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FREE MARKETS/GLOBALIZATION
11/16/04 <link>
Outsourcing and India - a "contrarian" view
Via Brad
DeLong, there's this
note at Davos Newbies:
Behind the Financial
Times's subscription firewall, Vijay
Joshi has a fascinatingly heterodox analysis of the limitations
of India's outsourcing boom. His argument is that India desperately
needs export-oriented manufacturing to supply the tens of millions
of unskilled jobs the country requires. Outsourcing just doesn't cut
it in terms of job creation:
Some people think
that the information technology sector could be India's saviour.
But its quantitative significance in the near term is extremely
limited. IT-related output is currently less than 1 per cent of
GDP. More significantly the sector employs less than 1m people.
This could increase by another million by 2010. While undoubtedly
helpful, it pales into insignificance when one considers that
India's labour force will rise by 40m by 2010 to an estimated 450m
people (and much of the rise will occur in backward states). We
must remember also that growth of the IT sector will be
constrained by the rate at which the supply of educated labour can
be increased. Note that only 5 per cent of India's relevant
age-group receives college education.
This picture is clearly a bit
pessimistic because the wealth-creation among the middle class
employed in IT in India will surely help provide more jobs farther
down the income chain. But on the big picture I think Joshi is right.
5/15/04 <link>
There
is a different, and perhaps more successful, way to do business than
how Wal-Mart does it
In this Business Week article, Stanley Holmes and Wendy Zellner write
about how Costco which pays its workers better and treats them better
than how Wal-Mart does, actually gets a lot more out of its workers
(including profits per employee). This
graphic tells the story in a nutshell. Here's the article:
Commentary:
The Costco Way
Higher wages mean higher profits. But try telling
Wall Street
Costco
Wholesale Corp. (COST
) handily beat Wall Street expectations on Mar. 3, posting a 25%
profit gain in its most recent quarter on top of a 14% sales hike.
The warehouse club even nudged up its profit forecast for the rest
of 2004. So how did the market respond? By driving the Issaquah
(Wash.) company's stock down by 4%. One problem for Wall Street is
that Costco pays its workers much better than archrival Wal-Mart
Stores Inc. (WMT )
does and analysts worry that Costco's operating expenses could get
out of hand. "At Costco, it's better to be an employee or a
customer than a shareholder," says Deutsche Bank (DB
) analyst Bill Dreher.
The market's view of Costco speaks volumes about the so-called
Wal-Martization of the U.S. economy. True, the Bentonville (Ark.)
retailer has taken a public-relations pounding recently for paying
poverty-level wages and shouldering health insurance for fewer than
half of its 1.2 million U.S. workers. Still, it remains the darling
of the Street, which, like Wal-Mart and many other companies,
believes that shareholders are best served if employers do all they
can to hold down costs, including the cost of labor.
Surprisingly, however, Costco's high-wage approach actually beats
Wal-Mart at its own game on many measures. BusinessWeek ran
through the numbers from each company to compare Costco and Sam's
Club, the Wal-Mart warehouse unit that competes directly with
Costco. We found that by compensating employees generously to
motivate and retain good workers, one-fifth of whom are unionized,
Costco gets lower turnover and higher productivity. Combined with a
smart business strategy that sells a mix of higher-margin products
to more affluent customers, Costco actually keeps its labor costs
lower than Wal-Mart's as a percentage of sales, and its 68,000
hourly workers in the U.S. sell more per square foot. Put another
way, the 102,000 Sam's employees in the U.S. generated some $35
billion in sales last year, while Costco did $34 billion with
one-third fewer employees.
Bottom line: Costco pulled in $13,647 in U.S. operating profit per
hourly employee last year, vs. $11,039 at Sam's. Over the past five
years, Costco's operating income grew at an average of 10.1%
annually, slightly besting Sam's 9.8%. Most of Wall Street doesn't
see the broader picture, though, and only focuses on the up-front
savings Costco would gain if it paid workers less. But a few
analysts concede that Costco suffers from the Street's bias toward
the low-wage model. "Costco deserves a little more credit than
it has been getting lately, [since] it's one of the most productive
companies in the industry," says Citigroup/Smith Barney retail
analyst Deborah Weinswig. Wal-Mart spokeswoman Mona Williams says
that Sam's pays competitively with Costco when all factors are
considered, such as promotion opportunities.
PASSING THE BUCK. The larger question here is which model of
competition will predominate in the U.S. Costco isn't alone; some
companies, even ones like New Balance Athletic Shoe Inc. that face
cheap imports from China, have been able to compete by finding ways
to lift productivity instead of cutting pay. But most executives
find it easier to go the Wal-Mart route, even if shareholders fare
just as well either way over the long run.
Yet the cheap-labor model turns out to be costly in many ways. It
can fuel poverty and related social ills and dump costs on other
companies and taxpayers, who indirectly pick up the health-care tab
for all the workers not insured by their parsimonious employers.
What's more, the low-wage approach cuts into consumer spending and,
potentially, economic growth. "You can't have every company
adopt a Wal-Mart strategy. It isn't sustainable," says Rutgers
University management professor Eileen Appelbaum, who in 2003 edited
a vast study by 38 academics that found employers taking the high
road in dozens of industries.
