Boycott threats are not keeping consumers away, however, as they continue shopping at their local Wal-Mart for the convenience and low-prices they offer. Economist Explains Why Wal-Mart's Business is Good for America

Imagine Christmas shopping without the world's largest retailer. 

That wish is at the top of the list of some Wal-Mart critics - who range from small business owners, to family farmers, to Labor Union leaders and the National Organization for Women. 

Boycott threats, however, are not keeping consumers away.  They continue shopping at their local Wal-Mart for the convenience and low-prices they offer.  Likewise, cities continue to woo Wal-Mart to their neighborhoods because of the sales tax and property revenue generated.

The love-hate relationship that some have with Wal-Mart and other big-box retailers is nothing new in the history of American retailing according to Zachary Courser, whose report "Wal-Mart and the Politics of American Retail" was released earlier this month by the Competitive Enterprise Institute.

Recently, Mr. Courser joined CFIF Senior Vice President & Corporate Counsel Renee Giachino to discuss the political campaigns targeted against Wal-Mart.  What follows are excerpts from the interview that aired on "Your Turn - Meeting Nonsense with Common Sense" on WEBY 1330 AM, Northwest Florida's Talk Radio.

GIACHINO:  My next guest is a senior fellow at the Competitive Enterprise Institute.  Zachary Courser is currently an instructor and Ph.D. candidate in the Woodrow Wilson Department of Politics at the University of Virginia.

Previously, Mr. Courser was involved in politics, having worked for Representative Jennifer Dunn, U.S. Speaker of the House Dennis Hastert, as a staffer for congressional elections, and as a candidate for the Washington State House of Representatives in 2000.  He received his bachelor's degree from Claremont McKenna College and his Master's from the University for Virginia.  He now resides in Charlottesville, Virginia.

I have invited Mr. Courser to join us this afternoon to discuss the future challenges for Wal-Mart, a favorite retailer for many of us and a retailer that has come under fire recently.

I'd like to thank Mr. Courser for joining us this afternoon on "Your Turn."  Are you with us?

COURSER:  Yes, I am.  Thanks for having me.

GIACHINO:  Thank you so much for joining us.

Can you tell us about this report that you prepared about Wal-Mart?

COURSER:  Sure.  I was curious about this phenomenon that is going on where Wal-Mart is taking a lot of hits in the press lately - how Wal-Mart sort of fit into the context of the history of retail in America.  And what you find is kind of interesting - Wal-Mart fits into a cycle that has repeated itself several times in America where a large and influential and innovative retailer will come in and basically change the entire scene of retail.

And what you find is that consumers end up reaping great benefits from this in selection and choice. But those people who worked in retail before these innovators came along were often times forced to adapt or were put out of business.  And the reactions to that were to try to attack the new retailer or the new kid on the block.

When you think about retailers today you sort of think about apple pie and America and you don't think critically of them - say Sears Roebuck for example where the outcry was so loud in small towns in America in the late 19th Century about how Sears was putting small retailers out of business that they would actually organize Sears Catalog burnings in the town square.

The cycle repeated itself again with the chain stores like A&P and Woolworths in the 20s and 30s.  They came in and offered lower-prices, more consistent quality of goods and more selection and put a lot of small independent retailers out of business.  And the reaction was the same except that this time the outcry was for the government to do something.

And, I think that you find that Wal-Mart really fits well within this context.  Wal-Mart is an enormous company.  In 2004, 2.5% of the entire GDP was Wal-Mart sales.  It is the big kid on the block right now and it is a force to be reckoned with in retail right now.  The people it's putting out of business and that it is putting pressure on - like labor unions and small businesses, are reacting and I think that is what you are hearing today.

GIACHINO:  Is Wal-Mart good for America?

