16495244 walmart and the new world order

7/30/2019 16495244 Walmart and the New World Order

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WAL-MART ANDT HE NEW WORLD ORDERBy Nelson Lichtenstein

WAL-MART AND THENEW WORLD ORDERA Template for Twenty-FirstCentury Capitalism?GIANT CORPORATIONS ARE THE MOST IMPORTANT INSTITUTIONS SHAPING THE CHARACTERof world capitalism. As Peter Drucker, the founder of modern managementscience, put it nearly 60 years ago, the great corporations of our time are "therepresentative social actuality" shaping the general condition of "modern in-dustrial society." The "emergence of Big Business as a social reality during thepast fifty years is the most important event in the recent social history of theW estern w orld." H e wrote all that in 1945, but his und ersta ndin g is just as truetoday, if on a scale that includes not only the West, but theEast andglobalSou th as well.

N EACH HISTORICAL EPOCH A PROTOTYPICAL EN-

terprise embodies a new and innovative setof technological advances, organizational

their time and place. By template, we mean notjust the internal organization ofthe business,or the character ofthe market it taps or creates,


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larly successful form of business enterprise.These template businesses are emulated becausethey have perfected for their era the m ost effi-cient and profitable relationship between thetechnology of production, the organization ofwork, and the new shape of the market. Thus

Wal-Mart is the singlelargest US. importer fromChina and the largestprivate employer in boththe United States andMexico,at the end of the nineteenth century the Penn -sylvania Railroad declared itself "the standardof the world." In the mid-twentieth century.General Motors symbolized sophisticated, bu-reaucratic management, and technologicallyproficient mass pro duc t ion. Whe n PeterDrucker w rote The Concept of the Corporationin 1945 it was the General Motors organiza-tion, from the Flint assembly line to the execu-tive offices in Detroit, that exemplified corpo-rate modernity in all its variegated aspects. Andin more recent years, first IBM and thenMicrosoft has seemed the template for an in-formation economy that has transformed thediffusion and p roduc tion of knowledge arou ndthe globe.

At the dawn of the twenty-first century,Wal-Mart has emerged as just the kind of worldt ransforming economic ins t i tu t ion Peter

television makes overwhelmingly clear, Wal-Mart is an inescapable touchstone for so manyof the social, u rban , labor, and global issues thatconfront twenty-first century Americans. InCalifornia, where Wal-Mart's actual footprintis still mo dest, the expec tation that this corpo -

ration will build scores of giant new"supercen-ters" has generated one highprofile confiict after another. A bitter,four-month grocery strike that began inthe fall of 2003 was provoked by Wal-Mart's downward competitive pressureon the old-line supermarkets. In April2004, Ingle wood residents won their 15minutes of fame when that majority blackand Latino city voted down a Wal-Martsponsored referendum , designed to pavethe way for construction of a hugesupercenter. Then, in August 2004, the

Los Angeles city coun cil enacted an ordin ancerequiring "big box" stores like Wal-Mart to fundan "economic impact" analysis to determinetheir effect on co mmunity wages, existing busi-nesses, and traffic patterns. T he next mon th theDem ocratically controlled legislature passed asimilar law designed to apply to the entire state,but Governor Schwarzenegger vetoed the bill.And while all this was going on, a San Fran-cisco judge gave the Berkeley-based ImpactFund pe rmission to seek higher pay and backpay for m ore than a million wom en workers atWal-Mart, in the largest class action employ-ment discrimination suit ever certified by a fed-eral court.

Founded just over 40 years ago by SamWalton and his brother Bud, this Bentonville,Arkansas, company is today the largest profitmaking enterprise in the world, with sales of


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had 4,688 stores worldwide, about 80 percentof them in the United States. Twenty millionshoppers visit its stores each day and more thanfour out offiveU.S. households purchase at leastsome products from the retailer each year. Itdoes mo re business than Target, Sears, Km art,I.e . Penney, Safeway, and Kroger com bined. Itstruckingfleet s the largest private carrier in theUnited States. Wal-Mart is the single largest U.S.importer from China and the largest privateemployer in both the United States and Mexico.If this corporation were an indep endent coun-try it would have been Chinas eighth largesttrading partner, ahead of Russia and Britain.