Given Costco's performance, the question for Wall Street shouldn't
be why Costco isn't more like Wal-Mart. Rather, why can't Wal-Mart
deliver high shareholder returns and high living standards for its
workforce? Says Costco CEO James D. Sinegal: "Paying your
employees well is not only the right thing to do but it makes for
good business."
Look at how Costco pulls it off. Although Sam's $11.52 hourly
average wage for full-timers tops the $9.64 earned by a typical
Wal-Mart worker, it's still nearly 40% less than Costco's $15.97.
Costco also shells out thousands more a year for workers' health and
retirement and includes more of them in its health care, 401(k), and
profit-sharing plans. "They take a very pro-employee
attitude," says Rome Aloise, chief Costco negotiator for the
Teamsters, which represents 14,000 Costco workers.
In return for all this generosity, Costco gets one of the most
productive and loyal workforces in all of retailing. Only 6% of
employees leave after the first year, compared with 21% at Sam's.
That saves tons, since Wal-Mart says it costs $2,500 per worker just
to test, interview, and train a new hire. Costco's motivated
employees also sell more: $795 of sales per square foot, vs. only
$516 at Sam's and $411 at BJ's Wholesale Club Inc. (BJ
), its other primary club rival. "Employees are willing to do
whatever it takes to get the job done," says Julie Molina, a
17-year Costco worker in South San Francisco, Calif., who makes
$17.82 an hour, plus bonuses.
MANAGEMENT SAVVY. Costco's productive workforce more than
offsets the higher expense. Its labor and overhead tab, also called
its selling, general, and administrative costs (SG&A), total
just 9.8% of revenue. While Wal-Mart declines to break out Sam's SG&A,
it's likely higher than Costco's but lower than Wal-Mart's 17%. At
Target (TGT ), it's
24%. "Paying higher wages translates into more
efficiency," says Costco Chief Financial Officer Richard
Galanti.
Of course, it's by no means as simple as that sounds, and management
has to hustle to make the high-wage strategy work. It's constantly
looking for ways to repackage goods into bulk items, which reduces
labor, speeds up Costco's just-in-time inventory and distribution
system, and boosts sales per square foot. Costco is also savvier
than Sam's and BJ's about catering to small shop owners and more
affluent customers, who are more likely to buy in bulk and purchase
higher-margin goods. Neither rival has been able to match Costco's
innovative packaging or merchandising mix, either. Costco was the
first wholesale club to offer fresh meat, pharmacies, and photo
labs.
Wal-Mart defenders often focus on the undeniable benefits its low
prices bring consumers, while ignoring the damage it does to U.S.
wages. Costco shows that with enough smarts, companies can help
consumers and workers alike.
Talking of Wal-Mart, Vice President Dick Cheney
displays those ultra-rare occasions where he is actually right -
as the Center for American Progress highlights:
Bridging
the Information Gap
The first step to recovery is admitting you have a problem.
While such logic eludes most large corporations, Gap Inc. showed
yesterday it was the exception to the rule. In a refreshing
display of corporate transparency it issued a report which
"concedes that working conditions are far from perfect at many
of the 3,000 factories world-wide that make its clothing." Gap
admitted "forced
labor, child labor, paying below minimum wage, physical punishment
and coercion are some of the widespread workers' rights
violations occurring at many of its factories worldwide."
Specifically, the report found "between 10% and 25% of its
factories in China, Taiwan and Saipan use psychological coercion or
verbal abuse" and "50% of the factories visited in
sub-Saharan Africa run machinery without proper safety
devices." The retailer also acknowledged "problems of
discrimination and management interference with workers' right to
associate are more widespread than its data suggest."
Disclosure, of course, does not solve the problem. Whether the
company fulfills its promise to become "more vigilant in its
resolve to improve
factory conditions" will be the true measure of its
success.
GAP TAKES A STEP FORWARD, WAL-MART STILL BACKWARDS: Gap's
conduct sharply contrasts to that of Wal-Mart. According to Charles
Kernaghan of the National Labor Committee Wal-Mart is "the
biggest sweatshop abuser in the world." In many of the
countries where it does business the "gross national product is
less than Wal-Mart's total annual sales revenues." And despite falling
under heavy criticism in the mid-1990s about conditions at the
foreign plants that make its clothing Wal-Mart is still, according
to their spokesman, "debating how best to compile information
on factory conditions."
...
ENDORSING WAL-MART'S LABOR PRACTICES: Instead of deploying
the Labor Department to investigate Wal-Mart's
harsh treatment of workers, Vice President Cheney last week
visited Wal-Mart headquarters and portrayed the company "as
an example of the Bush administration's success." Cheney
"and wife Lynn marveled at the efficiency" of the company
and rubbed elbows with CEO Lee Scott, a major
campaign contributor to Bush and conservative allies. Scott
claimed "Wal-Mart's respect for its humble beginnings has kept
its massive corporate structure in touch" with employees. But
neither Cheney nor Scott mentioned the fact that Wal-Mart pays
workers wages that often fall below the poverty line, and keeps
roughly one-third of its entire workforce on a part-time schedule,
so as to restrict workers' access to health benefits. He also
mentioned nothing of the various lawsuits Wal-Mart faces for worker
abuse, nothing about Wal-Mart's use
of undocumented workers, and nothing about the company's
controversial practice of locking
workers in stores and not providing them with work breaks. That
silence may have been bought by Wal-Mart's
recent decision to ratchet up political contributions
"primarily to Republicans."
