Tuesday, December 29, 2009
How Wal-Mart is Destroying America
You have to admit that is a provocative blog post. I could have entitled it "How Trade with China is ........."
The reason I chose to come down on the world's largest retailer is because their business model has been the indirect cause of massive job losses in the United States and in China. Their original business motto was "Always low prices." Wal-Mart scours the world for the lowest cost goods to sell in their low cost big box stores and for the past few decades that has largely meant goods from China as any visit to your local Wal-Mart will establish. The company began as a publicly traded company in 1970 but it didn't really accelerate its expansion until the late 70's and 80's which was also not coincidentally the beginning of the Reagan Republican deregulation and Globalization movements. Therein hangs our tale.
There is a long established concept in economics called The Law of Comparative Advantage first elucidated by Robert Torrens and David Ricardo in the second decade of the 19th century. This law refers to the ability of one country to produce something at a lower cost more efficiently than might be the case in another country. This may occur because of an abundance of a particular resource or the skilset of the population. Other countries may also be able to produce the same good but at a higher cost. Countries can take advantage of these differentials to market goods in which they hold a comparative advantage by trading with countries which also hold a comparative advantage in the production of something else. Country A might produce beautiful durable pottery and stoneware while country B might make equally good metal pots and pans. Both countries can then trade to get the best quality and price for the respective goods and thus both countries benefit from the trade. Capital can move within the countries borders among the different industries to facilitate trade and industry but historically capital did not flow freely between countries. Historically the IMF, the WTO, the World Bank and others pushed free trade under the comparative advantage principle but the ascent of the globalization paradigm in the past several decades has killed that model of comparative advantage and replaced it with absolute advantage where production is shifted to the lowest cost producer in the world.Cost is the sole driver of the business. It's the bottom line. How many times have you heard that! Not quality, service, reliability, growth in the company, but cost, low cost and just low cost.That's what Wal-mart says right in the front of it's blue buildings. So what do you get for the lowest cost? JUNK ! But low cost JUNK! We now have a global zero sum game where global corporations able to move capital and companies across borders unimpeded for the purpose of making the greatest possible profit for the corporation by procuring the lowest cost of production. As a result some countries benefit and some do not. These globalized corporations do not concern themselves with the chaos and destruction of native industries that result from this business model. These corporations and especially the financial TBTF have been able to perform what is in effect gang rape of the American middle class by waving free trade slogans and policies that ridicule manufacturing and promoting the new information and financial economy. The result has been that real wages adjusted for inflation for the shrinking middle class has actually contracted over the past thirty years. This has occurred because the US manufacturing base has also been contracting and now represents only 13 % of our economy. You may not care if you are a bankster or an orthopedic surgeon or one of the few winners in this new wunderwirtshaftssystem, but if you are not one of those lucky beneficiaries, you may have noticed that you are circling the drain. My view is that this horrific decline of our middle class economy has been caused by these neoclassical and libertarian economists who came into ascendancy at about the time of the Reagan Administration but which has continued under both Republican and Democratic administrations. Now I will ask again, should you care? Damn straight you should care because this economic damage to the American economy has real true national security implications. Wal-Mart and globalized mega corporations like Wal-Mart have subcontracted our manufacturing economy over to China. Now I don't care if your plastic salad shooters now come from Shanghai instead of Skokie but really vital components like machine tools, auto and truck and plane parts, computer and electronic and communication components and even certain parts in weapons are manufactured overseas. Those overseas workers have real jobs making real things designed by American educated engineers which the world absolutely needs while Americans have jobs in a declining and even frivolous service sector. Does America really need any more human resource or marketing consultants or fast food or retail clerks? More nail salons in strip malls and more geriatric wal-mart greeters luring us into their fluorescent lit junkboxes to buy their always low cost Chinese junk?
Industrial products today are assembled from many parts and the lack of a key component can mean that the product cannot be completed until the part arrives. And if the part comes from a factory in Chongqing, then what? What if the whole product comes from Chongqing? The really annoying feature of having products arriving from China is that they may still retain their American names. In many cases the American corporations moved everything, lock, stock and drill press to China, everything but the workers. American companies using American machinery run by Chinese laborers . The corporations were ably assisted by friendly tax laws devised by their lobbyists lawyers who ensured that the cost of the decommissioning and closure of the factories, the transport of the machinery, and even the travel and entertainment and living expenses of the executives were all deductible corporate expenses. Now instead of having to pay American workers $17/hr and provide pensions and health care, these executives can now pay 70 cents/hour to poor Chinese girls from distant rural villages who are virtually slave labor. And if business falls off, well then you just send those poor girls back to their villages and shutter the factory. Nothing personal, ma'am. Its just business. Oh by the way, you have to buy your own bus ticket.This is virtually what happened when the giant Broyhill furniture factory in the Carolinas moved their furniture manufacturing to China in this last lost decade. So if you're a corporate executive, what's there not to like. Ronnie said it would be like this if we could just get guvment off our backs. What's there not to like, you ask again? Well these corporations have allowed one of history's great wealth transfers from a rich nation to what had been the worlds most populated poor nation. So much has been transferred that the USA is now in debt to China who hold more than $2 trillion of our treasury and agency securities. With all this new found wealth funneled by our corporations into the Communist government of China, they have been able to embark on a massive industrial, military, infrastructure, and energy buildup such that they are now the world's second largest economy. They are scouring the world building refineries and buying exclusive energy contracts from African and South American oil producers who formerly supplied an open world oil market. China has surpassed the US to become the world's largest producer of greenhouse gasses. China is now the world's largest car producing nation, on track this year to produce 13 million vehicles from 117 car and truck plants. It should be kept in mind that our money is being transferred to a nation that has 1.3 billion hard working, rugged and clever people who had little difficulty fighting the giant US military behemoth to a decisive standstill in Korea in the 1950's . The US had a great deal of difficulty defeating the tiny nation of Japan while suffering horrendous losses in the waning years of WW 2. The US military fights wars by dropping bombs .That advantage would be marginalized if we tried it on the Chinese.And nuclear weapons would be virtually useless in a modern great power conflict as was realized by the cold war with Russia. It would be a MAD option. Trying to fight a land war in Asia would be a fools errand. The smart money would be on the Chinese. Our last land war in Asia didn't go too well despite clouds of aircraft and high tech weapons. We were defeated by a pajama clad peasant army on bicycles. I don't think the Chinese Communist government deliberately decided to co opt our manufacturing economy to achieve military, economic and technological superiority but the fact remains that they are well on the way to just that. Our globalization free trade champions on Wall St and K street have handed our economic destiny over to the totalitarian government of China with the acquiescence and cooperation of our own government which of course is no longer a representative democracy any longer but instead an organized cadre of Wall Street Bankers and Global corporations who control the agenda, the bills and the purse strings by virtue of their minions on K Street .The noise from Washington about stimulus measures and restoring jobs and reestablishing lending is posturing and peristaltic flatus wafting across the plain and there is little to indicate that the politicians and bankers or the corporations are changing their modus vivendi as they go about god's work amassing mammon. This corporate dominated Washington political establishment with it's shock troops in the WTO, the IMF, Goldman Sachs run Federal Reserve and the World Bank have brought the citizens of this country to their knees as they live in opulence and suck on the teats of the shrinking udder that once was the milk of the American economy.