The American dream of upward social mobility, with its rags to riches leitmotiv, needs a constant supply of fresh stories to keep the myth alive. There was John D Rockefeller, a smalltime accountant in Cleveland, who became the world’s most powerful oil magnate at the age of 31. More recently Steve Jobs left university without a degree to start his own computer company, Apple, in a garage; he was a billionaire by his 30s.
Now it is the turn of Wal-Mart, and on an even bigger scale. It started out as a small store in Arkansas, one of the poorest states in the United States; yet four members of the founder’s family are now among the 10 richest people in the world. With sales totalling $310bn, the supermarket chain is the world’s largest company (it overtook ExxonMobil in 2003) and the biggest private employer. Wal-Mart sells one in five of all CDs in the US, one in four tubes of toothpaste, one in three disposable nappies. Perhaps more significantly, it accounts for 2.5% of US gross domestic product (1). Wal-Mart has more financial clout and influence than 150 countries, but it could not have achieved its present powerful position without the favourable legislation passed by national governments.
With power on this scale it should come as no surprise that decisions at Wal-Mart headquarters in Bentonville, Arkansas, match most of the economic, social and political changes worldwide. Indeed the firm instigated some of them, and actively encouraged others. It has developed its own model: it leads the way in the fight against unions, relocates manufacturing, squeezes personnel, lobbies for the deregulation of labour laws and more free-market agreements. It puts pressure on suppliers to force them to cut costs, particularly payroll costs, and relocate outside the US. Wal-Mart’s horror of time-wasting - “time-theft” in its corporate lingo - means that it is deliberately vague in its job definitions for workers, ensuring they are kept busy with an endless succession of tasks.
It constructs hideous buildings - the shoeboxes - supplied by a fleet of 7,100 giant trucks on the road, polluting round the clock. The priority is to keep filling the boots of the vehicles that line the immense car parks of its 5,000 stores worldwide. These too are part of the Wal-Mart model.
When trade unions counter-attack, customers finally realise the true cost of low prices, or communities block the construction of more out-of-town shoeboxes, Wal-Mart is quick to respond, hiring former White House spin doctors from across the political spectrum to saturate the media and whitewash its corporate image (2). They hasten to explain that Wal-Mart has become an ethical corporation and is just trying to create jobs, admittedly not very well paid, but surely better than none. After all, consumers really like low prices. They add that the firm’s constant quest to increase output has improved US national productivity. Henceforth Wal-Mart will defend the environment, just as it helped the victims of Hurricane Katrina. Adroit communication is part of the Wal-Mart model, too.
None of this should come as a surprise. It did not become the world’s largest company by chance or because, 40 years earlier, its founder Sam Walton (who died in April 1992, soon after receiving the Medal of Freedom from President George Bush Sr) once had the bright idea of selling water melons on the pavement outside his shop and giving kids donkey rides on the car park (3).
The first Wal-Mart opened in 1962 at Rogers, in a poor rural area of Arkansas. Nine years later the company had spread into five states. Leading retailers had disregarded the low-density markets it initially targeted, enabling Wal-Mart to establish its monopoly there before reaching further afield. It would set up on the outskirts of large towns, with the dual benefit of an urban clientele and cheap land. In 1991 the firm started its first international operations in Mexico. It anticipated the North American Free Trade Agreement ratified two years later at the instigation of President Bill Clinton, a former governor of Arkansas (4). Operations in other countries soon followed: in Canada in 1994, Brazil and Argentina in 1995, China in 1996, Germany in 1998 and Britain in 1999. In 2001 consolidated sales exceeded the GDP of most countries, including Sweden. Wal-Mart considered taking over France’s Carrefour chain last year. It is the world’s second-largest retailer, with $86bn sales in 2004 and more extensive international interests.
But the firm that Walton started has a key asset, the 100 million US consumers who weekly go in search of its “everyday low prices”. Low they certainly are, averaging 14% less than the competition (5). The big question is: what is the real cost of these low prices? The answer depends on whether you are concerned with individual buyers looking for the best deal, or with the employees of thousands of suppliers that are in thrall to a company powerful enough to oblige each supplier to hold down, and even reduce, its costs. Workers suffer for the good of Wal-Mart customers. To keep prices rock-bottom in the stores and at the subcontractors, working conditions can only deteriorate. It is consequently easier for suppliers with no unions or for goods manufactured in China.
The root of the problem is that consumers are often producers too, even if they are blind to the fact that their obsession with saving in the shops impinges on their own earnings at work. Given Wal-Mart’s bargaining power (8.5% of US retail sales, excluding cars) that contradiction is very real. The firm boasts that it saves working families $2,329 per year and claims to have increased the purchasing power of each American by $401 in 2004, thus creating 210,000 jobs, directly or indirectly, the same year - the idea being that money saved by shoppers is spent elsewhere, boosting activity in other sectors.
No act of providence
Critics cite less favourable figures. The low prices are not an act of providence. They are partly the result of the 2.5% to 4.8% drop in the average paypacket of workers in each of the US areas where Wal-Mart does business. Wherever it goes wages drop, creating the conditions necessary for “everyday low prices”. In so doing it increases the number of consumers who will soon have no option but to shop at one of its stores.
Market forces operate at several levels to force wages down, with the retailer squeezing its subcontractors, its own employees and those of rival supermarket chains. Wal-Mart, notorious for its hard-hearted treatment of what it calls its “associates”, enjoys a dominant position in retail. Most of its competitors have either gone under or have been obliged to toe the line and reduce pay and social benefits. Perhaps most importantly, Wal-Mart exerts enormous pressure on its suppliers, sometimes entire countries, deciding the prices they charge. In 2002 it bought 14% of the $1.9bn worth of garments exported to the US from Bangladesh (6).