3/7/04 <link>
Not
that Jack Welch is the most objective guy in the world, but even he
actually noticed something.
In this BusinessWeek interview ("Life After GE? And How"),
here's what former GE CEO Jack Welch said:
Is George Bush really good for
Big Business?
The big myth is that George Bush is great for Big Business. I don't
see this great connection. I never did, by the way. I never saw Ronald
Reagan do it. I never saw [Bush's] father do it. Without Bill Clinton,
we wouldn't have had NAFTA. Without the North American Free Trade
Agreement, we would have been really behind the eight ball in
competitiveness.
So Bill Clinton did a lot for business?
Yes.
2/16/04 <link>
"Creative
Class War: Why the GOP's anti-elitism could ruin America's
economy" says Prof. Richard Florida
This is a long, but thought-provoking article that is a
must-read. Some noteworthy extracts:
...the loss of U.S. jobs to overseas
competitors is shaping up to be one of the defining issues of the 2004
campaign. And for good reason. Voters are seeing not just a decline in
manufacturing jobs, but also the outsourcing of hundreds of thousands
of white-collar brain jobs--everything from software coders to
financial analysts for investment banks. These were supposed to be the
"safe" jobs, for which high school guidance counselors
steered the children of blue-collar workers into college to avoid
their parents' fate.
But the loss of some of these jobs is only the most obvious--and not
even the most worrying--aspect of a much bigger problem. Other
countries are now encroaching more directly and successfully on what
has been, for almost two decades, the heartland of our economic
success -- the creative economy. Better than any other country in
recent years, America has developed new technologies and ideas that
spawn new industries and modernize old ones, from the Internet to
big-box stores to innovative product designs. And these have proved
the principal force behind the U.S. economy's creation of more than 20
million jobs in the creative sector during the 1990s, even as it
continued to shed manufacturing, agricultural, and other jobs.
We came up with these new technologies and ideas largely because we
were able to energize and attract the best and the brightest, not just
from our country but also from around the world. Talented, educated
immigrants and smart, ambitious young Americans congregated, during
the 1980s and 1990s, in and around a dozen U.S. city-regions. These
areas became hothouses of innovation, the modern-day equivalents of
Renaissance city-states, where scientists, artists, designers,
engineers, financiers, marketers, and sundry entrepreneurs fed off
each other's knowledge, energy, and capital to make new products, new
services, and whole new industries: cutting-edge entertainment in
southern California, new financial instruments in New York, computer
products in northern California and Austin, satellites and
telecommunications in Washington, D.C., software and innovative retail
in Seattle, biotechnology in Boston. The economic benefits of these
advances soon spread to much of the rest of the country, as Ohio-born
MBAs in Raleigh-Durham built credit-card call centers in Iowa, and
Indian computer whizzes in Chicago devised inventory software that
brought new profitability to car factories in Ohio, Kentucky, and
Tennessee.
But now the rest of the world has taken notice of our success and is
trying to copy it. The present surge of outsourcing is the first
step--or if you will, the first pincer of the claw. The more
routinizable aspects of what we consider brainwork--writing computer
code, analyzing X-rays--are being lured away by countries like India
and Romania, which have lower labor costs and educated workforces
large enough to do the job. Though alarming and disruptive, such
outsourcing might be manageable if we could substitute a new tier of
jobs derived from the new technologies and ideas coming out of our
creative centers. But so far in this economic recovery, that hasn't
happened.
What should really alarm us is that our capacity to so adapt is being
eroded by a different kind of competition--the other pincer of the
claw--as cities in other developed countries transform themselves into
magnets for higher value-added industries. Cities from Sydney to
Brussels to Dublin to Vancouver are fast becoming creative-class
centers to rival Boston, Seattle, and Austin. They're doing it through
a variety of means--from government-subsidized labs to partnerships
between top local universities and industry. Most of all, they're
luring foreign creative talent, including our own. The result is that
the sort of high-end, high-margin creative industries that used to be
the United States' province and a crucial source of our prosperity
have begun to move overseas. The most advanced cell phones are being
made in Salo, Finland, not Chicago. The world's leading airplanes are
being designed and built in Toulouse and Hamburg, not Seattle.
As other nations become more attractive to mobile immigrant talent,
America is becoming less so. A recent study by the National Science
Board found that the U.S. government issued 74,000 visas for
immigrants to work in science and technology in 2002, down from
166,000 in 2001--an astonishing drop of 55 percent. This is matched by
similar, though smaller-scale, declines in other categories of
talented immigrants, from finance experts to entertainers. Part of
this contraction is derived from what we hope are short-term security
concerns--as federal agencies have restricted visas from certain
countries after September 11. More disturbingly, we find indications
that fewer educated foreigners are choosing to come to the United
States. For instance, most of the decline in science and technology
immigrants in the National Science Board study was due to a drop in
applications.
