Wal-Mart’s low prices come at a high cost to local workers, business

August 6th, 2012 | Economic Opportunity Institute

The Walmart home office in Bentonville, Ark. (AP photo)

Despite vocal opposition from local unions and community groups, a new Wal-Mart shopping center opened in Bellevue’s Kelsey Square this June, reigniting debate over the big box retailer’s presence and pushing residents to reconsider the question: who wins and who loses when Wal-Mart comes to town?

According to a report released by Puget Sound Sage, Bellevue workers and residents will be the clear losers. The report finds Wal-Mart depresses local wages and drains customers from local retailers while not actually increasing consumption. The result is a loss of $13 million of net economic output and $14 million in lost wages over 20 years when a Wal-Mart moves in.

But what’s bad for local business seems to be good for Wal-Mart’s bottom line. The company reaped $15.7 billion in profits last year, propelling the Walton family wealth to astronomical levels – more than that of the bottom 40% of Americans.

Wal-Mart argues they give consumers what they want—everyday low prices—but rock bottom prices have a steep cost, as America’s manufacturers can attest.

For suppliers, doing business with Wal-Mart is like being stuck in a vice. Joe Allen Jr., profiled in a recent Demos report, is a retired apparel manufacturer. During the 60s, 70s, and 80s, he built his company’s success through efficient production and fair wages, until Wal-Mart stepped in:

I could see that if you’re going to be a player in the apparel industry you’re going to have to sell Walmart: they were just too big a user. Their orders were like telephone numbers— the quantity. You don’t negotiate prices with Walmart because they can just tell you what they’re going to pay and that’s it. You got to make it cheaper than you did last year.

People didn’t start importing from overseas because they wanted to. They did it because they had to, to survive. Those that didn’t join in the club are not around anymore.

Steve Dobbins, CEO of Carolina Mills, a 75-year-old North Carolina thread, yard, and textile company and supplier to Wal-Mart explains in Charles Fishman’s The Wal-Mart You Don’t Know, “Sure, it’s [Wal-Mart’s prices] held inflation down, and it’s great to have bargains…But you can’t buy anything if you’re not employed. We are shopping ourselves out of jobs.”

Dobbins found it out the hard way. His company shrunk from 17 to 7 factories and laid off half of its workers to keep its contract with Wal-Mart, which demanded lower prices by threatening to turn to cheaper imports. Soon, Dobbins found that even if he paid his U.S. employees nothing, he still could not compete.

It’s a trend that has been replicated across the country to devastating effect.

Demos explains how Wal-Mart’s race to the bottom is fueling a full scale transformation of the manufacturing industry in America, and driving down wages for American workers across the board:

As America’s biggest company, Walmart wields tremendous market power. Walmart could use this might to help build up the American economy, offering good jobs to its own employees, encouraging contractors to do the same, and helping to strengthen U.S. manufacturing through its relationships with its suppliers. Instead, Walmart has wielded its market power to eliminate good-paying manufacturing jobs and lower labor standards in the retail sector and throughout its entire supply chain.

The problem doesn’t start and stop with Wal-Mart, however. If we want America to return to prosperity – with full employment and good jobs – we need policies to rebuild our economy from the bottom up.

It starts with public policies that increase access to education, and public investment to ensure American infrastructure is once again the best in the world. It means trade policies that encourage investment here at home, and enforceable standards for human rights, labor rights, the environment, and financial regulation. That’s how American middle class prosperity began, and it’s how we’ll find our way back.

By EOI Intern Ashwin Warrior

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Posted in State Economy

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