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Wal-Mart's purchasing power trade-off

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Wednesday, Aug 30, 2006

This op-ed by Sebastian Mallaby, in which he criticizes Democrats for abandoning their DLC-style, pro-big-business tack and criticizing Wal-Mart, garnered some hostile responses, and deservedly so. Mallaby seems to think that by criticizing Wal-Mart, the business, those who shop there will be affronted, as if it’s their local sports team and not just a store where it is convenient and cheap to shop. Mallaby reminds us that Wal-Mart has been able, through its ruthless cost-cutting, to “boost the buying power of ordinary Americans,” but at what cost? If it takes away good jobs, benefits, political power, and high wages in order to give us back cheap fleece sweatshirts and bargains on diapers, who profits? What good is the purchasing power if you are too economically insecure to actually exercise it? And autonomy within Wal-Mart, while you are shopping,  is no substitute for autonomy outside—having meaningful choices about where to work and shop, and about whose interests will be represented in government. Mallaby’s crude argument that if Wal-Mart was such a bad place to work, no one would work there, is a bit simplistic—Wal-Mart has the leverage to curtail other choices and force other employers to adopt its methods. As Kevin Drum points out, Wal-Mart is not “evil” for doing this—consumers short-sightedly prioritized paying low prices over the long-term significance of protecting labor. Now the long-term effects are coming into focus, and it makes sense to use th epolitical system to try to correct our course.


So it’s not “dumb economic populism” to express concern about falling wages, eviscerated unions, the widening gap between rich and poor, vanishing small businesses, outsourcing, and disappearing benefits, all of which Wal-Mart’s business model contributes to.  As Ezra Klein writes, “Wal-Mart is setting the norms and standards for the coming service economy. Where GM and Ford played this role for the manufacturing sector—and the unions forced them to use their power to create the American middle class—Wal-Mart is assuming primacy for manufacturing’s successor, and doing so without the union involvement or commitment to high wages that their predecessors exhibited.” And because of the company’s market dominance, it can dictate the terms of the service economy of the future: “In the producer’s case, the prices Wal-Mart demands have forced them to not only cut labor costs, but have often forced them offshore. Used to be that producers could pay their workers decently and keep production domestic by passing higher costs down the line. Wal-Mart’s size and market share keeps them from doing so, and it’s thrown the whole relationship out of balance—at least where the workers are concerned. So when I worry over Wal-Mart , I’m fretting over the shift to a low-wage, low-benefit service economy. Wal-Mart’s size and power makes the two indistinguishable.”

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