Inside the Leviathan

1.

Throughout the recent history of American capitalism there has always been one giant corporation whose size dwarfs that of all others, and whose power conveys to the world the strength and confidence of American capitalism itself. At mid-century General Motors was the undisputed occupant of this corporate throne. But from the late 1970s onward GM shrank in the face of superior Japanese competition and from having outsourced the manufacture of many car components to independent suppliers. By the millennium GM was struggling to maintain its lead over Ford, its longstanding rival.

With the technology boom of the 1990s, the business press began writing about Microsoft as if it were GM’s rightful heir as the dominant American corporation. But despite its worldwide monopoly as the provider of software for personal computers, Microsoft has lacked the essential qualification of size. In Fortune’s 2004 listings of the largest US corporations, Microsoft ranks a mere forty-sixth, behind such falling stars as AT&T and J.C. Penney. However, Fortune’s 2004 rankings also reveal the clear successor to GM, Wal-Mart. In 2003 Wal-Mart was also Fortune’s “most admired company.”¹

Wal-Mart is an improbable candidate for corporate gorilla because it belongs to a sector, retail, that has never before produced America’s most powerful companies. But Wal-Mart has grown into a business whose dominance of the corporate world rivals GM’s in its heyday. With 1.4 million employees worldwide, Wal-Mart’s workforce is now larger than that of GM, Ford, GE, and IBM combined. At $258 billion in 2003, Wal-Mart’s annual revenues are 2 percent of US GDP, and eight times the size of Microsoft’s. In fact, when ranked by its revenues, Wal-Mart is the world’s largest corporation.

One sign of its rising status is an academic conference devoted entirely to the subject of Wal-Mart that was held last April at the University of California, Santa Barbara. The range of subjects covered in the conference papers to be published early next year testifies to Wal-Mart’s impact both on the transfer of goods from third-world sweatshops to suburban shopping malls in the US and on local communities where its stores are located. At the conference the many class-action lawsuits against Wal-Mart’s employment practices were discussed, particularly its unfair treatment of women, whether by paying them extremely low wages or denying them promotions. The conference organizer, the labor historian Nelson Lichtenstein, asked Wal-Mart to send a representative, but Wal-Mart declined.

Within the corporate world Wal-Mart’s preeminence is not simply a matter of size. In its analysis of the growth of US productivity, or output per worker, between 1995 and 2000—the years of the “new economy” and the high-tech bubble on Wall Street—the McKinsey Global Institute has found that just over half that growth took place in two sectors, retail and wholesale, where, directly or indirectly, Wal-Mart “caused the bulk of the productivity acceleration through ongoing managerial innovation that increased competition intensity and drove the diffusion of best practice.” This is management-speak for Wal-Mart’s aggressive use of information technology and its skill in meeting the needs of its customers.

In its own category of “general merchandise,” Wal-Mart has taken a huge lead in productivity over its competitors, a lead of 44 percent in 1987, 48 percent in 1995, and still 41 percent in 1999, even as competitors began to copy Wal-Mart’s strategy. Thanks to the company’s superior productivity, Wal-Mart’s share of total sales among all the sellers of “general merchandise” rose from 9 percent in 1987 to 27 percent in 1995, and 30 percent in 1999, an astonishing rate of growth which recalls the rise of the Ford Motor Company nearly a century ago. McKinsey lists some of the leading causes of Wal-Mart’s success. For example, its huge, ugly box-shaped buildings enable Wal-Mart “to carry a wider range of goods than competitors” and to “enjoy labor economies of scale.”

McKinsey mentions Wal-Mart’s “efficiency in logistics,” which make it possible for the company to buy in bulk directly from producers of everything from toilet paper to refrigerators, allowing it to dispense with wholesalers. McKinsey also makes much of the company’s innovative use of information technology, for example its early use of computers and scanners to track inventory, and its use of satellite communications to link corporate headquarters in Arkansas with the nationwide network of Wal-Mart stores. Setting up and fine-tuning these tracking and distribution systems has been the special achievement of founder Sam Walton’s (the “Wal” of Wal-Mart) two successors as CEO, David Glass and the incumbent Lee Scott.

Throughout its forty-year existence Wal-Mart has also shown considerable skill in defining its core customers and catering to their needs. One of Sam Walton’s wisest decisions was to locate many of his earliest stores in towns with populations of fewer than five thousand people, communities largely ignored by his competitors. This strategy gave Wal-Mart a near monopoly in its local markets and enabled the company to ride out the recessions of the 1970s and 1980s more successfully than its then larger competitors such as K-Mart and Sears.² Wal-Mart has also been skillful in providing products that appeal to women with low incomes.

