reality down the throats of their audience to “prove” that Wal-Mart is too powerful to ram things down the throats of others).
After explaining how Wal-Mart revolutionized inventory systems through the use of computers, Mr. Smith tells us that many manufactures have moved in next to Wal-Mart headquarters in Arkansas, and this is somehow a bad thing. Wal-Mart is depicted as a mean entity that only does what is good for Wal-Mart. They “herd” manufacturers into meetings where they demand products at the prices they expect and you either meet that or you do not sell to Wal-Mart. No comparison is made, despite the fact that it would be valid to do so, between Wal-Mart and the average consumer. Consumers walk into Wal-Mart and say, “This is what I want and this is what I will pay for it,” all the time. Wal-Mart can meet that demand or lose that business, period. Why is this not depicted as a sinister thing? Making these manufactures into poor victims of the market place (because the left-wing view always needs poor victims of freedom to exploit!) is no better than making buggy manufactures into poor victims of the automobile industry; it is the Luddite mentality in slightly new packaging.
As a case study in Wal-Mart’s allegedly destructive power, the Frontline reporter travels to Wooster, Ohio, the hometown of Rubbermaid. The story presented here is one of tragic proportions (well, not really, but they try their best to make it feel that way). Once upon a time, Rubbermaid sold to thousands of retailers but then they began to focus on the growing mass distribution outfits, Wal-Mart in particular. The impression created here is that Rubbermaid was getting into bed with the Devil, when in fact they were simply responding to the changing landscape being driven by consumer demands. Had they not gone after big accounts like Wal-Mart they surely would have suffered greater and/or faster losses. For a time business boomed and Rubbermaid was considered a great company, “but,” the narration admits without explanation, “behind the headlines, Rubbermaid was struggling to maintain its ambitious sales targets. Then suddenly it found itself in a showdown with its biggest customer.” Why was it struggling? This is not completely explained. Instead, the story concentrates on the fact that the price of resin went up, which made the cost of manufacturing rubber goods rise. Why did resin go up and what might Rubbermaid have done to alleviate the situation? Such question are not even asked, let alone answered. The focus here is on Wal-Mart’s refusal to accept Rubbermaid’s higher prices. The case is carefully presented to make it seem as if Wal-Mart was completely unreasonable. One former Rubbermaid executive even calls Wal-Mart’s actions, “vindictive.” This too is not explained or questioned in any way. How is it “vindictive ” to refuse to buy the same goods at a higher price? Isn’t this the kind of choice that consumers make every day? Is a shopper “vindictive” when s/he decides against a particular product because the price has gone up? Rubbermaid was in business to make a profit, just like Wal-Mart. The flipside of such rewards are the potential for failure. So the price of resin went up, so what? Wal-Mart does not exist to keep Rubbermaid in operation. If they felt their shelf space could be better utilized by other items that was their call to make. They were also taking a risk, which the show ignores completely, that consumers might miss Rubbermaid products and take that out on Wal-Mart. There were no guaranties here for anyone; that is one of the reasons why they call it a free market. Once again the narrator alludes to the fact that there is more to the story by saying, “Wal-Mart’s pullback was a body blow to Rubbermaid. Coupled with lax management at Rubbermaid, it plugged the company into deep trouble. In 1999, Rubbermaid sold out to Newell, a major competitor.” What exactly is “lax management?” Lax in what way(s)? How much did this, rather than any decisions by Wal-Mart create the downfall of the company? What did Newell do so successfully, under presumably the same circumstance (i.e. the rise in the cost of resin) that made them able to survive and buy out the competition? There is SO much here that is not being explained because it would detract from the emotional argument against Wal-Mart and actually inform people about the complex nature of economics.