Why would talented foreigners avoid us? In part, because other
countries are simply doing a better, more aggressive job of recruiting
them. The technology bust also plays a role. There are fewer jobs for
computer engineers, and even top foreign scientists who might still
have their pick of great cutting-edge research positions are less
likely than they were a few years ago to make millions through
tech-industry partnerships.
But having talked to hundreds of talented professionals in a half
dozen countries over the past year, I'm convinced that the biggest
reason has to do with the changed political and policy landscape in
Washington. In the 1990s, the federal government focused on expanding
America's human capital and interconnectedness to the world--crafting
international trade agreements, investing in cutting edge R&D,
subsidizing higher education and public access to the Internet, and
encouraging immigration. But in the last three years, the government's
attention and resources have shifted to older sectors of the economy,
with tariff protection and subsidies to extractive industries.
Meanwhile, Washington has stunned scientists across the world with its
disregard for consensus scientific views when those views conflict
with the interests of favored sectors (as has been the case with the
issue of global climate change). Most of all, in the wake of 9/11,
Washington has inspired the fury of the world, especially of its
educated classes, with its my-way-or-the-highway foreign policy. In
effect, for the first time in our history, we're saying to highly
mobile and very finicky global talent, "You don't belong
here."
...
the bigger problem isn't that Americans are going elsewhere. It's that
for the first time in modern memory, top scientists and intellectuals
from elsewhere are choosing not to come here. We are so used to
thinking that the world's leading creative minds, like the world's
best basketball and baseball players, always want to come to the
States, while our people go overseas only if they are second-rate or
washed up, that it's hard to imagine it could ever be otherwise. And
it's still true that because of our country's size, its dynamism, its
many great universities, and large government research budgets, we're
the Yankees of science. But like the Yankees, we've been losing some
of our best players. And even great teams can go into slumps.
The altered flow of talent is already beginning to show signs of
crimping the scientific process. "We can't hold scientific
meetings here [in the United States] anymore because foreign
scientists can't get visas," a top oceanographer at the
University of California at San Diego recently told me. The same is
true of graduate students, the people who do the legwork of scientific
research and are the source of many powerful ideas. The graduate
students I have taught at several major universities -- Ohio State,
Harvard, MIT, Carnegie Mellon -- have always been among the first to
point out the benefits of studying and doing research in the United
States. But their impressions have changed dramatically over the past
year. They now complain of being hounded by the immigration agencies
as potential threats to security, and that America is abandoning its
standing as an open society. Many are thinking of leaving for foreign
schools, and they tell me that their friends and colleagues back home
are no longer interested in coming to the United States for their
education but are actively seeking out universities in Canada, Europe,
and elsewhere.
It would be comforting to think that keeping out the foreigners would
mean more places for home-grown talent in our top graduate programs
and research faculties. Alas, it doesn't work that way: We have many
brilliant young people, but not nearly enough to fill all the crucial
slots. Last year, for instance, a vast, critical artificial
intelligence project at MIT had to be jettisoned because the
university couldn't find enough graduate students who weren't
foreigners and who could thus clear new security regulations.
Nor is this phenomenon limited to science; other sectors are beginning
to suffer. The pop-music magazine Tracks, for instance,
recently reported that a growing number of leading world musicians,
from South African singer and guitarist Vusi Mahlasela to the Bogota-based
electronica collective Sidestepper, have had to cancel their American
tours because they were refused visas, while Youssou N'Dour, perhaps
the globe's most famous music artist, cancelled his largest-ever U.S.
tour last spring to protest the invasion of Iraq.
These may seem small signs, but they're not. America's music industry
has been, for decades, the world's standard setter...
For several years now, my colleagues and I have been measuring the
underlying factors common to those American cities and regions with
the highest level of creative economic growth. The chief factors we've
found are: large numbers of talented individuals, a high degree of
technological innovation, and a tolerance of diverse lifestyles.
Recently my colleague Irene Tinagli of Carnegie Mellon and I have
applied the same analysis to northern Europe, and the findings are
startling. The playing field is much more level than you might think.
Sweden tops the United States on this measure, with Finland, the
Netherlands, and Denmark close behind. The United Kingdom and Belgium
are also doing well. And most of these countries, especially Ireland,
are becoming more creatively competitive at a faster rate than the
United States.
Though the data are not as perfect at the metropolitan level, other
cities are also beating us for fresh new talent, diversity, and
brainpower. Vancouver and Toronto are set to take off: Both
city-regions have a higher concentration of immigrants than New York,
Miami, or Los Angeles. So too are Sydney and Melbourne...
