Fearing Walmart
By Telis Demos - Columbia Political Review
In these days of the hyperpolarized electorate, there aren’t many things that you can say that just about every adult American did last year. But 138 million Americans, in addition to paying taxes and breathing, did share one experience: they shopped at Wal-Mart. An astonishing 82 percent of your neighbors bought $253 billion worth of stuff in 2003 at one of the 3000 stores that comprise the Bentonville, Ark.-based retail megacorporation. Most of them shopped in far-away red states like Mississippi, Arizona, and Oklahoma—there are five times as many stores in those states as there are in blue states like Illinois, New York, or California.
So like most things that divide Americans geographically, shopping at Wal-Mart is an increasingly political matter. During the primaries, Democrats targeted the store in their critique of Republican economic policies, claiming that in the “Wal-Martizing” economy of the Bush years the only jobs that are surviving are low-wage, no-benefits, non-unionized service jobs. Taking the Democrats’ lead, newspapers and magazines have turned their attention to chronicling the destructive economics of the super-retailer. By collecting tales of woe from store employees who are paid little and treated poorly, or from product suppliers who are squeezed out of business by Wal-Mart’s extreme demands, they have built the case that Wal-Mart stores are, as Democratic presidential nominee John Kerry put it, a symbol of “what’s wrong with America”—outsourcing jobs to foreign sweatshops, paying minimum wage salaries without health care, refusing unionization, closing mom-and-pops in small towns, and subcontracting to affiliates that hire illegal immigrant workers.
For all that, however, Wal-Mart is still an incredibly popular shopping destination and a very successful business. Economists say that the efficiency of the company contributed about four percent to American productivity in the 1990s, and business owners rated it as the number one “most admired company” in a Fortune magazine poll. And until last year, it was also ranked in Fortune’s “Top 100 Companies to Work For.” While critics charge that shoppers don’t understand what they’re buying for those low prices (e.g. putting other stores out of business, lower wages in competing shops), most Americans have voted with their feet in favor of the “Everyday Low Prices” in exchange for “Everyday Low Wages.” How smart can it be for a politician to criticize a company that employs 1.14 million U.S. workers and plans to hire an additional 800,000 by the year 2008?
“My guess would be that the bulk of Wal-Mart employees are almost insulted at the idea that they’ve got bad jobs,” said Patrick Wright, director of Center for Advanced Human Resources Studies at Cornell. “It’s dangerous any time politicians begin singling out companies like that.”
Despite all the rhetoric, there have been very few serious academic studies of the impact of Wal-Mart stores on consumers and communities, and those that do exist offer competing conclusions that point to a complex, multi-layered snapshot of the many ups and downs of life in America in 2004. Plus, most people don’t really consider the economics of Wal-Mart when forming an opinion of it. For Democrats, there is a lot at stake in making sure that their storyline on Wal-Mart is the one that sticks. It could make for a potent political critique of our modern low-road, race-to-the-bottom economic culture. But with a lack of polling data about what people are likely to think about the store, it’s a big gamble. “Wal-Mart can still be a poster child,” said Ruy Teixiera, a Senior Fellow at the Century Foundation and the Center for American Progress who tracks political polling closely. “But it won’t per se become a huge political issue. I think people’s feelings about it are too mixed. Do you want to invest a lot of political energy in it? I don’t think the answer is clear.”
Before Democrats can be confident in Wal-Mart as a political issue, they need to be confident that Americans will agree with their critique. Too many of the arguments against the store, like those about outsourcing and non-unionization, could easily be wins for the Republicans, especially among their base voters and among economically conservative independents. Even for those who constantly track the issue, like the bloggers at Always Low Prices—a website dedicated to news reports about the store—opinion often splits along typical left versus right political lines, and balanced data is tough to come by. One post quoted an Almeda, California, councilman who put it succinctly: “I’ve got mounds of material, and there is a lot of data that I studied that was basically propaganda.” Which picture is true? Is Wal-Mart an employer of the otherwise unemployable and a provider of cheap goods to everyone else? Or is it an economic steamroller that’s bringing down the standard of living by putting every other option out of business?
