I said it all along that Wal Mart hurts America.
The price of Wal-Mart coming to town
When the retail giant moves in, it promises cheaper goods, more jobs and more tax revenue. And in the short term, it delivers. But the initial boost hides later losses.
By Karen Aho
Wal-Mart sure sounds like a good idea when it first rolls into town. That much is clear.
The thousands of U.S. cities that have said yes to the “always low prices” pioneer since 1962 did so for good reason. Many were so enthusiastic they even threw in cash incentives ($1.2 billion in taxpayer subsidies and counting). And Wal-Mart came through. The disciplined Bentonville, Ark., discounter didn’t become the world’s largest (non-oil) company and history’s most influential retailer, after all, by not following through on its promises:
Jobs: More than 1.4 million Americans draw a Wal-Mart paycheck.
Low prices: It’s generally agreed that consumers in an economy without Wal-Mart in it would spend considerably more — by some estimates as much as $2,500 per household more.
Tax boosts: The cities where Wal-Mart builds do see an upswing in sales tax receipts.
Wal-Mart promised to add 22,000 jobs in the U.S. this year by opening or expanding some 150 new supercenters, those 187,000-square-foot giants that include grocers. In today’s job-hungry economy, many well-meaning, practical citizens have rolled out the welcome mat, little expecting that the move could backfire on their communities.
A Trojan horse?
A glance at Wal-Mart’s store openings page, or any news story that follows (they’re eerily similar), reveals the reason: “an increase in tax revenue” and “150 new jobs” for Wilkesboro, N.C., or “450 new jobs” for Albuquerque, N.M.The numbers may change, but this key point does not: The promised benefits are not something a city can easily ignore.
Yet each of Wal-Mart’s promises has a flip side.
Jobs: But, after an initial boost, studies show a net loss of jobs.
Low prices: So low that wages and benefits are reduced as well. Then the neighbors follow suit.
Tax boosts: But that boost comes at the expense of communities nearby, which tend to lose any businesses that compete. And don’t forget to factor in the cost to taxpayers of subsidies for Wal-Mart and public aid to low-wage workers.
When Wal-Mart comes to town, “it’s a switcheroo,” said Nelson Lichtenstein, a professor of history at the University of California, Santa Barbara, and the author of “The Retail Revolution: How Wal-Mart Created a Brave New World of Business.”
“They create jobs now, immediately,” he said. “Over time . . . they erode better jobs.”
For its part, Wal-Mart says its stores continue to serve local economies for years after they go up.
“Wal-Mart is a solution for many communities across the country, offering quality jobs, career advancement, stimulating local economies with new business opportunities and generating tax revenue for cities,” said Michelle Bradford, a Wal-Mart spokeswoman.
Certainly, Wal-Mart doesn’t set out to undermine local economies. Nor do the city fathers who approve the stores or the consumers who shop at them. Each of them is serving constituents — stockholders, taxpayers or households — as best they can.
How can such good intentions go so wrong?
Take Ventura, Calif., a coastal town north of Los Angeles now divided over a proposed Wal-Mart. The biggest selling point for proponents: an estimated $350,000 to $500,000 net jolt to the city’s coffers from the supercenter’s added sales taxes. California, which led the movement to cap property taxes in the 1970s, desperately needs sales taxes to pay its schoolteachers and police officers.
“It’s not a bonanza, but it’s a fiscal positive,” said Rick Cole, the city manager. “That pays for three full-time firefighters
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Market-opportunity studies show that one-fifth of 500,000 weekly shoppers at the Wal-Mart in Oxnard, a town just south, live in Ventura.
“We already have some proportion of our population slipping out in the night to shop over there,” said Ventura City Councilman Carl E. Morehouse. “Why should Oxnard get the benefits?”
It’s this grim reality that puts folks like Morehouse in a bind. He doesn’t like Wal-Mart, and he won’t shop there, ever. A pro-labor Democrat, he opposes the company’s business practices and their impact on the environment and working conditions, both here and abroad.
But he can’t in good conscience deny his city’s residents the opportunity to build a Wal-Mart if they want to (voters will decide in November).