After this very slanted presentation of events, we are shown the final humiliation, “Rubbermaid auctioning off its birthright.” Yes, that is how the Mr. Smith actually described the scene at the Rubbermaid factory. Such anthropomorphizing is nonsensical. Rubbermaid is not a being; it is a concept. It was not born and holds no “birthright” or any rights. The company failed — which is actually to say that individuals running the company failed — and now their equipment is no longer of value to the operation. So why shouldn’t it go to someone else’s company that is still in business and employing people? And just who is doing the buying of this equipment? When the reporter asks this of the auctioneer, the auctioneer says that their were guys here from all the fifty states and many other countries, which he beings to list. The reports says nothing until China is mentioned and then focus on that name only. “So Rubbermaid’s original plant was closing shop and countries like China were picking up the pieces.” As if this China-baiting were not bad enough, the reporter proceeds to offer an enlightened sounding assessment of the situation: “It seemed to me that it wasn’t just a plant dying; a set of corporate values was passing away. Ten years ago, Rubbermaid, with its reputation for quality, was named most admired. Last year, Wal-Mart, with its reputation for cost cutting, was most admired.” (By “most admired” the reporter is specifically referencing Forbes magazine, which gave Rubbermaid that label ten years before Wal-Mart — the covers of both issues are shown as the narration plays out). Never mind that maximizing efficacy and providing low cost good that people want is a sign of quality; never mind that poor management and running your company into the ground is the antithesis of admirable; what matters here is how the analysis sounds in the vacuum of imagination, freed from reality.
In an effort to give his point the veneer of validity, Mr. Smith talks to a Professor from Duke University, Gary Gereffi (whose specialty is not named but I looked him up and he is in the Sociology Department). Professor Gereffi says, “Rubbermaid represented an innovation orientated highroad toward U.S. competitiveness. I think Wal-Mart represents a cost driven, low price, low road toward U.S. competitiveness. And in a since they’re two dramatically different styles in which the U.S. economy can be organized. I think the Wal-Mart model is winning out.” Can you guess from that whether or not he believes this to be a good thing for America? Bear in mind that this flies in the face of the earlier discussion, in which Wal-Mart’s innovated use of information technology lead to its success. Now suddenly their ability to drive down costs and provide the things people want to buy is a, “low road.” There is no logical connection between “low price” and “low road,” or at least no rational argument offered here to justify this statement. Nor is poor management and corporate collapse a, “high road,” but, once again, it sounds good if you really don’t think about it.
The next charge leveled against Wal-Mart is over its, “opening price points.” These are the cheapest items in each section of the store, which are featured prominently with large signs advertising just how low the prices are. Mr. Smith pretends to be shocked that Wal-Mart using these opening price points as a means of attracting customers to a given section because, according to a former store manager, the rest of the items in that section may not be lowest possible price in town. The former store manager repeatedly says that once you walk past an opening price point, “they got ya,” because you have formed the perception that all their prices are low. Putting aside the fact that this analysis is very insulting to the average consumer (treating them as mindless dolts who have no ability to assess value or do any comparative shopping) how is this any different from advertising in general? What store owner would be stupid enough to feature their most expensive items as their key selling points? Why do you think Best Buy sells CDs and other items at near cost? Because they don’t want to make a profit? No. Because they want to keep you coming back to their store and thinking they have low prices, so when you are ready to buy a new TV, Computer, refrigerator, etc., you will think of Best Buy. But this concept extends beyond retailers. For Mr. Smith to pretend like Wal-Mart is engaging in an abhorrent practice is kind of like the Capt. Renault character in Casablanca (1942) claiming that he is “shocked” to find gambling going on in this establishment, as he is being handed his winnings. The title of Mr. Smith’s piece, “Is Wal-Mart good for America?” serves a similar function to an, “opening price point.” It hooks people’s interest by pretending that this will be an objective analysis of the question at hand, when in actuality the question is never being asked because the answer has been presupposed to be definitively, “NO!” Calling the documentary, “Wal-Mart is bad for America,” or, “Wal-Mart Sucks” (which is the level of argument at several points) would not create the illusion of fairness that helps bring a phony sense of credibility to the predetermined conclusion of the piece but it would be a far more honest way of advertising the show.
