Beyond the Walmart Economy

Denver, U.S.A. - February 17, 2013: Walmart semi in a parking lot. Blue and yellow Walmart logo are on the side of a white semi trailer.
Denver, U.S.A. - February 17, 2013: Walmart semi in a parking lot. Blue and yellow Walmart logo are on the side of a white semi trailer.

The Wal-Mart economy is the opposite of sustainable.

There can be no place in a sustainable economy for a corporation like today’s Wal-Mart that advances a business model riddled with negative repurcussions—from its low-wage, environmentally destructive factories in developing countries, to shuttered local businesses all across America.

“Wal-Mart makes the corporate business model even more destructive,” says Erin Gorman, director of Green America’s Wal-Mart Action Campaign. “Their push to lower their costs year after year has driven down wages here and abroad, sent American manufacturing jobs overseas, rapidly expanded toxic industrial production in countries that lack rigorous labor or environmental protections, and contributed to a host of other social and environmental ills. It’s a race to the bottom where everyone loses.”

Until Wal-Mart, the trend in the American marketplace had been to increasingly internalize the costs of doing business, from paying decent wages and offering health-care benefits, to limiting the work-week to 40 hours, to curbing environmental impact. While the job of internalizing business costs was nowhere near complete, the trend was in the right direction.

In its relentless pursuit of ever-cheaper products and ever-larger market shares, Wal-Mart reverses that trend. Wal-Mart externalizes its costs any way it can—by pushing its health-care costs onto local communities, for example, or by soliciting taxpayer dollars to subsidize its sprawl.

These costs, then, are born by all of us, including the low-income consumers supposedly assisted by Wal-Mart’s “low prices.” What’s more, for individuals stuck without retail options—whether because of poverty or because big-box stores have killed off local businesses—the truth is that Wal-Mart’s “low prices” aren’t always exactly that. Concerned consumers need to take an encompassing view of the retail situation in the US and work to provide other choices for people in our communities who are struggling economically.

At the same time, concerned consumers can use the power of their dollars to force Wal-Mart, the largest corporation in the world, to use their infrastructure more for good than for ill. Already, Wal-Mart rings up more sales than any other company in a host of retail categories, including toys, books, CDs, DVDs, magazines, dog food, diapers, jewelry, and groceries. Imagine if those products were all sustainably produced by workers making fair wages using processes that protect the environment.

That day is not yet here, but the good news is that the market is beginning to wake up to the problems with the Wal-Mart way, and together we can advance the momentum for change.

As Business Week reporter Roben Farzad put it, “Leave it to Wal-Mart to double its profits to more than $10 billion in five years, blanketing the globe with more $20 DVD players than you can shake a $2 broomstick at, only to see its share price fall 13 percent over the same period.” In other words, the Wal-Mart way won’t hold up over the long term, and Wal-Mart needs to completely reform itself or be put out of business. Its current business model is unsustainable every step of the way.

Sweatshops: The Starting Point

The problems with Wal-Mart begin with its supply chain, where many of the workers who make its products pay the price for low-cost items by toiling in sweatshop conditions.

Outlets as diverse as the National Labor Committee (NLC) and the Wall Street Journal continue to produce new reports on sweatshop abuses connected with Wal-Mart’s supply chain. In 2004, NLC reported on a Chinese leather goods factory where nearly half of the workforce earns no wages at all (working instead to pay off debts for training, food, and lodging), and the Wall Street Journal exposed a Wal-Mart toaster producer where workers’ wages were 40 percent below the minimum wage.

Chinese workers filed a class-action lawsuit against Wal-Mart last September, alleging a range of sweatshop abuses, including “forced overtime, payment below the minimum wage, and [denial of] full overtime pay, holidays off, weekly days off, or daily rest periods.” The sweatshop problem, however, is not limited to one country. The Chinese plaintiffs were joined by plaintiffs from other countries, including the US, all alleging the same thing—that Wal-Mart ignores its own “standards for suppliers” and tolerates abuse of workers in its supply chain.

“As the world’s largest retailer, Wal-Mart has the power to set higher [labor] standards within the industry,” says Maquila Solidarity Network president Ian Thompson. “Instead, it continuously pressures its suppliers to produce cheaper and quicker, encouraging sweatshop abuses.”

