As Goes Wal-Mart

Beth Shulman is the author of The Betrayal of Work: How Low-Wage Jobs Fail 30 Million Americans (The New Press, 2003) and works with the Russell Sage Foundation’s The Future of Work and Social Inequality projects

In the economy, the bigger you are, the bigger the shadow you cast. But sometimes, when you start small, it’s hard to remember your new size and its impact.

Take Wal-Mart. When it started small in Arkansas, perhaps the company felt it had no choice but to create primarily low-wage jobs that offered few, if any, benefits, to successfully compete. But isn’t it high time to rethink this view? Couldn’t Wal-Mart provide family-sustaining jobs and be the General Motors of the 21st century ?

H. Lee Scott Jr., the CEO of Wal-Mart, says no. In a press briefing in Bentonville, Ark., he described General Motors as the company that “Usher[ed] in the great American middle class that this country is so proud of and rightfully so….” But he insisted that:

Retailing doesn’t perform that same function in the economy as GM does or did. Retailing has never occupied the top tier of wages in this country, or in any country… [If Wal-Mart raised wages and benefits] this could erase Wal-Mart’s profit or force it to raise prices, enabling less efficient rivals to thrive.

But is this true?

First, Scott claims that Wal-Mart can’t be like General Motors because there is something inherently low-wage about the retail industry. But there was nothing inherently high-wage about the automobile industry. General Motors didn’t always pay good wages and benefits. It became a “good” employer after workers organized and collectively bargained with the company for better wages and benefits. Likewise, there is nothing inherently low-wage about retail. In fact, one need only look closer at the retail food sector, to see that workers have enjoyed good middle-class jobs elsewhere in the industry for several decades. Meanwhile, jobs that were once low-wage jobs—such as janitors, hotel workers and home health care workers—are likewise becoming better jobs through unionization. And Wal-Mart is not constrained by global competition in its wages and benefits. These on-site retail jobs must be done here in the United States. Wal-Mart workers are not competing against cashiers or stockers in Bangladesh or China.

Second, Scott argues that if Wal-Mart paid better wages and benefits, it would reduce its profits. The implication is that this would damage the company’s position with investors. But it is the negative publicity about Wal-Mart’s treatment of workers—paying its workers poverty-level wages and providing few benefits; harassing and firing workers for trying to organize a union; sex discrimination allegations resulting in the largest class-action sex discrimination lawsuit in history; and mistreating immigrant workers— that is contributing to Wall Street’s declining perception of Wal-Mart’s potential. While Wal-Mart’s profits nearly doubled, from six to 10 billion dollars since 2001, its stock declined by nearly 10 percent. This is worse than the overall market averages and far worse than Wal-Mart’s competitors, whose stock prices climbed during the same period. There is no reason to believe the public pressure to change Wal-Mart’s labor practices will lessen and the negative publicity will slow. Indeed, more groups are challenging Wal-Mart and its low-road policies.

But equally important, Wal-Mart does not just have an obligation to its shareholders. It has some responsibility to its workers and to the communities in which it operates. By treating workers so poorly, it is abandoning its basic corporate responsibilities.

Third, if Wal-Mart didn’t want to reduce its hefty profits, Scott says it would have to raise prices, thus opening the door for competitors to undercut it. But let’s consider this argument. Wal-Mart is the world’s largest profit-making corporation in the world, with 1.4 million employees and annual sales of a quarter of a trillion dollars. It has close to 5,000 stores worldwide. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway and Kroger combined. To say that other competitors would trump them in light of their size and market share is disingenuous.

Moreover, other retailers, such as Costco, Safeway, Giant and Kroger already pay family-sustaining wages and benefits. Wal-Mart would not be alone. In fact, if Wal-Mart did raise its wages and benefits, other employers in the industry would likely raise their wages and benefits to compete with Wal-Mart for workers. Wal-Mart’s higher wages and benefits would have a ripple effect throughout the industry. Just as General Motors set a standard of family-sustaining wages and benefits for the auto industry in the last century—and indeed, for American manufacturing—Wal-Mart would set that standard today, instead of pursuing a low-wage model that exerts downward pressures on wages and benefits throughout our economy.

Further, growing numbers of American communities now understand that the social cost that accompanies Wal-Mart’s low-prices is too high. As taxpayers, we all end up subsidizing Wal-Mart’s deficient wage and benefits package through the taxpayer-subsidized food stamps, child care, health care, and housing that support Wal-Mart “associates.” A recent report from the University of California at Berkeley Labor Center finds that Wal-Mart’s reliance on public assistance programs to support many of its 44,000 employees in California costs taxpayers an estimated $86 million annually, with $32 million in health-related expenses and $54 million in other expenses. Wal-Mart’s low prices are no longer such a bargain when it becomes clear that the customers’ taxpayer dollars go to subsidize what Wal-Mart fails to provide.

So there really is a choice. What will it be?

Wal-Mart, the world’s largest corporation with a 2004 gross income of more than $256 billion, can look around to see a threatened society with families who can’t provide for their basic needs and continue to go about its business as usual. Or it can offer a living wage, affordable health insurance and the means to a better future. General Motors became the template of the 20th century, doubling the real income of auto workers in the middle of the 20th century—and creating a society in which those at the bottom shared in America's prosperity.

One thing is certain: Wal-Mart has a decision to make about how it wants to do business, the society it wants to help share and its legacy in America’s history books. It can either become the General Motors of the 21st century by rebuilding a strong middle class, or it can continue to lead our country down the dangerous path to a low-wage economy. We all have a stake in its decision. Because, like General Motors several decades ago: As goes Wal-Mart, so goes the nation.