The Walmartization of America

Walmartiztion of America Part II
By Paul Herbig

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Robert Reich’s editorial column on the future of work in America in the Friday, December 26, 2003 Wall Street Journal indicated the economic trends were evolving to a two class system: professionals and “personal service workers.” I would rename with two classes: the Haves and the Have-littles. Conspicuously absent is the Middle Class. Traditionally, the middle class contained higher paying union or skilled blue collar jobs (going to China), professionals (accountants, administrative, information technology—going to India), or small business owners (being squeezed out by Walmart and other retail conglomerates). The events Reich describes (and which indeed are occurring even as I write this) and the economic trends that appear to be in process, predict the end of the American Middle Class as we know it.
The Have-littles, those in the personal services (e.g.,retail, hotel/restaurant, other personal services), earning little more than minimum wage (as more and more fall into this category, the over-supply of workers will reduce wages for all) can not possibly hope to ever escape poverty status; even with two full-time breadwinners, they will still not eek out an acceptable living. If this sounds uncomfortably like the economic curve in lesser developed countries (a small upper class with most of the resources, a vast lower class with little of the resources, and a small, almost nonexistent middle class), that is indeed the end result.
As one reader replied, confirming this bleak future is already upon us: “My wife has worked at our local Wal-Mart for a few years and doesn't see much future for those who are working there. The associates who work the floor are paid a tad over minimum wage, have no benefits unless they purchase them, have one paid holiday per year, work an average of 34 to 36 hours per week. Not exactly the kind of job to raise a family on, or supplement one's retirement.” And the future will only have more such workers and families.
A Forrester Research study estimated that over the next 15 years some 3.3 million U.S. service sector jobs would be sent abroad. Economists at U.C. Berkeley say as many as 14 million programming, accounting, paralegal and other service jobs are at risk of being offshored. (Goldman Sachs & Co. says an estimated 200,000 IT-related service jobs have left the United States in the last three years.). Perot, in 1992, may have been right about the his famous job loss statement, just a decade premature and turning to the right (India, China) instead of straight South.
I believe this tremendous growth of offshoring is the result of convergence of several factors:
1) A labor market (high unemployment) that provides companies with upper hand in almost any personnel related activity. How else can you account for the passiveness in which employees knowingly and willingly train Indians as their replacement. If this were 1999 or before, those same employees in this same scenario would have given their employers the Bronx cheer on their way out the door and not humiliated themselves. The ultimate end to all this is wages for developed countries to converge with those from the developing countries: i.e., it will stop when our programmers are paid the same as those from India. A generally considerable lessening of the quality of life will be the inevitable result for all developing countries, but particularly noticeable for the U.S. .
2) Wal-mart’s rise to dominance, its obsession on costs, and its controlling behavior upon is suppliers, is forcing those suppliers to offshore to meet the prices Walmart allows them to charge. The automotive companies are also beginning to exhibit this behavior. A total focus on costs to the exclusion of relationships or any other long term conditions can only brew bad (I never have trusted beancounters to have long term interests in mind).. Those jobs that the employees at Wal-Mart did and the pay of the employees once provided middle class wages but with Wal-Mart in town the pay of these people drops to near poverty level in wages. And this isn’t just within the Wal-Mart store it also happens in Wal-Mart’s competitors that have to compete with Wal-Mart. We are spiraling towards the lowest common denominator. Wal-Mart, makes no apologies for its role in the spiralling down of employee wages and benefits. Wal-Mart, obviously, has de-emphasized the popular "Made in America" campaign that founder Sam Walton launched in the 1980s (and it was not coincidental that only after Sam’s death that the global corporate philosophy now seen presented itself—Sam would be turning in his grave if he saw what was being done now by the company that bears his name.)
This obsession on costs has spread to other American corporations. Electronic Data Systems Corp., founded by Ross Perot but no longer run by that noisy patriot, now recruits $1.25-an-hour tech workers in India and sheds their $10-an-hour counterparts in EDS's home state of Texas. Wall Street brokerages including Morgan Stanley and J. P. Morgan Chase & Co. are shifting from New York to India the ground-floor stock-research. Both India and China are already well-known to recruiters from Intel Corp. and Microsoft Corp. Carrier Corp. will relocate production to Asia from Syracuse, N.Y. No inducement or threat could now save Syracuse's 1,200 Carrier jobs, a company spokesperson said, "unless they are going to pick up New York State and move it."
3) Global marketplace and trading allows total international competition. Now with the internet, you can compare suppliers from all around the globe instantaneously. Now the Indians and Chinese can be given equal attention and low-cost takes on an international dimension. One major concern here is national security. As we lose our manufacturing to China and technology skills to India, our dependence on these nations become ever more critical. What happens in a time of national crisis or war? Will we still have enough manufacturing capability and professional skills nationally to fall back on? Is it only me or do others see an analogy of our giving India software expertise to that of selling scrap iron to Japan during the 30s?

The Wal-Mart economy knows the price of everything and the value of nothing - certainly not of a well cared-for workforce, or of a full-employment economy, or of competitive marketplaces that have not yet succumbed to the predations of a single omnipotent enterprise. And who's to blame for that? The consumer: you and I. At Wal-Mart, the customer is king, everyone else be damned: competitors, employers and even the domestic manufacturing base..

One suggested solution to the Walmartization of America dilemma is wage insurance as a possible prescription for those displaced by globalization. This takes care of providing a living wage but it does nothing to provide jobs or the self-respect that goes with them. Andy Grove, the corporate conscience and former CEO of Intel, has taken up the cause, warning that something drastic must be done to prevent the bulk of new information technology jobs from being shipped overseas. But Grove's remedies, including bigger university R&D budgets, tax cuts and tort reform, would do nothing to curb domestic job loss, only strengthen the balance sheet of domestic enterprises still in the hunt for expedient cost-saving devices.

My own solution is more to the point towards saving jobs.
1) All governmental entities (local, state, federal) to require any business doing business with them to provide made in American goods, to certify the goods and services were produced in America by workers eligible to work in the U.S. This should require enough work to counter some of the effects as well as provide the cushion for national security the next time it is needed. .
2) I would think a company would use "Made in America" as a marketing strategy and be strong enough to make it work. Walmart before Sam’s death did that and prospered. Why wouldn’t another company or many such corporations? If consumers were to purchase because of that factor, others would follow.
3) .Not a consumer boycott of foreign made goods but more positively, a consumer procott movement that buys only American made goods or encourages the purchase of such goods, perhaps even as far as having the vendors of each product specify what percentage was American produced. This could result in a boycott of retailers (one comes to mind) that do not sell American-made goods.
4) Establish a “Made in America” Political Party. The Democrats are missing a sure opportunity this year by not addressing this issue. Only John Kerry has raised it. By making this issue the fundamental difference between himself and the other Democrats, let alone Bush and the Republicans, a national debate on the issue could be established.

Everything Wal-Mart does - particularly its low prices - is done in the name of slavish devotion to consumer demand. And every day, millions of Americans ratify Wal-Mart's strategy by shopping there. As long as the consumer does not care, the end result is obvious. Only when the consumer rebels and decides that a strong country, a strong economy, jobs for himself and his neighbors, and a positive future is more important than saving a buck, will the trend turn-around. Until then, the consumers have bought into a devil’s bargain for low prices.