In selling general merch andise and grocer-ies, it has no real rivals. A Harvard BusinessSchool study estimates that by 2008 the com-pany will double its sales and employ at least2.2 million "associates" worldwide. In March2003, Fortunemagazine ranked Wal-Martforthe first timeas America's most admired, aswell as its largest company. M any observers ex-pect W al-Mart to gross a trillion dollars a yearby2013. Indeed, Wal-Mart perfectly embodiesthep rocess of "creative destruction" iden-tified by the early twentieth centuryeconomist loseph Schumpeter as the en-gine by which one mode of capitalist pro-duction and distribution is replaced byanother. And as Schum peter m ade clearearly in the twentieth century, every setof technological and organizational in-novations not only reconfigures the immedi-ate econom ic land scape, but it also casts a so-cial and political shadow across all of society.

And it is precisely Wal-Mart's enormoussocial, economic, and cultural weight thatmakes Wal-Mart not just an organizing impe ra-

no company of Wal-Mart's size and influenceis a "private enterprise." By its very existenceand competitive success, it rezones our cities,determines the real minimum wage, channelscapital throughout the world, and conducts akind of internationa l diplomacy with a score ofnations. In an era of weak unions and waninggovernmental regulation, Wal-Mart manage-ment may well have more power than any otherentity to "legislate" key comp onen ts of Am eri-can social and indu strial policy.

The last time an American company hadsuch power was 50 years ago when GeneralMotors was the largest and most profitableAmer ican corpora t ion , wi th sa les tha tamounted to about three percent of the grossnational product, which made the car makeran even larger economic presence than Wal-Mart is today. (Wal-Mart's share of the GNP isstill only 2.3 percent.) Both Wal-Mart and GMare template enterprises, but the patterns theyhave both done so much to establish have hada very different impa ct on w orking-classAmerica.

,.. no company of Wai-M arts size and influenceis a private enterprise!'

In 1953 when President Eisenhower ap-pointed General Motors President Charles E.Wilson to his cabinet, the GM executive ap-peared before Congress to defend his views andqualifications. When asked if there was anyconfiict between his career as an auto execu-


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country was good for General Mo tors, and viceversa."

Congress eventually confirmed CharlesWilson as Secretary of Defense, but his bolddeclaration generated a bowl of outrage that b asnot quite lost all its voltage even after half a cen-tury. Wilson's quip migbt have been arrogan t,but it was controversial precisely because tberewas a plausible case for making it. In its hey-day, from the late 1920s through the 1970s,General M otors was the largest corporation inthe United States, dominating the country'smost im portant industry. And it was not justthe largest manufacturer of cars, hut also ofheavy trucks, locomo tives, and military equip-m ent. It was a major player in aircraft pro duc-tion, and in household appliances, and the GMAcceptance Corp oratioti was by far the largestretail credit institution in the United States. LikeWal-Mart today, it had no competition thatcould threaten its market supremacy. And alsolike Wal-Mart, whose ever-present TV spotsclaim a beneficial link between the corporation'sfortune and that of workers, customers, andcommunity, one might scoff at the claim, butno one could ignore it.

