February 18, 2010

Adam Turl reviews a new book that tells the story of how Wal-Mart became the biggest--and meanest--employer in the U.S.

"The commitment to stay union-free must exist at all levels of management--from the chairperson of the 'Board' down to the front-line manager. Therefore, no one in management is immune from carrying his or her 'own weight' in the union prevention effort."

--from "Labor Relations and You at the Wal-Mart Distribution Center #6022"

ONCE UPON a time, GM was the biggest employer in the U.S. In the historic labor battles of the 1930s, GM workers formed the United Auto Workers (UAW). During the economic boom of the 1950s and 1960s, they won substantial gains in wages and benefits.

Of course, both GM and the UAW are now pale shadows of their former selves. Today the largest employer in the U.S. (and the world) is the anti-union behemoth Wal-Mart. Wal-Mart's 1.4 million U.S. "associates" often earn poverty or near poverty wages.

As Nelson Lichtenstein writes in his new book The Retail Revolution, Wal-Mart got its start in one of the poorest and least-unionized sections of the South nearly five decades ago--in an overwhelmingly white stretch of rural Arkansas that had been mostly untouched by the New Deal and civil rights.

A Wal-Mart "associate" at work

It was during the economic crises of the 1970s and the right-wing "Reagan Revolution" of the 1980s that Wal-Mart first blossomed into a retail giant. As recession and free-market policies rolled back the gains of the New Deal and civil rights era, Wal-Mart thrived. Not only that, it reproduced the conditions of its origin as it spread outward from Arkansas through the South and Midwest.

Wal-Mart drives down retail wages and busts retail unions. But it has also situated itself in a command position within the globalized manufacturing and shipping system. In that position, it uses its leverage to drive down manufacturing wages and compel offshoring.

A "battle royal" is building between the Beast of Bentonville and its workers, Lichtenstein argues--a battle he believes will "shape American life for a generation."

THE GREAT labor upsurge of the 1930s didn't leave the world of retail work completely untouched. Thousands of retail clerks joined employee organizations and unions. Even where there were no such organizations, widespread unionization eventually put upward pressure on retail workers' wages.

Review: Books Nelson Lichtenstein, The Retail Revolution: How Wal-Mart Created a Brave New World of Business, Metropolitan Books, 2009, 312 pages, $25.

Some department store mini-chains that catered to lower income workers--particularly in urban areas--were even owned by immigrant families who openly professed support for labor and the New Deal. After the Second World War, department stores that catered neither to the rich or poor but a generation of workers that now had a modicum of disposable income proliferated. Clerks at these chains--like Sears and J.C. Penny--were generally nonunion and made less than manufacturing workers, but were paid enough (and given enough autonomy) to keep unions out without losing employees.

But the economic downturn of the 1970s created conditions that were ripe for the return of low-cost retail outlets. The first chain to benefit from the new climate was Kmart, which had established stores in working-class suburbs throughout the Midwest. Kmart's customer base included millions of blue -collar union workers.

Wal-Mart, however, came of age far from this milieu. As Lichtenstein writes:

Wal-Mart began its stupendous growth in a region that was distinctively provincial, even fundamentally at odds with the economic structures and political expectations that had nurtured commerce in the great northern tier of industrial states that stretched from Boston to Chicago and Minneapolis. America's manufacturing belt was a region of ethnic and racial heterogeneity, home to an increasingly skilled workforce and, after the reforms of the New Deal and Great Society eras, a potent union movement and an extensive welfare state. In contrast, the Ozarks of northeast Arkansas and southern Missouri were poor, white and rural. Neither the New Deal nor the civil rights impulse had really come to the region when Sam Walton began to assemble his chain of small-town stores in the 1950s and 1960s.

Lichtenstein exaggerates the extent of the Northern "welfare state." Nevertheless, in its formative years, Wal-Mart was able to escape a host of labor regulations and play fast and loose with the minimum wage, price-controls (that had been enacted to put a check on the growth of large chains) and various "Yankee" laws and business practices.

Wal-Mart had the space to design its own deregulated low wage business model--a model that could seize the "opportunity" presented by the end of the post-war economic boom and then the general turn toward neoliberalism, deregulation, union-busting and the free market.