After this, there is more complaining about China and the pressure that manufacturers feel to move overseas if they want to sell to Wal-Mart. The viewer is given the impression that its not fair, kind, just, or otherwise right for Wal-Mart to make higher profit margins off foreign made goods than American made goods. This is the envy card and it is played with a heavy hand. The viewer is also given the impression that American’s were conned into opening up trade with China and since their average consumer cannot afford U.S. made goods, we only stand to loss from the deal. Despite the fact that they show some of the major changes and improvements taking place in China thanks to this influx of new jobs, the viewer is given the impression that Chinese workers are severely underpaid. One factory they visit pays workers about $100 a month and this is higher than other ones they could have gone to. But this ignores the fact that money does not have a fixed value. A medium of exchange is like a means of communication, it changes from place to place and over time. Words do not always mean the same things (e.g. gay isn’t gay anymore) and $1 here is not the same as $1 there. To simply say $100 and give no sense of how much purchasing power that amounts to is very skewed.
The documentary goes on like this, promoting fears that China might “dominate” the U.S., which is just pathetic. Chinese Communism, like all forms of collectivism, is a failure and that is why they have been forced die a Soviet-style death, starve like North Korea or Westernize (i.e. move toward a free market based on private property). To think that they will ever overtake the U.S. and “dominate” us is a very childish take on reality. That is like arguing that the “destruction” of the family farm — there was a time when more than 90% of Americans farmed — has meant the destruction of the American economy. In fact, it is just the opposite. Every time you make goods and services cheaper you open up new opportunities for economic activity and growth. At worst, the Chinese will remain in a part-free, part-slave state of development, which will never surpass the prosperity of a free society like ours (unless, against all reason and human history you do not believe in freedom) or, at best, the Chinese will finally throw out the Communists and really embrace a free market mindset, which will vastly improve the standard of living on both sides of the Pacific.
As further evidence of the mind-numbing bias in this report, consider the way they use Larry Mishel, President of the Economic Policy Institute, and Brink Lindsey, an economist with the Cato Institute. Mr. Mishel gives the figure of a million jobs lost to China, which Mr. Lindsey counters by explaining that some jobs are lost as other jobs are created. Every time the consumer saves money buying cheap Chinese good, s/he is then able to spend more money on other things and create other jobs here. The net result is “a wash” in total U.S. jobs but an increase in overall economic activity. Then we are taken back to Mr. Mishel who says, “Theoretically, the gains from trade offset the losses from trade, but nothing says that there are more winners than losers. And nothing says that for the bottom three-fourths of America, that they are net gainers. In fact, I believe that most people have been losers from trade.” He, “believes it,” and that prove the case how? Mr. Mishel is not only given the first and last word here, he is also allowed to speak unencumbered by cutaways to the reporter. Mr. Lindsey on the other hand has his comments visually interrupted by a shot of Mr. Smith looking at Lindsey like he is a liar or an idiot. The fact is, there is plenty of evidence for the benefits of trade. Not only do we have human history to draw upon, with a vast increase in living standards that correlates to an incline in global trade, we also have logic.
Mr. Mishel really should have read Frederic Bastiat’s short book, The Law, by now if he wants to speak with intelligence about theoretical (and actual) economic gains. The most famous part of Bastiat’s text is the fallacy of the broken window, in which he asks the read to imagine a baker’s shop window being destroyed by a malicious boy with a rock. In an effort to console the baker, his friend tell him that he can take comfort in the fact that he is helping the economy by buying a new window. This is, as you might suspect, wrong. You cannot have a net gain from a loss. The money spent on a new window is money not spent on other goods and services the baker could have purchased or wages he could have raised for his employees. Similarly, to needlessly pay Americans more money for the same product that a Chinese worker will make for less is like paying people to break windows and then fix them. You are not improving the overall economy by paying more for the same item, just as you are not improving the economy by repurchasing an item you already had (i.e. in this case, the window). Furthermore, the idea that only the rich (or the top one-fourth) are benefiting from trade also ridiculous. Besides the low prices consumers receive, what do you think the Wal-Mart shareholders do with their profits from cheap Chinese goods, eat it?