It is therefore useful to juxtapose these twocorporate templates, if only to gain some pur-chase on how th e history, economics, and soci-ology of these giant enterprises can generateinsights and questions that m ay help us see whatis uniquely transformative about Wal-Mart, andwhat is merely a function of its sheer size andmarket lev er^ e. Does this compare apples andoranges? General Mo tors and Wal-Mart m ightseem to be in quite different lines of business.One is primarily the manufacturer of durableconsu mer goo ds, while the other is essentially

But upon closer inspection, these differ-ences seem less salient. GM did manufacturelots of cars, but its franchised dealer system,which was always kept on a tight leash, soldthem by the millions, and its wholly ownedGMAC subsidiary financed them, and som e-times mad e as much profit as did the produc -tion side ofthe corporation. W al-Mart is obvi-ously a hig retailer that buys its goods fromthousands of supplier firms. But the relation-ship between W al-Mart and its suppliers is anincreasingly intimate one that is transform ingWal-Mart into a de facto man ufacturing com -pany. At GM the m anufacturing end ofthe en-terprise squeezed the car dealers; at Wal-Martthe retail sales operation w ags the manufactur-ing tail, but in the end it may not ma tter all thatmuch. W hen it comes to giant global enterprise,we still hve in an ind ustrial world. More peoplework in factories today than at any time in hu -ma n history. Still mo re sell, talk, or ma nipu latea kej^o ard unde r assembly line conditions. Thepostind ustrial age has not yet arrived.

Both General Motors and Wal-Mart arethemselves high produ ctivity workplaces, andboth generate economies of scale that have hada substantial ripple impact throug hou t the restofthe economy. They did not invent the tech-nologies and the organizational innovationsthat generated this productivity dividend-Ford was mo re creative in t he early years ofthetwentieth century, and Chrysler pioneeredmany of the innovative engineering break-throughs we associate with the midce ntury au-tomo bile. Likewise, the Walton b rothers alwaysacknowledged their debt to such retail innova-tors as Price Cluh, I.C. Penny, and Km art. TheWaltons took the idea of self-service from Ben


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French Carrefour mark ets. But Wal-Mart, likeGeneral Motors, perfected, integrated, and sys-tematized technological and marketing ideasput in play by their co mp etitors. And in doingso they both ratcheted up their own overall pro -ductivity, and m ade it impossible for any com -petitor to survive without emulating the tem-plate firm. Thus Ford imitated GM in 1946 bypurging the managerial men and m ethods putin place by the original H enry Ford in order tomake itself fit the GM template.

What makes for giganticism in big busi-ness? Why was GM so big at midcentury andwhy is Wal-Mart so huge today? In their theoryofthe firm, business economists have describedthe corporation as an "island of consciouspower" in an "ocean of unconscious coopera-tion, like lump s of butter coagulating in a pailof buttermilk." Every firm has an optimal sizebeyond which the risk of loss from misman-agemen t m ore than offsets the chan ce of gainfrom the economies of scale it can realize. Inthe first half of the twentieth c entury GM be-came a vertically integrated conglom erate be-cause teletype, telephones, and good roads en-abled th e corpo ration to deploy its famous sys-tem of centrahzed control and decentralizedoperations across dozens of states and scoresof major production facilities. But such highlyintegrated production and distribution withina single firm may not always be the most costefficient way to make the most money. If newtechnologies and sociopolitical mores m ake itcheaper and faster to purchase rather than makethese same goo ds and services, then executiveswill begin to dismantle the huge firm. A ccord-ing to the most savvy, technologically hip busi-ness writers, the contemporary corporation is

efficient markets in goods and services. The"virtual" corporation of the twenty-first cen-tury should consist ofa few thousand highlyskilled managers and professionals who con-tract o ut no nessential services to cheaper, spe-cialist firms.

Thu s we have the outsourcing of bo th callcenter work and janitorial services to an evershifting coterie of independent firms, while"brand ed" com panies like Nike and Dell farmout virtually all the manufacturing work thatgoes into their core produ cts. This has been th epath followed by General Motors, which hascreated and spun off Delco, once a verticallyintegrated parts division. Except for final as-sembly and the manufacture of key compo-nents, GM and the other big car companies seekto outsource as much work as possible, evensharing space with suppliers under the sameroof and on the same shop floor. So the GMpayroll, white collar and blue, is about half thesize it was in 1970. Giving all this ametahistorical punch, Forbes columnist PeterHuber declared that it was "market forces andthe information age" that had beaten the Sovi-ets and would soon force the dissolution ofAmerica's largest corporations. "If you havegrown accustomed to a sheltered life inside areally large corporation," he advised, "take care.The next K remlin to fall may be your own."

