TOPICS > Economy

Critics Decry Effect of Wal-Mart’s Low Prices

August 23, 2004 at 12:00 AM EDT
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PAUL SOLMAN: Wal-Mart. From one northwest Arkansas store in the 1960s it’s grown into the largest company in the history of the world. With annual sales larger than the economy of Saudi Arabia, profits greater than Exxon Mobil, productivity so high that Wal-Mart accounts for 10 percent of total U.S. productivity growth, prices so low that some hundred million U.S. customers shop at a Wal-Mart every week of the year. (Cheers and applause)

But when you have a company this focused on profits and productivity, says Berkeley economist Harvey Shaiken:

HARLEY SHAIKEN, University of California, Berkeley: What you wind up with is a fierce competitor where suppliers, workers and even communities become the victims of that competitiveness versus its beneficiaries.

PAUL SOLMAN: Recently Wal-Mart supposed victims have gotten a lot of press. This summer, the world’s largest company was slapped with the world’s largest lawsuit: A class action alleging that Wal-Mart favors men over women– part of an overall strategy, says lawyer Brad Seligman, to keep wages low.

BRAD SELIGMAN: They want to be the low-cost leader. If you can depress the wages of 70 percent of your work force, you’ve saved some serious money.

PAUL SOLMAN: Some serious money which Wal-Mart then passes on to its customers. Which is great, right? Or is it?

This story looks at the key charge raised by critics: That the company’s profits and productivity come at too high a cost — a cost borne mainly by exploited workers.

HARLEY SHAIKEN: Wal-Mart has a ruthless focus on productivity and an even more ruthless focus on wages. The company’s successful, but workers are entering the working poor versus the middle class.

PAUL SOLMAN: Labor economists Harley Shaiken and others charge that Wal-Mart not only pays its workers poorly, less than $10 an hour, but provides health care to less than half its 1.3 million U.S. employees. Berkeley researchers Ken Jacobs and Arin Dube say that means Wal-Mart’s been shifting the health care costs of its workers to taxpayers.

KEN JACOBS: When jobs don’t provide a living wage or don’t provide health benefits, someone has to make up the difference. That usually is the taxpayers. It means people are forced to rely on public services, public health care programs to make ends meet.

ARIN DUBE, University of California, Berkeley: We have found that Wal-Mart employees take up 40 percent more in public assistance like food stamps or public health programs than other retail workers in California.

PAUL SOLMAN: Dr. William Walker who runs the county health system in Contra Costa was puzzled at first by the volume of Wal-Mart workers he saw.

DR. WILLIAM WALKER: How could you be employed by a large employer and be coming to our clinic for the uninsured? What’s the story here? And they basically said that either in their case they didn’t qualify for health benefits or the health benefits were so high that they couldn’t afford them, meaning that we take on the obligation of providing care to Wal-Mart employees and we are under our own financial crisis right now.

PAUL SOLMAN: Wal-Mart’s response?

MONA WILLIAMS: More than two-thirds of our people are either college students, first jobs, learning to work, they’re senior citizens who are supplementing an income that they already have or they are second-income earners for that family meaning that many of our folks are not trying to support a family on wages. They already have health care through another source, either through their family, through a working spouse, through a retirement program or through Medicare, for example. That’s who our jobs are designed for. Those are the folks that we recruit.

PAUL SOLMAN: But such recruitment policies worry the likes of Maria Alegria, the former mayor of Pinole, California, which she says is about to be flanked by new Wal- Marts on either side of town.

ARIA ALLEGRIA, City Council, Pinole, California: We spent 12 years and over $20 million of our public money to revitalize this town. What you’ll end up seeing is shops closing, people leaving, and we’re going to go back to where we started. For example, this bank building that we have rehabilitated, it’s a flower shop. But, say, Wal-Mart comes in and they offer all these cheap flowers, what is that going to do to that business?

PAUL SOLMAN: The answer, to paraphrase John Donne, the gong will toll for the flower cart. In business for 40 years, five employees here earn $15 an hour plus benefits, more than half again the Wal-Mart wage. Owners Roseanne Stevenson and her brother Mike Jadryev say flanking Wal-Marts would kill their shop.

ROSANN STEVENSON: It would be gone very shortly.

MIKE JADRYEV: Right.

ROSANN STEVENSON: Very shortly.

MIKE JADRYEV: When they open up it takes the breath away from the small businesses.

REV. PHILIP LAWSON: I think Wal-Mart represents, from my perspective, perhaps the worst of capitalism.

PAUL SOLMAN: Rev. Philip Lawson helped lead a local referendum to help block Wal-Mart from coming to town.

REV. PHILIP LAWSON: Wal-Mart comes in, lowers the standard of living of the working people by the system of low wages and no benefits and pushing people to find outside sources of income in order to match up or take care of their health care. So Wal-Mart lowers everything.

PAUL SOLMAN: But the anti-Wal- Mart referendum failed, which wouldn’t surprise Ronald Reagan’s former chief economist. To free market enthusiasts like William Niskanen, Wal-Mart is the best of capitalism.

WILLIAM NISKANEN: Without asking for subsidies with no special favors, no tax preferences, no regulatory preferences, that should be regarded as a model of business and not a target for political and legal action. This is a company that has grown from nothing to being the largest private employer in the country. You don’t do that by working conditions that are unattractive relative to other places to work.

MONA WILLIAMS: Any time we have a job opening, we open a new store, we have thousands of applicants for a few hundred jobs.