As president, Bush chose a group of senior advisors whose economic
backgrounds have a century-old flavor. His vice president is an oil
man. His treasury secretary, John Snow, is a railroad man. The White
House's economic and fiscal policies have been similarly designed to
provide life support for these aging red-state industries: $190
billion in subsidies for farmers; tariffs for steel; subsidies, tax
breaks, and regulatory relief for logging, mining, coal, and natural
gas. Even Bush's tax policy shows the same old-economy preference. His
dividend tax cut was supported by mainstream, blue-chip companies,
which stood to gain, but opposed by high-tech executives, whose
company stocks seldom pay dividends.
Thanks to the GOP takeover of Washington, and the harsh realities of
the Big Sort, economically lagging parts of the country now wield
ultimate political power, while the creative centers--source of most
of America's economic growth--have virtually none...
You don't have to be a Democrat to recognize that the political
polarization of America and GOP dominance of Washington are not
necessarily good news for America's economic future. Yet it's clear
that Democrats themselves don't quite get it.
All the current Democratic aspirants to the White House have whacked
Bush for undermining our alliances and diplomatic capabilities through
his unilateralism. A few, including Sen. John Kerry, have criticized
the president as "anti-science." But none seems to have
understood--or at least articulated--the disastrous economic
consequences of these Know-Nothing views. In the post-1990s global
economy, America must aggressively compete with other developed
countries for the international talent that can spur new industries
and new jobs. By thumbing our nose at the world and dismissing the
consensus views of the scientific community, we are scaring off that
talent and sending it to our competitors...
11/25/03 <link>
Wal-Mart
A number of recent articles have appeared that focus on Wal-Mart and
we thought it is only appropriate to capture some relevant snippets
here. The main reason is that Wal-Mart as a company is such a behemoth
that it illustrates the good and bad sides of free markets and
globalization. Also, the part about Wal-Mart that garners our
attention is its relentless focus on cost-cutting and what that means
for jobs in the United States. While there is no doubt that the lower
costs are passed on in the form of savings to consumers, the question
is whether it raises the standard of living of the same consumers
sufficiently enough to offset the job losses to other countries. Via
Calpundit,
we heard about a 3-part series in the Los Angeles Times. Los
Angeles Times, Part I (bold text is our emphasis)
...Wal-Mart gives.
And Wal-Mart takes away.
From a small-town five-and-dime, Wal-Mart Stores Inc. has grown
over 50 years to become the world's largest corporation and a
global economic force.
It posted $245 billion in sales in its most recent fiscal
year [eRiposte note: Astounding!] — nearly twice as
much as General Electric Co. and almost eight times as much as
Microsoft Corp. It is the nation's largest seller of toys,
furniture, jewelry, dog food and scores of other consumer
products. It is the largest grocer in the United States.
Wal-Mart's decisions influence wages and working conditions
across a wide swath of the world economy, from the shopping
centers of Las Vegas to the factories of Honduras and South
Asia. Its business is so vital to developing countries that some
send emissaries to the corporate headquarters in Bentonville,
Ark., almost as if Wal-Mart were a sovereign nation.
The company has prospered by elevating one goal above all
others: cutting prices relentlessly. U.S. economists say its
tightfistedness has not only boosted its own bottom line, but
also helped hold down the inflation rate for the entire country.
Consumers reap the benefits every time they push a cart through
Wal-Mart's checkout lines.
Yet Wal-Mart's astonishing success exacts a heavy price.
By squeezing suppliers to cut wholesale costs, the company has
hastened the flight of U.S. manufacturing jobs overseas. By
scouring the globe for the cheapest goods, it has driven factory
jobs from one poor nation to another.
Wal-Mart's penny-pinching extends to its own 1.2 million U.S.
employees, none of them unionized. By the company's own
admission, a full-time worker might not be able to support a
family on a Wal-Mart paycheck.
Then there are casualties like Kelly Gray. As Wal-Mart
expands rapidly into groceries, it is causing upheaval in yet
another corner of the economy. When a Supercenter moves into
town, competitors often are wiped out, taking high-paying union
jobs with them.
Wal-Mart's plans to enter the grocery business in California
early next year have thrown the state's supermarket industry
into turmoil. Fearful of Wal-Mart's ability to undercut them
on price, the Ralphs, Vons and Albertsons chains have sought
concessions from their unionized workers in Southern and Central
California, leading to a work stoppage now entering its seventh
week.
...
The company is so ruthlessly efficient that 4% of the growth
in the U.S. economy's productivity from 1995 to 1999 was due to
Wal-Mart alone, researchers at the McKinsey Global Institute
estimated last year. No other single company had a
measurable impact. Wal-Mart also has forced competitors to
become more efficient, driving the nation's productivity —
output per hour of work — even higher.
Walton, who still is referred to as Mr. Sam throughout the
corporation, worked in a ground-floor office barely big enough
for a conference table. The current occupant, Chief Executive H.
Lee Scott Jr., is the keeper of Mr. Sam's vision. Like all
Wal-Mart executives, he empties his own trash and shares budget
hotel rooms when traveling. Everyone flies coach. [eRiposte
note: this kind of corporate culture is worth applauding, but...]
...Such measures seem mild compared with what Wal-Mart has done
to cut payroll costs. In one case, a jury in Oregon last year
found that company managers had coerced hundreds of employees to
work overtime without pay.