To seal the deal on this fearful vision of economic freedom, we are shown some small town middle Americans who have lost their jobs to the Chinese (specifically in the TV manufacturing industry). This situation is further inflamed by allegation that the Chinese have been “dumping” goods on the U.S. market — selling them below cost, thus shooting themselves in the foot to give us better prices — and Wal-Mart supported the Chinese in the insuring legal battle. All of this, it is alleged, has lead to unemployment among young people who once worked in small town factories. Mr. Smith asks in a very concerned voice, “What are those kids going to do?” How about, go to college? Start a business? Move to another area? You may think such answers “heartless” but the cradle to grave “security” mentality is the truly heartless position because it does not work. The Chinese learned this, to a degree, and that is why they abandoned some of their State planning for private planning. To think that we will be more successful by abandoning freedom for protectionism (the first step in State planning) is farcical. What are we going to do, force plants not to close and guarantee everyone a job? When in human history has that worked?
Mr. Smith then points out that the Americans who have lost their jobs to foreign competitors, will be taking a big pay cut if they go to work for Wal-Mart. This is a slick argument, one of those ones that sounds good, but like all slick arguments it is very misleading. The fact is, the economy is growing. Home ownership is a at an all time high, life expectancy and other indicators of high living standars continue to go up. Furthermore, Wal-Mart is not the only employment option in the U.S., nor are the people in a small town that has recently last a large plant the most representative sampling of how the average American is doing.
To make maters worse, we are then taken to (American History) Professor Nelson Lichtenstein of UC Santa Barbara, who talks about the Austrian (a.k.a. free market) idea of “creative destruction” in a very abbreviated way. The impression left to a viewer who has never heard the phrase before is that “creative destruction” is only “creative” in the manner in which it destroys. The idea that economic “destruction” of outmoded means of production and distribution also creates new opportunities and a rich economy for everyone is not made clear (though it may have been in the part of Professor Lichtenstein’s answer left on the cutting room floor for all I know).
The piece finishes Mr. Smith finally asking the question, “Is Wal-Mart good for America?” Mr. Lindsey from Cato goes first, saying that it is good, because it provides low cost items that people want. Then comes Mr. Mishel from the Economic Policy Institute, who says that people are not just consumers, they are workers who need jobs (as if there are only a fix number of jobs in the world). A Wal-Mart VP then follows, who naturally says that his company is good, once again because of the low prices. The VP acknowledges that some people think this benefit comes with overall negative effects but says such thinking, “is a premise that I simply reject.” Why he simply rejects this — I’m sure he gave some reasoning and facts to back up his answer — we do not hear, so we are left with the impression that he is simply close minded and oblivious to the alleged suffering of others. Now the voice of Mr. Smith returns, “In the end, is Wal-Mart good for America?” with Lewis Armstrong singing “What a wonderful world” and more shots of the Wal-Mart shareholder’s meeting in the background. The last word is given to one of the disgruntled ex-factory employees whose TV production plant shut down. As he puts it, “If you want these low prices then you go buy your products from Wal-Mart, but what does that actually do for this country? It’s puttin people out of work, that’s what it’s doin. And that’s lowering our standard of living. That’s the bottom line.” While emotionally very effective, where are the facts? My standard of living has not gone down, nor has the average Americans. And how could the economy be expected to improve by forcing people to pay more for their goods and services? That is like believing that raising taxes will improve the economy. It is nonsensical. There is no reason to close with such an ill-informed point of view. Other than pulling at the viewer’s heartstrings and xenophobic hatreds, this conclusion only serves to irrefutably prove how shallow Frontline has become.
From start to finish, Mr. Smith had a clear agenda that is time-test and patently false. But it sounds good and that is all that really seems to matter in the world of leftist commentaries on reality.
 The name of this organization is rather deceptive. It is an anti-free trade outfit that operates under the guise of promoting American business and a healthy U.S. economy. As the title of Mr. Tonelson’s latest book makes clear, The Race to the Bottom: Why A Global Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards, his view of reality is a very pessimistic and unrealistic one.
 The Luddites were a group of workers in 1811 who rose up violently against the textile industry, which was replacing skilled craftsman with mass production machines. They have come to symbolize the zero-sum-gain mindset that sees all improvements in production and lowering of costs as a net loss for “society” (materially and spiritually). While the style and manner of Luddite arguments has changed — they are now often masked by intellectual sounding rationalizations and questions about the greater good of the environment — the real substance and fallacy of the case remains the same.