That pressure can be devastating to suppliers that don’t or can’t bow to Wal-Mart’s demands. Frank Garson, the last president of the Georgia-based Lovable Company, which had supplied apparel to Wal-Mart since the retail giant’s earliest days, told Fast Company in 2003 how the shifting terms of his contract cost him his business.

“Wal-Mart has a big pencil,” Garson said.”They have such awesome purchasing power that they write their own ticket. If they don’t like your prices, they’ll go vertical and do it themselves—or they’ll find someone that will meet their terms.”

Although the Lovable Company had once been the sixth-largest in its field, Garson’s loss of Wal-Mart as a customer was “irreplaceable,” and the company closed its doors within three years. “Wal-Mart chewed us up and spit us out,” he said.

US Workers: Low, Low Wages

In 2004, Wal-Mart earned $10 billion in profits. CEO H. Lee Scott took home a salary of more than $17 million, and yet the majority of Wal-Mart associates made wages that would place them below the poverty line for a family of four.

In 2003, the New York Times reported that Wal-Mart’s clerks make around $14,000 a year, about $5,000 below the poverty line for a family of four. Even using Wal-Mart’s own numbers from 2004, which claimed that a full-time Wal-Mart worker averages $9.64 per hour, take-home pay would total around $18,000—still $1,000 below the family-of-four poverty line, as explained in John Dicker’s book The United States of Wal-Mart.

A 2005 study by the University of California–Berkeley found that from 1992 to 2000, the total earnings of US urban workers in the general merchandise and grocery sectors were reduced by 1.3 percent after Wal-Mart showed up in their areas. In 2000 alone, study authors estimated that Wal-Mart depressed total earnings of retail workers nationwide by $4.7 billion. Plus, Wal-Mart spends less per worker on employee health care than its competitors. A Harvard Business School study found that Wal-Mart spent $3,500 per employee on health care in 2002, while the average corporation spends $5,600.

Furthermore, high premiums and limits on eligibility mean that fewer than half of Wal-Mart workers are insured under the company plan. Full-time, non-management Wal-Mart employees must wait six months to be eligible for the company health plan, and part-time workers must wait two years, compared to an average 2.5-month wait for retail companies as a whole. Once they are eligible, many employees decline the plan because they are unable to afford premiums and deductibles, which exclude or limit coverage for certain routine necessities like check-ups and vaccinations.

Last fall, the company proposed modest improvements to its health care plan, in the face of rising public criticism. But shortly thereafter, the New York Times published internal Wal-Mart memos that admitted the company would try to offset its now slightly better plan by screening its pools of job applicants for only the healthiest workers.

Wal-Mart doesn’t stop at keeping wages low and benefits inadequate. Workers in more than 30 states have sued Wal-Mart for failing to pay overtime wages, and it currently faces a class-action lawsuit for discriminating against women in pay and promotion. In December, a California jury ordered Wal-Mart to pay $172 million to 116,000 of its employees who had been illegally and routinely denied meal breaks.

“[L]awsuits are pending in six states accusing Wal-Mart of forcing employees to work off the clock, to work without breaks,” states a 2005 report by the nonprofit American Rights at Work. “Wal-Mart expects its employees to be at its beck and call. Workers at a store in West Virginia were recently informed they would be fired if they could not commit to working any shift between 7 am and 11 pm, seven days a week.”

Taxpayers: Footing the Bill

When workers can’t afford their employer’s health plan, those costs often shift from both the employer and the employee onto the taxpayers.

Three states where the Wal-Mart effect on public health insurance programs has been measured have seen Wal-Mart workers costing taxpayers millions of dollars each year. For example, in Georgia, Wal-Mart employees cost taxpayers an estimated $6.6 million in 2002, with nearly 10,000 children of Wal-Mart employees enrolled in the state’s “PeachCare” program—ten times more than from any other employer. In Wisconsin, the bill for Wal-Mart employees depending on “BadgerCare” ran to $4.75 million in 2004, and the Knoxville News-Sentinal reported in 2005 that 25 percent of all Tennessee Wal-Mart employees were enrolled in “TennCare.”

