September 13, 2004
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WAL-MART THE GLOBAL GIANT
August 20, 2004
Paul Solman examines Wal-Mart's distribution system and its productivity. Current employees explain how Wal-Mart operates, while some former associates share their discontent with the United States' largest private employer.
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Posted on Sun, Sep. 12, 2004
Wal-Mart's bargain with America
California legislators have just written a new chapter in the long debate over how to fit one particular giant corporation into America's economic and political life. A bill they sent Gov. Arnold Schwarzenegger would require any retailer to pay for an ``economic impact'' report each time it wanted to build a new ``superstore'' in California. But one company above all others is the target: Wal-Mart.
Whether the measure becomes law or not, Wal-Mart's ambitious California expansion plans virtually guarantee that cities and towns statewide will find themselves grappling with the same question underlying the bill: How will Wal-Mart alter life in our community?
It is no exaggeration to say that this single company -- indeed the world's largest -- has a huge impact on how we live and work, so much so that even the presidential candidates have debated whether the arrival of a Wal-Mart helps or hurts.
The $256 billion retailer, with more than 3,000 discount stores and grocery-selling supercenters in the United States, sets the standards for much of American business -- determining how much workers are paid, how goods are priced and where they are made, and how neighborhoods take shape.
Wal-Mart employs more people in the United States -- 1.2 million -- than any other institution except the federal government, and with that kind of reach, it essentially sets the starting wage for millions of other workers nationwide. Its famous squeeze on supplier firms pushes companies like Procter & Gamble to manufacture more of their products in Mexico, China and other low-wage nations. Its low prices enable shoppers to buy more goods but can contribute to the bankruptcy of both Main Street shops and nationwide chains, like toy retailer FAO Inc. and Kmart. And the presence of a big-box store can essentially rezone a large chunk of the urban landscape.
The Arkansas-based giant itself understands its ability to ``legislate'' social policy for the nation's workers and their families, which is why it is spending millions of dollars on TV advertisements that tout, not its ``always low prices,'' but the community revitalization, happy workers, and philanthropic good works it believes come when it opens another store.
Corporate influence
The scope of Wal-Mart's corporate influence is not unique, however. In each historical epoch a template enterprise sets the standard for a new phase of capitalist transformation. These pace-setting businesses are emulated because they have perfected for their era the most efficient and profitable relationship between the technology of production, the organization of work and the new shape of the market.
Thus, at the end of the 19th century, the Pennsylvania Railroad declared itself ``the standard of the world.'' In the mid-20th century General Motors symbolized sophisticated, bureaucratic management and technologically proficient mass production. And in more recent years, Microsoft has seemed the template for an information economy that has transformed the diffusion and production of knowledge around the globe.
Indeed, Wal-Mart perfectly embodies the process of ``creative destruction,'' identified by economist Joseph Schumpeter as the engine by which one mode of capitalist production and distribution is replaced by another. And as Schumpeter made clear 60 years ago, every technological and organizational innovation also casts a social and political shadow across all of society.
To understand how Wal-Mart is reshaping the American workplace, it's useful to look back at the last time a corporate leader had so much economic and social clout, though with a vastly different impact.
GM legacy
Fifty years ago, General Motors was the largest and most profitable American corporation, with a management culture that everybody, from IBM to the U.S. Army, was trying to copy. In 1953, when President Dwight Eisenhower appointed GM President Charles E. Wilson to his Cabinet, the executive appeared before Congress to assert that what was ``good for the country was good for General Motors, and vice versa.'' Congress eventually confirmed Wilson as secretary of defense, but his quip generated a howl of outrage that has not quite lost its voltage even after half a century.
Wilson's declaration might have been arrogant, but it was controversial precisely because there actually was a plausible case for making it. In its heyday, from the late 1920s into the 1970s, General Motors employed hundreds of thousands of workers in the country's most important industry. And it was the largest manufacturer not just of cars, but of heavy trucks, locomotives, refrigerators and military equipment. The GM Acceptance Corp. was by far the largest U.S. retail credit institution.
Neither General Motors nor Wal-Mart invented the technology or organizational innovations that were key to their success. Ford was more creative in the early 20th century, and Chrysler pioneered many engineering breakthroughs. Likewise, Sam Walton acknowledged his debt to many retail innovators. The Walton brothers took the idea of self-service from the Ben Franklin chain, employee stock ownership from J.C. Penney, bulk discounts from Price Club (now Costco), and the supercenter from France's Carrefour markets.
But Wal-Mart, like GM, perfected, integrated and systematized technological and marketing ideas put in play by competitors. And in doing so, they both made it virtually impossible for any competitor to survive without emulating their business model.