The success of retailing giant Wal-Mart is a problem for both its competitors and labor unions. But they’re taking quite different approaches to solving their Wal-Mart dilemma.
A recent survey of 10,000 retail participants attending the Food Marketing Institute Conference identified Wal-Mart as a “primary market challenge,” with more than 40% of respondents indicating the mega-retailer is going to be a formidable opponent of their businesses during the next decade.
Wal-Mart’s competitors, however, identified refreshingly upbeat strategies for handling this challenge, including trying to penetrate new markets, lowering operating costs, investing in new technology, and improving customer service.
Such good old-fashioned competition is, of course, a core value in the American system of free enterprise.
Labor unions, too, face stiff competition from Wal-Mart as the company vigorously opposes unionization of its 1.4 million worldwide employees. In the fight for the employees’ hearts and minds, Wal-Mart typically wins. In February, for example, workers at a small Wal-Mart store voted 17-1 against organizing under the United Food and Commercial Workers Union (UFCW), rejecting efforts to establish what would have only been the second union inside any American Wal-Mart location.
Though labor unions haven’t given up their efforts to unionize Wal-Mart employees, they seem to have stopped trying to win workers’ hearts and minds in favor of employing high-pressure tactics against management.
Last Thursday, the UFCW staged a “Love mom, not Wal-Mart” protest at an Ohio store. The purpose was to discourage customers from buying Mother’s Day gifts and cards at Wal-Mart.
The protest is part of a larger campaign conducted on Web sites and in newspaper ads demanding that Wal-Mart boost wages – although it’s not immediately clear how harming Wal-Mart’s sales and already marginal profitability would serve to raise anyone’s salary.
Trial lawyers are also at work. Wal-Mart is currently the subject of a class action lawsuit alleging that female employees receive lower pay and benefits as compared to male workers.
Union-made politicians are at work, too. Rep. George Miller, a Democrat of California, released a report in 2004 titled “Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart,” alleging the company’s success has meant “downward pressures on wages and benefits, rampant violations of basic workers’ rights and threats to the standard of living in communities across the country.” About two-thirds of Miller’s campaign contributions come from unions.
Rep. Rosa DeLauro, a Democrat of Connecticut, half of whose campaign contributions come from organized labor, recently urged Americans to boycott Wal-Mart for Mother’s Day, and she wants the company to disclose its wage statistics for congressional review.
Activist shareholders are also pressuring Wal-Mart’s management.
The Amalgamated Bank Longview Collective Investment Fund – managed by the Amalgamated Bank, whose mission statement reads, in part, “to serve as a strong financial ally to unions” – has for the second straight year offered a shareholder resolution urging Wal-Mart’s board to adopt a policy whereby two-thirds of the company’s directors would be “independent.”
Although Wal-Mart’s current policy meets the requirements of Sarbanes-Oxley, Securities and Exchange Commission rules, and New York Stock Exchange listing standards, the Amalgamated Bank wants Wal-Mart to adopt the definition of “independent director” recommended by the Council on Institutional Investors (CII), a pension fund trade group.
The CII takes the rigid view that an “independent director” should have absolutely no ties to a company other than the directorship. Four of Wal-Mart’s 13 directors are current or former Wal-Mart executives, and a fifth is the brother of the chairman. Wal-Mart rightly responds that 71% of its directors (10 of 14) are independent under NYSE listing standards.
And what orchestrated attack by labor would be complete without participation by sympathetic media? The Public Broadcasting System television show “Frontline” recently aired a program hauntingly titled, “Wal-Mart: Is It Good for America?” The show subtly suggested that the answer is “no.”
So far, Wal-Mart is holding its own against unions and their array of proxies. The company believes it has come by its success fairly and doesn’t plan to cave in to bullying.
My only concern is that the company’s retail competitors may tire of straightforward competition and – as Microsoft’s competitors did when they sought to “compete” through the Department of Justice’s Antitrust Division – throw in their lot with the anti-business Dark Side.