Is Wal Mart Good for America? Essay.

Wal-Mart was started in 1962 as a discount store in Arkansas. The company began trading on the NYSE in 1972 after being traded on OTC Markets since 1970. The company quickly grew to over 270 stores in 11 states by the end of the decade. In 1983 and 1988, Wal-Mart opened its first Sam’s store and its first Wal-Mart Supercenter respectively. Wal-Mart became an international company in 1991, with the opening of its first Sam’s store near Mexico City. Wal-Mart employs 1.6 million people, services 138 million customers weekly, and claims $312.4 billion in annual sales. Since becoming a giant in the industry, the company has faced many legal issues and much criticism. These legal issues have spanned from underpaying employees to international trade disputes. Despite its global success, these problems have caused many businesses and consumers to ask just how good Wal-Mart is for America.

Imports and Exports

Wal-Mart purchases the majority of their products from China in order to keep their cost of goods down, which results in lower prices for the consumer. Wal-Mart alone is China’s eighth-largest trading partner. With over 70 percent of Wal-Mart’s products made in China, it accounts for 10 percent of our annual trade deficit with China. The cost of manufacturing goods in China is much less, so the goods can be sold in the United States for less. The labor laws in this country are very different from the US in many ways. Chinese factory workers are often underpaid, work in unsafe conditions, and are verbally abused. Wal-Mart and other suppliers take full advantage of these harsh working conditions and mistreatment of the factory workers. Wal-Mart pushes its suppliers to lower their costs, generating sweatshops in which young workers are forced to work long hours with very little pay. America as we know can’t afford to sustain a $200 billion annual trade deficit to China, but Wal-Mart drives that deficit. We can’t afford to subsidize the heath care cost of the largest employer in the country. According to The Washington Post:

Wal-Mart also exploits taxpayers, for it is what Ronald Reagan would denounce as the leading corporate welfare queen. It’s estimated that Wal-Mart’s government subsidies total a whopping $2.7 billion, or $2,100 per employee. An internal memo to the board leaked recently reported that “our [health care] coverage is expensive for low-income families, and Wal-Mart has a significant percentage of associates and their children on public assistance.” In fact, nearly one-half of the children of Wal-Mart employees are either on Medicaid or have no insurance at all.

In 1992 Wal-Mart’s stock plunged and the company started importing merchandise from China with a high mark-up. The margins were 60%-80% on imported low-cost Asian imports. Wal-Mart then advertised these goods at a lower price point than its competitors. The low price points are the bait to lure customers into the store. Not all of their items in that particular department are the lowest price in town. This price point strategy was extremely effective and helped move Wal-Mart to the top of the retail food chain. Arthur Charles Fishman, a local business owner in Lodi, California believes that Wal-Mart had a drastic effect on the way he and other small business owners conduct business. He refers to this as the “Wal-Mart Effect”:

When Wal-Mart comes to town, bringing its lower prices, it forces its competitors to lower theirs. Wages at these businesses must drop in order to compete. Buying habits are changed, and once viable businesses are now in jeopardy. Because of its sheer size, it is able to force its will. There is often a sense of foreboding that comes with this new retailing.

The Wal-Mart economy describes the nagging sense that there might be some unseen but terrible cost to be paid for “always low prices.” The Wal-Mart economy is a place where the jobs are traps: low wages, miserly benefits, stultifying work, no respect, no future. In the Wal-Mart economy, we as consumers often buy too much just because it’s cheap. We are slaves to our own impulse for a bargain (Fishman 9-10).

Problems & Politics

Wal-Mart is responsible for driving down wages and increasing public health care costs while its CEO and owners are lining their own pockets. The Walton family, one of the richest in the world uses their private wealth, power, and influence to donate millions to politics. The majority of their donations go to Republicans who cultivate their low-road policies. They are the leading contributors to the voucher movement seeking to privatize education. They are opposed to any policy that would streamline efforts to link trade access to the right to organize, environmental protection or even crackdown on sweatshops. The iron-triangle between Wal-Mart, the government, and China is made of steel.

Americans are beginning to realize that Wal-Mart’s triumph could be the downfall of middle-class America. If Wal-Mart sets the pace, Americans will pay the price, in the form of declining wages, rising health care costs, longer work hours, and rising personal taxes to offset the increasing corporate subsidies.

A trade complaint was filed charging the Chinese with dumping high-end televisions on the American market selling them below free market cost. China was pricing their products in a manner contrary to the obligations they undertook when joining the World Trade Organization. In the hearings organized by the World Trade Organization Wal-Mart testified against the United States. Why would Wal-Mart, an American based company, testify to support China? It is because Wal-Mart and China are a joint-venture. China uses Wal-Mart to break into the US market; Wal-Mart in turn uses Chinese factories to produce goods to sell at low prices.

Currently costs are shifted to the public while profits accumulate in the Walton family bank account. The challenge for American companies to compete in the domestic and international arenas is to develop systems that assign these costs to the corporations that create them, thus turning Wal-Mart’s “really low prices” into really accurate prices. American businesses need to also demonstrate and identify that they are socially responsible in production, and consumption. Companies should show they take an active part in the local community to try and gain their support. This will prove to Wal-Mart and other big-box retailers that it will take more than a few low-priced goods to sustain the communities continued financial support.

Good or Bad?

Is Wal-Mart good for America? Overall, my conclusion is Wal-Mart does more harm than good. The larger super stores often have a devastating effect on the economy in the small towns they inhabit. The super stores dominate the market, concentrating too much retail in one area, hurting property values, causing traffic problems, and eventually harming the businesses that do not benefit from their presence. Wal-Mart drives the trade deficit between American and China, and is more focused on profit for its shareholders and owners than on the people that purchase their goods. Their greedy, low-cost high-profit way of doing business is slowly destroying the economic stability of the American consumer base. Unbeknownst to its consumers Wal-Mart is causing higher taxes to offset corporate subsidies and increasing health care cost to cover their own underpaid employees. Wal-Mart has become one huge vending machine for China, and in turn, is dispensing a large part of America’s economy with it.