The architect of this empire was Sam Walton.

Walton liked to project a down-home folksy persona--but his roots weren't exactly the salt of the earth. Sam's father worked as a debt collector during the Great Depression and took his son with him to meet with farmers defaulting on their mortgages.

Lichtenstein writes, "Tens of thousands of farmers were in default, and it was part of Walton's job to assess the property, make the threats, and serve the papers that dispossessed a generation of families from their land."

Sam claimed that his father tried to leave farmers with what little "self-respect" he could--but as Lichtenstein writes, "the dispossession of so many rural folk was still something close to theft, the brutal climax of America's great enclosure movement, a multi-decade eviction that would prepare the cultural and economic ground on which Sam Walton built his commercial empire."

Dispossessing farmers paid reasonably well, but Sam Walton needed more start-up capital for his empire than his father's real-life job as a villain from The Grapes of Wrath had bequeathed him. So Walton did what many other "self-made men" have done; he married into money. Sam's wife, Helen Robson, was the daughter of a local banker and politician. Most importantly, she had a trust fund that allowed Walton to start buying up department stores.

Before Wal-Mart, retail in rural Arkansas was dominated by small general stores down the dirt and gravel side-roads from small farms. The New Deal paved Arkansas' roads, and post-war highway construction allowed for larger stores to service larger areas.

The Great Depression--with the help of Sam Walton's father--had deprived thousands of farmers of their livelihoods, making them desperate for work, and the poverty of the region meant customers were looking for discounts.

In other words, rural Arkansas was ripe for low-wage big box retail.

After several years of managing or franchising other chain stores, Walton struck out on his own and formed Wal-Mart. The 1970s were, as Lichtenstein writes, Walton's "miracle decade." Wal-Mart "moved from obscurity and regional curiosity to crack the $1 billion sales mark. Opening as many as 50 new stores each year, Walton saw revenues soar at an annual rate of almost 40 percent."

Walton opened almost all of his new stores at this time in towns with a population of less than 10,000 people to ensure domination of the local market. Wal-Mart established a near monopoly in town after town. Throughout the 1970s, Wal-Mart "grew between four and five times as rapidly as Penny's, Kmart and Woolco, the discount version of Woolworth."

LOW WAGES were central to Wal-Mart's success, but so too was Walton's obsession with absolute control over inventory and supply and later on, the use of technology. Wal-Mart cut out the retail "middleman" and came to employ the most advanced technology to keep track of its goods. It was Wal-Mart that led the way toward the universal adoption of the bar code and the eradication of the wholesale salesmen and jobbers that had dominated retail.

Before Wal-Mart most retail outlets--especially outside the big urban markets--had to rely on others to do their warehousing. Stores had little control over supply compared to the big brand name manufacturers that supplied them. Walton changed this by creating--from the start--his own in-house supply, trucking and warehouse system. As one executive put it, "the misconception is that we're in the retail business, we're in the distribution business."

Up until 1978, no Wal-Mart stores were ever built more than a day's drive from corporate headquarters. As Wal-Mart spread outward from its base in Bentonville, it did so in roughly concentric circles, with each new wave of stores preceded by a new distribution center (DC). Today, the company has more than 120 DCs across North America:

Today a typical DC is gigantic, sprawling over 1.2 million square feet, with roofs that cover the equivalent of 15 or 20 football fields. Two or three hundred trucks arrive each day, either from the company's suppliers or to pick up a load for the stores. The trucks nestle into one of the hundred or more bays that penetrate each side of the mile-long wall that encloses the distribution center itself. From these semi-trailers, thousands of boxes, each labeled with its own identifying bar code and destination address, are quickly fed along one of the many small conveyors--there are more than 20 miles in all... These river-like streams of boxes then converge in four larger tributaries at a "merge center," from which the torrent of boxes streams into a mechanized sorting area. Three electronic eyes read the labels after which electric arms reach out and guide the boxes, destined for particular Wal-Mart stores, out of the sorting area and into one of the facility's 100 chutes, which lead onto a waiting truck, all at the rate of 200 cartons per minute, seven days a week, 24 hours a day.

