Two-hundred new Supercenters, a quarter of a trillion dollars in sales, climbing stock prices: That's the news that will be delivered today at Wal-Mart's annual shareholders meeting in Fayetteville, Arkansas. How far will Wal-Mart go? James Hoopes, a professor of history and business ethics at Babson College, and Harold Meyerson, the Prospect's editor-at-large, discuss whether or not Wal-Mart is a positive force in America.
James Hoopes: To argue that Wal-Mart is good for the economy is not to argue that it is good for a democratic society. But even if as a society we end up having to throw out some of the Wal-Mart bathwater, we should try to save as much of the economic baby as possible.
By lowering prices, Wal-Mart raises the standard of living, especially for the working-class and lower-middle-class Americans who shop there. A McKinsey Global Institute study in 2002 showed that 25 percent of the gains in productivity in the U.S. economy from 1995 to 1999 were due to Wal-Mart, a higher percentage than came from the high-tech industry.
Wal-Mart is a pioneer in integrating technology into our economic organizations. Its satellite and computer network link the company's managers in a dense web of information that lowers costs and raises productivity. For example, "cross docking" -- by which goods never actually enter a distribution center, instead arriving at the dock and moving across to another truck for shipment to an individual store -- depends on Wal-Mart's skill at using technology.
Some blame the outsourcing phenomenon on the pressure Wal-Mart puts on its suppliers' profit margins, but the replacement of American jobs with cheap overseas labor is by no means limited to companies that do business with Wal-Mart. And Wal-Mart is undeniably good for its suppliers in many respects, including dissemination among them of the newest technological practices and better management techniques. By imposing efficiency and focus in other parts of the corporate economy, Wal-Mart helps raise America's competitive position in the global economy.
Wal-Mart's employment practices are increasingly reviled, yet some of its lesser-known policies should be imitated by other corporations. By paying its managers 30 percent to 40 percent less than its competitors, Wal-Mart, unlike many other companies, does not impose bloated managerial costs on the rest of us and thereby raises our standard of living. Wal-Mart promotes from within more than most companies, and it has a far lower percentage of college graduates among its managers. At Wal-Mart, ability and performance, rather than education (which is increasingly a special privilege in America), are the tickets to a management job. More than much of the rest of corporate America, Wal-Mart practices the democratic tradition of the meritocratic career track.
The positives described above may not provide much comfort to minimum-wage employees, most of whom will not enter management. A democracy should not allow itself to become a two-tier society of the highly paid and the working poor, an issue we will probably have to address in the political arena. But when we do, we would be smart to preserve the qualities of Wal-Mart that make it good for the economy.
Harold Meyerson: What's the difference between an America in which General Motors is the largest private-sector employer, as it was for much of the 20th century, and an America in which Wal-Mart is the No. 1 private-sector employer, as it is today?
This question cuts to the core of the debate over whether Wal-Mart is good for the economy. Among the arguments made by Wal-Mart and its defenders is the valid claim that consumers shopping at Wal-Mart are able to purchase goods for the lowest price around.
But does Wal-Mart produce good consumers? Absolutely not. General Motors employees are able to shop at Wal-Mart as well as at GM dealerships; they can afford Wal-Mart's discounts and new cars, too. Wal-Mart employees, by contrast, cannot afford new cars, nor many other products available to a workforce better paid than Wal-Mart's, where the average hourly wage is roughly $9. To work at Wal-Mart, or in an area where Wal-Mart wages have dragged down working-class incomes, is to be a bit of a captive Wal-Mart consumer. If you work there, you shop there -- and you forgo shopping at a broader range of retail outlets you cannot afford.
James Hoopes argues that by lowering prices, Wal-Mart raises the standard of living for the working-class Americans who shop there. Within the exquisitely narrow confines that Hoopes lays out, this statement is unarguably true. But Wal-Mart doesn't simply lower prices. It lowers wages and benefit levels, not only among its own employees but also across working-class America. A recent study of the medically uninsured -- using the public hospitals in Las Vegas -- concluded that far more were employed by Wal-Mart than by any other employer, meaning their medical bills were substantially picked up by taxpayers.
The recent southern California supermarket strike and lockout provides a vivid example of the ripple effect that Wal-Mart can have on working-class incomes and lives. After a long and bitter battle, the 70,000 workers at three unionized supermarket chains were compelled to accept contracts under which new hires will receive lower wages and pay higher medical costs than veteran workers.
The McKinsey study crediting Wal-Mart with a major role in the productivity gains of the 1990s is doubtless correct. But who reaped those gains? In unionized companies, productivity gains are shared with the workforce, creating greater aggregate purchasing power. In a company like Wal-Mart, which fiercely resists all efforts of its employees to unionize, the gains do not go to workers. Instead, they go to shareholders, and they are plowed back into operations that create more Wal-Marts and more economically marginal Americans.
The genius of Wal-Mart is that it creates a self-perpetuating system, a republic of low-wage workers compelled to discount shop at Wal-Marts. It is Fordism stood on its head, and a danger to a nation that once created the first majority middle class in human history.
Hoopes: As I said at the outset of this discussion, what is good for the economy is not necessarily good for a democratic society. So I agree with Harold Meyerson that it would be far better for America if Wal-Mart resembled General Motors in paying its employees union scale and good benefits, including health insurance. If Wal-Mart does not find a way to make itself better for America, I hope that its employees will -- and they are likely to need the help of the rest of us. But it is important that while we are making Wal-Mart better for the country, we don't destroy what makes it good for the economy.
