Wal-Mart's low-road model

The Wal-Mart Watch campaign, a labor-environmental group highly critical of America's mega-mega retailer, recently launched more than 1,000 events nationwide for its "Higher Expectations Week."

A scathing documentary by independent filmmaker Robert Greenwald with a focus on Wal-Mart's business tactics and treatment of workers began to play to audiences across the country.

Wal-Mart is fighting its critics with waves of television ads celebrating happy workers and the company's gifts to local charities.

But the action goes much further. Across state capitals, legislators are into spirited debates over whether Wal-Mart should be forced to pay adequate health benefits or leave it to the states to subsidize its low-paid workers through Medicaid and other public benefits.

In one sense, all of this is predictable: With annual sales of $288 billion and 1.6 million employees, Wal-Mart is now the world's biggest corporation. Its footprint on American communities and retailing is so vast that some opposition to its tactics is virtually inevitable.

But something even bigger seems to be occurring. Wal-Mart has become the poster child for an era of unfettered globalized corporate operations — "a destabilizing business model, a dangerous detriment to America's local and national economies and to the middle class," in the words of critic Leo Hindery Jr., former CEO of the telecom carrier Global Crossing and an active figure in Democratic Party politics.

Hindery, at a recent Washington conference organized by the Center for American Progress, noted that as recently as 1992 (the year of Wal-Mart founder Sam Walton's death), the Business Roundtable of top business leaders was asserting that corporations had a major responsibility not just to stockholders but to their employees, society at large and the nation's economy. But now, Hindery asserts, the Business Roundtable — indeed, most of the corporate world — focuses almost exclusively on profits for stockholders.

Wal-Mart leads and embodies the trend, he asserts, in three ways: the "clobbering" of Main Streets when Wal-Mart moves to one of its usual edge-of-town locations, "the miserable wage and benefits package offered by Sam Walton's creation," and Wal-Mart's buying strategy, focused on cheaply produced foreign goods, a total reversal of Walton's "Buy America" advocacy.

The reply of economists friendly to Wal-Mart is based — like the company's promotions — almost exclusively on low prices and efficiency. According to a Wal-Mart commissioned study by Global Insight, a respected economic-forecasting firm, low Wal-Mart prices saved consumers $263 billion last year. Wal-Mart defenders say that's "progressive" because the benefits flow principally to low-income families who shop at discount stores.

But the real choice, says Harry Holzer, former chief economist for the U.S. Labor Department, is between "lower-road" employer strategies focused, like Wal-Mart, on low wages regardless of high employee turnover, versus a "higher road" strategy by employers focused on higher worker productivity that's supported by higher wages and benefits as well as training and promotion ladders.

The mass-retailer Costco, which competes directly with Wal-Mart's Sam's Club warehouse chain, has emerged as the high-road model. While Wal-Mart fights aggressively to stop any union organizing whatever, Costco has agreements with the Teamsters for 16 percent of its employees and has extended most of the benefits to its entire work force.

Indeed, a Business Week analysis shows Costco's average hourly wage is $15.97, far above the Wal-Mart (Sam's Club) $11.52 figure (even excluding the 25 percent of Wal-Mart workers who are low-paid part-timers). The yearly employer contributions to health care — Costco, $5,735; Wal-Mart, $3,500. Of Costco employees, 82 percent are covered by the health plan; Wal-Mart, 47 percent. Employee turnover at Wal-Mart is three times higher than Costco's.

And then comes the clincher, suggesting the low-road approach may not be so clever after all: Costco's profit per employee is $13,647; Wal-Mart's, $11,039.

Paying good wages and benefits, says Costco CEO Jim Sinegal, "is not altruistic; this is good business."

Still, if history is any measure, it will take energetic union organizing to force Wal-Mart to shift tactics — perhaps a replay of 1937, when a courageous Detroit sit-in strike by young women at Woolworth's, the dominant retailer of the day, sparked a string of nationwide victories and substantial pay increases.

Wal-Mart Watch, though founded by Andy Stern, head of the Service Workers International, isn't ready to leap into an organizing fight. If and when it's ready, look for a struggle that shapes America's economy and character for the century.

Neal Peirce's column appears alternate Mondays on editorial pages of The Times. His e-mail address is nrp@citistates.com