Throughout its career, at home and abroad, Wal-Mart has maintained two key policies: a paternalistic attitude and a powerful aversion to trade unions. To attract outside investors, the poorest southern states, particularly Arkansas when it was governed by the youthful Clinton, often boast of their low wages. For Wal-Mart’s 1.3 million US associates, the situation is simple: there are no unions. Mona Williams, Wal-Mart spokesperson, explains: “Our philosophy is that only an unhappy associate would be interested in joining a union, so that’s why Wal-Mart does everything it can to make sure that we are providing our associates what they want and need.” Always assuming they do not need too much. “Is paying people $15 to $17 to stock shelves realistic?” asks Williams (7). The company’s chief executive officer, Lee Scott, does not stock shelves, but he was paid $17.5m in 2004.
The manager of each store has a procedure for dealing with unions. At the first sign of organised discontent he or she can call an emergency number and a senior executive will fly in from Bentonville by private jet. Associates then undergo several days of “reorientation” to stifle any demands for change (see "The cult of Sam"). But in 2000, despite all Wal-Mart’s good work, meat cutters at a store in Jacksonville, Texas, joined a union. Wal-Mart closed the butchery department and sacked the rebels. This was against the law, but legal proceedings are mostly ineffective (thanks to deregulation) and lengthy. In this case they are still under way.
Last year the associates of a store in Quebec decided to join a union. The firm promptly closed the store, explaining: “What we were left with was a store that was not going to be viable. We felt the union wanted to fundamentally change the store’s business model” (8). They had a point. The Wal-Mart business model is based on paying associates 20%-30% less than they would earn working for competing supermarket chains. It also provides much less social coverage (sickness and unemployment benefit). As is often the case with the keenest advocates of free market policies, the state and charities are left to pick up the pieces.
A modern-day plantation
A February 2004 report by the Democratic staff of the US House education and workforce committee found that each Wal-Mart worker cost federal taxpayers an average of $2,103 a year in government assistance (especially in healthcare and housing). In a leaked memo Wal-Mart’s vice-president, Susan Chambers, admitted: “Our coverage is expensive for low-income families, and Wal-Mart has a significant percentage of associates and their children on public assistance.”
Less than 45% of staff can afford the health insurance offered by the company, and 46% of the children of associates either have no protection or are covered by Medicaid. But public expenditure goes hand in hand with private profit - $10bn in 2004.
Jesse Jackson, the civil rights leader and former presidential candidate, was only slightly exaggerating when he said that Wal-Mart was a modern plantation, with workers toiling in its stores rather than in the fields of the deep south.
The south is certainly taking its revenge, surfing on a wave of low wages. In 2002 Wal-Mart decided to attack the market in California, opening 40 supercentres, selling everything from food to car accessories, in the Los Angeles area. In response to the threat its competitors, primarily Safeway and Albertsons, immediately asked their unionised staff to accept a cut in pay and welfare cover. Their workers were earning $13 an hour with good healthcare protection, whereas at Wal-Mart they were only getting $8.50 an hour with minimal protection. It proved an unequal fight. In October 2003 the 70,000 employees of the chains already established in California refused to give ground and went on strike. The strike lasted five months, with lockouts and blacklegs. Finally 25 years of efforts to undermine labour law triumphed and the unions caved in.
When Wal-Mart moves into a town the local small shops soon close. The firm started operating in Iowa in the mid-1980s; since then Iowa has lost 50% of its grocers, 45% of its hardware stores and 70% of its menswear shops. Drawing on the stock responses of market populism, Wal-Mart explains that it only defends the interests of poor consumers who demand the lowest possible prices from groups of prosperous producers or retailers charging excessive margins. Wal-Mart claims to be “elected” every day by the dollars customers spend in its stores (9).
Its CEO is adamant that any alternative is a utopian vision pandering to the over-privileged. Adopting such a solution would mean the less fortunate “can’t have as good a life, because you have chosen your image of the world versus what is the most efficient manner of serving that consumer” (10). Scott adds a barely veiled threat, saying that even if a locality refuses to accommodate one of his stores, a neighbouring area will certainly agree. The refuser will then suffer all the drawbacks of the Wal-Mart model, with local shops closing down and paypackets plummeting, without enjoying any of the benefits of a source of jobs or property tax.
Subcontractors face a similar dilemma. The world’s largest retailer can decide the prices charged by its suppliers, the salaries they pay and the deadlines for delivery. Once the details are settled, suppliers just have to cope, hiring illegal migrant labour or procuring goods in China. If an “accident” happens, Wal-Mart can always claim that it is not directly responsible and be horrified by what has happened. In fairness, many other multinational corporations behave exactly the same way. In the US, Sanofi Aventis (the world’s third-largest pharmaceutical firm) subcontracts cleaning to a company that underpays its workers, provides no healthcare protection and opposes union rights. Wal-Mart just goes further than most of the others. “According to the Mexican daily La Jornada some [of its] suppliers are forced to allow their powerful client to audit their accounts in search of ‘superfluous costs’ ” (11).
Wal-Mart is no more than the symptom of a growing ill. Wal-Mart and its kind gain ground each time union rights come under attack or workers’ protection is reduced, each time free-market agreements sap social security or public policy yields to multinational strategy, and, closer to home, each time the selfishness of individual consumers takes precedence over solidarity with producers.