COURSER:  I think so.  I think if you compare apples to apples - if you put Wal-Mart in the context of other retailers, you find that it is very much on par.  I'll just give you a couple of brief numbers.  First of all, people say that Wal-Mart does not pay its employees enough.  Here is one figure - according to the U.S. Bureau of Labor and Statistics, the average wage in retail is $10.25 an hour; Wal-Mart pays $9.63 an hour.  Some claim that Wal-Mart does not keep enough full-time employees in order to not pay benefits to its employees.  Wal-Mart keeps 70% of its employees at full-time; the Bureau of Labor Statistics says that for non-agricultural industries, 80% is the average.  And if you consider retail alone, it is much lower.

Looking toward general benefits for the economy, Wal-Mart saves consumers a tremendous amount of money, especially benefiting those who need to stretch their paychecks the farthest.  A study done by a Harvard business school professor found that on an annual basis Wal-Mart saves their customers $16 billion a year.  Wal-Mart alone, according to a study by the McKenzie Group, contributed to a 4% increase in productivity in the United States between 1995 and 1999.

So Wal-Mart is a force for lower prices, it is a benefit to consumers and, yes, I think that on balance it is good for America.

GIACHINO:  Wal-Mart is in the news almost daily, facing class action lawsuit after class action lawsuit.  After a while it has to be tiring.  If Wal-Mart were to throw in the towel, something I cannot imagine and maybe you cannot either, but if they were to throw in the towel and close down or be forced to close down by government regulations - or if the trend you discussed was to continue and Wal-Mart was like A&P and some others you mentioned that are not even in existence any longer, what impact would Wal-Mart's closing have on the American economy?

COURSER:  Obviously there would be huge repercussions and it would relate to the price of consumer goods.  Wal-Mart is a huge force for forcing retailers and manufacturers to keep prices low and efficiencies high.  Almost overnight you would see a rise in retail prices and a rise in inflation.

When a Wal-Mart store enters into a rural area, prices across the board in that rural area will decline by 8%.  In urban areas they will decline by 5%.

As far as the general cost of goods, Wal-Mart, because it is so aggressive with its suppliers in forcing them to compete one against the other and provide the best price, that has repercussions against the entire industry.

Not to mention the jobs.  Wal-Mart is the largest employer in America and it is the largest employer in 25 different states and the job losses that would result - although I think it is extremely unlikely that Wal-Mart would be forced out of business, but it seems more and more likely that there will be some special regulations that would make it difficult for them to do business, it would end up impacting a lot of American jobs.

GIACHINO:  Zach, let me just confirm something with you.  You said that Wal-Mart is the largest employer in America.  Do you mean private-sector employer or do they employ more people than the federal government?

COURSER:  No, the largest private-sector employer.

GIACHINO:  Okay.  Well no doubt Wal-Mart has contributed to low prices for consumers - and we have talked a little about that.  But some say that is only part of the story.  There are a lot of Wal-Mart critics out there who say that Wal-Mart's business practices, such as leaving some of its employees not covered by its health insurance plan, actually also contributes to real reductions in the purchasing power of its employees.  Can you comment on that?

COURSER:  Sure.  Well 86% of Wal-Mart's employees have health insurance.

GIACHINO:  So what's the beef?

COURSER:  Overall, 48% of its employees are directly covered by the company's health insurance plans; but 86% of Wal-Mart's workforce is covered by some kind of health care, either through spouses' plans or other plans.

As far as the health care that they offer, you know retail jobs have never paid well and it has never been an industry that offers a lot of pay and benefits.  But Wal-Mart does keep a large portion of its workforce at full-time, 74%, and they also offer them affordable health care.  A lot of Wal-Mart employees - and remember the average in retail is $10.25 an hour, a lot of Wal-Mart employees will choose to sign up with Medicaid because they earn so little.  Actually it is the worker who is better served in that case - they could pay $1800 to Wal-Mart every year, which is a family plan and is also affordable, but on those tight budgets Medicaid seems more attractive.  These are options that the federal and state governments have given to employees to go on Medicaid and Wal-Mart, unlike a lot of retailers, are at least giving the option to employees to join their private health care plan.

GIACHINO:  I am trying to see big picture of this.  I like Wal-Mart; I shop at Wal-Mart; I don't know if I own any stock in Wal-Mart - I don't think I do.  So there is nothing in this for me - I'm just trying to get a better understanding of the entire debate surrounding Wal-Mart as an employer.

