Skip to comments.The High Cost of Low Prices
Posted on 05/17/2006 10:55:50 AM PDT by A. Pole
Sam Walton had a dream: find out what people want and sell it to them for less. His dream was a variant of Adam Smith’s assertion in The Wealth of Nations: “The sole purpose of all production is to provide the best possible goods to the consumer at the lowest possible price.” The variation stems from the qualifier “best possible”: Walton’s obsessive quest never extended to quality. And in the 230 years since Smith penned those famous words, society has learned to question his narrow vision of “the sole purpose of all production.”
As books like this demonstrate, Wal-Mart is the elephant in the room that no one is ignoring. Like the blind men who tried to assay the elephant in the fable, many have touched on different aspects of the mega-retailer. Business journalist Charles Fishman’s purpose is to synthesize all the critiques into one overarching analysis of “the Wal-Mart effect,” that is, how the company “gets those low prices, and what impact the low prices have far beyond Wal-Mart’s shelves and beyond our own wallets: the cost of low prices to the companies that supply Wal-Mart, and to the people who work for those companies.”
The author frontloads his account with positives about this largest corporation in the history of the world, although here and there he drops the odd discordant note, each of which gets a full hearing beginning with Chapter Four, “The Squeeze.” The biggest positives are the two for which Wal-Mart is beloved of blinkered free traders: its deflationary effect upon prices and its relentless promotion of efficiency up and down the chain of production, distribution, and sale.
Wal-Mart’s impact on the economy is difficult to assess since it is a notoriously close-mouthed entity, but Fishman has done a fine job of mining what data have been amassed. Fishman uses the insights they afford to move his case studies above and beyond “anecdata” to the level of important conceptualizations of the globalizing economy. The child crusaders protesting at New World Order summits ought to read this book if they want finally to be able to articulate what’s wrong with globalization.
Wal-Mart began in Bentonville, Arkansas in 1962 as a single store and has grown to be the world’s largest corporation and employer. Target and Kmart opened their first stores the same year; the difference between them and Wal-Mart was, and is, the latter’s single-minded focus on offering the lowest possible prices all the time, not just during sales, no matter what it takes. Sam Walton banked on the addictive power of “too good to be true” bargain pricing to grow his business by cannibalizing existing retailers. It has workedand in the process helped transform America from the workshop of the world into a nation not even of shopkeepers but of shop assistants (“sales associates”).
“In 2003,” notes Fishman, “for the first time in modern U.S. history, the number of Americans working in retail (14.9 million) was greater than the number ... working in factories (14.5 million).” These are the jobs that Wal-Mart has created; at the same time, “10 percent of everything imported to the United States from China” is sold at Wal-Mart. The company should have a seat at the United Nations. At the very least it should register as an NGO.
A nation’s businesses used to favor and protect the home market at the expense of “the colonials.” This book demonstrates that the Wal-Mart effect is the most powerful market force expelling jobs and technology from our own country. Not only does Wal-Mart create low-wage jobs that lure further illegal immigrants here to do jobs that Americans could not afford to do even if they wanted to, but it provides a place those illegals can afford to shop. At the same time, it forces American taxpayers to subsidize its low wages by transferring the cost of health insurance to government programs.
Fishman excels at combining statistics with first-person narratives and tales of the rise and fall of companies. His book does justice to the fascinating material drama of the business world and to the substantiality and likeability of its inventors, engineers, managers, salesmen, and employees. Fishman has a warm feel for ordinary Americansguys named Jim, Bill, and Larry who know their work inside out, talk a colorful lingo (to “have a big pencil,” to “go vertical”), and still care, often passionately, about craftsmanship, a word absent from Wal-Mart’s vocabulary.
Snobs sneer at the slobs who roam Wal-Mart’s aisles (as gleefully and lovingly portrayed on the TV comedy “My Name Is Earl”), who guzzle Wal-Mart wines like “NASCARbernet” and “World Championship Riesling,” whose pastors moonlight as Elvis impersonators and whose Ph.D.’s stand for “post-hole diggers.” For that matter, the critique of mega-retailers goes back at least to the 1920s, when the petite bourgeoisie found itself hard pressed by the success of department stores. But the real problem with Wal-Mart is that it knows the price of everything and the value of nothing.
One of Fishman’s ordinary guys, president Steve Dobbins of Carolina Mills, makes the book’s most eloquent critique:
People say, how can it be bad for things to come into the United States cheaply? How can it be bad to have a bargain at Wal-Mart? Sure, it’s held inflation down . ... But you can’t buy anything if you’re not employed. We are shopping ourselves out of jobs.