But Wal-Mart has found giganticism effi-cient and profitable. This is because the priceof goods and services it purchases on the mar-ket has not fallen as rapidly as has the cost of"managing," within a single organization, theproduction or deployment of those same eco-nom ic inputs. The same technologies and costimperatives that have led to the decom position


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nies vastly to enhance their own managerial"span of control." As we shall see, this is notjust a tribute to Wal-Mart's clever dep loymentof sophisticated control technologies, but arisesfrom the politics and cuhu re ofa business sys-tem that has arisen in the post-New Deal world.

By 1988, Wal-Mart had the largest privatelyowned satellite comm unications network in thecountry, a system with six channels that not onlylet Sam Walton give pep talks to hundreds ofthous and s of employees, but on which a buyercould demonstrate for department heads inevery store the precise way to display new pro d-ucts. As Walton biographer Bob Ortega sum-marized these pioneering innovations, "Wal-Mart was building a system that w ould give itsexecutives a complete picture, at any point intime, of where goods were and how fast theywere moving, all the way from the factory tothe check out counter." And they knew preciselythe labor costs involved, from the truckdriver, to the warehouse, to the wages,hours, break time, and benefits of eachsales clerk in each store. Indeed, whenin 2004 it hecame dear that Wal-Martstore managers were routinely failing togive check out clerks their breaksa vio-lation o fthe wage and hour la w ^ Wal-Mart announced that the computers inBentonville would henceforth shut offthe cash registers at the prescribed in-terval, ov erriding, if necessary, the localmanager's wishes. Here was the kind ofcentralized con trol never quite achievedin even the most authoritarian manufacturingenterprises. Ortega reported that at Wal-Marteven individual store thermostats were manipu-lated from Bentonville.

depend s on continuo us, near-obsessive atten-tion to wages and labor costs. Discounters m usthave two or three times the turnove r of tradi-tional depa rtme nt stores, like Sears and Macys,in order to make the same profit. Stock move-me nt of this velocity dep ends on a low markup,which in turn dem ands that labor costs remainbelow 15 percen t of total sales, about half thatof traditional departm ent stores. And W al-Martis clearly at the head of this disco unt class, withsell ing and general administration costs-wages mainlycom ing in at about 25 percentless than K-Mart, Target, Home Depot, andother contem porary big box retailers. In 1958when m anufacturing jobs outnumbered thosein retail by three to one, the impact of thisdownward wage pressure might have been lim-ited. Today, when n onsu perv isory retail work-ers compose a larger proportion of the workforce than those in the production of durable

Here [at Wal-Mart] wasthe kind of centralizedcontrol never quiteachieved in even the mostauthoritarianmanufacturingenterprises.

goods, we get a downward ratcheting ofthe payscale for tens of millions.

Ofcourse, Wal-Mart's success in establish-ing a pervasive low-wage standard in big box


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cally advanced con trol mechan isms. The com -pany had its origins and began its stupendousgrowth at a particularly fortuitous place andtime. Neither th e New D eal nor the civil rightsrevolution had really come to northw estArkansas when Walton hegan to as-semble his small town retailing empire.But the agricultural revolution of theearly postwar era was in full swing, de-populating Arkansas farms, and puttingtens of thousands of white women andmen in search of their real paycheck.