Although her book Selling Women Short is a powerful indictment of how Wal-Mart has treated its female employees, Liza Featherstone nonetheless acknowledges the lure of the Wal-Mart store for female shoppers, who delight “in spending as little as possible, all in one place.” At a Wal-Mart “supercenter”

you can change a tire, buy groceries for dinner, and get a new pair of shoes and some yard furniture—a set of errands that once would have required a long afternoon of visits to far-flung merchants.

All these innovations contribute to Wal-Mart’s remarkable productivity record, and this in turn has opened up another major source of competitive advantage for the company, its policy of “Every Day Low Prices” (“EDLP”), which makes it possible for it to undersell its competitors by an average of as much as 14 percent.³ Here the picture darkens because Wal-Mart’s ability to keep prices low depends not just on its productivity but also on its ability to contain, or even reduce, costs, above all labor costs. As Sam Walton wrote in his memoirs:

You see: no matter how you slice it in the retail business, payroll is one of the most important parts of overhead, and overhead is one of the most crucial things you have to fight to maintain your profit margin.

One of the ways to win this particular fight is to make sure that the growth of labor’s productivity well exceeds the growth of its wages and benefits, which has in fact been the dominant pattern for US corporations during the past decade.

From a corporate perspective, this is a rosy outcome. When the productivity of labor rises and its compensation stagnates, then, other things being equal, the cost of labor per unit of output will fall and profit margins will rise. Wal-Mart has carried this strategy to extremes. While its workforce has one of the best productivity records of any US corporation, it has kept the compensation of its rank-and-file workers at or barely above the poverty line. As of last spring, the average pay of a sales clerk at Wal-Mart was $8.50 an hour, or about $14,000 a year, $1,000 below the government’s definition of the poverty level for a family of three.⁴ Despite the implied claims of Wal-Mart’s current TV advertising campaign, fewer than half—between 41 and 46 percent—of Wal-Mart employees can afford even the least-expensive health care benefits offered by the company. To keep the growth of productivity and real wages far apart, Wal-Mart has reached back beyond the New Deal to the harsh, abrasive capitalism of the 1920s.

At a retail business such as Wal-Mart the methods used to increase employee productivity differ from those used “on the line” at a manufacturing plant producing automobiles or computers, where work can be rigorously defined, and higher productivity can be achieved by simplifying tasks so that they are performed more quickly. At Wal-Mart most employees are not engaged in single, repetitive tasks. The location and timing of work at a Wal-Mart store is determined by the flow of goods entering the store through the back entrance, and the flow of customers entering the store through the front.

Neither of these flows is constant or entirely predictable, and workers may have to be moved from one task to another as the flows change. An employee may begin the day by unloading and unpacking goods at the receiving dock; she may then transfer to shifting goods from the dock into the store; then to stacking goods on shelves or in special displays; and then finally to registering the sale of goods at one of the many checkout counters and making change. (At a Wal-Mart “supercenter” I recently visited in suburban Columbus, Ohio, there were two rows of checkout counters, each row with eighteen cash registers.)

Since there is no assembly line at Wal-Mart its senior management uses blunter methods to achieve higher levels of productivity from the workforce. These methods are governed by a simple principle: when deciding how many workers to employ, Wal-Mart management relies on a formula guaranteeing that the growth of the labor budget will lag behind the growth in store sales, so that every year there will be more work for each employee to do. In her paper “The Quality of Work at Wal-Mart,” presented at the conference in Santa Barbara, Ellen Rosen of the Women’s Studies Research Center at Brandeis described in detail how this squeeze on labor works. Each year Wal-Mart provides its store managers with a “preferred budget” for employment, which would allow managers to staff their stores at adequate levels. But the actual budget imposed on the store managers always falls short of the preferred budget, so that most Wal-Mart stores are permanently understaffed. The gap between the preferred and actual budgets gives store managers an idea of how much extra work they must try to extract from their workforce.

Jed Stone, a store manager at Wal-Mart between 1983 and 1991, explained to Rosen the practical consequences of this understaffing:

With the meager staff he was allowed, it had always been a struggle to keep the shelves stacked and the floors shiny, or to get hourly workers to help customers.

To get the work done Stone had to break the company rules by having employees work more than fifty hours a week—an “offense” for which a manager can be fired at Wal-Mart. Rosen also interviewed Katie Mitchell, a shop floor employee who worked night shifts at the unloading dock. Her task was to move goods from the dock to the store aisles where they could be stacked. She also had to count the goods with her handheld computer: “There was always too much work to be done and no one to help her,” and at the end of the shift the supervisor was always at hand to issue a reprimand if the work had not been done.