Do you know if they offer their employees other benefits?  Do they get discounts on items that they purchase at Wal-Mart?

COURSER:  There are other benefits that are offered to Wal-Mart employees.  There is a stock purchase plan -- if you work 1,000 hours at Wal-Mart you can purchase their stock at a discount.  There is also a profit-sharing plan.  After working a certain number of hours, you can take a further benefit in either Wal-Mart stock or cash payment.

Wal-Mart is not unionized.  Its founder, Sam Walton, tried to set out to have Wal-Mart more like a partnership rather than simply a manager versus employee type of scenario.  That's one of the reasons why they call their employees "associates," because they want to promote a feeling of shared enterprise between themselves, the employees and the management.  And if you go into a Wal-Mart or Sam's Club store and look carefully they will actually post the stock price of Wal-Mart that day with a little note "How are we doing?" to try to give that feeling of shared enterprise -- that the associates are sort of working together.

Wal-Mart also tries to promote from within.  A lot of the managers in Wal-Mart stores worked their way up from being a stocker or checker.  So they offer a lot of opportunities for advancement to the people who work there.

GIACHINO:  Zack, is it okay if we take a call?

COURSER:  Please do.

GIACHINO:  Go ahead caller, it's your turn.

CALLER:  A few points.  Good evening.  If a mom-and-pop store gets put out, one thing that also leaves the community is the amount of money that the mom-and-pop brings in.  A lot of the money for Wal-Mart goes to the corporate headquarters so there is an effect there.

The second thing is that I noticed that your figures were up to 1999 on improving the latest manufacturing in America.  Now they take so much stuff that is manufactured in China and they use the slave labor over there which, if we saw their working conditions, I don't think that anyone in America would stand for it.  So there are a couple of items there.

GIACHINO:  Do you care to comment on either of those?  I think it is true that one of the greatest criticisms of Wal-Mart is that it drives out the mom-and-pop stores and the towns lose some of their main street retail.  Do you think that is fair criticism?

COURSER:  It is interesting.  These are criticisms that were lodged against Sears Roebuck, saying not only that Sears did not offer anything to communities. The argument was that they did not offer jobs because they were primarily a mail-order business.  Same thing with Woolworths, A&P and other discount chains.  The argument was that all the money went to Chicago or New York and it was not really circulating in the local communities.

If you look at Wal-Mart and you look at the question of do they really shut out small businesses, there are several reports done in Iowa, for example, by a professor at Iowa State, looking at the impact of Wal-Mart. And, what you find is that what Wal-Mart is a sort of consolidation of retail within the towns in which they open.  What you find is that overall the retail sectors of these small towns that Wal-Mart enters improves - there tends to be more jobs and more services.  Stores are much more adaptive and competitive when there is a major store like Wal-Mart.

What is true is that in very small towns - say a 20 mile radius of a Wal-Mart in a small town, their main streets do tend to die out.  But I think it is really consumers voting with their feet - they like the convenience of having a large superstore where they can purchase a variety of different goods at prices that they know are going to be low.  So I think a lot of it is Americans voting with their feet and deciding that it is not worth the sacrifices in price and convenience to keep main street USA going.

I think it would be nice if we could keep main street going, but I think Americans have sort of decided for themselves that it is not for them.

Do you want me to comment on the second question as well?

GIACHINO:  If you can.

COURSER:  Sure.  With China, in the early 1990s, Sam Walton himself, made an attempt to try and preserve manufacturing jobs in America by promoting a "Buy America" program.  And what they found was that they could not stay competitive because shoppers - American consumers, just really did not care if the things were made in the U.S. or in China.  What they really cared about was low prices. 

So Wal-Mart ended up having to abandon the program.  In order to remain competitive in retail, and because Wal-Mart is so large, it becomes sort of proxy for problems or perceived problems throughout the U.S. economy or retail, but if you look at any major U.S. retailer like a Target or K-Mart or Sears, they are all importing a tremendous quantity of goods, simply because of the price.

