Wal-Mart has reversed 100 years of history where manufacturers were calling the shots relative to retailers. Now it is Wal-Mart calling many, many of the shots, and manufacturing companies are scared. Is Wal-Martization a good thing? Is it all good? Is it sustainable?
My answers are that in some ways Wal-Mart has been good – in particular in fine-tuning just-in-time manufacturing and inventory control. In some ways it has been bad, since Wal-Mart wields undue Monopsonistic (single-buyer of an industry's products) power and, in conjunction with unbalanced currency regimes in the world drive jobs to wherever hot money flow quickest. Most recently this is China, and claims that it will all balance out in the end are far from being realized, indeed may never be realized as the system may be staging for a very hard landing. Below find snips from a recent PBS Frontlinespecial titled "Is Wal-Mart Good for America?"
I'm biased (who isn't?). But I agree with the conclusion drawn by Larry Mishel, Pres., Economic Policy Institute:
Well, if people were only consumers buying things, lower prices would be just good. But people also are workers who need to earn a decent standard of living. And the dynamics that create lower prices at Wal-Mart and other places are also undercutting the ability of many, many workers to earn decent wages and benefits and have a stable life.And I disagree strongly with Brink Lindsey, Economist, Cato Institute, who says:
I think it's impossible to say that we've lost a million jobs to China. Trade policy, or trade flows, one way or another, don't have an effect on overall employment numbers. They affect the kinds of jobs we have. And so some number of jobs have definitely been eliminated because of Chinese competition. Another– elsewhere in the economy, other jobs have been created because of Chinese competition. Because American consumers have saved at Wal-Mart buying Chinese goods, they've got more money in their pocket to buy something else, which creates business opportunities for those other business, which means they hire workers they would not have hired otherwise. The net effect, most economists think, is a wash.My response: Hogwash! It is not at all clear where all the jobs are to come from. It takes a leap of faith to agree with Lindsey. And yes, I've heard all the various arguments that say, based on recent history, that jobs always follow the creative destruction of older capitalistic structures. I simply remain doubtful this time around. I think we've set ourselves up for a Humpty-Dumpty type fall that will hit our middle and lower classes hard here in the USA and may usher-in a world wide depression.
This is not to say that I think those who have been propping up our American Empire (mainly from what some call "less developed countries") have not suffered mightily and unfairly. It is simply to say that we needed to approach Globalization with some care in terms of policy formulation that simply didn't happen due to lack of foresight, political infighting, individual greed (personal and/or corporate), or whatever. Another great opportunity squandered! Or maybe I'll be proven wrong. Time will tell!
Senior Producer and Correspondent
Hedrick Smith
Written by
Hedrick Smith & Rick Young
Produced and Directed by
Rick Young
ANNOUNCER: There's never been a company like it.
Prof. GARY GEREFFI, Duke University: Wal-Mart is probably the broadest and most powerful company in U.S. business history.
ANNOUNCER: Its everyday low prices benefit millions of Americans.
BRUCE BARTLETT, National Center for Policy Analysis: Wal-Mart has really given an increase in income to every American.
ANNOUNCER: But some say it's a bad bargain.
STEVE RATCLIFF: It's putting people out of work, that's what it's doing.
ANNOUNCER: Tonight, correspondent Hedrick Smith investigates how Wal-Mart is changing the American economy– ...
Prof. NELSON LICHTENSTEIN, U.C. Santa Barbara: In the 19th century, it was the Pennsylvania Railroad, which called itself the standard of the world. Early 20th century, it might have been U.S. Steel. General Motors, of course, in the mid-20th century. But clearly, Wal-Mart today is setting a sort of a– a new standard that other firms have to follow if they hope to compete. And more than just other firms, it's setting standards for the nation as a whole.
HEDRICK SMITH: By figuring out how to exploit two powerful forces that converged in the '90s, the rise of information technology and the explosion of the global economy, Wal-Mart has changed the balance of power in the world of business.
Prof. GARY GEREFFI, Duke University: It used to be that manufacturers – big multi-national manufacturers – had the most power, companies like General Motors and General Electric. Today, I think that global retailers actually have become the most powerful companies in the global economy. ...
JON LEHMAN, Former Wal-Mart Store Manager: Well, it's very one-sided. There is no negotiation. There's not much negotiation at all. The manufacturer walks into the room. I've been in these little cubicles, I've seen it happen. The buyer says, "Look, we want you to sell it to us for 5 percent on a dollar – at cost – lower this year than you did last year."
They know every fact and figure that these manufacturers have. They know their books. They know their costs. They know their business practices– everything, you know? So what's a manufacturer left to do? They sit naked in front of Wal-Mart. You know, Wal-Mart calls the shots. "If you want to do business with us, if you want to stay in business, then you're going to do it our way." And it's all about driving down the cost of goods.