In February, Representative George Miller (D-CA) published an education committee report called “Everyday Low Wages” that called on Congress to adapt new employment protections, like a higher minimum wage and health care guarantees, to protect workers from Wal-Mart. “America’s working families,” he wrote, “including Wal-Mart employees, and their allies in Congress can reverse this race to the bottom in the fast-expanding service industry.” The report focused on Wal-Mart’s labor abuses: low wages (less than $10 per hour), bad health benefits (only 48 percent of workers are covered, and the deductibles are very high), abusive treatment through overtime, and the high cost to government of assisting poor employees and their families. The Los Angeles Times, in a Pulitzer Prize-winning series on the company, pointed out in contrast that unionized California grocery workers make nearly $16 per hour and get free, low-deductible benefits.
But a Wall Street Journal feature noted that, unlike California’s grocery unions, Wal-Mart doesn’t place any caps on coverage, offers benefits to part-timers, and agrees to pay claims for an employee’s entire life-potentially a big savings to government in catastrophic incidents. And, the Journal story observed, Miller’s study doesn’t have a baseline—he doesn’t measure how many Wal-Mart families would need public assistance if they weren’t employed, or how many of those families would still need assistance at low-wage jobs at other companies.
Some have even called into question the union versus non-union comparison. A new study by the Los Angeles Economic Development Corporation (which Miller claims is “funded by Wal-Mart Stores”) has found that Wal-Mart jobs would mostly attract those who can’t get union employment and benefits—like teens, the low skilled, or the elderly —and teach them skills for a better job. But Miller, like many others, argues that high-wage jobs in other businesses will eventually be “Wal-Martized” by forcing those stores to close or putting downward wage pressure on those businesses to compete. Pressure on suppliers also pushes wages down in other sectors, and moves many good jobs abroad.
Free-market pundits have responded that the lower costs of goods sold by Wal-Mart restores purchasing power and frees up capital for investment in new, growing parts of the economy where jobs can be created. “Wal-Mart is offering better terms to all the people that it employs,” said Tyler Cowen, an economist at George Mason University. “Most of the workforce is not employed in the fist place. The way to increase wages at the bottom end is to have a more productive economy. Wal-Mart is a step in the right direction.”
Regardless of the economics, though, Democrats seem poised to score political points from all of the bad press. A Village Voice article featuring a big picture of George W. Bush wearing a Wal-Mart uniform ended with a call to arms: “This is the Democratic Party’s hope: convincing Red America they can provide an economy that’s safe for the whole family.” Press coverage of Wal-Mart is crucial in determining how it shapes up as an issue, especially since attitudes aren’t yet set in stone. “Journalists have made it an issue,” said John Zaller, a professor of public opinion at UCLA. “But that’s not enough to make it political. A politician or institution will need to propose to change the way Wal-Mart runs things. But the first step is the media.”
The media took up the cause when Wal-Mart’s push into the Los Angeles market was knocked off track by union and community groups—backed by state Democrats—who successfully fought back against a planned store in Inglewood, California. Despite a $1 million PR campaign backing a voter referendum to exempt the store from zoning regulations, the measure was defeated by a wide margin. The story made national news, and seemed to resonate with people. “The more this gets talked about by the media, the more politically feasible it becomes to go after Wal-Mart,” said Teixiera. “All that most people know about Wal-Mart is that it’s a big store with low prices. But now that this other stuff has come to the fore, a political argument becomes much more viable.”
And Inglewood is just the tip of a potential iceberg: Wal-Mart often gets sweet deals from local governments willing to bend the rules to get the store’s tax revenues. But towns from Massachusetts to Oregon have waged campaigns to keep the stores out. In response, the company has hired more lobbyists to start representing it on Capitol Hill—mostly by cozying up to business-friendly Republicans and pushing for free trade legislation and immigration reforms. It’s also starting a new public relations campaign and intensive internal reviews of its labor practices. Wal-Mart knows that without some changes and better press, it’s just a matter of time before an American competitor, like Costco, or a politician, like John Kerry, puts Wal-Mart on the ropes in places where union workers and sympathetic communities don’t want it, including union-friendly swing states like Ohio and Missouri.