Sandra Stevenson was an overnight supervisor at a Wal-Mart store in Gurnee, Illinois, whose job was to get the store ready for the next day’s business. Stevenson was supposed to be assigned between fourteen and sixteen employees to do the job properly; but she was usually understaffed and her requests for additional workers were always turned down. Nevertheless, Stevenson was severely reprimanded for “the condition of the store in the mornings.”⁵ After a string of such incidents, Stevenson found that her “spirit was broken” and she left the company. Many others have had similar experiences.

The pervasive understaffing at Wal-Mart gives rise to one of the most common employee infractions at the company, “time theft.” With each em-ployee having more work to do, managers assume that whenever they see an employee not working, she must be shirking her duties, or “stealing time” from the corporation, a punishable offense. When Barbara Ehrenreich worked at a Minneapolis Wal-Mart as part of her research for her book on low-wage work, Nickel and Dimed, she was told by her boss that “time theft” in the form of “associates standing around talking to one another” was his “pet peeve.” Later a fellow worker warned Ehrenreich that they could only talk about their work, and that anything else counted as “time theft” and was forbidden. Ehrenreich soon found that her boss and his fellow management spies were a constant presence on the shop floor, looking out for time thieves.

2.

The harshness of the working conditions at Wal-Mart helps to account for the exceptionally high employee turnover at the company. Some 50 percent of Wal-Mart workers employed at the beginning of 2003 had left the company by the end of the year. At the retailer Costco, where employees are better treated, turnover in 2003 was just 24 percent.⁶ But Wal-Mart’s harshness is not simply a consequence of management’s efforts to extract maximum productivity from its workforce at minimum cost. There are also employees and groups of employees that management particularly mistrusts, and these have often been subjected to relentless harassment. Hundreds of employees have testified against Wal-Mart in the many class-action lawsuits brought against the corporation, and their sworn depositions provide a detailed account of what it is like to work at Wal-Mart day by day, even hour by hour.

Perhaps the best evidence we have of this selective harassment is to be found in the depositions of 115 women who have testified against Wal-Mart in the Dukes case, a class-action lawsuit brought in 2001 by six female employees and named for one of the six, Betty Dukes, a Wal-Mart employee in Pittsburg, California. Most of the witnesses in the case have since either left Wal-Mart or been fired, but Betty Dukes herself continues to work as a greeter at the Pittsburg Wal-Mart. The suit, which alleges systematic discrimination by Wal-Mart both in the pay and promotion of women, is brought on behalf of 1.6 million female employees of Wal-Mart past and present, the largest civil rights case of its kind in US history. On June 22, 2004, US District Judge Martin Jenkins of San Francisco held that the Dukes lawsuit could proceed to trial, although a date has not been set.

Sex discrimination at Wal-Mart has a long history. Bethany Moreton, a doctoral candidate in history at Yale, has stressed the importance of Wal-Mart’s origins in the rural, small-town culture of the Ozarks, where Wal-Mart’s corporate headquarters at Bentonville, Arkansas, is still located.⁷ In the early years many of the women who worked at Wal-Mart were the wives of local Ozark farmers, and the women’s earnings were a meager supplement to their husbands’. The women in the Dukes case say that some of their store managers still often think of them as resembling those farmers’ wives. Ramona Scott, a Dukes case petitioner who worked for Wal-Mart in the 1990s, was told by her store manager that “men are here to make a career and women aren’t. Retail is for housewives who just need to earn extra money.”

In her book on the Dukes case, Selling Women Short, Liza Featherstone describes the women who have testified against Wal-Mart and shows why they have been willing to take on the corporation, often at the cost of their jobs. What the Dukes case women share in common is competence (as revealed in their work records), an ambition to move on to more responsible and better-paying jobs, and a sense of indignation when they discover that their male counterparts are paid significantly more than they are and are promoted ahead of them. The group includes college graduates who have worked at Wal-Mart’s Bentonville headquarters, as well as high school graduates and dropouts assigned to Wal-Mart’s checkout counters. For example, Stephanie Odle, an assistant store manager at a Riverside, California, Wal-Mart, decided that she would testify in the Dukes case when she found that a male assistant manager was earning $10,000 a year more than she was.

The business economist and historian James Hoopes has described Wal-Mart as “one of the most highly disciplined firms in the history of busi-ness.”⁸ The independence of spirit shown by the women in the Dukes case has therefore challenged the strict obedience that Wal-Mart requires of its rank-and-file employees. Indeed, the corporation insists on an elaborate aptitude test for new employees that is intended to weed out troublemakers. When Barbara Ehrenreich took the test at the Minneapolis Wal-Mart, she was told that she had given a wrong answer when she agreed “strongly” with the proposition that “rules have to be followed to the letter at all times.” The only acceptable answer for Wal-Mart was “very strongly.” Similarly, the only correct answer to the proposition “there is room in every corporation for a non-conformist” was: “totally disagree.”

