The new claim: Wal Mart monopsony bad for economy
Q&O Blog
Posted by: McQ on Friday, August 25, 2006
Ezra Klein takes Jonah Goldberg to task over his "sneering, superficial treatment" of the Democrats obsession with Wal Mart in the LA Times today.
Admittedly Goldberg is less than impressed with this obsession and says so in good old plain English on the pages of the Times. He essentially talks about the politics of the decision to attack a company that provides goods at a cost which helps low income families stretch their dollars. His message is that attacking an institution in which 127 million people shop each week because they too perceive the benefit doesn't seem like the smartest political move on the part of Democrats. He, ironically, calls it WMDS or "Wal Mart Derangement Syndrome". All in all, Goldberg finds it pretty silly stuff.
Klein, otoh, is not pleased with Wal Mart (or Goldberg) and let's us into the real reason the left goes after Wal Mart:
"A casual reader would have no clue why liberals worry about Wal-Mart (save that they're "deranged"). But in case you are interested, it goes something like this: Wal-Mart pays wages barely above the minimum and significantly below the average large retailer. Compared to Costco, or Target, Wal-Mart's salaries, benefits, and worker relations are atrocious. The question is not "Wal-Mart, yes or no?" but whether Wal-Mart can do better on all these metrics. Obviously, they can. Various analyzes have found that raising the price of each product by a penny would allow for far better worker compensation packages."
Wal Mart pays "barely above the minimum". In reality Wal Mart pays almost twice the minimum wage at $9.17 an hour on average, and yes it is probably lower than the average large retailer. But then no one, that I know of, puts a gun to anyone's head and forces them to work for Wal Mart. So I'm a bit at a loss when Klein says "worker relations are atrocious". They haven't been unionized yet, that's for certain, but for most that would seem to mean good, not bad relations. I'm sure compared to Costco or Target, any number of retailers could be characterized as having "atrocious" worker relations, but in real terms, I'm not sure what that means. In most Costco stores I've been in there are far fewer workers than in a Wal Mart store. So perhaps Klein and the Democrats would be happy if Wal Mart paid more on average, had better benefits and worker relations with fewer workers?
Instead Klein's answer is to have consumers pick up the tab by paying higher prices. Admittedly this is better than the normal appeal to governmental intrusion, but again, the Wal Mart model works aggressively to have the lowest cost product available to the consumer, and that model includes benefits and pay as factors. Obviously raising prices works directly against that model. So Klein's solution is to not do what works and has made them successful. Instead, they should go against their model. Not smart business.
But that's not his only complaint. Wal Mart is a monopsony:
"But that radically understates the actual problem. What's worrisome about Wal-Mart is that, like GM and Ford once did, they are setting the norms for the coming (or current?) economy. One in every five retail sales is done at their cash registers; they're larger than the next five retailers combined. Indeed, for major producers, Wal-Mart is just about the only market that matters, which allows them to dictate the production methods, employee relations, and business strategies all the way up the food chain. In action and effect, Wal-Mart is an active monopsony — a seller able to dictate the price to its producers. They've forced Coke to change their secret recipe, Kraft to lay off thousands of employees, and Vlasic to declare bankruptcy."
Coke changed an artificial sweetener at Wal Mart's request (because Wal Mart was concerned about the one they were using) and Kraft shut down 39 plants and layed off 13,000 workers. According to Kraft it was because of "soaring prices of energy and raw materials", but according to Barry Lynn, who's article Klein cites concerning these factiods, it was because Kraft couldn't lay those costs off on Wal Mart (I never did see any evidence of that in Lynn's article however).
I have to wonder, frankly, if either Lynn or Klein have ever had to work within a market and with a truly large client. If they think that what Wal Mart is doing is only applicable to the "mega" retailers and the power they have, they're just wrong.
I have a customer who is very large. They recently decided to change the web width of their newspaper to a smaller size. That means they need a narrower film size as well. What they need is a non-standard size for us. Although exceedingly nice about it they essentially told me "do it or someone else will". Guess what? It's now a standard size. We've made the modifications necessary to produce it and it didn't cost them a penny more. These sorts of things go on constantly in every industry you can imagine. A constant struggle between vendor and user, supplier and seller to make the best deal.
That's business. Users/sellers try to wring every penny out of a vendor/supplier. Larger size naturally gives them a lot more leverage than a smaller customer. For whatever reason, Lynn and Klein see these normal dealings as monopsony and changing the very essence of the consumer market today.
"And because Wal-Mart so obsessively pursues the lowest possible prices, they're not only depriving their own workers of generous benefits and compensation, they're making it literally impossible for their producers to do so, as Wal-Mart won't abide by the minor cost differences that on-shore production and respectable benefits demand."
So its a new twist on the old mantra that businesses Wal Mart's job is to provide good pay and benefits to its workers. Not to profit through the delivery of the lowest cost goods available to its customer base. Not to keep to its business model. Not to compete. Deliver pay and benefits at a level acceptable to the Democrats. And while they're at it they need to let their suppliers charge more so they too can do the same for their workers.
And, as has been pointed out ad nauseum to these folks, who are the losers?
Those 127 million shoppers, many if not most of them low income shoppers who now see their buying power shrink.
That is why Jonah Goldberg thinks it's all silly and stupid and can't understand the Democrats continued insistence that Wal Mart is an institution which needs to be singled out and taught a lesson. Frankly, I agree with him.
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