The managers were driven by intense pressure from Bentonville,
witnesses said. Managers whose labor costs were considered too
high were singled out during the company's weekly in-house
satellite broadcasts. In response, managers tampered with
electronic time cards or bullied employees to work off the
clock, according to trial testimony.
The Oregon jury found last December that Wal-Mart's behavior was
illegal and willful. A separate trial to determine damages for
the 290 plaintiffs is set for early next year.
Wal-Mart settled similar overtime suits in Colorado and New
Mexico for undisclosed amounts. More than 40 other cases are
awaiting trial...
Last month, Wal-Mart ran into trouble because of another
cost-cutting practice: using dirt-cheap janitorial services.
A grand jury is investigating whether Wal-Mart knew that
janitors provided by subcontractors were illegal immigrants
cheated out of overtime pay. Federal agents raided 61 Wal-Marts
across the country and seized boxes of documents from the
Bentonville headquarters. Wal-Mart has denied wrongdoing.
...dozens of times in the last four years, attorneys for the
National Labor Relations Board have claimed that the company
infringed on the supermarket union's legal right to organize.
Although some of those claims have been thrown out, others have
been upheld by administrative law judges, who have ruled that
Wal-Mart illegally influenced employees with offers of raises,
promotions and improved working conditions just before they were
to vote on whether to join a union.
Judges also have found that Wal-Mart illegally implied that
workers could lose benefits such as insurance and profit sharing
if they unionized.
What's more, managers illegally confiscated union literature,
threatened to close down a store if workers voted to join the
union, fired several union supporters and failed to promote
others, according to rulings from Minnesota to Florida.
Stymied in their previous attempts to organize Wal-Mart workers,
UFCW leaders adopted a new strategy in 2000. They decided to
marshal their resources for a concerted organizing effort in one
place: Las Vegas... |
Los
Angeles Times, Part II (bold text is our emphasis)
...When Wal-Mart
Stores Inc. demands a lower price for the shirts and shorts it
sells by the millions, the consequences are felt in a remote
Chinese industrial town, at a port in Bangladesh and here in
Honduras, under the corrugated metal roof of the Cosmos clothing
factory.
Isabel Reyes, who has worked at the plant for 11 years, pushes
fabric through her sewing machine 10 hours a day, struggling to
meet the latest quota scrawled on a blackboard.
She now sews sleeves onto shirts at the rate of 1,200
garments a day. That's two shirts a minute, one sleeve every 15
seconds.
"There is always an acceleration," said Reyes, 37, who
can't lift a cooking pot or hold her infant daughter without the
anti-inflammatory pills she gulps down every few hours.
"The goals are always increasing, but the pay stays the
same."
Reyes, who earns the equivalent of $35 a week, says her
bosses blame the long hours and low wages on big U.S. companies
and their demands for ever-cheaper merchandise. Wal-Mart, the
biggest company of them all, is the Cosmos factory's main
customer.
Reyes is skeptical. Why, she asked, would a company in the
richest country in the world care about a few pennies on a pair
of shorts?
The answer: Wal-Mart built its empire on bargains.
The company's size and obsession with shaving costs have made
it a global economic force. Its decisions affect wages, working
conditions and manufacturing practices — even the price of a
yard of denim — around the world...
...To cut costs, Honduran factories have reduced payrolls and
become more efficient. The country produces the same amount of
clothing as it did three years ago, but with 20% fewer workers,
said Henry Fransen, director of the Honduran Apparel
Manufacturers Assn., which represents nearly 200 export
factories...
That's harsh medicine for a developing country. The clothing
industry is one of the few sources of decent jobs for unskilled
workers in this nation of 6 million. Many of those jobs depend
on Wal-Mart.
"You could be looking at a government meltdown if something
were to happen to this industry," said Raja Rajan, a
factory manager active in the apparel association.
...
It wasn't long ago that Wal-Mart was fighting to keep
manufacturing jobs on U.S. soil.
In 1985, founder Sam Walton launched his "Bring It Home to
the USA" program. "Wal-Mart believes American workers
can make a difference," he told his suppliers, offering to
pay as much as 5% more for U.S.-made products.
In his 1992 memoir, "Made in America," Walton claimed
that the program had saved or created nearly 100,000 jobs by
using "the power of this enormous enterprise as a force for
change."
But the late Walton's much-trumpeted effort soon was
overtaken by the rise of the global economy. The spread of the
Internet and other technology, along with U.S.-led efforts to
tear down trade barriers, made it easier to move goods and
capital across borders.
To maintain its edge on pricing, Wal-Mart quietly joined
other retailers in a worldwide search for the cheapest sources
of production...
As late as 1995, Wal-Mart said imports accounted for no more
than 6% of its products. Today, consulting firm Retail Forward
estimates that 50% to 60% of the merchandise in the company's
U.S. stores is imported.
Wal-Mart Chief Executive H. Lee Scott Jr. said in an interview
that the trend reflected an inescapable reality: U.S. consumers
aren't willing to pay even a little extra for a "Made in
America" label.