“Social safety net programs are, in effect, the employee benefit plan for much of Wal-Mart's workforce,” says Phil Mattera of the nonprofit Good Jobs First. In fact, federal taxpayers spend an average of $420,750 for each 200-person Wal-Mart store because many of its employees receive Section 8 housing assistance, low-income tax credit, low-income energy assistance, free or reduced school lunches, food stamps, and other assistance, according to a study by the Democratic Staff of the House Committee on Education and the Workforce.

Furthermore, taxpayers often subsidize Wal-Mart’s expansion into new towns, as the company actively shops for incentive packages from local governments, promising new jobs and other benefits. As of 2004, Phil Mattera and his colleagues had identified many different types of Wal-Mart subsidies, including free or low-cost land, road construction projects, and income tax credits, totalling more than a billion dollars in assistance to Wal-Mart—the largest corporation in the world.

Since there’s no single source of information on this topic, Mattera says Good Jobs First pieced its information together through painstaking research of news articles and interviews with local officials. Because the group couldn’t research every single Wal-Mart (there are more than 3,500 in the US alone), Mattera acknowledges that the billion dollars in subsidies is likely only “the tip of the iceberg.”

Local Businesses: Shut Out

As early as 1989, when the New York Times Magazine profiled the decline of local businesses in the town of Independence, Iowa, observers were already sounding the alarm about the cost of Wal-Mart to local economies. A year after Wal-Mart came to town, a dozen of Independence’s local businesses—some of which had thrived downtown for more than 100 years—had folded and closed their doors.

“Wal-Mart just cannibalizes Main Street,” a retail analyst told the Times about the transformation of Independence. “They move into town and in the first year they’re doing $10 million. That money has to come from somewhere, and generally it’s out of the small [businessperson’s] cash register.”

Unfortunately, the town felt it had no choice but to accept Wal-Mart’s advances. “Wal-Mart threatened us,” the Independence mayor told the Times. “They told us if they didn’t build here, they’d build nearby, and that would have been equally hard on us.”

By 1995, University of Iowa researchers looked at the impact of Wal-Mart stores on Iowa communities in the decade since Wal-Mart established its first Iowa store, in 1983. They found that between 1983 and 1993, the home-grown businesses of Iowa’s small towns tended to lose between 16 and 46 percent of their sales after Wal-Mart came to town, causing many of them to collapse.

Today, local communities are still feeling the effects when Wal-Mart comes to town. When the first Wal-Mart Supercenter (a gigantic Wal-Mart that also sells groceries) moved into La Quinta, California, in 2004, it took only eight months for the Los Angeles Times to begin reporting wage and benefit losses to other workers in the local economy.

The Environment: Exporting Pollution, Importing Sprawl

When the once-vibrant city-centers of towns like Independence, Iowa, fade away, and consumers start driving to big-box developments on the edge of town, you’ve got sprawl.

Sprawl threatens air and water quality, reduces wildlife habitat and open space, and creates requirements for expensive new infrastructure. Also, with the average Wal-Mart Supercenter generating 7,000 to 10,000 car trips each day, each new Wal-Mart store can represent massive new emissions of greenhouse gases and other pollutants with a devastating effect on local communities.

The nonprofit Sprawl-Busters also calls attention to Wal-Mart’s habit of closing one of its smaller stores to build an even bigger one close by—then often standing in the way of their abandoned buildings’ reuse. A 2004 Wall Street Journal article quoted real estate agents and community officials asserting that sometimes, Wal-Mart “creates roadblocks when other discount merchandisers or supermarkets have expressed interest in its shuttered buildings.” As a result, by the end of 2004, Sprawl-Busters reported that it had found 356 empty buildings that Wal-Mart had available for sale or lease—enough empty space to fill 534 football fields.

In the US, Wal-Mart has been fined for multiple violations of environmental regulations like the Clean Water Act and Clean Air Act, but it is perhaps the Wal-Mart business model, with its emphasis on seeking ever-lower prices, that fuels the most disastrous of Wal-Mart’s impacts on the environment. Heather Rogers, author of Gone Tomorrow: The Hidden Life of Garbage, told Grist magazine, “The real environmental impact comes from what Wal-Mart sells: cheap commodoties that are designed to wear out quickly.”

