The internet was all atwitter yesterday with news that a Canton, OH Walmart was holding a Thanksgiving food drive for needy workers. The drive asked for donations from employees, not from customers as Business Insider and certain other outlets gleefully reported. Their exuberance was unbecoming but understandable. As America’s largest retailer and, now, grocer, Walmart is maybe responsible for a broad degradation of working life. The giant corporation pays its workers low wages in order to offer low prices, which drives smaller retailers and grocers out of business, which increases the share of the workforce earning low wages at Walmart. As a bonus, those people are also more likely to have to shop at Walmart. If you already have an opinion about this process, yesterday’s news was proof of concept.
If you read the wage comparison article from CNN, you’ll learn that Walmart’s stock prices have increased 70% since 2009. While the company’s annual growth is sluggish compared to Costco’s, it’s still grown a respectable 4% per annum in that time. If it is not the unquestioned juggernaut it once was, Walmart is still doing well. It’s safe to say that it is not squeezing its employees and vigorously fighting unionization because it’s teetering on the edge of collapse. But is it succeeding because it does those things?
The idea that businesses should provide for the wellbeing of their employees is called welfare capitalism. It is closely associated with Henry Ford, who famously remarked that the people who buy Ford automobiles are the people who make Ford automobiles.
By paying his employees a living wage and ensuring that they had access to a minimal kind of safety net, Ford believed he guaranteed a healthy customer base for his business. His essential contention was that paying workers well is not just morally righteous but strategically wise. In a vague and theoretical sense, this is the operating theory of modern capitalism.
In a specific and theoretical sense, though, the simplest way to increase profits is to pay everybody less. Call it the MBA approach to capitalism, in which the best company is not necessarily the largest but the most efficient. Walmart is, of course, both incredibly large and ruthlessly efficient. And herein lies the problem. To paraphrase Ford, the people who work at Walmart shop at Walmart. Is that good?
I try to limit my experience of Walmart as a store, partly because I object to Walmart the corporate entity and party because shopping there sucks. The entire experience is unpleasant. Perhaps my sample is small enough that I have been exposed to bad luck, but cash register operation seems to be a major problem. Anecdotally but also strikingly, everyone there seems to be unhappy—customers, floor employees, managers, everybody.
The upside is low, low prices, but as we saw with this week’s food drive—in which Walmart employees were invited to purchase Walmart food and give it to other Walmart employees who couldn’t afford it—“low” is a relative term. The reducto ad absurdum is an economy in which we all make Walmart wages to buy stuff at Walmart prices. The economic term for this situation is a depression.
Walmart is not system-wide, though. It may create a closed circuit of impoverishment for its employees, but there are two classes of people who benefit enormously from Walmart’s low wages/low prices loop. One is investors, who have enjoyed the aforementioned stock bonanza during our recent recession. And the other is people who shop at Walmart but work somewhere else.
Those people, by which I mean most people, are like visitors to a second-world country. We enjoy the exchange advantage of getting our money from a different economy. We are also a lot more likely to own stock in Walmart than the company’s actual employees.
Interpreted this way, Walmart is like a localized depression. It occupies a greater and greater share of the retail/grocery economy, where it both lowers prices and reduces pay. The people who actually work in this isolated but growing section of the economy suffer, often to the point where they must rely on public assistance, but the consumer and investor classes benefit. Essentially, we have created an economic ghetto so that some of us can get stock dividends and the rest of us can save money on paper towels.
I submit that this process of localized saving and profit-taking is what’s wrong with American business today. Corporate profits are historically high and growth is okay, but hiring is sluggish and wages are dead. By applying principles of good business, we have created an economy that is worse for most Americans. It’s enough to make you ask what we built all those Ford automobiles for.