Meyerson's arguments would have applied with equal force and accuracy -- that is, a lot of force but not enough accuracy -- to General Motors 80 years ago when it, like Wal-Mart today, was our economy's most dynamic company. GM then, like Wal-Mart now, raised the standard of living for many by methods both good and bad, by pioneering efficient new management techniques and by squeezing economies out of its non-unionized workforce. Not until the late 1930s, thanks to New Deal labor legislation, did employees find the strength to unionize the company. Only then was GM's economic prowess channeled to create the great middle class of the post-World War II era that Meyerson rightly values so highly. It may be that some similarly large-scale political and social change will have to play itself out for Wal-Mart to fully benefit America.
To have said in the 1920s that General Motors was bad for America would have been as simplistic as the widely repeated misquote of "Engine" Charlie Wilson, a CEO of GM, that "what's good for GM is good for America." It's equally simplistic to say that Wal-Mart is bad for America today without recognizing the economic advantages we get from the discount retailer's use of technology -- a different thing, obviously, than sweating its employees -- to help make our distribution system the most efficient in the world. As with GM years ago, we need now to recognize and preserve the economic efficiencies that Wal-Mart has created while enabling employees to share in more of the benefit of those efficiencies.
The real danger to America today is not Wal-Mart, which is acting the way big companies, including GM, often have. The real danger is the corporate and managerial values that increasingly challenge democratic values in our culture and our politics (and these days, in the White House, what with our first MBA-CEO president). But even with the current tendency to let successful businesses determine their own rules, Wal-Mart is no more necessarily "a self-perpetuating system" than was GM in the 1920s. As long as we remain a democracy, we can enjoy the benefits of economic progress while working to repair the social damage that often accompanies it. But to underestimate the importance of the economic benefits we get from a company like Wal-Mart is in its own way a challenge to the values of most Americans and a threat to democracy.
Meyerson: James Hoopes and I agree substantially on the public-policy changes that the United States needs to ensure that mega-institutions such as Wal-Mart don't drag the nation down. We also agree that before the nascent Committee of Industrial Organization (the second half of today's AFL-CIO) organized companies such as General Motors soon after the passage of the Wagner Act of 1935, GM was in many ways the Wal-Mart of its day.
Still, if only as a point of economic history, there was a substantial difference between the major auto employers -- even in their pre-UAW (International Union, United Automobile, Aerospace and Agricultural Implement Workers of America) phase -- and Wal-Mart today. The difference begins, ironically, with a similarity: Henry Ford and GM's Alfred P. Sloane then, just like Sam Walton and his successors today, wanted their employees to be able to buy the products their companies sold. (Sloane anticipated that his workers would buy Chevys, of course, not Cadillacs.) But in order to enable their workers to buy their product, Ford and Sloane had to set pay standards for assembly-line labor that were higher than those paid anywhere else for comparable work. Detroit in the '20s saw a boom in the construction of single-family homes; more manufacturing workers could afford to buy homes in the heart of the auto industry than in any other city at that time. That didn't mean that the jobs in the days before unions were notably safe, pleasant, stable, or well-paid -- just that they were better than the equivalent jobs in other industries.
There are a number of small towns in rural America, surely, where a Wal-Mart may well be a step up in the level of pay for retail employees. But in larger towns and major cities, and unquestionably in any metro area where supermarkets are unionized, Wal-Mart clearly exerts a downward pressure on incomes and living standards. In breaking into an urban market, its modus operandi is to sell itself as a job creator in those parts of town -- characteristically minority -- where unemployment is highest. That was its approach in Inglewood, California, one of the poorest cities in the Los Angeles area. But this April, Inglewood voters rejected an initiative, drafted and funded by Wal-Mart, that would have allowed it to build a mega-store despite the opposition of the city council. Coming in the wake of the settlement of the southern California supermarket strike, which saw 70,000 workers making major pay and health-benefit concessions to chains threatened by the coming of Wal-Mart to California, Inglewood residents understood that Wal-Mart might provide opportunities for some but depress opportunities for many.
What will it take to make Wal-Mart play the kind of constructive role in the American economy that GM played once it was unionized? First, as in the mid-'30s, we need to legalize the right of workers to join a union. For decades corporations have understood that it is far cheaper to violate the Wagner Act -- by illegally firing workers on organizing drives, say, and paying a small fine -- than accede to workers' claims for higher wages. Wal-Mart is no trendsetter here, but clearly the law needs to be updated to mitigate corporate practices that are all but ubiquitous.
Second, we need single-payer health insurance that would guarantee coverage to the millions of preponderantly low-wage workers who currently go without. That failing, we need laws mandating that major employers of low-wage workers -- such as Wal-Mart -- pay for their employees' health insurance. (Such a law was enacted in California just before the recall of Governor Gray Davis; now the state's low-wage employers are funding an initiative on the upcoming November ballot to repeal it.)
Third, unions need to be as creative and farsighted in taking on Wal-Mart as John L. Lewis and his associates were when they took on General Motors, United States Steel, and Ford in 1935. Lewis concluded that American workers could never make lasting economic gains so long as America's largest employers remained non-union. He realized that these industrial giants could never be organized plant by plant, and so established a new organization -- the CIO -- to wage national campaigns to unionize those firms.
Today, a growing number of labor leaders make the same arguments about Wal-Mart: that the entire labor movement needs to invest major resources and energy to unionize the company that is now setting the direction for the bottom half of the American workforce. Unless we want that direction to continue to be downward, we will all need to join that fight. What's good for turning Wal-Mart into General Motors is good for America.
James Hoopes is a professor of history and business ethics at Babson College. His latest book is False Prophets: The Gurus Who Created Modern Management and Why Their Ideas are Bad for Business Today. Harold Meyerson is the Prospect's editor-at-large.
