The Declarer (Floyd McWilliams' Blog)

Sunday, November 16, 2003

One of James Donald's aphorisms about the radical left is that "wherever the master's boot has been smashing the face of a child, [they] will cheer the master, and demonize the child as an agent of the CIA." There is a corollary: Wherever a large corporation attempts to save consumers money, the left will tell you that this will lead to the consumers' impoverishment, and is the next step on the road to fascism.

Consider this blog post from left-wing Mercury News technology columnist Dan Gillmor:

Fast Company: The Wal-Mart You Don't Know. Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.

Actually, the company wields its power for another purpose: to make profits for its shareholders. The low-prices mantra is a means toward that end.

And it's a mean operation, in more ways than should make us comfortable. For example, Wal-Mart pays its people such low wages that they qualify for government programs such as food stamps. They get substandard health insurance, if they can afford it at all. In other words, we're paying hidden taxes for those "everyday low prices."

I first encountered Wal-Mart in the mid-1980s, when I worked in Kansas City. I watched as it marched through rural America, decimating downtown commercial districts everywhere it went. A corporate marauder, Wal-Mart had no mercy, no sense of anything but growth. It was, and is, an endlessly feeding shark.

In some ways, those Main Streets deserved their fate. They were controlled by local folks who'd kept prices high and selections low until Wal-Mart's troops crushed them. But when the giant retailer was finished, it was just about the only retailer making money -- and the profits didn't stay in the towns where the profits were being made. They went back to Arkansas and to shareholders. Raw capitalism.

I don't shop at Wal-Mart. I'd rather pay a little bit more from a retailer that isn't sucking the lifeblood out of America's communities and employers.

Low prices, sure. But the price the nation is paying as a society for Wal-Mart's low prices should give us all pause.

A commenter provided one example of Wal-Mart's rapacity:

The problem with Wal-Mart goes beyond their ability to offer low prices. As discussed in today's New York Times:

"he 70,000 grocery workers on strike in Southern California are the front line in a battle to prevent middle-class service jobs from turning into poverty-level ones. The supermarkets say they are forced to lower their labor costs to compete with Wal-Mart, a nonunion, low-wage employer aggressively moving into the grocery business. Everyone should be concerned about this fight. It is, at bottom, about the ability of retail workers to earn wages that keep their families out of poverty."

And given its size, Wal-Mart can make or break suppliers. For instance Dial Corp. gets 28% of revenues from Wal-Mart. If they were to lose Wal-Mart - ouch. More and more Wal-Mart has no real competitors because of its size - not good for suppliers whose margins get squeezed. Read the Vlasic in the Fast Company article.

"The gallon jar reshaped Vlasic's pickle business: It chewed up the profit margin of the business with Wal-Mart, and of pickles generally. Procurement had to scramble to find enough pickles to fill the gallons, but the volume gave Vlasic strong sales numbers, strong growth numbers, and a powerful place in the world of pickles at Wal-Mart. Which accounted for 30% of Vlasic's business. But the company's profits from pickles had shriveled 25% or more, Young says--millions of dollars.

The gallon was hoisting Vlasic and hurting it at the same time.

Young remembers begging Wal-Mart for relief. "They said, 'No way,' " says Young. "We said we'll increase the price"--even $3.49 would have helped tremendously--"and they said, 'If you do that, all the other products of yours we buy, we'll stop buying.' It was a clear threat." Hunn recalls things a little differently, if just as ominously: "They said, 'We want the $2.97 gallon of pickles. If you don't do it, we'll see if someone else might.' I knew our competitors were saying to Wal-Mart, 'We'll do the $2.97 gallons if you give us your other business.' " Wal-Mart's business was so indispensable to Vlasic, and the gallon so central to the Wal-Mart relationship, that decisions about the future of the gallon were made at the CEO level."

To recap: Vlasic had a nice little business selling pickles in smallish quantities. Then Wal-Mart decided that consumers should be able to buy pickles in bulk quantities. Wal-Mart and Vlasic fought over how much the pickles would cost, and Wal-Mart won -- transferring millions of dollars from Vlasic's pocket to those of Wal-Mart's consumers.

And how do left-wingers react to this? They squeal about how Wal-Mart "has no competitors because of its size" (facially and demonstrably invalid), and how it "turns middle-class service jobs into lower-class jobs."

The only way that a service job can "turn into" a lower-paying job is if that job did not provide sufficient value for the employer -- and, by implication, the consumer. And the only way that a company like Wal-Mart can become a "shark" and can "march through rural America" is when that company is on a relentless mission to lower prices and improve service and selection.

Another corporation in the Wal-Mart mode is Microsoft. Yes, Microsoft sought dominance in the personal computer desktop operating system market. But now that Microsoft has attained a near-monopoly, what does it do? It continuously commoditizes products as part of the Windows operating system. Microsoft gives away software for free! Remember when you had to pay for a browser? For a disk defragmenter? Hell, 10 years ago you had to pay for a TCP/IP stack.

This reminds me of another of Donald's sayings, a slogan for anarcho-capitalism: "The Customer Shall Rule."



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