We want clean air, clean water, good living conditions, the best health care in the world. Yet we aren’t willing to pay for anything manufactured under those restrictions.
One representative story might be called the Great Pickle Caper. Vlasic Corporation found itself bound to supply huge gallon jars of pickles to Wal-Mart for $2.97, a price at which it made maybe a penny a jar. An “abundance of abundance,” the jars’ sales went through the roof and became a “devastating success” for Vlasic. A former Vlasic executive comments that consumers would “eat a quarter of a jar and throw the thing away when they got moldy. A family can’t eat them fast enough.” Forced to continue offering the deal or lose its entire Wal-Mart account, the company saw its profits squeezed for two and a half years before Wal-Mart finally let it “up for air.”
In January 2001, after Wal-Mart was done making its “statement,” Vlasic filed for bankruptcy. Fishman discerns the same “devastating success” among other suppliers, from Huffy bikes to Lovable lingerie: bankruptcy and closed factories here, a diaspora of jobs and entire industries to the Third World. “For the wages of a single U.S. factory worker, competitors could hire seventy people in Indonesia,” one former manufacturer tells Fishman. Not only wages are forced downward: pensions, union representation, job security, overtime, health benefits, the very concept of a “career” are all flattened by the cost-cutting juggernaut.
Chapter Seven, “Salmon, Shirts, and the Meaning of Low Prices,” uses the explosive growth of the farmed salmon industry as a case study. Wal-Mart sells more salmon than anyone, at $4.84 per pound. That is “a price so low, it doesn’t seem to make sense if you think about it for even a moment.” And indeed, the unpaid costs include miles of seabed buried in a “toxic sludge” of fish excreta, feed, and untreated entrails on the environmental side; and long hours at low pay with few benefits on the labor side. The eerily low price, in other words, masks the high cost of what the price does not “internalize”humane, sustainable conditions for both salmon and humans.
No factor of production is more cannibalized than that of labor, because it is human labor more than any other factor that creates value. From the Wal-Mart manager who works a 60-hour week starting at 6:00 in the morning to the teenage girl in Bangladesh who, according to an international lawsuit filed in September 2005, was forced to sew pocket flaps onto 120 pairs of pants per hour for 13 cents per hour (“If you made any mistakes or fell behind on your goal ... they slapped you and lashed you hard on the face with the pants. ... I clean my teeth with my finger, using ash. I can’t afford a toothbrush or toothpaste”), the primary material out of which costs are squeezed is human. It is important to note, by the way, that even Bangladeshi labor law forbids the sort of workplaces patronized by Wal-Mart’s buyers.
Fishman at this point asks, “Do Americans need clothing to be so inexpensive that the people making it cannot afford a toothbrush?” The answer is no, of course we don’t, but Wal-Mart’s cost-cutting dynamic not only demands it but forces all who resist it out of business. The ultimate goal is not really “low prices for the consumer” but the obliteration of all competitors. Once this goal has been achieved through reverse predatory pricing (AKA dumping), once Wal-Mart has become one-stop shopping for every product and every service in every land, the pressure to keep prices low will abate, to say the least.
Wal-Mart’s pricing monomania has rooted out wasteful practices like the packaging of bottles, jars, and canisters of product in cardboard boxes but has itself created another gigantic category of waste: the bargain TV or DVD player or lawn mower that, purchased without the benefit of a knowledgeable service person and manufactured with cheaper and cheaper materials, soon breaks down, is not worth repairing, and winds up dumped in the trashthe Pickle Caper writ large. Fishman notes, “In the Wal-Mart economy, we as consumers often buy too much just because it’s cheap.”
Quality vs. quantity has never been counterposed more urgently. Price deflation is here accomplished by wage reductiona process directly counter to the American Dream, which sings the ever rising standard of living, the mutability of classes, the betterment of successive generations. Rarely has capitalism been rendered more “visible” than in Sam Walton’s “always low prices,” an Absolute Idea thinking itself over and over in idiot repetition.