PAUL SOLMAN: And these applicants are the very people who shop at Wal-Mart because it offers goods they couldn’t get elsewhere and because its prices are always lower, always being rolled back with such manic bounce by the little smiley icon in its TV ads.

AD: He’s the rollback man. He’s the rollback man.

PAUL SOLMAN: But to Wal-Mart detractors those low prices are actually working against the folks who supposedly benefit from them. Sociologist Kim Voss.

KIM VOSS: As they buy these cheap goods they are shopping against their own interest as a group.

PAUL SOLMAN: That’s because?

KIM VOSS: That’s because they are actually only able to buy cheap goods that other workers make for ever-cheaper prices. They then themselves are paid ever more cheaply. So workers are actually shopping against themselves. As they act as consumers, they are undoing their own wages.

PAUL SOLMAN: It’s a race to the bottom, says Voss. The world’s largest companies muscles suppliers to lower their prices so Wal-Mart can lower its to consumers but in so doing, Wal-Mart’s critics charge, it drives its suppliers to the cheapest and most exploited labor on earth like the Honduran factory in which young girls made Kathie Lee Gifford brand clothing for Wal-Mart in the 1990s. The publicity created a furor and Gifford, a talk show host, broke down on national television.

KATHIE LEE GIFFORD: Millions of dollars have gone to help children, and I truly resent this man impugning my integrity.

PAUL SOLMAN: “This man” is Charlie Kernaghan, who has become one of Wal-Mart’s most prominent critics.

CHARLES KERNAGHAN: We say to Wal-Mart, “are you proud of these factories?” They say, “of course we are proud of these factories.”

PAUL SOLMAN: Kernaghan’s made a film featuring factories in Bangladesh of which few Americans would be proud. Women who work there say they’re paid 17 cents an hour or less. Mahamuda Akter says she had to work 15 straight 19 1/2-hour days in the last month alone.

MAHAMUDA AKTER, Wal-Mart, Bangladesh (Translated): We can sleep on the ground in the factory but we have to start working again at 7:30 A.M. If there is any stop in the work, they start yelling. If we do anything, they start beating us a lot – - almost torture. They go too far. I guess that my fate, I have to work hard to eat.

PAUL SOLMAN: Akter, now 18, she had been sewing clothes for Wal-Mart for five years, which prompted Kernaghan to make the point at the heart of the anti-Wal-Mart case.

CHARLES KERNAGHAN: Wal-Mart claims to have a commitment, an advertising commitment, they are going to rollback prices constantly. Well, what they’re doing is they’re rolling back human rights standards all around the world. They’re rolling back wages and benefits all around the world.

PAUL SOLMAN: But, no, says Wal-Mart. It’s trying to bring jobs and western standards to emerging economies.

MONA WILLIAMS: We have a group of over 100 people who do 15,000 inspections a year. We want to make sure that our suppliers comply with local country codes, with human rights standards, that people are not under age that they’re paid well, that they’re living in good dormitories. I was in Shinjen just a couple of weeks ago during part of those tours, doing factory inspections –unannounced.

PAUL SOLMAN: This is in China.

MONA WILLIAMS: Yes, in China, being committed to help those factories to make them better. We’re raising the working standards for all of them.

PAUL SOLMAN: Mona Williams thinks Wal-Mart is a force for the better, but shareholder activist Conrad Mackerron warns that visitors can be hoodwinked by factory management — that workers often fear telling Wal-Mart inspectors the truth. Mackerron says rivals like the Gap and NIKE have agreed to use independent monitors.

CONRAD MACKERRON: They have gone out and actually issued public reports about, in detail, the extent to which their factories are in compliance with their codes of conduct. Yet Wal-Mart seems to be able to get away without doing those things.

PAUL SOLMAN: How come so little has changed? I mean, ten years ago Wal-Mart was the place where Kathie Lee Gifford had her clothing line.

CONRAD MACKERRON: The public is fickle. I mean, people will tell you in a public opinion polls that if they learn that these goods are made in sweat shops they’d be more likely not to shop there. But in reality we don’t see that being the case.

PAUL SOLMAN: And that in the end sums up the ambivalence over Wal-Mart: Great prices, productivity and products but at what cost? It’s an ambivalence one finds even at Wal-Mart itself.

PAUL SOLMAN: Are these your brand new Wal-Mart bikes?

MAN AND WOMAN: Yes.

PAUL SOLMAN: And you paid how much for it? Can we see here?

PAUL SOLMAN: $266.61 with tax.

WOMAN: With tax, for helmets and two bikes and a lock.

PAUL SOLMAN: $266 for the whole deal.

WOMAN: Yes.

PAUL SOLMAN: Do you worry that this might have been made by people in china who weren’t even making the minimum wage there? The minimum wage in china, I found out yesterday, is 31 cents an hour. And there are suppliers, factories where people make 17 cents an hour.

WOMAN: We had that discussion. We said we could go… this is kind of supporting lower-wage, but on the other hand we wanted to save money too. So we’ve got to make a living.

PAUL SOLMAN: So it was a struggle?

WOMAN: It was a struggle. We did talk about that.

PAUL SOLMAN: You came down on the side of shopping here at Wal-Mart.

WOMAN: We ended up here. We got what we wanted.

PAUL SOLMAN: They got what they wanted. Or if you believe Wal-Mart’s critics, maybe in the long run it won’t have been what they wanted. But regardless of what you believe, such shoppers are facing a question more and more Americans confront in the age of high technology and globalization: What price productivity? Wal-Mart, because of its size and scope, has become a symbol for that question and so it’s America’s favorite store that’s also America’s favorite store to bash.