WAL-MART: ROUND 2....

WAL-MART: ROUND 2. Sebastian Mallaby's obtuse column about anti-Wal-Mart sentiment among Democrats offers me an opportunity to expand on some comments I made last week. Then, referring to a Jonah Goldberg column on the same subject, I said that "how to handle Wal-Mart is among the two or three most important issues facing the country." A lot of folks ceased reading right there and began accusing me of not taking "Islamofascism" and health care seriously enough. Yes, if only I paid more attention to health care.

Here's the point: It's not about Wal-Mart. Many on the left and the right make to believe this is primarily about how much H. Lee Scott pays his cashiers. It isn't. Rather, Wal-Mart is setting the norms and standards for the coming service economy. Where GM and Ford played this role for the manufacturing sector -- and the unions forced them to use their power to create the American middle-class -- Wal-Mart is assuming primacy as manufacturing's successor, and doing so without the union involvement or commitment to high wages that their predecessors exhibited.

That's a serious concern, and it reaches into every corner of the economy. Take health care. Wal-Mart's paltry offerings -- far beneath what Costco or Target (we'll come back to them) have traditionally offered -- give them a massive competitive advantage against the competition. So let's say you're a midsize retailer with national ambitions. You essentially can't offer a decent benefits package because Wal-Mart doesn't, and you can't allow their prices to remain substantially below yours (where they already rest, thanks to Wal-Mart's economy of scale). Target is a great example here: They used to offer terrific benefits, but have now resolved to move entirely to HSAs. They couldn't compete against Wal-Mart by offering comprehensive insurance, so they stopped.

Or take the supermarket chains. A couple of years back, Southern California saw a massive grocery strike, as the three major chains colluded to destroy benefits and lower wages in order to compete with Wal-Mart's low labor costs. The striker's lost since the supermarkets were too afraid of Wal-Mart's advantage to give in.

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

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

--Ezra Klein

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