“I am torn between two things: the fiscal demands to keep the city whole and a dislike of Wal-Mart,” he said. “I have to look at the big picture for our financial needs.”
Each supercenter — the only big box Wal-Mart builds these days — means, on average, 300 retail jobs with a strong company.”It’s the No. 1 reason” towns cite for approving construction of a Wal-Mart, said Al Norman, a critic who’s been talking about Wal-Mart across the country for 17 years. “They tell me, ‘Yeah, we have to bend zoning laws. Yeah, it’s going to make neighbors unhappy. But it’s creating jobs.’ ”
And in the beginning, jobs do come, at least at ground zero.
Immediately, there are the 50 to 100 construction jobs, which last maybe a year. Then there are the 300 new retail positions at Wal-Mart. There may well be hiring at businesses nearby that offer things Wal-Mart does not — places like restaurants, gas stations, auto dealers and building-supply stores.
So Wal-Mart serves as a magnet, benefiting those that are close but not competitive. A study funded by Wal-Mart showed a 10% gain in sales in California towns where supercenters opened between 2003 and 2007.
The notion is confirmed by independent studies, which, unlike the Wal-Mart report, explain the likely reason: A Wal-Mart draws shoppers from neighboring towns. After picking up their staples, the shoppers fill up on gas, eat at a restaurant or visit other specialty outfits before driving home.
Wal-mart came out in support of President Barack Obama’s plan to require employers to provide health insurance to workers, putting it at odds with most large corporations.
When Scott crunched the numbers, he traced a loss of 200,000 U.S. manufacturing jobs to China just by looking at Wal-Mart’s additional sales for the six years ending in 2006. That’s 33,333 jobs per year, or 641 every week.
Those numbers don’t include the hundreds of thousands of jobs already lost to meet existing sales, he said. Nor do they take into account U.S. manufacturing jobs that suppliers to Wal-Mart moved to other countries, such as Mexico, Vietnam, Thailand and India. “Total job displacement may be two or three times as high as what I estimated there,” Scott said. “The question is who is going to make the goods that go in those shelves, and that’s what’s being overlooked and hidden in the PR statements from companies like Wal-Mart.”
“This is not just a problem with Wal-Mart,” Scott points out. However, “in the retail sector, they really led the way. Everybody is now following the Wal-Mart model.”
You can buy only so much Tide
Once you’re out of sight of the Wal-Mart parking lot, the job numbers begin to fall so steeply that they threaten to erase any gain. In the end, the only way to end up with a gain of anything close to 300 new jobs is if you use what Norman, who launched the Sprawl-Busters Web site http://www.sprawl-busters.com/ , calls “Wal-Math: There’s no subtraction pad, just addition.”
The reason is simple but often overlooked in the face of a prospective “new job,” which is understandably viewed as a good thing.
Wal-Mart sells things people already buy, and typically locally. Things like bread, shampoo and rakes. When Wal-Mart opens, consumers merely shift their dollars; they don’t spend additional money.
“You don’t say, ‘Honey, we can buy our dog food for 20% cheaper at Wal-Mart, let’s get another dog,'” said Charles Fishman, author of “The Wal-Mart Effect.”
“Wal-Mart isn’t Apple. Wal-Mart isn’t Cisco Systems. It’s not creating a new line of business in the U.S. economy,” Fishman said. “We don’t fill the pantry three times just because we can shop at Wal-Mart. We just stop shopping somewhere else.”
But the jobs at those other stores don’t just move to Wal-Mart. The company is intensely focused on its mission: low prices. As a result, it has engineered ways to ring up 60% more in sales per employee than other stores. It needs fewer workers to sell shoppers the same amount of goods. Translation: Jobs are lost.
How ‘new’ jobs become no jobs
Academic studies — about the only ones considered truly objective — have calculated the decline in jobs at other businesses. Within the first year, hundreds of other retail jobs are lost, leaving a net gain of just 100 retail jobs in any given county, according to research by University of Missouri economist Emek Basker.After five years, an additional 50 are lost as more businesses close, leaving a net gain of 50 retail jobs. Factor in 20 supply jobs lost, because Wal-Mart operates its own distribution centers, and you’re left with a net gain of 30 jobs. The study was not able to calculate with statistical accuracy the changes in neighboring counties.