Walton took full advantage of thesecircumstance s. His folksy paternalism was nota new m anagem ent style, but he carried it offwith brio. Meanwhile, like so many Southernemployers, Walton frequently played fast andloose with m inimu m wage laws and overtimestandards. And Walton was an early client ofthe antiunio n law firms that were beginning tof lour ish in the border South. Wal-Martstaunched Teamsters and Retail Clerk organiz-ing drives in the early 1970s by securing theservices of one John E. Tate, an O m aha lawyerwhose militant antiunio nism had its origins inthe racially charged warfare that convulsed theNorth Carolina tobacco industry in the lateDepression era. It was Tate who convincedWalton that a profit-sharing scheme for hourlyemployees would help the company generategood PR and avoid new union threats, whilekeeping wage pressures at a minim um . Indeed,profit sharing and low wages are Siamese twins.Low pay generated high turnover and highturnover insu red tha t few employees could takeadvantage ofthe profit sharing plan, which re-quired two years to qualify.

Finally, Wal-Mart p roved far more success-

region. In the 1970s and 1980s the companydid not leapfrog in to the rich but culturally aliensuburban markets, but expanded like molas-ses, spreading through tier after tier of rural

Discount retailingdepends on continuous,near-obsessive attention towages and labor costs,

and exurban counties. The company spentheavily on internal propaganda and commu-nications, and it was notable for promotingfrom within, which accounts for the loyalty ofthe m anagerial stratum as well as for the cul-ture of male entitlement that the Impact Fund'sclass action lawsuit has shown to be so muchstronger at Wal-Mart than at the other big boxretailers. Thus, the controversy sparked byWal-Mart's entry into metropolitan m arkets emb od-ies the larger conflict betwee n w hat rem ains ofNew Deal Am erica and th e aggressive, success-ful effort waged by Sunbelt po liticians and en-trepreneurs to eviscerate it.

All this stands in stark contrast to the GMemployment model. That corporation w as nota charitable institution; it was a hard-nosedcorpo ration that sought to insure a 20 percentreturn on shareholder investment, year in andyear out. It even made a profit in 1932 whentens of thousan ds of its employees were on thestreet. But after 1937 GM was a unionized firm,strikes were frequent, and the organized pres-sure of its workers, seeking a larger share ofth eGM productivity dividend, was incessant. Right


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price policy that Wal-Mart would make famous35 years later: Labor w anted GM to freeze carprices, but still raise wages, so as to share withthe public the cost savings made possible by theWorld War II investment surge. To GM execu-tives this seemed a u nion assault on ch erishedmanagerial prerogatives, and they battled theUAW all through the winter of 1946, success-fully sidelining this idea.

Instead, General Motors agreed, in thelandm ark collective bargaining n egotiations of1948 and 1950, that the corporation wouldguarantee an annual increase in the real incomeof its 300,000 blue collar wo rkers regardless ofinflation, recession, or corp orate profitability.Fortune magazine called this "The Treaty ofDetroit." Thus between 1947 and 1973 the realincome of auto workers doubled, and becauseGM was the template firm of the mid-twentieth century, the auto industry wagepatte rn was quickly adopted by a large ,slice of all the big manufacturing firms,unionized or not. For the first and onlytime during the twentieth century, thereal income of those in the bottom halfof the income distribution rose as rap-idly as those in the top 10 percen t. Andgiven the growth of health and pensionbenefits, industrial workers secured ameasure of life security never before en-joyed by blue-collar Americans.

Wal-Mart is having an equally potent, ifaltogether different, impact on wages and ben-efits. As late as 1970 retail wages stood at al-most half that of manufacturing; but by 1983,they had plunged to one-third and today standat about two-fifths of an increasingly stagn antmanufacturing wage. And if one compares the

GM during its mid-tw entieth century heyday,one finds a radical transformation of rewards,incentives, and values. GM w orkers were oftenlite-time employees so factory turnove r was ex-ceedingly low; these were the best jobs arou nd,and they were jobs that rewarded longev-ity. Auto industry turno ver is less than eight per-cent a year, largely a result of normalretirements. At Wal-Mart, in contrast, em-ployee turnover is now 46 percent a year. Oneofth e great curses of work at General M otorsand at other high benefit firms was m anda toryovertime, because the total cost of each add i-tional ho ur of work was relatively low from theemployer's perspective. But at Wal-Mart andothe r low-benefit firms it is practically a capi-tal offense to allow workers to earn overtimepay. Indeed, at Wal-Mart a 28-h our w ork week

. . . Wal-Mart proved farmore successful than mostretail firms in propagating. . . rural Southern culturewell beyond its homeregion.

is considered "full time" employment. Thisgives the managers great flexibility, enablingthem to parcel out the extra hou rs to fill in theschedule, or to reward favored em ployees.

