Sunday, October 04, 2009

Here's the Skinny on Why Wal-Mart Is So Evil (and Has Made Such a Killing)

By David Moberg, In These Times. Posted October 3, 2009.

Wal-Mart's origins in the Ozarks created a patriarchal and religiously-tinged corporate culture that dominated the American marketplace.

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The success of Wal-Mart is in many ways paradoxical. The world’s biggest corporation -- and one of the most technologically sophisticated -- emerged from the poor, rural backwaters of Arkansas, a state regularly at the bottom of most state achievement rankings. Increasingly global in procurement and sales, it grew from a base that was racially homogenous -- a result of the violent expulsion of African-Americans -- and suspicious of all outsiders. A company that plays on “family values” is based in a region with one of the highest divorce rates in the United States. A region of low-income families adhering to a range of anti-materialist Protestant faiths gives birth to this colossus of consumerism. And the list goes on.

But as a business, it does a lot of things right, even if the social consequences are often wrong. Now, adding valuable new analyses to a growing literature on a company both deeply loved and passionately hated, two historians offer distinctive, if overlapping, accounts of what Sam Walton hath wrought. Both books are essential reading for understanding not just Wal-Mart, but also America’s general political and economic trajectory.

Nelson Lichtenstein, as indicated by his book’s title -- The Retail Revolution: How Wal-Mart Created a Brave New World of Business (Metropolitan, July 2009) -- focuses on how Wal-Mart’s revolution in retail has transformed business more broadly and possibly created the paradigmatic corporation for the “post-industrial” economy, as General Motors did in the decades after World War II.

By contrast, in To Serve God and Wal-Mart: The Making of Christian Free Enterprise (Harvard, May 2009), Bethany Moreton concentrates on the cultural revolution -- or counter-revolution -- that Wal-Mart fostered yet also opportunistically exploited. Wal-Mart’s patriarchal but service-oriented and religiously-tinged corporate culture not only helped it thrive in its home territory. It also gave the company an edge in exploiting the nation’s growing inequality and economic insecurity and in capitalizing on the Southernization of American politics and the rise of the Republican right.

Wal-Mart fostered both revolutions, sometimes not as a fully thought-out strategy, by shrewdly taking advantage of ideas generated by others -- from the discount store model to bar codes -- and by converting what seemed to be drawbacks and obstacles into opportunities. Much of Wal-Mart’s innovative success comes from its single-minded, even ruthless pursuit of some of these adopted ideas and, ultimately, from the advantages it gained from its great size.

But as it advanced economic and cultural revolutions, Wal-Mart was also nurtured by independent changes in business and society.

Frustrated by corporate constraints on his dime store operations, Sam Walton launched his chain of discount stores in 1962, a time when discounters like New York’s E.J. Korvette inspired the creation of new chains, including K-Mart, Woolco and Target. Although Arkansas had been a center of populist opposition to chain stores as a foreign threat, Walton defined his chain as local. He recognized the potential buying power in rural communities, swollen with retirees benefiting from the New Deal (from social security to local lake development, as Moreton notes). He built a distribution center with his own truck fleet (since local transportation was underdeveloped), then filled in stores throughout a day’s driving radius. Then he expanded the pattern in ever more regions.

Wal-Mart at heart was an increasingly efficient distribution company, Lichtenstein writes, and an information company, not a traditional retailer. It promoted bar codes early and used information systems to track products from point-of-sale to vendors. It minimized inventory. It also accumulated sales information to gain leverage in its tough negotiations for cheaper prices from suppliers. These vendors, like Procter & Gamble, previously enjoyed the upper hand but increasingly partnered with or became subordinate to Wal-Mart. The company seized power from the manufacturers, Lichtenstein notes, revolutionizing not only retail, but the whole economy.

Walton also gained competitive advantage by keeping labor costs low and unions out, following a union-buster’s advice to either fight his employees or get them on his side -- and he did both as needed. He also was a relatively early big importer from Asia, despite his Buy American marketing. That strategy took off when Wal-Mart established its own buying office in China, subjecting producers there to the same demands for special treatment and ever lower prices.

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David Moberg, In These Times, has been on the staff of the magazine since it began publishing. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. Recently he has received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.

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