I think that the caller is right - if we really did reflect a little bit about some of the working conditions in China we might think twice about saving a little bit on each good.  But really it is low prices that matter.

One positive thing you could think about though is that in importing these things from China we are exporting capitalism and some level of prosperity back into China.  Maybe through trade this could be some path toward gaining for the Chinese the political freedoms that they have not been able to realize.

GIACHINO:  Zach, we only have a couple of minutes left and I do not want to be negligent and not ask you how people can get a copy of your report on Wal-Mart.  Where can they get that?

COURSER:  They can use the Internet and go to www.cei.org.

GIACHINO:  That is for the Competitive Enterprise Institute - that's cei.org.

The phone lines are lit up again.  Go ahead caller, it's your turn.

CALLER:  Thanks Renee.  I have seen footage on television and heard about when a person goes to work for Wal-Mart; they sit them down and tell them what federal or state insurance they can pick up.  Can you tell me the percentage of people who are covered by either state or federal insurance who work for Wal-Mart?

COURSER:  Yes, Wal-Mart actually doesn't distinguish itself terribly from the rest of the retail sector as far as the number of employees that they have on Medicaid.  People sort of think about Wal-Mart and think of other sectors of the economy that - like car manufacturers who are able to offer very high benefits thanks to the contracts they are able to negotiate.  But if you look at Wal-Mart, only about 5%of employees are on Medicaid and that is about the same percentage as other retailers.  They don't really distinguish themselves from a Target or other retailer in that respect.  

CALLER:  It's that low?

COURSER:  Yes.

CALLER:  I thought it was higher than that.

COURSER:  It varies from state to state.  Wal-Mart is such a large employer and so some states have larger percentages than others.

CALLER:  Okay, I will take your word for it right now but that just seems low to me, because what I saw was a lot of people being sat down and told that they could qualify for this program or that program, and Wal-Mart is not picking up the tab.  I guess you are familiar with that?

COURSER:  Well...

CALLER:  Don't dodge my question.

COURSER:  I'm not dodging your question.  I do not know and I am not familiar with claims that Wal-Mart sits their employees down and suggests that they sign up with Medicaid instead of their own plan.

I am familiar though with the fact that Wal-Mart tries to offer affordable health care for their employees and that about half their employees choose to be covered through Wal-Mart and that is about 900,000 people.

CALLER:  But you have never heard about when management sits down a new employee and goes over that they could qualify for insurance from either the state or federal government?

COURSER:  No, but frankly I don't think it would surprise me.  Sometimes Wal-Mart has too loose of a program where they leave a lot of responsibility and prerogative up to their individual managers and a lot of times you will find isolated incidents.

CALLER:  But this still comes from the head office, doesn't it?

COURSER:  I'm sorry but I am not aware.  I don't work for Wal-Mart and I am not a Wal-Mart spokesman.

CALLER:  I know that but I was just trying to get that out to the people because I think there is more under the covers than what we really think about Wal-Mart.

GIACHINO:  I think that is one of the things that Wal-Mart really needs to do - that is focus a little more to improve its image and change its reputation.  And I think you make that point pretty well Zach in the report.  Am I right?

COURSER:  Yes, that might be a great point to close on.  These other retailers in the past - Sears Roebuck and the chain stores, what they found is that the key to success was not simply offering low prices but also convincing Americans of their place in the American economy and the good that they did for America.  And Wal-Mart - while they are doing an exceedingly good job of appealing to consumers by offering low prices, they do an exceedingly poor job of communicating the benefits that they provide to their workers and the U.S. economy at-large.  I think it is going to become a challenge for Wal-Mart in the future.  If they are going to avoid government regulation and continue to do the kind of business that they have done in the past, they are going to have to focus in on answering the concerns of Americans who are concerned about the wages and benefits that they offer and who curious about the benefits that they bring to the U.S. economy.

GIACHINO:  Well thank you Zach Courser.  We appreciate your time and input.  He is a senior fellow at the Competitive Enterprise Institute.  To read his report please visit cei.org. 

December 15, 2005
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