Wal-Mart’s mastery of information technology and the logistics revolution explain but a slice of the company’s success. Equally important, Wal-Mart has been the beneficiary and a driving force behind the transformation in the politics and culture of a business system that has arisen in a Southernized, deunionized, post-New Deal America. Thus, the controversy sparked by Wal-Mart’s entry into metropolitan markets—Chicago, Los Angeles, the Bay Area—embodies the larger conflict between what remains of New Deal America and the aggressive, successful effort waged by Sunbelt politicians and entrepreneurs to eviscerate it.
Discount retailing depends on continuous, near-obsessive attention to wages and labor costs. Discounters must have two or three times the turnover of traditional department stores, like Sears and Macys, in order to make the same profit. Stock movement of this velocity depends on a low markup, which in turn demands that labor costs remain below 15 percent of total sales, about half that of traditional department stores. And Wal-Mart is clearly at the head of this discount class, with selling and general administration costs—wages mainly —coming in at about 25 percent less than K-Mart, Target, Home Depot and other contemporary big box retailers. In 1958 when manufacturing jobs outnumbered those in retail by three to one, the impact of this downward wage pressure might have been limited. Today, when non-supervisory retail workers compose a larger proportion of the work force than those in the production of durable goods, we get a downward ratcheting of the pay scale for tens of millions.
Of course, Wal-Mart’s success in establishing a pervasive low-wage standard in big box retailing is not just a product of retail economics, Sam Walton’s thrifty ways, or technologically advanced control mechanisms. The company had its origins and began its stupendous growth at a particularly fortuitous place and time. Neither the New Deal nor the civil rights revolution had really come to northwest Arkansas when Walton began to assemble his small town retailing empire. But the agricultural revolution of the early postwar era was in full swing, depopulating Arkansas farms and putting tens of thousands of white women and men in search of their first real paycheck. In the 1950s and 1960s a road-building frenzy in the rural South doomed thousands of hamlet stores sited at the confluence of a couple of dirt tracks. But the new highways and interstates brought a far larger group of potential consumers within reach of the small, but growing, commercial centers, towns like Rogers, Harrison, Springdale, and Fayetteville. And these same interstates enabled non-metropolitan retailers to build and service the large, efficient warehouses necessary for discount operations.
Walton took full advantage of these circumstances. His folksy paternalism was not a new management style, but he carried it off with brio. Meanwhile, like so many Southern employers, Walton frequently played fast and loose with minimum wage laws and overtime standards. And Walton was an early client of the anti-union law firms that were beginning to flourish in the border South. Wal-Mart staunched Teamster and Retail Clerk organizing drives in the early 1970s by securing the services of one John E. Tate, an Omaha lawyer whose militant anti-unionism had its origins in the racially charged warfare that convulsed the North Carolina tobacco industry in the late Depression era. It was Tate who convinced Walton that a profit-sharing scheme for hourly employees would help the company generate good PR and avoid new union threats, while keeping wage pressures at a minimum. Indeed, profit sharing and low wages are Siamese twins. Low pay generated high turnover and high turnover insured that few employees could take advantage of the profit sharing plan, which required two years to qualify.
Wal-Mart growth after the mid 1970s, when the chain had about 100 stores, was nurtured by the Reaganite transformation of the business environment that relieved labor-intensive employers of hundreds of billions of dollars in annual labor costs. In the immediate post World War II era, when Sears and Montgomery Ward had expanded into the suburbs and exurbs, the threat of unionism forced these companies to pay relatively high wages, especially to the male salesmen who sold the big-ticket stoves and refrigerators. But the failure of labor law reform in 1978, followed by the PATCO debacle in 1981, meant that unionism would not be much of a threat in discount retailing. Real wages at Wal-Mart actually declined in the years after 1970, tracking the 35% decline in the real value of the minimum wage during the next three decades. The failure of the Clinton health insurance scheme in 1994 made it possible for Wal-Mart to continue to externalize these labor costs, giving the company a $2,000 per employee cost advantage in the grocery sector that Wal-Mart was just then entering. Free trade legislation, including China’s entry into the World Trade Organization, allowed Wal-Mart to easily exploit the global market in sweatshop labor.
One way to recognize the reactionary particularities of the Wal-Mart business model is to briefly contrast it with that of COSTCO, a Seattle-headquartered warehouse/retailer whose Fed-Mart and Price Club predecessors Walton frequently acknowledged as the model that he incorporated into his own retail operations. But there was one big exception: Wal-Mart would have no truck with the Fed-Mart-Price Club- COSTCO personnel program! COSTCO owes its character to Sol Price, the Jewish New Deal Democrat whose social and cultural values were those of Depression-era New York. Price became a multimillionaire, but even in the era of Ronald Reagan, he favored increased taxes on high incomes, enhanced social welfare spending, and a confiscatory tax on wealth.
Price instituted a high-wage, high-benefit personnel policy that kept COSTCO turnover at less than a third that of Wal-Mart. And he visualized his shoppers in a very different fashion from those of Wal-Mart. They were neither rural ex- farmers nor up-scale suburbanites, but derived their identity and income from that thick middle strata who had been organized and enriched by the institutions of the New Deal and the warfare/welfare state that followed. In his early years Price sold only to those with steady jobs and good credit: aside from licensed businessmen, he sold club “memberships” exclusively to unionists, federal employees, school teachers, hospital and utility workers, and people who had joined credit unions. The company soon generated a bi-coastal reputation for low-cost, high-volume quality, so customers spent about 50 percent more on each shopping visit than the clientele of other big-box retailers. With few stores in the Midwest and none in the deep South, COSTCO is definitely a blue-state phenomenon; executives donate to Democrats and take a hands-off attitude toward Teamster efforts to organize.
Nelson Lichtenstein teaches U.S. Labor History at the University of
California, Santa Barbara. This abridged version of the lead article in his collection Wal-Mart: The Face of Twenty-First Century
Capitalism (New Press, November 2005) appears with permission.
Responsibility for editing is ours alone.