For all the fretting, though, Wal-Mart won’t likely be rolling back the nation’s prosperity any time soon—and Democrats will need to contend with that reality by doing more than just tossing up rhetoric about the service economy. The dynamics of Wal-Mart’s market expansion suggest that the consequences won’t be as dire as predicted, and may create indirect benefits through competition and gains in productivity. Plus, with the middle of the country already saturated with stores, the company may not grow as quickly as expected. And a slow entry into well-established markets like Los Angeles could give higher-skill workers time to learn new skills or seek jobs in other sectors.
Indeed, the best case against Wal-Mart’s labor practices—and the one that’s most often cited by business-friendly publications like the Wall Street Journal and Business Week—is the strategy of a competing warehouse grocer, Costco. Costco’s rivalry with Wal-Mart is emblematic of many market trends: it’s attracting customers with higher-end products and an emphasis on customer service. Most notably, Costco is taking what labor economists call “the high road” in its human resources policies. A Business Week study noted that while Costco pays higher wages, has less turnover, and offers superior benefits, labor is actually a lower percentage of its costs than Wal-Mart’s—representing a superior, productivity-friendly way to improve the plight of low-skill workers.
And as Wal-Mart emerges as a political issue, shoppers sensitive to that critique will choose smaller stores over the “big-box” retailers in their town. “Consumers can sort themselves and visit one set or the other and both kinds can thrive independently,” said David Boyd, a professor of economics at Denison University who wrote a 1997 study on Wal-Mart’s retail strategies. “On the one hand you’ve got large low-service retailers, but you also have a relatively thriving set of smaller service-oriented local mom-and-pop independent retailers.” Similarly, manufacturers who rely on the personal service of the mom-and-pop create special lines of products for those stores, while providing low-cost, no frills bulk merchandise to Wal-Mart.
And other competitors, like the German Aldi and French Carrefour magastores—which also pay low wages, but use their cost advantages to pay for more locally-tailored goods and store facades—are knocking at the door in the United States. That means two things. First, the threat of low-wage, low-cost grocery isn’t just going to go away once Wal-Mart is sufficiently browbeaten. And secondly, there’s a chance that Wal-Mart may just go away as an issue by losing some market ground or changing its strategy to stave off competition.
In the end, all the negative press coverage might have the effect of nullifying the issue by spurring Wal-Mart to clean up its act. A study by the Euromonitor Group suggests that Wal-Mart might start to centralize and monitor the oversight system that allows managers to get away with things that make for bad press: locking in employees overnight, selling guns to criminals, and employing illegal immigrants. As centralization hastens, growth will likely slow. “That’s the fear that Wal-Mart has to worry about,” Wright said. “Constantly monitoring the strategy they’ve chosen as industry dynamics change.”
So as Wal-Mart attempts to deal with all the changing dynamics of the marketplace, Democrats will need to find a more productive angle of attack if they want to win swing voters in Wal-Mart-saturated states—the key swing states that Democrats will need to capture the presidency. For Kerry especially, all of the pitfalls he’s encountered attacking outsourcing apply to Wal-Mart. Why attack the strengths of the American economy—cheap, quality consumer goods, creative entrepreneurship, and high productivity rates—when there are other economic issues that touch on the politics of Wal-Mart? Advocating a more universal health care plan that might soften the blow of falling wages, for example, or providing tax incentives and infrastructure for developing new industries that can exploit a competitive advantage and pay higher wages, would address Wal-Mart’s negative effects on the country but not necessarily alienate shoppers. Ultimately, such critiques may be the best way to find common ground between the store’s critics and its customers, and to establish a politically savvy approach to the nation’s largest, most successful, and most polarizing retailer..
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