What to Do About Wal-Mart

Date: 5 Dec 2005 | posted in: Retail | 0 Facebooktwitterredditmail

As the company’s misdeeds pile up in the public consciousness, it can be tempting to define the problem of Wal-Mart as one of a bad apple—a rogue company gone awry in an otherwise sound economic system.

Wal-Mart has indeed attained a scale that puts it in a category all its own, and there’s no question that it is leading a race to the bottom. But others are running that race too. Target’s wages are as poor and its health benefits as out of reach. Home Depot and Lowe’s have crushed thousands of independent hardware stores. Best Buy has its main sourcing office Shanghai, where it relies on the same dismal factories.

It would be more accurate to view Wal-Mart not as a bad apple, but as the crowning achievement of an economic and political system that has greatly enlarged the power of global corporations and trampled core American values—namely small business, community, local democracy and work.

Rather than campaigning to convince one company to change its ways, we would do better to focus our energies on changing the underlying policies that created this monster—and will continue to create others. This is an opportunity to build a broad political movement aimed at reasserting those core American value. Here’s how:

1.  Bring Back Trust-Busting

There was a time not long ago when Americans believed concentrated market power was not only a threat to consumers, but also to democracy, and that a truly competitive economy was one in which there were many competitors.

This robust notion of antitrust has given way, within the courts and enforcement agencies, to a view of antitrust that largely discounts the dangers of concentrated market power and instead focuses narrowly on the benefits of economies of scale. The view that now dominates antitrust jurisprudence essentially holds that anything that may yield efficiencies and thus the possibility of lower prices in the short term is acceptable—regardless of how great the concentration of power or the long-term consequences.

Two years ago, when Wal-Mart priced much of its toy department at or below cost to destroy Toys R Us, it provided a large-scale demonstration of a tactic that many small businesses contend the company has been employing in a more localized fashion for years. Predatory pricing benefits consumers through lower prices in the short term, but ultimately reduces competition.

Another concern is the power global retailers have over suppliers. Borders and Barnes & Noble are now bigger than the top 10 publishers combined. Home Depot and Lowe’s, which were barely a blip on the radar 20 years ago, now command half of all sales of hardware and building supplies. As gatekeepers, they have extraordinary power to exact favorable terms from manufacturers—which may not be extended to smaller competing retailers—and to lock out some producers entirely.

We need to step up investigation and enforcement of predatory pricing violations and the illegal exercise of buyer power. Unfortunately, the Bush administration appears headed in the other direction. Its Antitrust Modernization Commission is weighing the repeal of the Robinson-Patman Act, a key law for checking the power of giant retailers.

Perhaps it is also time to think about imposing a cap on the market share that any one company is allowed to attain. Wal-Mart now has 30 percent of the market for groceries and basic household goods in some major metros, such as Dallas-Fort Worth, and an even greater share in many small towns.

2. Expand Community Control Over Development

Cities already have the authority to set limits and impose standards on retail development. Some are now leading the way by requiring retail projects to pass an economic impact analysis to gain approval, and restricting the size and location of new stores, which is crucial to preventing companies like Wal-Mart from overwhelming local economies.

But there are major hurdles. One is the lingering belief among many local officials that these big stores are good for local economies. Papers that came out of a recent Wal-Mart-funded conference and a number of earlier studies have reached a range of conclusions about Wal-Mart’s effect on local economies, spanning from significant negative impacts to modest benefits.

But what’s striking is the vast gap between the findings of even the most favorable studies and the economic Shangri-La that this company and other big-box retailers have been peddling to local officials.

Even for those communities shrewd enough not to buy the job-and-tax myths, there still remains the fear of being hit with an unfounded, but expensive, lawsuit brought by the world’s biggest corporation or an extremely well-funded ballot initiative that grassroots groups lack the resources to effectively counter. (Wal-Mart, Home Depot, Lowe’s and others have all been involved in zoning-related ballot initiatives, sometimes spending upward of $100 per voter.)

Some cities have land use policies that have not been updated for years and afford insufficient protections—much to the surprise of residents who suddenly find one of these giants on their doorstep. Earlier this year, Wal-Mart CEO Lee Scott directed executives to speed up construction of new stores in anticipation of more cities revising their rules on retail development.

States could bolster local democracy against corporate power by passing laws that automatically make large retail projects a conditional use—subject to added scrutiny, including an independent economic impact analysis and a public hearing and a vote by the city council. States should also look into adopting protections for cities that face intimidation lawsuits brought against valid land use policies, and they should outlaw corporate spending on ballot initiatives.

3. Support Small Business Creation

We’ve lost tens of thousands of independent businesses over the last decade and, with them, an important part of the fabric of American life. Small businesses contribute significantly to the vitality of local economies. They nurture social capital, disperse wealth and vest decision-making in local communities rather than corporate headquarters. They are the means by which generations of families have pulled themselves into the middle class.

But small businesses have long been on the losing end of government policy. Local and state governments have spent billions subsidizing the construction of big-box stores. Nearly half the states have corporate income tax policies that give significant advantages to national chains. Local zoning boards routinely bend and break the rules to accommodate big retailers, while telling small businesses that it’s their own problem if they cannot “compete.”

What might our economy look like if we reversed these policies? What might happen if we redirected all those corporate subsidies to small business development? We could set up business incubators, training programs and revolving loan funds. What if we stopped creating tax increment financing zones to support Wal-Mart and instead established Independent Business Investment Zones, as some in Austin, Texas, are calling for? What if our land use and transportation policies no longer fueled big-box sprawl but fostered small businesses embedded in neighborhoods and town centers, so we could once again walk to the store?

4. Value Work

In a country that supposedly values work, it’s a disgrace that so many people put in a full 40 hours or more every week and still cannot make ends meet, especially when the remedies are so clear: a legitimate minimum wage, universal health care and protection for the right to organize and have a voice on the job.

It’s heartbreaking to read the testimony that has come out of the various lawsuits charging Wal-Mart, Home Depot and other chains of deleting hours from employees’ timecards.  This is dramatic evidence that, here in the land of the free, thousands of people feel they cannot stand up for the basic right to be paid for their work without facing retaliation or job loss.

This fear is the direct consequence of policies that have made it harder for workers to form unions and dramatically tipped the balance of power in the workplace. It’s high time we tipped it back.

Wal-Mart is a powerful rallying point, but we should not lose sight of the big picture—if for no other reason than it will make it all that much harder to tackle Wal-Mart itself. To the extent that liberals in New York and other cities continue to flirt with Target while shunning Wal-Mart, we are vulnerable to letting the other side portray this as just another volley in the culture wars—our problem with Wal-Mart seemingly based on nothing more than its lack of style and association with southern states and country music.


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Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and directs its Independent Business Initiative, which produces research and designs policy to counter concentrated corporate power and strengthen local economies.