Wal Mart

This paper will outline a summary of Wal-Mart’s role and expansion, detail the criticisms and justifications and summarize the underlying issues.

Wal-Mart is the largest company in the world with annual revenues of US$244.5 billion in 2002, larger than the GDP of Ireland and Israel combined, and has about 1.4 million employees worldwide. Its major shareholders, members of the Walton’s family, are 5 of the 10 richest people in the world. The $15 billion worth of manufactures it buys from China accounts for 12% of its exports. At present Wal-Mart operates over 4,777 stores in the United States, Mexico, Puerto Rico, Canada, Argentina, Brazil, China, South Korea, Germany and the UK. In the United States they plan to open 55 new Wal-Mart stores, 60 new Supercenters, 25 Neighborhood Markets, 15 new SAM’s Clubs and six new distribution centers in fiscal 2004. Internationally they plan to open 130 new units. (Wal-Mart 2003 Annual Report p27)

According to the All China Federation of Trade Unions, Wal-Mart will not let even this Government sponsored organisation set up in its supplying factories. This despite promises not to agitate for better pay. Insiders say this is a cost saving measure because, under Chinese law, the company must allocate 2% of employees salaries to trade unions of which 60% is returned as bonuses and 40% is allocated to the union’s expenses. Wal-Mart wants to decide this allocation themselves. (http://english.peopledaily.com.cn)
This follows the same principle adopted in the United States of discouraging unionisation of its workforce. Since September 2001, Wal-Mart has been the defendant in 28 complaints brought by the US National Labor Relations Board over activities against trade unions, including firing employees suspected of being friendly to organized labor. (ibid)
Other critics have claimed Wal-Mart inspectors are negligent in policing conditions in their supplier’s factories particularly those operating through middlemen. Nor does it conduct inspections of its supplier’s subcontractors or the Chinese manufacturing operations of US suppliers such as Mattel Inc and Dell Inc. They further claim factories are notified in advance and are prepared with fake time sheets and workers briefed on what to say. (Li Qiang a labor organizer forced to leave China http://www.washingtonpost.com/wp-dyn/articles/A22507-2004Feb7.html)
Some see the alliance between the Communist Party government and Wal-Mart as the ultimate joint venture influencing the terms of labor and consumption the world over. They allege courts and regulatory agencies overlook labor violations to appease businesses that can be milked for taxes, fees and bribes. (http://www.washingtonpost.com/wp-dyn/articles/A22507-2004Feb7.html)
According to a report in the Los Angeles Times in 2000, the Peoples Liberation Army owns tens of thousands of profitable businesses in China despite a Government decree to divest. (http://iskran.iip.net:8100/review/january/lat.html) It would be reasonable to suppose some of these are suppliers to Wal-Mart. In a war between the US and China, over Taiwan perhaps, would the US still have the manufacturing capacity it needed to defend itself.
In a class action suit filed in California, Duke v. Wal-Mart Stores Inc, the complainants allege the company has a practice of systematically discriminating against women in pay, training and job promotions. (Wal-Mart 2003 Annual Report p48) Recent criticism has also come from organized labour and their representatives in US Congress worried about the export of jobs from the US. (http://www.uswa.org/uswa/program/content/575.php)
China introduced capital controls in 1995 pegging the Yuan to the USD at 8.3. Some argue this undervaluation gives China an unfair advantage in international trade. Wal-Mart’s risk from currency fluctuations is minimized so it would not be amongst those urging a revaluation. But at what cost to US and other exporters trying to gain entry into Chinese markets?

Wal-Mart argues they are supporting the growth and improvement of China's manufacturing industry by sharing Wal-Mart's information and resources to help the Chinese improve their productivity, technology and management levels. They also suggest they are conrtibuting to the growth of China’s economy in other aspects by: 1) Promoting the export of Chinese goods through increasing Global Procurement in China; 2) increasing business investment in China and especially in the west part of China to answer the government's policy of "Go West"; 3) providing more local employment and generating more local taxation through business investment; 4) introducing leading technology and high quality standards to China's retail industry to promote the industry development. (Lee Scott, Wal-Mart CEO, quoted on Wal-Mart’s future development strategy, http://www.wal-martchina.com/english/news/20031101.htm) Wal-Mart emphasises its long term commitment to the wider community in China by supporting various initiatives: good neighbour programs, educational scholarships, green program and disaster relief through the Red Cross. They claim to have donated RMB 8.4 million to such progrmas since 1997. (http://www.wal-martchina.com/english/news/20031101.htm )
More generally, Hickok (1985) calculated the welfare consequences of protectionist trade restrictions on clothing, sugar and automobiles to impose the equivalent of a 23% income tax surcharge for families in the United States with incomes less than $10,000. (in Coughlin et al 1995, p329) while Hufbauer et al (1986) estimated annual consumer losses of USD27 billion from protecting the textile and apparel industry. (Ibid)
Ironically it is the consumers most at risk from losing jobs to Chinese workers through the sourcing policies of Wal-Mart who benefit the most from lower prices when making purchases at Wal-Mart stores.
Interest payments to bondholders totalled USD1.63 billion and dividends to shareholders totalled USD1.56 billion in 2003-2004. Arguably this represents a transfer from the least well off workers in the world to the minority who own these shares and collect these rents. Members of superannuation plans in Australia would be included amongst the recipients.
Tax paid and owed to US and international taxation authorities totalled USD4.49 billion from an income of USD12.72 billion in 2003. These amounts would go a long way towards equalizising incomes and transfers to those disadvantaged by Wal-Mart’s procurement policies.
As Kong Xiang Hong, a union official in Guandong province pointed out, labour protection, working conditions and wages are related to a country’s level of economic development. Jobs are the guarantee people can eat. (http://www.washingtonpost.com/wp-dyn/articles/A22507-2004Feb7.html)
The expansion strategy outlined by the company could result in jobs for US retail workers.

‘Nations and domestic interests alike fear a world in which market forces rule and relative prices determine the patterns and distribution of the gains from trade.’ (Gilpin, 2001 p196). We recognize the tensions between these fears and the benefits of world trade. (WTO (2002). In the ebb and flow of protectionism over the last two hundred years we notice the political, social and cultural processes that assert national and regional differences. Recent political opposition to trade liberalization has grown among groups concerned about worker welfare, the environment and human rights. (Gilpin, 2001, p197) The collapse of the Millennium Round of trade negotiations in 1999 is credited to turmoil in the streets of Seattle created by such groups. These groups feel these issues should be incorporated into international trade agreements. Some environmentalists see free trade as a threat to the environment and have allied themselves with American neo-isolationist conservatives who see free trade as an infringement of American sovereignty. (Gilpin, 2001, p226) Others reject the WTO as an instrument of powerful corporate interests. Organized labour is faced with declining membership and is looking for issues around which to gather the disaffected. Economists, governments and business believe the issues are being exploited by trade protectionists. The Chinese government is more concerned about maintaining stability and creating jobs for the tens of millions jobless resultant from entry into the WTO and the subsequent end of protection for state run agriculture and industry from world competition. They agree with Reich (1990 p58), ‘a nation’s most competetive asset is the skills and learning of it’s workforce.’ And for it to create the growth needed to increase the Chinese material standard of living foreign direct investment in all its forms needs to be increased. They realize the competative advantage of low paid workers is a short run phenomena noting the change in the composition of the Japanese economy and the increase in the standard of living since the 1960’s. Most of all they intend to do it the Chinese way. There have been a number of multinationals withdraw from the Chinese market in the last decade after major misunderstandings with this principle. Perhaps Wal-Mart might not survive either.







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