"The customer ultimately drives that," he said... |
Business
Week looked at Wal-Mart recently as well (bold text is our
emphasis).
...At Wal-Mart,
"everyday low prices" is more than a slogan; it is the
fundamental tenet of a cult masquerading as a company. Over the
years, Wal-Mart has relentlessly wrung tens of billions of
dollars in cost efficiencies out of the retail supply chain,
passing the larger part of the savings along to shoppers as
bargain prices. New England Consulting estimates that Wal-Mart saved
its U.S. customers $20 billion last year alone. Factor in the
price cuts other retailers must make to compete, and the total
annual savings approach $100 billion. It's no wonder that
economists refer to a broad "Wal-Mart effect" that has
suppressed inflation and rippled productivity gains through the
economy year after year.
However, Wal-Mart's seemingly simple and virtuous business model
is fraught with complications and perverse consequences. To cite
a particularly noteworthy one, this staunchly anti-union
company, America's largest private employer, is widely blamed
for the sorry state of retail wages in America. On
average, Wal-Mart sales clerks -- "associates" in
company parlance -- pulled in $8.23 an hour, or $13,861 a year,
in 2001, according to documents filed in a lawsuit pending
against the company. At the time, the federal poverty line for a
family of three was $14,630. Wal-Mart insists that it
pays competitively, citing a privately commissioned survey
that found that it "meets or exceeds" the total
remuneration paid by rival retailers in 50 U.S. markets.
"This is a good place to work," says Coleman H.
Peterson, executive vice-president for personnel, citing an
employee turnover rate that has fallen below 45% from 70% in
1999.
Critics counter that this is evidence not of improving morale
but of a lack of employment alternatives in a slow-growth
economy. "It's a ticking time bomb," says an
executive at one big Wal-Mart supplier. "At some point, do
the people stand up and revolt?" Indeed, the company now
faces a revolt of sorts in the form of nearly 40 lawsuits
charging it with forcing employees to work overtime without pay
and a sex-discrimination case that could rank as the largest
civil rights class action ever. On Sept. 24, a federal judge
in California began considering a plaintiff's petition to
include all women who have worked at Wal-Mart since late 1998 --
1.6 million all told -- in a suit alleging that Wal-Mart
systematically denies women equal pay and opportunities for
promotion. Wal-Mart is vigorously contesting all of these suits.
Wal-Mart might well be both America's most admired and most
hated company...
...
Wal-Mart cites customer preferences as the reason it does not
stock CDs or DVDs with parental warning stickers and why it
occasionally yanks items from its shelves. In May, it removed
the racy "lad" magazines Maxim, Stuff,
and FHM. A month later, it began obscuring the covers of Glamour,
Redbook, Marie Claire, and Cosmopolitan
with binders. Why did Wal-Mart censor these publications and not
Rolling Stone, which has featured a nearly naked Britney
Spears and Christina Aguilera on two of its recent covers?
"There's a lot of subjectivity," concedes Gary
Severson, a Wal-Mart general merchandise manager. "There's
a line between provocative and pornographic. I don't know
exactly where it is."
Wal-Mart was the only one of the top 10 drug chains to refuse to
stock Preven when Gynetics Inc. introduced the morning-after
contraceptive in 1999. Roderick L. Mackenzie, Gynetics' founder
and nonexecutive chairman, says senior Wal-Mart executives told
his employees that they did not want their pharmacists grappling
with the "moral dilemma" of abortion. Mackenzie was
incensed but tried to hide it. "When you speak to God in
Bentonville, you speak in hushed tones," says Mackenzie,
who explained, to no avail, that Preven did not induce abortion
but rather prevented pregnancy... |
This
graphic illustrates the impact of Wal-Martization of America.
7/20/03 <link>
New
York Times article says "Free Trade" = Rigged Game
This highly relevant piece shows the disturbing hypocrisy in
the Bush administration (not to mention previous U.S. administrations,
including Clinton's, and European governments) on free trade. I quote
some sections of the article here:
"...Small-scale farmers across the
Philippine archipelago have discovered that their competitors in
places like the United States or Europe do not simply have better
seeds, fertilizers and equipment. Their products are also often
protected by high tariffs, or underwritten by massive farm subsidies
that make them artificially cheap. No matter how small a wage Filipino
workers are willing to accept, they cannot compete with agribusinesses
afloat on billions of dollars in government welfare...
The same sad story repeats itself around the globe, as poor countries
trying to pull themselves into the world market come up against the
richest nations' insistence on stacking the deck for their own
farmers. President Bush deserves credit for traveling to Africa and
trying to focus attention on that continent's plight. But meanwhile,
struggling African cotton farmers are forced to compete with products
from affluent American agribusinesses whose rock-bottom prices are
made possible by as much as $3 billion in annual subsidies. Sugar
producers in Africa are stymied by the European Union's insistence on
subsidizing beet sugar production as part of a wasteful
farming-welfare program that gobbles up half its budget.
Instead of making any gains, the Philippines has lost hundreds of
thousands of farming jobs since joining the W.T.O. Its modest
agricultural trade surpluses of the early 1990's have turned into
deficits...
