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The True Cost of Wal-Mart's Low Prices
December 14, 2005
The documentary “Wal-Mart: The High Cost of Low Price” premiered last month. It was only the latest in a steady stream of public commentary on how the business model of America’s biggest company and largest employer is bad for America.
Beginning almost a year earlier, Wal-Mart felt so pressured by its critics that it featured CEO Lee Scott in public relations ads in major newspapers, on television, and on National Public Radio, insisting that Wal-Mart couldn’t be as bad as its critics claim.
Don’t believe it.
Internal Wal-Mart documents published in The New York Times just before release of the Wal-Mart documentary showed that not even Wal-Mart’s own analysts could buy wholesale into the idea of the company as a responsible employer. Wal-Mart’s own memos warned that Wal-Mart risks damage to its “overall reputation” as consumers learn more about its costs.
“Our critics are correct in some of their observations,” stated one memo. “Specifically, our [health care] coverage is expensive for low-income families, and Wal-Mart has a significant percentage of Associates on public assistance.” The memo went on to explain how 46 percent of the children of Wal-Mart workers depend on Medicaid or go uninsured.
Unfortunately, the cost to society of the Wal-Mart business plan doesn’t end with its unaffordable employee health-care plan. It starts on the factory floor in countries where workers allege sweatshop abuses by Wal-Mart suppliers. It continues into American communities where Wal-Mart builds stores financed by taxpayer subsidies that put local companies out of business.
That’s the Wal-Mart way. In order to sell ever-cheaper products and seize ever-larger market shares, its business model shifts the costs of low prices elsewhere.
This is at odds with the history of business in America since the Industrial Revolution. Until Wal-Mart, American companies had increasingly accepted the responsibility to internalize all the real costs associated with their businesses. They paid decent wages, offered health-care benefits and vacations, limited the workweek to 40 hours, reduced their environmental impact, and more.
Wal-Mart turns that trend around, and externalizes its costs however it can – pushing its costs of doing business onto you, me, our communities, and the environment. We pick up the price tag while Wal-Mart picks up billions in profit.
Wal-Mart externalizes the cost of acquiring its products by insisting that suppliers lower their prices year after year. This sends suppliers scrambling for cheaper labor, as detailed in a Pulitzer-winning 2003 series in the “Los Angeles Times.” Its constant pressure to lower prices not only exports American jobs, but also promotes abuses at the beginning of the supply chain in factories overseas. Last September, workers from five different countries filed the most recent lawsuit to allege workplace mistreatment by company suppliers, including charges of beatings, forced overtime without pay, denial of maternity leave, and payment below minimum wage.
Wal-Mart externalizes the cost of its new-store construction by soliciting taxpayer subsidies for perks like low-cost land, road construction, and tax credits – accumulating at least $1 billion by the end of 2004. It promises to bring jobs and low prices to town in return, and yet a 2002 University of Missouri study found that a new Wal-Mart provides a mere 50 net-new jobs on average, after it drives other local retail jobs out. Communities have also suffered from violations of the Clean Air and Clean Water Acts, and from driving down of local wages and encouragement of sprawl.
Finally, as admitted in its internal memo, Wal-Mart externalizes its employee health-care costs, relying on state-supported public health insurance programs to pick up its slack. In states where this cost to taxpayers has been measured, it has not been insignificant – $6.6 million in Georgia in 2002 and $4.75 million in Wisconsin in 2004, for example.
Wal-Mart’s dirty secret is that it can’t really lower its costs as far is it would like consumers to believe; after a point, those costs are simply distributed onto someone else. When shoppers are paying taxes for roads, land deals, health care, and more – for a company that made $10 billion in profits in 2004 – those low prices start to look less and less like a good deal.
Please contact Todd Larsen by email