By Peter Wolfgang

Wal-Mart seems to have recently found itself in the spotlight of nearly every major debate on the state of the U.S. economy. Whether it’s the retail giant’s checkered (at best) history of labor relations, the credit (or blame) placed on its role in the boomtown economy of the late 1990s, its tendency toward destroying (or salvaging) downtown U.S.A., or the way it brokers outsourced jobs to China and India, Wal-Mart is either the darling or scourge of Global Capitalism.

Wal-Mart is no longer simply a corporation – it’s an issue. As such, Wal-Mart is too often and too easily made a scapegoat for the woes of the American economy. Though Wal-Mart’s tendrils reach deep into the heart of the global economy, and the strings it tugs reach deeper still, pundits are not acknowledging that much of the blame for the alleged evils of the company’s rise to power lie outside its control.

No matter where one stands on the Wal-Mart issue, all debate seems to revolve around the retailer’s methods of running its business. This is, of course, the business of providing Americans (and, more recently, the world) with the stuff it desires, and at the lowest price possible. Wal-Mart’s “Low Price Guarantee,” some pundits argue, is a tyranny brought by an enormous and lawless corporation onto the heads of modern laborers.

According to this view, Wal-Mart, in order to eek out a profit for the billionaire fat-cats who run it, cuts corners on every labor law in the book, paying workers next to nothing, discriminating openly and harshly against women, and outsourcing enough jobs that John Kerry was forced to pretend he’d owned that tan worker’s jacket his entire life.

Because of Wal-Mart’s position as not simpy any retailer but the retailer, critics argue that what’s worst about the company is how its operating methods put the squeeze on its suppliers, and inevitably on the employees of those suppliers. In a recent article in the New York Review of Books, Simon Head catalogues the myriad atrocities Wal-Mart has perpetrated on everyone from the citizens of the towns in which it operates to the Federal Government. Head writes, “Wal-Mart has … set off a particularly destructive form of competition among corporations, which seeks competitive advantage by pushing down the wages and benefits of employees.”

When Head and those who share his views discuss Wal-Mart in terms of its business practices, they direct their disdain mainly at what industrial engineers and economists refer to as the practice of ‘pull production’. As distinguished from its predecessor, ‘push production’, they argue, pull production takes power away from manufacturing companies – Gillette, for example – and puts it firmly in the hands of gigantic retailers like Target, Costco, and, of course, Wal-Mart.

In push production, manufacturers of durable goods set the prices of their salable items just high enough to cover expenses and profit margins, and to compete robustly with other companies that sell similar items. Push production thus leaves retailers like Wal-Mart happy to simply stock their shelves and make a measly few cents’ profit on every dollar they bring in from customers. In this model, producers ‘push’ their products through stores and into the hands of consumers, and consumers buy more or less what is placed in front of them.

The rise of giant retailers like Wal-Mart has changed all that. By utilizing the best of what the New Economy has to offer – especially the ease with which information is now moved through global communications networks – Wal-Mart is able to take efficiency in product tracking, employee screening and monitoring, and operating procedures to the level of a sophisticated science. These efficiencies, in the form of less lost inventory, fewer occurrences of “time theft” (Wal-Mart’s term for employee inefficiency) and a well-lubricated warehousing and distribution system, have resulted in tiny increases in the company’s profit. When multiplied by the millions of units Wal-Mart moves through its stores every day, these small efficiencies have multiplied, allowing Wal-Mart to grow and grow, eventually expanding to dominate the retail landscape.

Now, by virtue of its massive presence, Wal-Mart is able to pool the purchasing power of hundreds of millions of consumers. Thus, Wal-Mart is now ‘pulls’ products out of manufacturers at whatever price they deem acceptable. If Wal-Mart fancies lowering the price on a certain Gillette razor, for example, Gillette must match the price Wal-Mart would like to pay for it. If Gillette can’t match that price, it runs the risk of having its product underrepresented in a store that accounts for an extremely high percentage of its sales – or worse, not represented at all. This latter situation could easily result in millions of dollars of lost profit for a manufacturing company like Gillette. So the Gillettes do what they must to survive: they match Wal-Mart’s price and pass the cost of doing so on to their employees.

The real revolution in pull production, however, isn’t as simple as reversing the flow of power between manufacturer and retailer. In fact, the practice involves another party altogether: the consumer. In the old push production equation, the consumer is little more than a mindless provider of capital, a natural resource to be mined for its endless supply of hard-earned money. Pull production, on the other hand, animates the consumer, elevating her to a position of power. It’s consumers who hold the leash at the other end of pull production, tugging the supply chain toward their desires.

Reaping the same benefits from the information revolution as Wal-Mart, the modern consumer is informed and demanding. If Wal-Mart, or another retailer, hadn’t starved its overhead expenses into anorexia, the modern consumer would have continued bringing his money to the Internet, where overhead is practically non-existent and prices are accordingly low. Now that Wal-Mart has done reduced overhead, however, and is able to offer lower prices than previously imaginable, it and other retailers have no choice but to continue doing so because consumers demand it.

In this way, Wal-Mart is simply a textbook example of economics in action. As a corporation, it does what it must to keep its shareholders happy, and as a retailer, it does what it must to keep its customers happy. It tries to do both as efficiently as possible, and as a machine it seems to succeed more often than it fails. This is, admittedly, at the expense of Wal-Mart’s employees, who by all accounts are treated atrociously.

But on the labor issue, any critique of Wal-Mart and its business practices runs into a serious problem because the employees being exploited by the corporation and the consumers who benefit from it are one and the same. The citizens of Middle America, living in idyllic little towns that Wal-Mart is, according to critics, destroying (along with the current state of our economy), are the same consumers who buy from Wal-Mart. This fact justifies the means by which the mega-store extracts those temptingly low prices and thus, indirectly at least, contributes to Wal-Mart’s mistreatment of its employees.

As is the case with all market decisions, the choices we would make as a society of consumers do not necessarily reflect the choices we would make as a society of citizens. A consumer’s choices, after all, are by definition acts of self-preservation, while a citizen’s are acts of altruism. This Faustian bargain is irreconcilable – the consumer in us will always want the lowest prices possible, while the good citizen in us will always want workers to be treated fairly. We might not want that Mom and Pop store on Main Street to close, but if we can buy products at a third of the price at Wal-Mart, we’ll end up at that ugly, grey block of a store every time.

This is not to say that Wal-Mart is innocent of treating its employees harshly, unjustly – perhaps even illegally. But it’s important to realize that Wal-Mart’s business methods are perfectly in line with the nature of capitalism and with the desires of consumers at large. To change this will require some creative legislation that speaks to the citizen and the consumer in us all.

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