The Wal-Mart Dilemma


From Dave Pollard (2003)

Please read this thorough and extraordinary article from Fast Company entitled The Wal-Mart You Don’t Know. If its length discourages you, read the following excerpt (emphasis mine), and you’ll want to go back and read the rest:

If Levi [Strauss] clothing is a runaway hit at Wal-Mart, that may indeed rescue Levi as a business. But what will have been rescued? The Signature line–it includes clothing for girls, boys, men, and women–is an odd departure for a company whose brand has long been an American icon. Some of the jeans have the look, the fingertip feel, of pricier Levis. But much of the clothing has the look and feel it must have, given its price (around $23 for adult pants): cheap. Cheap and disappointing to find labeled with Levi Strauss’s name. And just five days before the cheery profit news, Levi had another announcement: It is closing its last two U.S. factories, both in San Antonio, and laying off more than 2,500 workers, or 21% of its workforce. A company that 22 years ago had 60 clothing plants in the United States–and that was known as one of the most socially reponsible corporations on the planet–will, by 2004, not make any clothes at all. It will just import them.

The article brilliantly describes what I call the ‘Wal-Mart Dilemma’, which is represented by the cycle diagrammed at above in red.

The intervention in blue that can stop this ‘race to the bottom’ is anathema to ‘free’ traders. It says simply that if a product can reasonably be produced domestically, then duties and other regulations should be imposed to protect domestic producers. In other words, the alternative to ‘free’ trade is not no trade, but rather regulated trade, regulated to protect the economy and social fabric of the regulating country. That switches the cycle shown in red to the cycle shown in green.

Of course, it’s not all black and white, or we would have resisted the globalization extremists and wouldn’t be facing this dilemma today at all. In the red vicious cycle, the seduction is:

  • lower prices ‘every day’
  • low inflation

and the downside is:

  • low wages
  • low product quality
  • high unemployment
  • high poverty levels

The green cycle also is not perfect. Its seduction is:

  • high wages
  • high product quality
  • lower unemployment
  • lower poverty levels

and its downside is:

  • higher prices
  • higher inflation

You pays your money and you takes your choice. In my biased opinion, the vast majority of people are ahead with the green cycle, and the very rich few are ahead with the red cycle. Guess who’s lobbying and bribing governments for untrammeled globalization and ‘free’ trade? Contrary to what most of us are taught in school, modest inflation is the single most effective way to painlessly redistribute wealth from the rich to the poor, because it allows debts to be repaid in ‘cheaper’ future dollars. There are environmental and social advantages to the green cycle as well. The use of slave labour is discouraged. Lax environmental laws in third world countries are not exploited as much. And if the red cycle gets out of control (some would argue it already has), a possible consequence is deflation, a terrible threat to the whole economy that we need to avoid like the plague.

Keep reading The Wal-Mart Dilemma at How To Save The World→

See also The Mall To Nowhere

and Wal-Mart chased out of Santa Rosa
Hat tip Steve Scalmanini
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