Debunking Walmart’s Creation Myth + Exporing the Limits of Consumer Action

By Harold Myerson 
First published Sep. 11, 2009 by

The Retail Revolution: How Wal-Mart Created a Brave New World of Business by Nelson Lichtenstein, Metropolitan Books, 311 pages, $25.00

Buying Power: A History of Consumer Activism in America by Lawrence B. Glickman, University of Chicago Press, 403 pages, $45.00

The story isn’t part of the official Wal-Mart creation epic, but it tells us almost all we need to know about the company’s approach to the interests of its employees and the laws of the nation. Around the time that the young Sam Walton opened his first stores, John Kennedy redeemed a presidential campaign promise by persuading Congress to extend the minimum wage to retail workers, who had until then not been covered by the law. Congress granted an exclusion, however, to small businesses with annual sales beneath $1 million — a figure that in 1965 it lowered to $250,000.

Walton was furious. The mechanization of agriculture had finally reached the backwaters of the Ozark Plateau, where he was opening one store after another. The men and women who had formerly worked on small farms suddenly found themselves redundant, and he could scoop them up for a song, as little as 50 cents an hour. Now the goddamn federal government was telling him he had to pay his workers the $1.15 hourly minimum. Walton’s response was to divide up his stores into individual companies whose revenues didn’t exceed the $250,000 threshold. Eventually, though, a federal court ruled that this was simply a scheme to avoid paying the minimum wage, and he was ordered to pay his workers the accumulated sums he owed them, plus a double-time penalty thrown in for good measure.

Wal-Mart cut the checks, but Walton also summoned the employees at a major cluster of his stores to a meeting. “I’ll fire anyone who cashes the check,” he told them.

Besides its Dickensian shock value, this story — told by Nelson Lichtenstein in his new book about Wal-Mart — points to a phenomenon of wider significance. The company that was willing to break the law to avoid paying the minimum wage is now the largest private-sector employer in the nation and the world, with 1.4 million employees in the United States and 2 million overall, more than 6,000 stores, and revenues that exceed those of Target, Home Depot, Sears, Kmart, Safeway, and Kroger — combined. By virtue of its size and its mastery of logistics, Wal-Mart is able to demand low prices from its thousands of suppliers and thus inflict low wages on their employees. Its low prices have also forced reductions in wages and benefits at the unionized supermarkets with which it threatens to compete.

As the unionized General Motors was big enough to set the pattern for the employment of nonprofessional Americans in the three decades following World War II, Wal-Mart is now so big it is setting the pattern today. Each created a distinct national buying public for its goods that was far larger than its immediate work force: in GM’s case, workers who could afford to buy new cars; in Wal-Mart’s, workers who could afford to shop nowhere except Wal-Mart. With Wal-Mart’s rise, the same traditional values that underpinned Sam Walton’s cheating and threatening of his workers — contempt for Yankee laws and regulations, and a preference for the authoritarian, low-wage labor system of the South — have become more the norm than the exception in America’s economic life.

For the past year, Americans have focused, and understandably so, on the ways in which Wall Street has misshaped the American economy, how finance has grown large over the past 20 years as manufacturing has shrunk. But the rise of finance is just half the story; it takes the rise of retail to complete the tale. Both Wall Street and Wal-Mart played a central role in the deindustrialization of the United States: 40,000 U.S factories were closed between 2001, when China was admitted to the World Trade Organization, and 2007, during which years Wal-Mart’s Chinese imports tripled in value from $9 billion to $27 billion.

The rise of Wal-Mart, and the national economy it has shaped in its image, is a story that Lichtenstein, a professor of history at the University of California, Santa Barbara, is eminently suited to tell. He’s also the author of The Most Dangerous Man in Detroit , a biography of United Auto Workers President Walter Reuther that is one of the definitive accounts of the rise of the unionized, high-wage, mid-20th-century economy that Wal-Mart has done so much to destroy. The Retail Revolution now tells the story of how Walton, strongly abetted by Ronald Reagan, pulled down the world that Reuther, strongly abetted by Franklin Roosevelt, created. It is not the definitive scholarly history that Lichtenstein’s Reuther biography is, but it is surely the best account we have of Wal-Mart’s metamorphosis from a backwater chain to the nation’s dominant corporation, and it contains more direct reporting than is normally found in the works of historians. The story of Walton’s minimum-wage evasion came from Lichtenstein’s interviews with former Wal-Mart executives.

Lichtenstein’s account of Wal-Mart’s rise isn’t uniformly negative. Walton and his top lieutenants, following in the footsteps of such American economic icons as Henry Ford, can point to hugely important business innovations that stand alongside their social primitivism. As Ford revolutionized production, so Walton revolutionized distribution and logistics — the business of getting the product from the plant to the store in the fastest, cheapest, most efficient way possible. Well before other retailers, he understood the potential of the barcode for tracking the supply and demand for products. He changed warehouses from giant storage rooms to distribution centers where products arriving from ports or plants were turned around and delivered to stores within a day. He invested in more computer technology and communications satellites than his rivals, and developed better data on which goods moved and how best to sell them than their manufacturers (even venerable firms like Proctor & Gamble) possessed. Once Wal-Mart became America’s retail giant, he compelled suppliers like P&G to seek Wal-Mart’s approval for new products and its help in crafting them. The data also enabled Wal-Mart to manage its stores from its corporate headquarters in Bentonville, Arkansas, reducing store managers to foremen under constant pressure to sell more and spend less.