Indeed, GM at midcentury and Wal-Mart today are so large that their success has had an economywide impact. GM alone may well have been responsible for more than a fifth of the astonishing yearly productivity gains enjoyed by U.S. manufacturing in the post-World War II decades. And in the second half of the 1990s, reports McKinsey Global Institute, Wal-Mart's rapid growth, along with the spread of its labor practices and technological innovations to other chains, contributed handily to the surprising productivity jump in the huge retailing sector. These productivity gains dampened inflationary pressures even during years when the job market boomed.
The key issue is who will reap the benefits of the productivity surge. Will they flow disproportionately to share owners, top management, customers or workers? GM, for its part, was a hard-nosed corporation that sought to ensure a 20 percent return on shareholder investment, but after it recognized the United Automobile Workers in 1937, frequent strikes and pressure from workers forced it to share more of its productivity ``dividend.''
GM and UAW
Right after World War II, the UAW actually struck on behalf of the low-price policy that Wal-Mart would make famous 35 years later: Labor wanted GM to freeze car prices, but still raise wages, so as to share with the public the cost savings made possible by the World War II investment surge. GM battled the UAW and successfully sidelined this idea.
But it knew that high wages and benefits were essential to industrial peace, so in landmark collective bargaining in 1948 and 1950, GM guaranteed an annual increase in the real income of its 300,000 blue-collar workers regardless of inflation, recession, or corporate profits. Thus, between 1947 and 1973 the real income of autoworkers doubled, and because GM was the template firm, the auto-industry wage pattern was quickly adopted by a large slice of big manufacturing firms, unionized or not.
For the only time in the 20th century, the real income of those in the bottom half of the income distribution rose as fast as those in the top 10 percent.
Wal-Mart is having an equally potent, if altogether different, impact on wages and benefits. Its enormous market power has the effect of pushing wages downward. For one thing, because the minimum wage ($5.15 nationally, $6.75 in California) has declined more than 20 percent in real terms since 1980, Wal-Mart -- which outsiders estimate typically pays about $8 an hour to the hundreds of thousands of entry-level workers it hires each year -- essentially sets the actual starting wage for millions of other workers throughout the nation.
And because of its relatively low starting pay, small promotion increments and high turnover, Wal-Mart's hourly wages are lower than the U.S. retail average. (In California, the UC-Berkeley Institute of Industrial Relations says, Wal-Mart's hourly workers earn at least $3.79 less than unionized retail workers and about $3 less than the average for non-managerial workers at all large retailers.)
Moreover, in 2002 Wal-Mart's spending on health benefits for the half-million U.S. employees who were covered averaged about $3,500 per employee, vs. $4,800 for the wholesale/retail sector and $5,600 for U.S. employers overall, according to Mercer Human Resources Consulting.
Those pay and benefit gaps mean that other retailers feel pressure to reduce their own labor costs so that they can meet Wal-Mart's low prices. In the Bay Area, non-managerial Wal-Mart employees earn on average $11.08 an hour, the company says, which is 26 percent below the roughly $15-an-hour average for unionized grocery workers. And Wal-Mart workers are half as likely to participate in company-sponsored health benefit plans.
Grocery contract talks
So it is not surprising that Wal-Mart's shadow hangs over the Bay Area grocery contract talks now under way. Wal-Mart wants to open 40 grocery-selling supercenters in California during the next few years, including in Gilroy and Antioch. In Southern California, where the retailer recently opened its first supercenter in the state, the impending competition -- and thus the old-line grocers' determination to cut costs -- was largely responsible for the bitter strike and lockout that put 59,000 grocery clerks on the picket line late last year. In the end, the clerks agreed to lower benefits for new hires.
Even beyond wages and benefits, Wal-Mart is remaking the workplace. At GM, workers were often lifers, and factory turnover was exceedingly low. Union seniority rights protected workers from arbitrary firings or demotions. At Wal-Mart, average store turnover is 46 percent a year.
The roar that greeted Wilson's claim that what was good for GM was good for America put real constraints on his company, and now, Wal-Mart, too, is being buffeted by the political process.
GM could have pushed Chrysler and Ford to the wall had it chosen to aggressively expand its market share beyond its typical 45 to 47 percent. But it feared federal antitrust action and instead maintained a price umbrella under which smaller competitors might shelter and workers could win higher pay.
Wal-Mart's competitive strategy has been just the opposite, generating howls from unions, small businesses and communities that see the rock-bottom prices as a threat to Main Street.
Low prices are a good thing: They put real money into the pockets of consumers. But American industrial prosperity, and the standard of living that pulled tens of millions into the middle class, was also grounded in high wages and secure jobs. Measures like the one before Schwarzenegger -- and a similar one adopted by Los Angeles -- put the Wal-Mart business template under intense public scrutiny, where it belongs.
NELSON LICHTENSTEIN (nelson@history.ucsb.edu) teaches history at the University of California-Santa Barbara, where he directs the Center for the Study of Work, Labor and Democracy. He wrote this article for Perspective.
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