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Sunday, April 10, 2005

Who does WalMart serve?

Their customers or their employees? It seems that more and more of a din is being made concerning the salaries and benefits that WalMart supposedly doesn't pay. Because WalMart resists unionization and tries to keep its costs low, in the way it sees fit, there are several who are now suggesting that WalMart has a moral and public responsibility to ensure that all of its employees are paid the ephemeral "living wage" and that they set an example for the rest of the retail world.

In a typical example this article in today's Star-Telegram suggests that WalMart might become stigmatized like Nike did with it's so-called "sweathshop" scandal. The Nike scandal was completely fabricated by the media who stayed safely in the United States and insisted that there had to be some relationship between cost and price, that prices of the shoes were so high that the company should pay workers in Indonesia $30,000 per year while the per-capita income in the country was less tan $3,000 per year. In other words, Nike was supposed to pay everyone making shoes ten times the average income, which would be like paying the janitor at the local office building $300,000 per year.

Those making the claims against Nike were the same people who agonize over income inequality - both within and across countries. What was rarely recognized was that whatever "sweatshop" was producing shoes, it was paying better wages and offering a better work environment than the rest of the local economy. Oh well, why let the facts get in the way.

Turn back to WalMart. The ongoing debate suggests that WalMart exists to serve its employees. The management of WalMart should offer higher wages than its competitors, thereby likely increasing prices (or reducing profit margins). If prices go up, Walmart customers have to pay more for their goods, they can afford less, and therefore they suffer a reduction in their satisfaction, i.e., utility, in exchange for the checkout girl getting an additional two dollars an hour but having less to scan. If the company's profit margins are squeezed, then the owners of WalMart - that is the stockholders - suffer a reduction in their returns. Stockholders seek a return because buying stock is risky - less return with the same or greater risk? Fewer people will want to buy or hold Walmart stock.

Walmart is right to insist that it exists only to serve its customers, not its employees. Walmart cannot be the largest retailer in the world by continuously abusing its employees. Employees are free to sell their labor to other employers and if Walmart was consistently underpaying and overworking employees then those employees who could would relocate. This is only a bad thing if Walmart continues to lose productive employees and thereby cannot maintain its relative advantage compared to its competitors.

If Walmart could serve its customers adequately, I am sure that the company would fire all of its employees, much like any other firm would. However, we have not progressed to the point where all employees have been made redundant and therefore Walmart and other retailers must retain and recruit quality employees.

Those who do not hold stock in Walmart and feel obligated to tell Walmart how to run its business are often closet statists. In the article linked to above, General Motors is held up as an example of how a company can be the biggest in its industry and treat its employees "fairly." This, evidently, only happened because the industry was unionized - labor unions made it so that GM employees lived the good life. In exchange, however, GM products are of low quality, the company is on the verge of very bad times (after only fifty years of being "fair") and, according to this Harper's Index:
Ratio of active workers at General Motors to retirees on its pension rolls: 2:5

Total pension costs of the company per vehicle it produces: $675

So, the unionized "fairness" of GM has pushed the price of a car up by $675. If the average vehicle costs $22,000 (this is just a guess), then the "fairness" causes a 3% increase in the price of the car. The GM pension plan is in serious trouble if there are only two people producing for every five people taking money out of the plan. Granted, GM can replace people with robots, but Walmart is going to have a hard time doing this.

It is very frutstrating to see WalMart, Microsoft, General Electric, and the rest of the companies that make it to the top and then come under fire by people who have no idea what it takes to run a multi-billion dollar enterprise and make it grow. Ayn Rand described the looters in Atlas Shrugged, and she was precient in her description of this type of anti-capitalist capitalist. The looters trade in guilt, pressure, political stigma, and offer only to reduce the guilt and pressure in return for the true capitalist and risk-taker sacrifices.

Stand strong, Walmart. I don't shop at Walmart but the company does not become number one by mistake and probably doesn't need the help of the looters in running its business.

Comments:
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Thanks for the great posts...

jon
 
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