But Wal-Mart’s distinctive identity came from fusing its brilliant use of new technology with its rigorous adherence to the old exploitative Southern labor practices. The Southern traditionalism of Walton and his lieutenants dictated that the stores’ managers would be men and its salesclerks women, and no federal statute or class-action lawsuit has been able to dethrone that tradition yet. Wal-Mart is also famously, pathologically anti-union, but its antipathy toward its nonunion work force is no less remarkable. The firm prohibits overtime pay (even before the current recession, the average Wal-Mart employee worked 34 hours a week), offers health-insurance plans that fewer than 50 percent of its U.S. workers opt to purchase (the most common plan contains a $3,000 annual family deductible, a great deal of money for workers making a little more than the minimum wage), and keeps its labor costs down to 10 percent of sales, in contrast to levels of 11 percent to 13 percent for its discount retail competitors.

Annual turnover among employees is huge — 40 percent in most recent years, though in the late 1990s, when unemployment was low, it reached a staggering 70 percent. Wal-Mart seldom discharges employees, an act that would require it to pay penalties if the government found a pattern of excessive firings. Rather, it simply gives its workers such unwieldy schedules and such impossible work loads that quitting, like low prices, is an everyday constant. So, as Lichtenstein documents, is employee theft — a problem that Wal-Mart addressed by locking in its night shifts until public exposure brought that practice to an end.

Wal-Mart has succeeded brilliantly throughout the NAFTA nations. It has become the biggest retailer in both Canada and Mexico (and it staved off unionization of its Canadian stores by closing down the one whose workers voted to go union). But it had to withdraw from Germany, where the laws regulating hours and wages made its normal business practices impossible, and has also fared poorly in Japan. As Lichtenstein notes, in nations such as Germany and Japan, where high disposable incomes are “shared relatively equally throughout the population, Wal-Mart’s EDLP [Every Day Low Prices] policy is not so much of a trump card.” Wal-Mart’s efforts in Germany were not helped by the fact that its policy of encouraging workers to call in anonymously to report on misdeeds (including union sentiments) of their fellow workers reminded Germans of the late, unlamented Stasi.

Wal-Mart’s more serious failure of market penetration remains its inability to break into America’s major coastal cities or Chicago. There, the specter of its superstores — stores that include supermarkets, whose success has already given Wal-Mart 30 percent of the U.S. retail food market — poses a direct threat to unionized supermarket workers. In 2003, Southern California supermarkets, after decades of mutually profitable labor relations, told the United Food and Commercial Workers that they would have to reduce wages and benefits to compete with Wal-Mart, and, after breaking the union’s strike, imposed a contract in which new hires were offered not the traditional health insurance package but one modeled on Wal-Mart’s. At the time, the proportion of Southern California grocery workers with health insurance stood at 94 percent; by 2007, it had declined to 54 percent.

After that defeat, the unions and its allies fought back, convincing city councils and governmental agencies in big East Coast and California cities to use zoning ordinances and bans on big-box stores to keep Wal-Mart out of town. Public indignation over the company’s labor practices has also contributed to its inability to enter blue-state markets.

With its stock price stagnant for nearly a decade due in part to its failure to expand to blue-state America, and with Democrats now in control in Washington, Wal-Mart is currently undergoing a great cosmetic makeover. It has announced it will develop a green profile for all the products it sells and has even proclaimed its support for an employer mandate in any emerging health-reform package. What it is not willing to relinquish is its die-hard opposition to unions and labor-law reform, its existential commitment to the Southern model of labor relations. Wal-Mart cannot thrive in a nation where prosperity is broadly shared, and it will do all it can to keep that from happening.

That wal-mart has been waylaid in part by the political expression of indignant consumers should come as no surprise to readers of Lawrence Glickman’s Buying Power: A History of Consumer Activism in America . As Glickman, a history professor at the University of South Carolina, makes clear, Americans have a long, if largely forgotten, history of supporting political causes by withdrawing their patronage from certain stores or products — including efforts by abolitionists to establish stores that sold clothing free from the taint of plantation cotton, and by Southern slavers to boycott products made in the North. Of particular interest are the efforts that Glickman has uncovered of urban Southern blacks to resist the coming of Jim Crow by boycotting newly segregated municipal streetcar lines at the turn of the century — including a Montgomery, Alabama, streetcar boycott 55 years before Rosa Parks sat down in one of the front seats of a Montgomery bus.

But it is one thing for Glickman to rescue these campaigns from history’s dustbin and quite another for him to give them an importance that most of them do not deserve. In the battles for the abolition of slavery, for worker rights and for civil rights, the actions of sympathetic consumers seldom amounted to more than a sideshow. Glickman sometimes makes too much of them, and when he turns his attention to the battle for consumer rights during the 1960s and 1970s, he accords it a centrality that other historians of the time might have trouble recognizing. Ignoring the pivotal role that the politics of race played in the demise of the mid-20th-century Democratic majority, he writes that “Great Society liberalism was defeated in large measure because of its association with consumerism.” What we learn from this assessment is that Glickman may have been immersed in this topic for too many years.

Harold Meyerson is the editor-at-large at The American Prospect and a columnist for The Washington Post. Click here to read more about him.

© 2009 American Prospect