For Wal-Mart the Dukes case women were therefore troublemakers who had somehow managed to get past Wal-Mart’s digital gatekeeper and had ended up where they didn’t belong. Wal-Mart management has been prepared to go to considerable lengths to discourage the women from making complaints, and to stop them from pursuing the Dukes case. The purpose of this management offensive was not simply to maintain discipline at Wal-Mart, but also to protect the corporation’s pattern of sex discrimination. Since lower wages and salaries paid to female employees have added significantly to profits, the company’s profit margin was threatened by the Dukes women’s demands for fair promotion and for equal pay.

The Dukes case depositions show how ruthless and inventive Wal-Mart managers can be in keeping troublesome women in their place. To discipline the workforce, Wal-Mart managers can use a variety of formidable penalties and punishments. There are written reprimands in the form of “pink slips”; spoken reprimands in the form of “coachings”; “decision making days” when an employee must explain why he or she should not be fired; and, finally, summary dismissal. Women who inquire about promotion are often told they must conform to rules or qualifications that are invented on the spur of the moment and have never been required of male employees. Claudia Renati, a marketing specialist at a Roseville, California, Wal-Mart, was told by her boss that she could not join a management training course unless she could first prove to him that she could lift fifty-pound bags of dog food. “When I told him I could not repeatedly lift 50 pounds, he told me that there was nothing he could do for me.” Renati was also told that she was not eligible for management training unless she was prepared to sell her house in Roseville and move immediately to Alaska.

The women in the Dukes case were frequently punished or fired for trivial or trumped-up offences. Melissa Howard, a manager at several Indiana Wal-Marts, resigned from the company when a senior manager well known for his belittling of women humiliated Howard in front of her subordinates. He berated her for designating a certain type of plastic spoon as a nonreplenishable item, even though a junior manager had told him that Howard had done the right thing. Trudy Crom, an assistant manager at a Loveland, Colorado, Wal-Mart, was told by her immediate boss, the store manager, to reprimand all the shop floor employees who were working forty hours a week or more and were therefore likely to earn higher overtime pay. This was a way of making it easier for Wal-Mart to fire such potentially expensive employees if the corporation needed to reduce its wage bill. Crom twice queried the order with her store manager, and was told both times that it was company policy and she should go ahead. But when some of the employees complained to senior management about this treatment, the store manager denied ever have given the order to Crom, and it was Crom who was reprimanded.

The productivity figures at Wal-Mart wouldn’t be as good as they are unless most employees were doing their jobs efficiently most of the time. But it is hard for Wal-Mart employees to take pride in their work or to have confidence in themselves. Perhaps the most powerful insight that Barbara Ehrenreich took away from her time at Wal-Mart was that the daily routines of the low-wage world damage the self-esteem of employees:

If you are treated as an untrustworthy person—a potential slacker, drug addict or thief—you may begin to feel less trustworthy yourself. If you are constantly reminded of your lowly position in the social hierarchy, whether by individual managers or by a plethora of impersonal rules—you begin to accept that unfortunate status.

With its deliberate understaffing, its obsession about time theft, its management spies, and its arbitrary punishments, Wal-Mart is a workplace where management’s suspicion can affect the morale of even the best employees, creating a discrepancy between their objective record of high productivity and how they come to regard their performance on the job as a result of their day-to-day dealings with management. This discrepancy helps keep wages and benefits low at Wal-Mart.

One of the most telling of all the criticisms of Wal-Mart is to be found in a February 2004 report by the Democratic Staff of the House Education and Workforce Committee. In analyzing Wal-Mart’s success in holding employee compensation at low levels, the report assesses the costs to US taxpayers of employees who are so badly paid that they qualify for government assistance even under the less than generous rules of the federal welfare system. For a two-hundred-employee Wal-Mart store, the government is spending $108,000 a year for children’s health care; $125,000 a year in tax credits and deductions for low-income families; and $42,000 a year in housing assistance. The report estimates that a two-hundred-employee Wal-Mart store costs federal taxpayers $420,000 a year, or about $2,103 per Wal-Mart employee. That translates into a total annual welfare bill of $2.5 billion for Wal-Mart’s 1.2 million US employees.