W.B. Yeats wrote in “Easter 1916” that “Hearts with one purpose alone/ Through summer and winter seem/ Enchanted to a stone/To trouble the living stream.” Sam Walton wanted to make the whole world Waltonville, just as Mr. Potter in “It’s A Wonderful Life” wished to make it Potterville. Their dream is the stuff of nightmares for George Bailey and the rest of us. Even if you include “best possible goods” in your vision along with “lowest possible price,” you have still not defined “the sole purpose of all production.” Production is human self-creation, self-invention, self-discovery, servicehumbling, ennobling, restorativesacred toil.
According to Jeff Foxworthy, you might be a redneck if you’ve ever been promoted to dishwasher, or if the last physical you had was on board a UFO. In the Wal-Mart economy, you might not be a redneck yet, but you could be soon. If taxes are the price we have to pay for civilization, higher prices may be the price we have to pay for a First World society.
Marian Kester Coombs writes from Crofton, Md.
Does this mean no more updates on light rail and seeing the lyrics to the "Monorail" song?
Firms like Wal-Mart become targets.
Its a "bad thing" to be successful. When capitalism works, the socialists among us must find bad within it. After all, it bothers them to see such businesses succeed.
Do I sound strange? Probably.
But ask yourself why across the world McDonalds is the stage of anti-American protests? Why McDonalds is the target of the environmentalist, the social activist or whatever else they want to call themselves. The Golden Arches are a symbol of free market activity, globalization, capitalism and the US. Its painful when this firm is successful. Years ago you heard the exact same Bullshit about McDonalds, they were deemed as bad for the environment, they were bad for society with their low wages and and and.
OK, Wal-Mart is the new bulls-eye. Got it.
So who was the Vlasic genius that signed the contract? Did Wal-Mart hold a gun to their head and make them sign it?
(This is not directed at you. I am just expanding upon your previous comment.)
1806: The only reason the plantation system is successful is that it supplies needs for people. It does not do anything unethical. When I need cotton, or tobacco, or indigo, or sugarcane, or rice, I just go to the market square and buy it from a friendly, helpful plantation owner. He provides plain, ordinary stuff, efficiently produced by happy, singing slaves.
Moral: Economic practices in which human beings are mere means to an end are immoral no matter how well they work.
OK My remarks at 7 were not Wal-Mart specific but aimed at the situation that the NAFTA type promise of 'trade bringing good paying jobs to America' is not met by the Wal-Marts. The limbo of how low can you go in paying people is not a long range solution to economic prosperity.
More than 100 million Americans shop at Wal-Mart weekly. Their dollar vote makes everything this idiot whines about meaningless. The amount of distortions and outright lies in this article makes it too painful to read. There is nothing conservative about this writer or her article.
This article is just a lazy, sloppy job of writing. It's the same old rehash of garbage spewed by the haters and union hacks every week.
I know it is hard to believe but NO ONE IS FORCED TO WORK THERE OR SHOP THERE. Shocking as that is, they seem to be shopping there in big numbers and applying for jobs there in record numbers.
We can all work in the retail business selling chineeeeeze-made stuff to each other.
"So who was the Vlasic genius that signed the contract?"
Those guys don't sound too bright. It's like a Wal-Mart exec was waiting for him in the back seat of his car when he got off work, held a knife to his throat and made him sign the deal.
I think Walmart proces are too low and that gas prices ought to be a lot higher if we really want an alternative to buying oil from our enemies.
It has workedand in the process helped transform America from the workshop of the world into a nation not even of shopkeepers but of shop assistants (sales associates).
I work for Saks. The people in our stores are called, you guessed it, "Associates". The employees at McRaes are called "Associates". When I worked at a Roses department store in college, the sign on the break-room was "Associate Lounge". I'm not sure anyone in this country has been called a "shopkeep" for a hundered years. What a ditzy little socailist she is.
Thank God you're not in charge or we'd really be hosed!
If for any reason they are not able to get their goods from China they will collapse like a house of cards.
He continues to send him love notes, in case he returns. It's kinda sweet, in an economically illiterate, gay sorta way.
Whatever happened to laissez faire?
Latest numbers I've seen indicate WalMart buys about $22 billion out of $240 billion from China. About 9%.
Excellent article -- This statement really says is all:
"We want clean air, clean water, good living conditions, the best health care in the world. Yet we arent willing to pay for anything manufactured under those restrictions."
I am convinced that Walmart's business plan is to become the world's largest "company store." By keeping wages and prices low, Walmart pretty much guarantees that most of its 1.5 million employees can only afford to shop at Walmart, thereby retaining a large part of what Walmart pays out in wages within the Walmart economy.
Please don't confuse the bashers with facts. You know they hate facts.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.