All this is controlled by computer from Arkansas. When Wal-Mart first began, however, technology had not caught up to Walton's designs. With the invention of the bar code--the first product to be stamped with a Universal Product Code was a packet of gum in 1974--Walton had found the technological advance he needed.

In 1980, Wal-Mart began to install scanners in its stores. Productivity increased by 50 percent. Within a few years, Wal-Mart made scanners standard in all stores, and managers awarded cashiers with pins for "those who could scan 500 items per hour."

In the mid-1980s Walton's empire spread into space: "Wal-Mart took the lead, deploying the world's largest private, integrated satellite communication network, which beamed data, voice, and video communication to and from corporate headquarters and more than 1,500 stores, all via a single communications satellite in geostationary orbit 23,300 miles above the equator."

In real time, Wal-Mart executives now know exactly what is being stocked, shipped and sold in every store on the plant. And in real time, Wal-Mart executives can talk live via satellite to their army of underpaid associates.

Wal-Mart changed the balance of power between retailers and manufacturers. Manufacturers who once set prices found they had to bow before Wal-Mart's constant demand for low wages if they to access this increasingly massive distribution and retail network.

BENTONVILLE IS just as interested in monitoring its employees as it is in monitoring its products. Because wages and working conditions at Wal-Mart are so poor the company has notable difficulty controlling employees. For example, off-the-clock work is (illegally) expected of employees as a matter of course.

Turnover of shop-floor employees has frequently approached crisis proportions. In 1999, the company had a 70 percent turnover rate and 67 percent of entry-level workers quit within three months. Some of these employees were no doubt convinced to quit after they proved incompatible with Wal-Mart's culture of hyper-exploitation. Of course, very few former associates ever receive unemployment benefits.

Turnover has declined over the past 10 years (along with the deteriorating economy). Still, it costs the company millions of dollars a year. They're reportedly researching ways to automate both hiring and firing.

Of course, if you can't quit and you can't make ends meet with your paltry Wal-Mart paycheck, you can always steal from work. Employee theft is counted in retail losses along with shoplifting as a part of what is called "shrinkage." Shrinkage, Lichtenstein writes, amounts to about "$30 billion a year in unexplained inventory losses"--nearly half is a result of employee theft.

Wal-Mart is obsessed with shrinkage. In the 1980s and 1990s, the company developed its own internal police force--called Loss Prevention--to deal with employee theft and to spy on employees. "By 2000, there were more than 550 salaried managers in Loss Prevention, scores of internal auditors, and thousands of in-store hourly employees to keep associates and managers both vigilant and fearful."

Loss Prevention even went after "loyal" employees who considered themselves steeped in Wal-Mart's corporate culture, arbitrarily demanding they be fired even when managers' defended them. Walton's mini-Gestapo had so much power that even dozens of store managers circulated a letter in protest.

Public Enemy number one in Bentonville, however, was (and is) organized labor.

Sam Walton developed a nearly messianic opposition to unions and he spread that gospel throughout every corner of his growing empire. It was an opposition fueling by the same forces that led Arkansas to become the nation's first "right-to-work" state.

When Wal-Mart first felt the "union threat" in 1972, Walton turned to John Tate, one of the founding fathers of the modern "union avoidance" industry. Tate had cut his teeth in the post-war battle between union workers and packinghouse bosses in Omaha--a battle the unions won. Tate, however, soldiered on.

As Lichtenstein writes, "Tate traveled in right-wing political circles that linked militant anti-unionism to a libertarian rejection of the welfare state, fair employment legislation, and regulatory oversight by the federal government. This put him in league with the John Birch Society and the Christian Anti-Communist Crusade."

When Walton "faced union trouble at two stores in central Missouri," he put in a phone call to Tate for help. Tate's strategy for dealing with the union threat was twofold: bust the union and at the same time develop a more paternalistic approach to associates. This is the origin of Wal-Mart's "We Care" program. This included a "profit-sharing" scheme and a way for associates to bypass their supervisors to talk directly with Bentonville.

