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What Wal-Mart Giveth, Wal-Mart Taketh Away

I've always found the effect of Wal-Mart to be a complicated issue. On one hand, it's monomaniacal obsession with lowering prices has certainly reduced the cost of basic goods for a mainly low-income customer base. Good thing! But it doesn't, as Stephen Spruiell would have you believe, end there. Wal-Mart has also become something of a monopsony buyer in the retail market. It's so massive that it can effectively set prices for its producers and standards for its industry.

So what happens? Grocery corporations endure months of strikes so they can cut wages and health benefits for their employees. Can't compete with Wal-Mart otherwise. And producers set up their manufacturing plants overseas because Wal-Mart wants to see the price of razor blades fall rather than rise. But you can't survive if you don't sell to Wal-Mart.

So though it's true that Wal-Mart makes some goods cheaper for low-income Americans, it's also true that it makes jobs scarcer, wages lower, benefits stingier. By sparking a race to the bottom in prices, it has also sparked a race to the bottom in labor costs. And I don't know of any studies that have assessed -- or have even attempted to assess -- whether Wal-Mart's impact is, on net, positive. But Barry Lynn's article in Harper's is required reading on this topic.

By Ezra Klein  |  June 4, 2009; 8:00 AM ET
 
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Comments

Wal-Mart and its less-extreme cousins like Home Depot drastically reduce consumer choice. They drive specialty retailers out of business by stealing the high-volume, low-profit-margin segments of their business, but they don't have anywhere near the variety. The garden center at a Home Depot may have a better price on generic jalapeno pepper seedlings, but they have nowhere near the variety of choices you'd find at even a small mom&pop specialty shop.

Posted by: tl_houston | June 4, 2009 8:31 AM | Report abuse

The monopsonists are empowered by the greed, stupidity and childishness of Americans, who would rather have something utterly mediocre at a price they can (more or less) afford RIGHT NOW rather than wait a bit while they save up for something much better. In other words, to find the source of the problem, we need only consult the nearest mirror.

Posted by: labonnes | June 4, 2009 8:58 AM | Report abuse

Jason Furman (Obama's economic policy director at the time) made an speech around Wal-Mart's costing its employees $5 billion in below market pay but saving the consumer $263 billion.

http://www.americanprogress.org/atf/cf/%7BE9245FE4-9A2B-43C7-A521-5D6FF2E06E03%7D/WALMART_PROGRESSIVE.PDF

Gee, Jason, doesn't that mean Wal-Mart did not need the $5 billion to create 98% of those savings. Lowering the price of American labor is not the way to help even Mexican illegals. There's plenty of capital to combine with reasonably paid labor in this land.

Posted by: DenisDrew | June 4, 2009 10:07 AM | Report abuse

What I have never understood is the extreme irony of Walmart's ultimately self-defeating policies. With a low-income customer base, why in the world would they want the poor to get poorer? Every additional dollar their customer's make is very likely going to end up in Walmart's cash drawer. So, you would think they would be working to make that happen instead of the opposite.

Posted by: adagio847 | June 4, 2009 10:11 AM | Report abuse

There is a good "Frontline" from 2004 that you should check out.
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/
As I remember, it deals with a couple companies (Rubbermaid is one, and the other makes TV tubes) that Wal-Mart basically orders to move from the U.S. to China. The TV company and others in its industry sued Wal-Mart et alia for price fixing or dumping or something similar. they win the case, but Wal-Mart drags it out so long that everyone is out of business by the time it is decided. Rubbermaid balks, and within a few weeks Wal-Mart is selling no-name rip-offs of Rubbermaid products.
I have taken to calling the Wal-Mart defending right-wingers I know "Chi-com-symps". They don't like it very much, but they don't have a very good defense when I accuse...

Posted by: flounder2 | June 4, 2009 10:36 AM | Report abuse

Wal-Mart is a complicated beast, and many things that they do are obviously unethical, but they do provide efficiencies that are a net benefit.

It is NOT true that it makes jobs scarcer. Where in the world do you get that, Mr. Klein? By not overpaying employees, it can hire more people. By lowering the cost of goods sold, the consumers can buy more things, increasing the number of people that can work making them.

Whoever said the pay is non-market pay in the above comments is wrong. It's the union pay that is non-market as it forming a labor cartel to prevent market salaries from being used.