Prof. NELSON LICHTENSTEIN: The power of Wal-Mart is such, it's reversed a 100-year history in which the manufacturer was powerful and the retailer was sort of the vassal. It's changed that. It turned that around entirely. Now the retailer, the mass global retailer, is at the center. That's the power. And the manufacturer becomes the serf, the vassal, the underling who has to do the bidding of the retailer. That's a new thing. …
Prof. GARY GEREFFI: Wal-Mart basically tells its suppliers, "We need to get those products at 30 percent lower price. You need to move to Asia, you need to move to China because that will meet our bottom-line price figures."
HEDRICK SMITH:[voice-over] Wal-Mart was capitalizing on a watershed moment on the world stage, America's embrace of trade with China in the late '90s. With corporate America hailing China as the new economic frontier, President Clinton signed a permanent trade agreement with the Chinese.
Pres. BILL CLINTON: Our administration has negotiated an agreement which will open China's markets to American products made on American soil, everything from corn to chemicals to computers.
ALAN TONELSON, U.S. Business & Industry Council: The picture painted was that China was a big emerging market for U.S. exports and that U.S. workers and also U.S. companies, companies that made their products here, could profit tremendously from the opening of trade flows with such an enormous country like China. After all, it had 1.2 billion people.
HEDRICK SMITH: To see first-hand how the promise of a vast new market for America was playing out, I headed for China and the heart of its new industrial revolution, Shenzhen, south China's miracle city.
Twenty years ago, this was all rice fields. Today, it's a sophisticated city of seven million, its astonishing rise orchestrated by China's leaders and ignited by a Chinese currency devaluation in the mid-'90s that dramatically lowered its export prices. …
HEDRICK SMITH: [voice-over] At the other end of the pipeline, I visited the port of Long Beach in California. I wanted to see how Washington's promise of massive American-made exports to China was working out. The port's communications director is Yvonne Smith.
HEDRICK SMITH: [on camera] What are they shipping in and what are we shipping back?
YVONNE SMITH, Port of Long Beach: Well, we're bringing in consumer products. We're bringing in about $36 billion worth of machinery, toys, clothing, footwear.
HEDRICK SMITH: That's $36 billion right here in Long Beach?
YVONNE SMITH: About $36 billion comes through Long Beach from China alone– consumer products.
HEDRICK SMITH: And what are we shipping back?
YVONNE SMITH: We're shipping out about $3 billion worth of raw materials. We export cotton. We bring in clothing. We export hides. We bring in shoes. We export scrap metal. We bring back machinery.
HEDRICK SMITH: So they're doing all the– we're like a third world country.
YVONNE SMITH: We're exporting waste paper, containers full of waste paper. We bring back cardboard boxes with products inside them.
HEDRICK SMITH: [voice-over] Add it all up and the U.S. had a record $120 billion trade deficit with China last year, and it's headed even higher this year.
ALAN TONELSON, U.S. Business & Industry Council: The myth of an enormous and growing China market wound up locking the United States into a trading partnership with China that had to benefit China much more than it could benefit us.
HEDRICK SMITH: [on camera] Because?
ALAN TONELSON: And the reason was China would always be able to sell the United states much more goods than Americans could sell to Chinese because Americans had the incomes that are needed to buy Chinese products. Chinese consumers overwhelmingly don't have the incomes needed to buy American products.
HEDRICK SMITH: So the whole idea was wrong.
ALAN TONELSON: It was completely wrong.
LARRY MISHEL, Pres., Economic Policy Institute: When you look at the growth of the trade deficit with China, you could say that a very conservative estimate is that we have lost more than a million jobs to China since the early 1990s.
BRINK LINDSEY, Economist, Cato Institute: I think it's impossible to say that we've lost a million jobs to China. Trade policy, or trade flows, one way or another, don't have an effect on overall employment numbers. They affect the kinds of jobs we have. And so some number of jobs have definitely been eliminated because of Chinese competition. Another– elsewhere in the economy, other jobs have been created because of Chinese competition. Because American consumers have saved at Wal-Mart buying Chinese goods, they've got more money in their pocket to buy something else, which creates business opportunities for those other business, which means they hire workers they would not have hired otherwise. The net effect, most economists think, is a wash.
LARRY MISHEL: Theoretically, the gains from trade offset the losses from trade. But nothing says there are more winners than losers, and nothing says that for the bottom three fourths of America, that they are net gainers. In fact, I believe that most people have been losers from trade.
