Is Walmart “Fairness Challenged”?

The owners/managers and the shareholders of Walmart, and many of its customers, certainly think highly of it. It has been a phenomenally successful business over the years, bringing low cost goods of all kinds, including food, to the marketplace.

Founded in 1962 by Sam Walton with a single discount store in Rogers Arkansas, it has grown over time into the world’s largest public corporation in terms of revenue ($258 billion in sales in 2009), with over 8900 stores in 15 countries. It’s also the world’s largest employer, with some 2 million “associates.” Walmart’s customers have also benefited. One economic analysis, sponsored by the Washington Post in 2005, put the annual savings by Walmart customers at $50 billion a year on food costs alone (about half of the company’s total sales), or about $435 per household. (Another more “friendly” study, an eyebrow raiser, put the total savings at $287 billion, more than Walmart’s total annual sales.)

On the other side of the ledger there is a much darker story. Walmart became infamous for invading small town America, adopting predatory prices, and gutting its local “mom and pop” businesses. One study by an economist at Iowa State concluded that small towns were losing as much as 50 percent of their pre-existing retail trade within ten years. Another study by an economist at Dartmouth’s Tuck School of Business put the losses at 40 percent for similar high volume stores, 17 percent for grocery stores, and 6 percent for drugstores. One comparative study found that Walmart’s prices were much lower than the norm at its newly opened stores but were higher than average in established stores where local competition had been eliminated.

As a result of this invasion from within, many communities across America were devastated by the loss of local businesses and local jobs that paid a living wage. In their place, Walmart offered locals the minimum wage or only slightly more (it’s average for full-time workers is now up to $10.78 an hour, though new hires and part-time workers may get only the minimum wage.). It also relied on Medicaid to provide health care for its workers (in effect a government subsidy), and routinely pressured and exploited its workers in various ways, including widespread discrimination toward women and minorities. Employee turnover at its stores have averaged a high 70 percent per year. Walmart is also hostile to labor unions, of course.

In addition, Walmart was an early and aggressive buyer of cheap Chinese imports and became a major factor in encouraging the outsourcing of jobs. In other words, Walmart has been a leading player in our national “race to the bottom.” It wasn’t necessary. Neither Costco nor Ikea (two other successful discounters) have engaged in such harsh employee practices.

Meanwhile, the Walton family amassed a fortune put at $90 billion (almost as much as the total income of the bottom 40 percent of American workers, numbering 120 million), and its CEO currently earns 900 times as much as Walmart’s average worker. It provides a prime example of what I call “bubble up capitalism.”

In capitalist economic theory, the downside of innovative economic change is referred to as “creative destruction” (a term coined by the early economist Joseph Schumpeter). The implication is that the cost-side of the equation is a necessary part of economic “progress” – the greatest good for the greatest number. Think of what the automobile industry did to the carriage makers, and blacksmiths. The Walmart equation does not seem to have been so favorable to the greatest number.

To its credit, Walmart has recently adopted a more “enlightened” stance. In a set of 2009 “reforms,” it provided a huge bonus to its employees, instituted profit sharing and a stock purchase plan, and offered merchandise discounts to employees. It has become a leader in offering organic produce in its stores, and it has adopted a series of “green” policies (that also make good business sense), like improving the fuel efficiency of its fleet of trucks, reducing packaging wastes, and setting a goal to adopt renewal energy in its facilities. It also now provides limited health care benefits.

But the damage has already been done. They created a wasteland and called it progress.