« Expensive Wal-Mart Flip-Flops | Main | Will the Boat Sink the Water? »

Monday, August 28, 2006

More Wal-Mart

Here's a couple of follow-up items to the post about Wal-Mart. Both are from Ezra Klein at Tapped. His view is two-fold. First, it's not Wal-Mart, but what Wal-Mart represents that is the problem. Second, what Wal-Mart represents is a firm with excessive market power in input markets and it is using that power to suppress wages and payments to its suppliers. Because of its size and influence, that spills over to other sectors of the economy resulting in low wages and benefits generally, and difficult conditions for firms supplying goods to Wal-Mart or for firms trying to compete against it:

Wal-Mart: Round 2, by Ezra Klein, Tapped: Sebastian Mallaby's obtuse column about anti-Wal-Mart sentiment among Democrats offers me an opportunity to expand on some comments I made last week. Then, referring to a Jonah Goldberg column on the same subject, I said that "how to handle Wal-Mart is among the two or three most important issues facing the country." ...

Here's the point: It's not about Wal-Mart. Many on the left and the right make to believe this is primarily about how much H. Lee Scott pays his cashiers. It isn't. Rather, Wal-Mart is setting the norms and standards for the coming service economy. Where GM and Ford played this role for the manufacturing sector -- and the unions forced them to use their power to create the American middle-class -- Wal-Mart is assuming primacy as manufacturing's successor, and doing so without the union involvement or commitment to high wages that their predecessors exhibited.

That's a serious concern, and it reaches into every corner of the economy. Take health care. Wal-Mart's paltry offerings -- far beneath what Costco or Target (we'll come back to them) have traditionally offered -- give them a massive competitive advantage against the competition. So let's say you're a midsize retailer with national ambitions. You essentially can't offer a decent benefits package because Wal-Mart doesn't, and you can't allow their prices to remain substantially below yours (where they already rest, thanks to Wal-Mart's economy of scale). Target is a great example here: They used to offer terrific benefits, but have now resolved to move entirely to HSAs. They couldn't compete against Wal-Mart by offering comprehensive insurance, so they stopped.

Or take the supermarket chains. A couple of years back, Southern California saw a massive grocery strike, as the three major chains colluded to destroy benefits and lower wages in order to compete with Wal-Mart's low labor costs. The striker's lost since the supermarkets were too afraid of Wal-Mart's advantage to give in.

Again, this isn't about Wal-Mart. Rather, it's about every company that competes with them, and every producer who sells through them. In the first case, Wal-Mart is driving down worker salaries and benefits by so resolutely grinding their own associates into the dirt. So rather than watching the service economy mature into a middle-class conveyor as the manufacturing industry did before, we're seeing it move in the opposite direction... Something is better than nothing, but something remains inadequate.

In the producer's case, the prices Wal-Mart demands have forced them to not only cut labor costs, but have often forced them offshore all together. It used to be that producers could pay their workers decently and keep production domestic by passing higher costs down the line. Wal-Mart's size and market share keeps them from doing so, and it's thrown the whole relationship out of balance -- at least where the workers are concerned. So when I worry over Wal-Mart, I'm fretting over the shift to a low-wage, low-benefit service economy. Wal-Mart's size and power makes the two indistinguishable.

And one more:

Can't Argue with Results, by Ezra Klein, Tapped: Writing in The New York Times, David Leonhardt and Stephen Greenhouse have the crispest, clearest description of how sick our economy has become that I've yet seen:

The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity - the amount that an average worker produces in an hour and the basic wellspring of a nation's living standards - has risen steadily over the same period. As a result, wages and salaries now make up the lowest share of the nation's gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960's. UBS, the investment bank, recently described the current period as "the golden era of profitability."

And let's not fool ourselves into believing that the difference is made up in benefits; increases there have failed to keep place with inflation as well. The reason that the statistics on compensation haven't attracted more media alarm is that they've remained positive: the media reports mean compensations, where massive raises for the rich have kept the numbers positive, rather than median compensation, which has fallen.

The culprit here is a simple lack of bargaining power on the part of employees. The pernicious fiction that corporations will happily redirect their profits into appropriate raises and benefit increases has been widely adopted -- we're now supposed to assume that whatever Wal-Mart or UBI is paying is exactly what they should be paying, and the willingness of workers to take those jobs is proof that the compensation is adequate. That, of course, is nuts. The balance of power between worker and employer has shifted radically in the employer's favor, and while folks still need jobs, the decline of unions and the rise of conservative (and neoliberal) regimes in government have allowed corporations to set the terms. Those terms, as you'd expect, prioritize executive salaries, corporate profits, and share prices, while seeking to keep labor costs as dirt low as possible. They've succeeded.

    Posted by on Monday, August 28, 2006 at 01:14 PM in Economics, Market Failure | Permalink  TrackBack (0)  Comments (29)


    TrackBack URL for this entry:

    Listed below are links to weblogs that reference More Wal-Mart:


    Feed You can follow this conversation by subscribing to the comment feed for this post.