The War on Walmart
April 7, 2004
By Steven Malanga
Here is a story you're unlikely to read in the spate of press attacks on Wal-Mart these days:
When Hartford, Conn., tore down a blighted housing project, city officials hatched an innovative redevelopment plan: Lure Wal-Mart to the site, entice other retailers with the promise of being near the discount giant, and then use the development's revenues to build new housing. After Wal-Mart agreed, city officials and residents celebrated the idea of better shopping, more jobs and new housing in one of America's poorest cities.
But then outsiders claiming to represent the local community began protesting the project. Astonished city leaders and residents quickly discovered the forces fueling the campaign: a Connecticut chapter of the United Food and Commercial Workers Union; and ACORN, the radical community group. Outraged residents denounced outside interference. "These people looked for every possible reason to stop a project that the community wants," says Jackie Fongemie, a resident.
Though Wal-Mart has encountered opposition for years from anti-sprawl activists or small-town merchants, the Hartford drama exemplifies a new form of opposition, a coordinated effort of the Left in which unions, activist groups like ACORN and the National Organization of Women, and even plaintiffs' attorneys work together in alliances. They are fighting the giant retailer in statehouses, city halls and courts.
More than just a skirmish over sites, theirs is an assault on a company that embodies the productivity-driven, customer-oriented economy that emerged in the '90s, by opponents who argue that there is a hidden cost to business's increasing emphasis on low prices and high employee output. Opponents seek government or court edicts to force Wal-Mart and others like it to raise wages and offer workers more benefits, and they are rushing into battle just as the company expands to underserved urban communities, making the conflict a vital issue not just in Wal-Mart's traditional rural and suburban markets but, increasingly, in American cities.
Few would have imagined that when Sam Walton started Wal-Mart more than 40 years ago, he was hatching anything that would become so controversial. Though his first Wal-Marts, opened in the early '60s, were chaotic, with goods piled high on tables, the stores charged unparalleled low prices and crowds flocked to them. The company's success rested on "Mr. Sam's" formula of scouring the marketplace for the best prices and keeping a relentless rein on expenses. But the folksy country retailer, recognizing the importance of efficient systems, also led a technology revolution, installing computerized ordering and distribution that others quickly imitated. So efficient did the system become that Wal-Mart was soon selling goods in its stores even before it had to pay suppliers for them.
Pursuing this formula, Wal-Mart has led a productivity revolution in retailing which supercharged the American economy. Warren Buffett even declared that Wal-Mart -- not Microsoft -- has contributed more than any other business to the health of the economy.
Because non-union Wal-Mart represents the leading edge of this American business revolution, the left's crusade against it has emerged as a clash of worldviews, as unions and their allies try to convince the public that super-efficient operators like Wal-Mart lower workers' standard of living. The left has especially targeted Wal-Mart's push into grocery super centers, which have been pulverizing unionized grocery stores. In an age when supermarkets already operate on single-digit profit margins, Wal-Mart's entry into a market can still drive down grocery prices 15%.
A coalition of more than 30 unions and left-wing groups kicked off the campaign with a national day of protest in October 2002, urging shoppers to boycott the company as a "Merchant of Shame." The boycott got no results, but the coalition has more effectively waged legislative battles around the country. In California, the anti-Wal-Mart coalition has successfully lobbied more than a dozen cities and towns to pass ordinances to keep Wal-Mart out, while dozens of other such bills are in the legislative hopper.
The real issue in this battle is union wages. Unions argue that supermarkets in California pay store workers from $18 to $25 an hour (though Wal-Mart says those wages represent the high end of the union scale), while Wal-Mart pays its California store associates about $10 on average. The effect of Wal-Mart entering the market, union advocates say, would be a vast reduction in the wage pool. "While charging low prices obviously has some consumer benefits . . . these benefits come at a steep price for American workers," alleged a recent diatribe by California Democratic Congressman George Miller. Instead, union think tanks argue, Wal-Mart should be made to pay "sustainable" or "self-sufficiency" wages, a popular idea with the left, which holds that wages should be based on an area's cost of living. In many parts of California, liberal economists estimate, that means up to $38,000 a year for a worker supporting a spouse.
But the left's case ignores the greater benefit that an efficient operator like Wal-Mart brings to an entire economy by driving down prices and forcing other stores to perform better. A Wal-Mart-sponsored study, undertaken by the Los Angeles Economic Development Council, estimates that Wal-Mart's entry into the local market would save southern California shoppers $3.76 billion annually, or nearly $600 per household, creating up to 36,000 new jobs.
Despite opponents' charges, Wal-Mart has had little trouble recruiting workers, in part because the gap between its pay and union wages isn't as large as opponents claim, and because Wal-Mart is growing so rapidly that it attracts ambitious workers looking for a career. In particular, workers in minority communities traditionally friendly to the left's agenda have shocked opponents by welcoming Wal-Mart. Unions tried to stop the opening of the company's store in Crenshaw Plaza, Los Angeles, even unsuccessfully urging the Urban League not to work with Wal-Mart on a job-training program; but more than 10,000 locals applied to work at the store. "It's those who don't live in this community who did the most objecting to this store," says councilman Bernard Parks. "The community has clearly spoken, and it supports this store."
Though union-sponsored campaigns have meant little to consumers, the constant attacks are scoring in the elite media, whose members rarely go to Wal-Mart and can't understand the importance of the stores to middle-American shoppers. Once celebrated in the press for Sam Walton's folksy wisdom, Wal-Mart today is just as likely to be the subject of stories with headlines such as: "Is Wal-Mart Too Powerful?" -- which advance the left's line that Wal-Mart's business model is undermining the buying power of the American worker. So striking have the attacks been that a Kansas City newspaper columnist recently suggested that the national press is "angry that average Americans don't share their perceptions of Wal-Mart as the bad guys."
Not surprisingly, the press downplays Wal-Mart's virtues: that it has never been accused of funny accounting; that it doesn't reward its executives with exorbitant salaries or perks; that not only do other executives call it the most admired company in America, but shopping surveys show it is the consumer's favorite store. But acclaim from common folk may not protect a company when elite opinion turns against it, influencing legislators, regulators and the courts. That's why Wal-Mart has become the chief private-sector target of trial lawyers, sued more than any other company, as the plaintiff's bar and its allies seek to achieve through litigation what activists struggle to accomplish in organizing drives. And every battle they win will cost the American consumer.
Mr. Malanga is a contributing editor at City Journal, from whose Spring issue this is adapted.
©2004 The Wall Street Journal