The profit sharing was set up in such a way that even at its high point fewer than 1 in 50 employees ever saw any money. "The most important impact of the profit-sharing scheme was ideological," Lichtenstein writes, "linking the employees to the fate of the company, but also justifying the self-exploitation that was integral to Wal-Mart culture."

Likewise, the direct employee pipeline to corporate executives had less to do with solving problems than finding out about them soon enough to prevent union activity.

In the late 1970s, a group of DC workers and truckers started to organize, and the Teamsters launched union drives in Bentonville and Searcy, Arkansas. An overwhelming majority of the Bentonville DC workers even signed union cards. But after a long anti-union campaign in which Sam Walton threatened to close the warehouse down, the union was busted.

Rather than redoubling their efforts after having come so close, much of organized labor concluded that Wal-Mart was too difficult to organize. Wal-Mart drew the opposite lesson and became even more vigilant in "union avoidance" warning new associates that any flirtation with unionization would result in violence and conflict.

EVENTUALLY the United Food and Commercial Workers (UFCW) targeted Wal-Mart, or more accurately found their own members in Wal-Mart's crosshairs. The UFCW represented (and still represents) a significant number of grocery workers. However, Wal-Mart was able to undercut its union (and non-union) supermarket competitors as it expanded into the business. Labor costs represented up to 70 percent of total expenditures among the traditional supermarkets. But Wal-Mart's labor costs were far lower.

UFCW members were, as Lichtenstein writes, "caught in the squeeze" as their current employers were run out of a market or as they cut their own employees' wages to "remain competitive." The UFCW launched a campaign to organize Wal-Mart.

That campaign has been more "defensive" than "offensive." UFCW has offered support to some of the few dozen groups of workers who have tried (over the years) to organize at different stores, but has often focused on efforts to keep Wal-Mart out of certain markets--for example, the campaign to keep Wal-Mart out of Chicago.

In the organizing drives that have occurred, Wal-Mart has sprung into action to stamp out the union threat. Local managers are told they are on full-time anti-union work and if they hesitate they are immediately fired. "Then comes," Lichtenstein writes, "a barrage of leaflets, videos, personnel shifts and meetings with individual employees, often climaxed with an on-site visit by top corporate executives. Captive audience assembles become more frequent and more intimidating as the presumptive date of the NLRB election draws near."

If the union does win, as in the case of two Canadian stores, or among a group of Texas butchers, Wal-Mart simply closes the store--or in the case of the butchers, abolishes the department. Bentonville keeps constant track of the "union threat" through a "Union Probability Index" (UPI), later rechristened "Unaddressed People Issues." A store with a high index is given special attention by Wal-Mart headquarters, so that the "right people" (i.e., troublemakers) can be transferred, fired, have their hours cut or otherwise be shown the door.

There is of course, much else that can be said about Wal-Mart. For example, Lichtenstein shows how the company cynically used a "Buy American" campaign in the 1980s at the same time as it was setting up its new global (and now largely China-based) supply network. He also explores Wal-Mart's bizarre paternalistic corporate culture.

All this is important, but what stands out the most about this company is that it thrives when workers (here and abroad) fall behind.

For Wal-Mart, economic hard times mean more customers and more desperate employees. It is no accident that Wal-Mart's "miracle decade" was the same decade that saw the end of the post-Second World War economic boom. Similarly, deindustrialization at home and hyper-exploitation of workers abroad are simply the natural byproducts of their business-model--byproducts that also have the added bonus of increasing Wal-Mart's customer base.

Through relentless exploitation and innovation Wal-Mart has become a dominant economic and political force.

Lichtenstein's book is titled, The Retail Revolution. Wal-Mart "revolutionized" the technical and logistical aspects of retail and supply, but at the same time Wal-Mart represents a sort of counter-revolution against the historic gains of the labor movement.

Still, those who think Wal-Mart is "too powerful" to organize should take stock of Bentonville's obsession with organized labor. Wal-Mart is afraid of its own employees. It's afraid of what it has created. It fears at the very core of its being the accumulated grievances of its associates.

It is time for organized labor--and not just the UFCW--to do whatever it takes and allocate whatever resources it takes. That cannot be a merely defensive campaign, but an offensive one--a campaign to help Wal-Mart workers organize and fight for themselves.