A study led by David Neumark, ( http://ideas.repec.org/p/irv/wpaper/060711.html ) an economist at the University of California, Irvine, counted a net loss of 150 jobs after a Wal-Mart opened. Wal-Mart didn’t create jobs; it destroyed them. For every person who got a job at Wal-Mart, 1.4 other retail workers lost theirs.
This doesn’t even get into broader ripples of the Wal-Mart effect on manufacturing jobs. Its cost-cutting makes it a leader in moving production overseas. The Economic Policy Institute, a nonprofit Washington, D.C., ( http://www.epi.org/ ) think tank interested in protecting middle- and low-income Americans, estimated the loss at 77 U.S. manufacturing jobs for every Wal-Mart.
When what we’re left with is jobs at Wal-Mart, said Lichtenstein, “The question is the quality of the jobs at Wal-Mart.”
Life inside ain’t so grand, either
In December, on the eve of a new presidential administration vowing to enforce labor laws, Wal-Mart settled 63 wage and hour cases
( http://www.nytimes.com/2008/12/24/business/24walmart.html ) (registration required) alleging stolen hours, denied breaks and forced unpaid work.Wal-Mart has responded by saying the suits were launched years ago, and that it, too, is under new leadership. The company has also said it is improving its health coverage, previously criticized as so thin that workers used government aid instead.
But the company doesn’t provide many details. It doesn’t disclose what percentage of workers are full time (only “most”) or how many of its 1.4 million U.S. associates get health benefits (only “1.1 million associates and family members”).
Those who research working conditions say that the pay and the benefits may be somewhat comparable to other big-box discounters, where low price comes at a cost that’s borne, in part, by the workers. (Wal-Mart says its average full-time hourly wage is $10.83; the federal Bureau of Labor Statistics reports the average general-merchandise retail worker earns $12.76 an hour.)
But Wal-Mart is particularly driven when it comes to cutting costs.
Because managers must carefully juggle staff to match customer traffic, workers can’t rely on consistent schedules. And because managers must keep payroll down, workers are given little incentive to advance or even to remain. (You can read employees’ own stories at Wal-Mart employees speak out.) ( http://www.walmartspeakout.com/speak-out/main/ )
As the competitive leader in the retail market, Wal-Mart sets the tone; studies have shown that when Wal-Mart comes to town, the wages of workers at other businesses also drop. Research ( http://laborcenter.berkeley.edu/retail/walmart_downward_push07.pdf ) (.pdf file) out of the University of California, Berkeley, found in 2007 that total wages in a given county decline by 1.5% for each Wal-Mart that opens.
Even though the prices of the goods Wal-Mart sells tend to drop as well, lower wages and lower prices don’t necessarily balance out. Consumers spend 80% of their money on the things the company doesn’t sell — houses, cars, medical care — items that aren’t priced on a Wal-Mart wage scale.
“Here is a genuinely new, innovative institution,” Lichtenstein said of Wal-Mart. “But it’s a low-wage drag on the economy insofar as it’s the model for everybody else. . . . Over time Wal-Mart reduces the quality of jobs in the whole service sector.”
The Wal-Mart model
When Robert E. Scott, an economist with the Economic Policy Institute, talks about manufacturing jobs driven overseas by Wal-Mart, he likes to relay “an amazing” story he heard at a trade dinner. A Montana farm sold mint to an American toothpaste company. One day the toothpaste company mysteriously ceased its orders. Wal-Mart, the toothpaste company explained, had decided that by its calculations a cheaper toothpaste could be made by importing vats of mint oil from China. Wal-Mart, known for trying to reduce costs by 5% every year, said it wanted to buy the cheaper paste and would find somebody else to make it, if necessary. The farm took a serious financial hit.
The story is remarkable to Scott because it is not traditionally the role of the retail buyer to design a cheaper mousetrap and tell other companies to build it. But any book on Wal-Mart’s bullish drive to lower prices would reveal that it’s hardly unique for suppliers to feel driven overseas to reduce costs.