Wal-Mart is also a burden on state governments. According to a study by the Institute for Labor and Employment at the University of California, Berkeley, in 2003 California taxpayers subsidized $20.5 million worth of medical care for Wal-Mart employees. In Georgia ten thousand children of Wal-Mart employees were enrolled in the state’s program for needy children in 2003, with one in four Wal-Mart employees having a child in the program.⁹

3.

In the introduction to her book Liza Featherstone argues convincingly that Wal-Mart is a “scandal, not a praiseworthy business model.” Yet Wal-Mart is Fortune’s most admired corporation, the star of McKinsey’s productivity study, and the subject, as recently as last April, of a hagiographic cover story in The Economist, “Wal-Mart: Learning to Love It.”¹⁰

Wal-Mart has also set off a particularly destructive form of competition among corporations, which seek competitive advantage by pushing down the wages and benefits of employees. A clear example of this has been the conflict provoked by Wal-Mart’s decision in 2002 to enter the southern California grocery market with forty of its “supercenters”—where the shopper can buy everything from tomatoes to deck furniture and spare tires. Although Wal-Mart has not yet opened any of these new stores, the response of California supermarkets, led by Safeway, has been to demand cuts in their employees’ wages and benefits, with the cuts falling heavily on newly hired workers. This posed a serious threat to the supermarket employees, 70,000 of whom are members of the Union of Food and Commercial Workers (UFCW) and have benefited from its bargaining with employers. While a sales clerk at Wal-Mart earns only $8.50 an hour, a worker holding a similar job at Safeway or Albertson could earn $13 an hour along with full health care benefits.¹¹ For employees that could make the difference between minimal financial security and a life spent scraping by on the poverty line.

After the UFCW called a large-scale strike against the Safeway stores last winter, two other retailers, Kroger and Albertsons, locked out their workforce—and replaced it with temporary employees—as a demonstration of support for Safeway even though their workers were not on strike themselves. Taking full advantage of their right to hire replacements for striking and nonstriking workers, the supermarket owners beat the Safeway strike and forced the UFCW to accept cuts in wages and benefits.

The failure of the California grocery strike, not to mention the history of labor relations at Wal-Mart, points to the urgent need for reform of labor law in the United States. Wal-Mart is a ferociously anti-union company, and the UFCW has yet to organize a Wal-Mart store. Every store manager at Wal-Mart is issued a “Manager’s Toolbox to Remaining Union Free,” which warns managers to be on the lookout for signs of union activity, such as “frequent meetings at associates’ homes” or “associates who are never seen together…talking or associating with each other.”

The “Toolbox” provides managers with a special hotline so that they can get in touch with Wal-Mart’s Bentonville headquarters the moment they think employees may be planning to organize a union. A high-powered union-busting team will then be dispatched by corporate jet to the offending store, to be followed by days of compulsory anti-union meetings for all employees. In the only known case of union success at Wal-Mart, in 2000 workers at the meat-cutting department of a Texas Wal-Mart somehow managed to circumvent this corporate FBI, and voted to join the UFCW in an election certified by the National Labor Relations Board. A week later Wal-Mart closed down the meat-cutting department and fired the offending employees, both illegal acts under the National Labor Relations Act. The NLRB ordered Wal-Mart to reopen the department, reemploy the fired workers, and bargain with the union, but Wal-Mart has appealed the NLRB decision and the litigation continues.

Unions are needed at Wal-Mart for much the same reasons that they were needed at Ford and GM in the 1930s—to prevent the mistreatment of employees, and to obtain for them fair, living wages. Unions are also needed to curb the unedifying “race to the bottom” among corporations. If Wal-Mart had been a union company and its employees had the same wages and benefits as other California store employees, Safeway and Albertsons could not have used Wal-Mart’s planned entry into the California market as an excuse to beat down employee wages and benefits.

As things stand now, the National Labor Relations Act, the toothless federal law governing the right to organize, allows union-busting corporations like Wal-Mart to break the law with virtual impunity. Since 1995 the US government has issued sixty complaints against Wal-Mart at the National Labor Relations Board, citing the illegal firing of pro-union employees, as well as the unlawful surveillance and intimidation of employees. But under the present law persistent violators of government rules such as Wal-Mart are responsible only for restoring the lost pay of fired workers—in most cases, not more than a few thousand dollars—and these penalties do not increase with successive violations. So long as US law makes it possible for Wal-Mart to crush efforts to organize unions it will continue to treat its more than a million workers shabbily, while the company no doubt continues to be celebrated in the business press as a a model of efficient modern management.

The exploitation of the working poor is now central to the business strategy favored by America’s most powerful and, by some criteria, most successful corporation. With the re-election of a president as enamored of corporate power as George W. Bush, there is every prospect that this strategy and its harsh practices will continue to spread throughout the economy.