The biggest problem in all of this is the world labor market. I don't know how to solve this as there are billions of people that we are going to end up meeting in the middle. Many of the things that we want to make do not require specialized labor, and thus the world market rate can not be used in the US because of the minimum wage. Of course, we would end up with some kind of natural market minimum wage, but the forced minimum wage does drive up unemployment. We really need to force wages in Asia to rise quite a bit, so we can meet them in the middle. It's a thorny problem with no easy solutions.

Posted by: staticvars | June 4, 2009 11:42 AM | Report abuse

Unnecessary labor is bad. If people need jobs, train them to do things we need done--like weatherization or transit construction or operation--rather than things we don't need them for or that don't command high wages.

Posted by: bluegrass1 | June 4, 2009 12:34 PM | Report abuse

staticvars,
The function unions perform in the market for products -- not labor; the market where prices for the joint product of labor and capital is negotiated -- is to join labor and capital at the hip when negotiating product price with the outside world.

IOW, ownership cannot give away labor's interest when setting product price -- cannot cut the price by cutting labor's share. This wont help labor of course if down the lane there is a firm where labor is not organized (e.g., Wal-Mart ruining supermarket employees' contracts). Which is why in the almost all of the better paid first-world they legislatively mandate something called sector-wide labor agreements (everybody doing the same job in the same locality works under common contract conditions even for different firms) -- even in the second-world (e.g., Argentina), even in the third-world (e.g., Indonesia). Am trying to get the concept around here between the insulating oceans (French-Canada does have the French "lite" version).

Union "cartels" are precisely what is needed to offset the natural (no sinister motives needed) bargaining power advantage that the smaller number of management buyers hold over the larger number of labor sellers.

Oddly Karl Marx is supposed to have said that American did not need socialism (like Europe supposedly did) because America had unions. Well guess who has the unions now?
******************
BTW, as long as productivity grows here, per person GDP will grow here -- it is more a problem of everybody getting their slice than worrying about China.

20-25% of our workforce earns less than the minimum...
...of 1968 (half the productivity ago...
and the income curve does not sharply curve up after that point. It would take all of 2 1/2% added cost of GDP (how much we normally grow every year or two, depending) to double the minimum wage: giving 40% of American workers a raise to all of $500/wk! Eminently doable.

15% of income share drifted from the bottom 90% of earners to the top 1% over the last three and a half decades -- not because of any productivity outbreak on top; just warped bargaining power. $1.2 million was the average income of top 1% households in 2006. [http://www.cbpp.org/cms/index.cfm?fa=view&id=2789] Wonder why my family doctor was not included in that? We have truly screwed up our labor market in this country by forgetting union bargaining power and ignoring the advanced way to do that (ask Argentina and Indonesia how).

Posted by: DenisDrew | June 4, 2009 12:42 PM | Report abuse

I have not purchased a single item from Wal-Mart in the 7 years since I first read about their treatment of Vlasic and other suppliers. The ironic thing is that Sam Walton would probably feel the same way about the unrecognizable beast his company has become.

Posted by: BigTunaTim | June 4, 2009 12:52 PM | Report abuse

My mother in law's firm made a high-quality, low volume, specialty good sold at specialty stores. A majority of these stores were driven out of business by Walmart, which became the only client that mattered for her firm. But Walmart had no interest in their high end specialty goods and used their market power to push the firm into making high volume low quality cheap products instead. They couldn't compete with the international firms already doing that and next month, her company will be going out of business.

There are of course other factors (like the overall economy), but its been pretty obvious for a few years that it was only a matter of time before Walmart's demands would drive them to bankruptcy.

Posted by: nylund | June 4, 2009 2:49 PM | Report abuse

Would the staticvars of the world enjoy seeing Americans living at the impoverished levels of third world countries? Because that seems to be the plan right now. By the time we get to dirt floor huts with one pair of black jammies and flip flops in wintertime, WalMart will think about their wage structure.

Posted by: sparkplug1 | June 4, 2009 7:30 PM | Report abuse

The Walmart effect is negative because of the inferior junk they sell. The race to the bottom also leads the Chinese manufacturers to cut corners.

So you get things like multi-outlet power strips, with forged UL labels, that short out and burn down houses because of inferior wire. You get clothes that wear holes after just a couple of washes, because of inferior thread counts. You get wood screws made of white metal so brittle that they break under the torque of a manual screwdriver. Hose reels that last 2 years.

All to save another nickel per thousand count.

Posted by: Aatos | June 5, 2009 9:38 AM | Report abuse

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