What’s more, Wal-Mart’s pursuit of cheap labor around the globe has exponetially increased the amount of fossil fuels needed to get a product onto a Wal-Mart shelf. While sourcing locally dramatically reduces fuel and energy use, Wal-Mart focuses on distributing goods shipped from overseas via the nation’s largest company-owned fleet of trucks (which averages around 6.5 miles per gallon). Wal-Mart doubled its Chinese imports in the first five years of the 21st century, and in countries like China, Wal-Mart’s environmental impact is felt even more acutely because the company can take advantage of weaker environmental standards.

According to Elizabeth Economy, author of The River Runs Black: The Environmental Challenge to China's Future, 400,000 people die in China every year because of respiratory infections related to air pollution. She told “Talk of the Nation” host Neil Conan in December that China now contains 16 of the 20 most polluted cities in the world, and that nearly three-quarters of the country’s rivers are polluted with toxins, acid rain, and erosion.

As Conan remarked, “Those factories in towns that churn out everything from your latest sneakers to the shiny new bicycle under a Christmas tree also pump out toxic chemicals and waste.”

Pushing a Political Agenda

With its ever-increasing market share, Wal-Mart profits have allowed Walton family members to claim four of the top ten spots in the Forbes list of wealthiest people, and they’re using their money to support controversial causes such as school vouchers and the repeal of the estate tax.

The St. Petersburg Times reports that in 2004, Wal-Mart made $2.7 million in political contributions (about 80 percent of which went to Republicans), and Sam Walton’s family donated $3.2 million during the 2004 election cycle, with most of the money going to pro-Bush groups.

Even beyond the political arena, many find that Wal-Mart pushes an idealogy in its stores, using its influence to determine what products are available to consumers.

For example, AlterNet reports that the company pulled a T-shirt reading “Someday a woman will be president” from the sales floor because “the message goes against Wal-Mart values.” And Business Week notes that Wal-Mart has banned popular books like talk-show host Jon Stewart’s America: The Book, refuses to stock the morning-after pill, Preven, and yet continues to stock inexpensive firearms. 
According to AlterNet, “The political bias inherent in Wal-Mart’s criteria becomes clearer when Wal-Mart’s merchandiser for films found Robert Greenwald’s acclaimed documentary, Uncovered: The Whole Truth About the Iraq War, inappropriate for Wal-Mart. For no conceivable reason could a documentary involving no gratuitous violence, expletives, or sex be inappropriate, other than its criticism of a conservative political administration.”

Beyond the Wal-Mart Economy

With Wal-Mart’s cost of doing business so high, can any of us really afford to shop there?

More and more, US consumers are saying they’ve had enough of Wal-Mart. In fact, as of July 2005, nearly 300 communities nationwide had successfully kept Wal-Mart out—a number that’s growing all the time.

With the word clearly spreading on the costs of the Wal-Mart economy, Wal-Mart CEO Lee Scott gave a speech in October saying that last summer’s Hurricane Katrina opened his eyes to Wal-Mart’s responsibilities to both local communities and the larger world. He announced small steps forward for Wal-Mart in areas like employee health care and his stores’ environmental footprints. While praising a co-manager of a Mississippi store who handed out emergency supplies from flooded Wal-Mart to needy evacuees during the hurricane, Scott called her actions “Wal-Mart at its best” and asked, “What would it take for Wal-Mart to be that company, at our best, all the time?”

Right now, while Wal-Mart appears to be at a crossroads, is the critical moment for concerned consumers to step forward and tell Lee Scott the answer to the question.

Together, we can increase the pressure on Wal-Mart and demand real improvements. We can work to protect communities that will be hurt by Wal-Mart’s presence, and most of all, we can refuse to buy products whose journey from the factory to the check-out line is tainted by externalized costs to workers, communities, and the environment.

Together, we can say “no” to Wal-Mart’s business model and start moving beyond the Wal-Mart economy. 

Top photo caption: Denver, U.S.A. - February 17, 2013: Walmart semi in a parking lot. Blue and yellow Walmart logo are on the side of a white semi trailer. By Getty Images via iStock