HEDRICK SMITH: The impact of China's export boom has been felt all across the U.S. in towns like Circleville, Ohio, population 13,000, a Norman Rockwell kind of town, with its farms and factories, a solid citadel of middle-class America. Former Republican mayor Ron Wunsch has lived in Circleville all his adult life.
RON WUNSCH, Former Mayor, Circleville: The community basically generated its livelihood off of the industry that came into the community, came in in the 1940s and 1950s. Thomson Consumer Electronics was the last large organization to join it. That came in in the 1970s. …
RON WUNSCH, Former Mayor, Circleville: Job opportunities for the kids coming out of high school in this area today are very much lower than they were 10 years ago. There are a lot of people in this community who have families that the father worked 30 or 40 years at a plant, then the son got employed, and a third generation has been employed in some of the plants. And those are gone now. And there's no opportunity for that.
HEDRICK SMITH: [on camera] What are those high school kids going to do?
RON WUNSCH: We don't know. We don't know. …
HEDRICK SMITH: [voice-over] Foreign competition hit other TV makers, too. In east Tennessee, I came across the very last American-owned TV maker, desperately fighting to hang on.
TOM HOPSON, President, Five Rivers Electronics: Well, it's a constant struggle to survive. I mean, it's a very competitive market.
HEDRICK SMITH: Tom Hopson is president of Five Rivers Electronics, an assembler of brand names like Philips, Samsung and RCA. With foreign imports dominating the small TV market, Hopson concentrated on high-end, big-screen sets. But even that was no protection from the Chinese.
TOM HOPSON: By the year 2003, they were, like, increased 1,100 percent in imports. So they just grew at an amazing rate. All of a sudden– they weren't here, they were shipping, you know, maybe 100,000, now they're shipping millions and millions of televisions, all of a sudden, from China.
HEDRICK SMITH: In three short years, Chinese TV makers had grabbed one third of the high-end market, about $350 million of business. But Hopson was convinced he was up against more than just free trade.
TOM HOPSON: You know, we're here to create jobs for our people in Greenville, Tennessee. And on a fair, level playing field, if we can't compete, then we go out of business like anyone else. But if it's unfair and it's illegal and someone's doing something to damage and put these people out of jobs, we're going to try to do something to keep these jobs.
HEDRICK SMITH: Hopson turned to Washington. He filed a trade complaint, charging the Chinese with dumping high-end TVs onto the American market, selling at below free market cost.
SKIP HARTQUIST, Five Rivers Attorney: It's not fair trade. It's not free trade. The Chinese are pricing their products in a manner contrary to the obligations they undertook when they joined the World Trade Organization a few years ago.
The Chinese system has built-in advantages that no one else in the world has. Their currency is undervalued by, we estimate, about 40 percent. Their workers are not treated fairly in terms of worker rights. The government provides subsidies to Chinese producers at preferential interest rates that may not even have to be repaid. It's a rigged system. …
Prof. NELSON LICHTENSTEIN, U.C. Santa Barbara: Joseph Schumpeter, who was an Austrian economist, famous, used the phrase "creative destruction." What he meant was that one mode of production, one form of capitalist economics, comes to the fore. It's more efficient. It's more powerful. It destroys, literally, other forms of production, other firms. And that's what Wal-Mart has done. It has discovered, with this low-wage model, with a– technologically proficient, its global reach– it is a sort of new model of world capitalism, really, beginning in America and the rest of the world. And it is destroying, creatively, but nevertheless destroying competitors and, really, other ways of thinking about the way the world works.
HEDRICK SMITH: [on camera] I guess my question for you is, is Wal-Mart good for America? Is this strategy of Wal-Mart good for America?
BRINK LINDSEY, Economist, Cato Institute: I think Wal-Mart is good for America. Wal-Mart is doing what America is all about, the American market economy is all about, which is producing things consumers want to buy. And Wal-Mart is offering consumers a wide range of goods at rock-bottom prices, and therefore, it is meeting the market test.
LARRY MISHEL, Pres., Economic Policy Institute: Well, if people were only consumers buying things, lower prices would be just good. But people also are workers who need to earn a decent standard of living. And the dynamics that create lower prices at Wal-Mart and other places are also undercutting the ability of many, many workers to earn decent wages and benefits and have a stable life.
BOB McADAM, Wal-Mart V.P.: We absolutely believe that we are raising the standard of living through lowering the cost of goods for people. There are those who criticize us and make assertions that there is somehow a negative to that. And it's a– it's a– it's a premise that I simply reject.
HEDRICK SMITH: In the end, is Wal-Mart good for America?
STEVE RATCLIFF: If you want these low prices, then you go buy your products from Wal-Mart. But what does that actually do for this country? It's putting people out of work, that's what it's doing. And it's lowering our standard of living. That's the bottom line.