The United States, Europe and Japan funnel nearly a billion dollars a
day to their farmers in taxpayer subsidies. These farmers say they
will not be able to stay in business if they are left at the mercy of
wildly fluctuating prices and are forced to compete against people in
places like the Philippines, who are happy to work in the fields for a
dollar a day. So the federal government writes out checks to Iowa corn
farmers to supplement their income, and at times insures them against
all sorts of risks assumed by any other business. This allows American
companies to then profitably dump grain on international markets for a
fraction of what it cost to grow, courtesy of the taxpayer, often at a
price less than the break-even point for the impoverished third-world
farmers. If all else fails, wealthy nations simply throw up trade
barriers to lock out foreign commodities.
The system is sold to the American taxpayer as a way of preserving the
iconic family farm, which does face tough times and deserves plenty of
empathy, but it in fact helps corporate agribusiness interests the
most.
By rigging the global trade game against farmers in developing
nations, Europe, the United States and Japan are essentially kicking
aside the development ladder for some of the world's most desperate
people. This is morally depraved. By our actions, we are harvesting
poverty around the world.
Hypocrisy compounds the outrage. The United States and Europe have
mastered the art of forcing open poor nations' economies to imported
industrial goods and services. But they are slow to reciprocate when
it comes to farming, where poorer nations can often manage, in a fair
game, to compete. Globalization, it turns out, can be a one-way
street.
The glaring credibility gap dividing the developed world's free-trade
talk from its market-distorting actions on agriculture cannot be
allowed to continue. While nearly one billion people struggle to live
on $1 a day, European Union cows net an average of $2 apiece in
government subsidies. Japan, a country that prospered like no other by
virtue of its ability to gain access to foreign markets for its
televisions and cars, retains astronomical rice tariffs. The developed
world's $320 billion in farm subsidies last year dwarfed its $50
billion in development assistance. President Bush's pledge to increase
foreign aid was followed by his signing of a farm bill providing $180
billion in support to American farmers over the next decade...
The rigged game is sowing ever-greater resentment toward the United
States, the principal architect of the global economic order. In the
aftermath of 9/11, Americans have desperately been trying to win the
hearts and minds of poor residents of the Muslim world. Somehow, we
expect other nations to take our claims to stand for democracy and
freedom more seriously than they must take our insincere free-trade
rhetoric..."
10/20/02 <link>
China - a new global economic giant in the making
In the first part of a series, a couple of Los Angeles Times staff
writers profile the growing economic muscle of China and the dramatic
shift of the manufacturing hubs of many U.S. companies to China in the
past several years. As the U.S. has shifted to a more services-based
economy by outsourcing manufacturing to the far East, China is growing
like gangbusters in the manufacturing-for-export business, while
starting to build their own brand names as well. (One of the downsides
is that developing economies like Mexico have lost thousands of jobs
to China as well.)
OUR TAKE: While profit growth for
U.S. companies, accruing from outsourcing, will look attractive in the
short-term (read: 5-10 years), two long-term issues must be seriously
considered by the U.S. Government and industry leaders. First, from
the standpoint of the U.S. Government, they need to ensure that a
long-term strategy is in place to deal with China being an economic
superpower and potentially a military superpower. Second, from an
industry standpoint, CEOs need to figure out what their long-term
value will be to shareholders and customers once Chinese
manufacturing, combined potentially with a strong presence in product
design, makes Chinese companies strong competitors - both on product
features and cost metrics. In other words, CEOs need to think ahead
about what they expect their companies' long-term non-manufacturing
core competencies are going to be, and how competitive they are likely
to be as the focus on costs puts a lot of pressure on R&D.
Establishing long-term value is largely dependent on our ability to
keep innovating. Read
our opinion on what we can do in this context, to stimulate
the U.S. economy.
10/8/02 <link>
The devastating effect of agricultural subsidies
We briefly highlight this WP Editorial on a topic that significantly
erodes the principle of free markets espoused by the United States.
Agricultural subsidies provided in the U.S. which largely go to rich farmers
(for example, per the WP, "...The largest 10 percent of
U.S. cotton farms receive three-fourths of the payments..") make
it tremendously difficult for struggling economies worldwide to
compete in a sector they are probably best able to succeed. This
is a bipartisan debacle, engineered to win votes; but the U.S. is not
alone. Shamefully, the world's top economies also share the blame. If
there is one sweeping piece of legislation that repeatedly informs the
world that we don't really believe in free markets, it is our
recurrent, oversized Farm Subsidies Bills.
9/22/02
<link>
A
brief perspective on globalization from Tom Friedman
Why did we start this section with that article? Well, because we
happen to share the view that globalization has gotten a beating not
because it is intrinsically bad but because governments have not
figured out the best way to adapt to it. Here's
one of our opinion pieces that covered this earlier. What we did
not cover in that piece, and will do in due course, is to talk a
little bit about the importance of property rights and how that aspect
could allow the benefits of globalization to trickle down to the lowest income groups. We highly recommend
Hernando de Soto's "The Mystery of Capital" for those who
want to pursue this topic further.
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