UPDATE: Read the Demos study on the retail sector at large and how low wages impact workers and the economy.
Why is it that America no longer makes things the way we used to? Between 1980 and 2011, the United States lost 7 million manufacturing jobs, many of them middle-class positions that enabled workers to support their families with dignity. Today, the nation’s largest employer is not a manufacturer, but mega-retailer Walmart – which is celebrating its 50th anniversary this week. Walmart pays its associates just $8.81 an hour on average. In this economy, a quarter of full-time working-age American adults are not earning enough money to meet their families’ economic needs. While the decline of American industry was caused by a variety of complex factors, the actions of the nation’s biggest corporation and largest retailer play an under-estimated role.
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.
10 Ways Walmart has Facilitated America’s Industrial Decline
1. Buying billions of goods that weren’t made in America.
The vast majority of merchandise Walmart sells in the U.S. is manufactured abroad. The company searches the world for the cheapest goods possible, and this usually means buying from low-wage factories overseas. Walmart boasts of direct relationships with nearly 20,000 Chinese suppliers, and purchased $27 billion worth of Chinese-made goods in 2006. According to the Economic Policy Institute, Walmart’s trade with China alone eliminated 133,000 U.S. manufacturing jobs between 2001 and 2006 and accounted for 11.2 percent of the nation’s total job loss due to trade. But China is hardly the only source of Walmart goods: the company also imports from Bangladesh, Honduras, Cambodia, and a host of other countries.
2. Pushing U.S. companies to move their factories overseas.
With $419 billion in annual net sales, Walmart’s market power is so immense that the even the largest suppliers must comply with its demands for lower and lower prices because they cannot afford to have their goods taken off its shelves. Companies that used to manufacture products in the United States, from Levi’s jeans to lock maker Master Lock, were pressured to shut their U.S. factories and moved manufacturing abroad to meet Walmart’s demand for low prices.
3. Making it easier for other U.S. retailers to buy from foreign factories.
Walmart was a leader in sourcing goods overseas, establishing a centralized purchasing system, technological infrastructure, and linkages to foreign factories that other companies imitated and built on. While researchers find that Walmart still imports disproportionately more goods than other apparel retailers, its innovations accelerated the use of offshore suppliers by its competitors, speeding the loss of American manufacturing jobs.
4. Forcing layoffs among its U.S. suppliers.
Even when Walmart products are made in the United States, manufacturing jobs still get eliminated as suppliers cut costs to meet Walmart’s demands for low prices. A spokesman for the National Knitwear and Sportswear Association noted that producing goods for Walmart “forces domestic manufacturers to compete, often unrealistically, with foreign suppliers who pay their help pennies on the hour.” A Walmart spokesperson admitted that this was the point of the company’s efforts to buy domestic goods: “one of our big objectives was to put the heat on American manufacturers to lower prices.” Even as manufacturing costs increase, Walmart demands that suppliers’ prices go even lower, a dynamic that helped push Kraft Foods to plan the closure of 39 factories and lay off 13,500 workers.
5. Promoting domestic sweatshops.
Layoffs aren’t the only way manufacturers contrive to meet the low prices Walmart demands. Walmart’s domestic suppliers lower wages, cut benefits, aggressively fight employee efforts to unionize and bargain collectively, and skimp on worker comfort and safety. For example, Louisiana seafood processor C.J.’s Seafood, which sells an estimated 85 percent of its processed crawfish to Walmart, has recently come under scrutiny for allegedly abusing employees working in the U.S. on temporary immigrant visas (known as guestworker visas). A complaint to the U.S. Department of Labor claims that the Walmart supplier “engaged in extremely coercive employment related actions, including forcing guestworkers to work up to 24-hour shifts with no overtime pay, locking guestworkers in the plant to force them to continue to work, threatening the guestworkers with beatings to make them work faster, and threatening violence against the guestworkers’ families in Mexico after workers contacted law enforcement for assistance.”
6. Squeezing U.S. manufacturers out of business.
Walmart’s unrelenting push for low prices eats into the profit margins of its U.S. suppliers, often weakening companies in the process. Journalist Charles Fishman provides a vivid example: Walmart provided 30 percent of Vlasic Pickles’ overall business and insisted that if the company did not allow Walmart to sell a gallon jar of pickles for the ruinously low price of $2.97, they would stop buying Vlasic’s other products. “The pickle maker had spent decades convincing consumers that they should pay a premium for its brand. Now Walmart was practically giving them away.” According to Fishman, Vlasic’s profit margin from pickles shrunk 25 percent or more. Nor is Vlasic alone in seeing its business cannibalized by Walmart: of the top ten companies supplying Walmart in 1994, four sought bankruptcy protection by 2006.
7. Discouraging American innovation.
By squeezing its suppliers, Walmart leaves companies without the resources to make new investments in research and development. And once companies become dependent on Walmart as a massive purchaser, their greatest incentive is to keep producing the products Walmart has decided to sell, making it unnecessary and unprofitable to innovate.
8. Driving competitors to squeeze manufacturing.
If discount retailers like Target and Kmart want to remain competitive with Walmart, they must demand similarly low prices from suppliers. As a result, the pressures pushing down costs and propelling the elimination of American manufacturing jobs are magnified.
9. Lobbying for policies that make it easier to move U.S. jobs overseas.
According to the non-profit Center for Responsive Politics, Walmart spent $7.8 million on lobbying in 2011 alone. While this money was paid to influence a range of legislation, from promoting corporate tax cuts to opposing a bill to guarantee paid sick time to working people, trade policy was among the issues Walmart lobbied on most aggressively. In fact, Walmart has lobbied to make it easier to push American jobs out of the country for years, playing a key role in in lobbying for NAFTA in the early 1990s.
10. Making growing inequality the accepted norm
Walmart has set the template for today’s economy: one in which increased economic productivity is not shared with working people, and the vast inequality that this creates is seen as normal. Today the six members of the Walton family who inherited the Walmart fortune enjoy wealth equal to that of the least-wealthy 30 percent of Americans combined. These billionaires are the ultimate beneficiaries of Walmart’s push to cut costs, condemning retail employees to work in poverty and American factory workers to unemployment.
Walmart is the nation’s largest employer and one of America’s most profitable companies, netting $15.7 billion in profits in 2011. With the great resources at its disposal, Walmart could afford to take the high road, supporting good manufacturing jobs in America by allowing for higher wages and more investment in its supply chain and paying its own employees – from retail “associates” to warehouse workers and cleaning contractors – a living wage. That would set the template for a new American economy, one in which Americans might once again “make things” and also find greater dignity and stability in selling them.