GM and W al-Mart also generated extraor-dinarily divergent pay hierarchies. Factory su-pervisors at GM hard driving men in charge


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production employee. At Wal-Mart, districtstore managersin charge of about the samenum ber of workersearn m ore than ten timesthat of the average full-time hourly em ployee.And w hen one calculates the ratio of CEO com-pensa tion t o that of the sales floor employees,the disparity in pay becomes even greater atthese two template corporations. Charles E.Wilson, who was one of the most well-paid ex-ecutives of his era, earned about 135 times morethan an assembly Une worker in 1950; while H .Lee Scott, the Wal-Mart CEO in 2003, tookhom e at least 1,500 times that of one ofhis full-time ho urly employees.

An d ftnally there is politics. The roar thatgreeted GM President Wilson's claim that whatwas good for GM w as good for the nation gen-erated a set of real constrain ts upon America'smo st profitable and efftcient auto co rporation.GM could have put Chrysler into bankruptcyand pushed Ford to the wall had it chosen toexpand its market share beyo nd the 45 percentit enjoyed dur ing th e years after World War II.But it correctly feared federal antitrust actionhad it chosen t o purs ue such an overtly aggres-sive pricing strategy. Instead, GM maintaineda price umbrella und er which sm aller compe-titors might shelter, and autoworkers wonhigher take home pay

Wal-Mart's competitive strategy has beenjust the oppo site, which not unexpectedly, hasgenerated a howl of outrage from union s, smallbusiness, and those communities that see thecompany's "everyday low prices" as a threat toma in street vibrancy. The recent "site-fights" inCalifornia and Chicago m ay well signal the startof an era in which W al-Mart corporation's tem -plate is subject to much greater poHtical chal-lenge and con straint. As the Wall Street Journalrecently reported, W al-Mart's major c om peti-tive problems no w arise on C apitol Hill as wellas from the capital cities of so man y Am ericanstates. O ur ch allenge is to chann el this wave ofpoliticized hostility into a union-led coalitionthat can begin to transform the nature of workat Wal-Mart. If a coalition of planners, com-mu nity groups, union s, even small businesses,throw a large enough monkey w rench into thecorporations expansion plans, the Wal-Martmanagem ent will begin to realize that a higherwage, higher benefit employment model maywell be the only way that they can escape fromthese populist constraints. And when workersat Wal-Mart see that they may have a lifetimecareer at the company, then they will be muchmore likely to look to the trade union idea togive their work life the democratic dignity itdeserves.

The following sou rces were used inthis article:

Ml l i am Aberna thy , Industrial Renaissance:Producing a Com petitive Future for America {NewYork: Basic Books, 1983).

An tbon y Bianco and Wendy Zel lner," ls Wal-Mart too Povi/erful?" Business Week. Octobe r 6 ,2003, p. 102.

Peter Drucker. The Concept of the Corpora-tion (New York: Harper Brothers.1946).

James Hoopes, "Growth Through K n o w l -edge: Wal -Mart , High Technology, and tbe EverLess Vis ib le H and o f tb e M anager, " in NelsonLichtenstein, ed.. Wal-Mart: Template for21" Cen-tury Capitalism (New Press, fo r tbco min g) .

Neison L ichtenste in , State of the Union: ACentury of American Labor (Pr inceton: P r incetonUniversity Press. 2003).

B o b O r t e ga . In Sam We Trust: the UntoldStory of Sam Walton and How W al-Mart is Devour-ing America (New York: Random House, 1998).


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16495244 walmart and the new world order

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