I’d like to respond to some of Howard’s and Steve’s comments to my previous article, so I’ll take them in turn. Unfortunately, I’m so darn long-winded that it’s too big for a simple comment post, so its taken the form of an article:
Costco’s competition with Walmart
Howard speaks of how Costco effectively competes with Walmart effectively with unionized labor and higher wages. This may indeed be true. However, the fact is Costco does not directly compete with Walmart Stores. Rather, Costco is a more direct competitor of Sams Club, another Walmart brand. Walmart Stores are really the bread and butter of Walmart, and having said this, there is no other organization that competes effectively with Walmart on a worldwide scale, hence Walmart’s iconic status. This being the case, it might even be plausible to say that Sam’s Club could pay higher wages and unionize and still be competitive. One possible reason for avoiding this scenario is the collateral effect it would have on Walmart Stores.
Overcompensated Executives
On the subject of Executive Compensation, however, as I explained in terms of associate pay, the market rate rules. Indeed, do the Executives need a union to get fair pay? The fact is that if you want someone with the experience of running such a large organization effectively, you’ll have to pay the going rate.
I, like many folks, don’t like to pay for anything. In my work, I often am paying $1,500 per day for an individual with specialized skills. Is this extortion? No, these individuals invested in themselves to develop the skills I, and many others, need. While I think the rate is awfully expensive, I am willing to pay because I desire the work to be done. Just as I complain about these costs, I might complain about the cost of the executives. On the other hand, I think I might complain more if I was an owner (shareholder) of Walmart and the company went belly-up due to poor management. Everyone thinks they have what it takes to lead an organization the size of Walmart; but I say if you’re so sure, test your mettle leading an organization of 50 people (rather than 1.5 million). Once you’ve steered such a small boat, you can then only imagine what is required to sit at the helm of a fleet of massive ships.
Profitable Unionized Organizations
When it comes to the example of a unionized shipping company being more profitable than a non-unionized one, understand that I am not asserting that a unionized shop cannot be more profitable. Indeed, there are many ways to make your cost structure higher, and unionization is but one of them. Other bad organizational decisions can do even more harm to the bottom line. As such, since the national parcel shipping industry in the U.S. is essentially an oligopoly, it suffers from a number of dysfunctions and diseconomies, similar to (though not yet as bad as) the airline industries. However, should this market’s oligopoly status be broken, as has happened in other markets, you can expect a new low cost leader to enter as a non-union shop. This goes back to my original comments on barriers to entry.
Market Systems as the Devil
(I’m referring here to a number of section numbers from the Catholic Catechism in Steve’s comment.)
(2423) Social relationships should not be entirely determined by economic factors: I don’t see this at Walmart, or even in American society at large. The fact is that socialization often passes through barriers: economic, class, caste, race, creed, etc. Each of these is a determining factor, and as such, I don’t see the application here. I certainly don’t see how Walmart differs than any gas station who pays minimum wage. I agree there are systemic issues, but I say as a society the issue must be righted. Don’t pick the big target and blame it for playing by the rules that so many others espouse. Rather, fix the rules.
(2424) I agree that profit should not be the ultimate end of economic activity. Indeed, American society sets rules (often in the form of laws) that impose costs or practices upon organizations to ensure that other ends our met (i.e. protection of life, liberty, etc.). My assertion is that persons are not "nothing more than a means of profit", they are however "a means of profit." There is no denying that people are but one resource necessary to generate productive value, and as long as someone must farm the land such that they may eat, this will never change. Rather, I accept that productive work is necessary to ensure every individuals livelihood.
(2425) (206) I again agree that there are many human needs that cannot be satisfied by the market. Again, it is the duty of American society to set the rules by which the market must operate (minimum wage, work safety, environmental concerns). The rules are enforced, but the ones we want to apply simply don’t exist. Rather than blaming Walmart as a manifestation of our society, I say our society has failed to set rules and norms. I cannot blame Walmart any more than I might blame one football player for hitting another to tackle him. That’s the rules we’ve put in place.
Steve states, I think rightly, that there is no justification within Christianity that an employer should be entitled to pay a market rate. However, I have yet to find any Christian teaching that justifies paying artificially high rates either. Indeed, any teaching I can think of would apply to both in terms of a "fair" rate. In our society, we have decided that a fair rate is that agreed to by both parties (typically a market rate absent a contract or other outside forces). Again, if this is unacceptable, I cannot blame Walmart for abiding by the norms of our society. Howard makes my point well here with his eggs example: as long as people continue to be rational economic beings, and as long as the rules of economics don’t change, organizations such as Walmart will continue to thrive. Why shouldn’t they? After all, we set up the rules, asked them to play, and then complain that they’re doing such a good job of following the rules.
I also agree that many of the things our society does today profit the present and costs the future. It is again our duty as a society to right these wrongs. Don’t expect those who were created around our rules and norms to fix it! Let us (society), who set the rules and norms, fix the problem.
Income without Work
Every time you put work into something, you hope to get more out than you’re putting in. For example, when you pump a water well, you hope to get water, even though you’re not nearly doing enough work to actually create water from hydrogen and oxygen. Without this premise, humans could not live very long, since no individual can exert enough work to actually make food and water themselves without harnessing the land, the sun, and other natural resources.
Steve points to income without work as a problem as well. I wonder how many folks tell their bank not to pay them interest because it’s income without work (or insist on paying for checking services, or paying rent for the vault, etc.) Indeed, any investment income (at a bank, in stocks, as venture capital) is such. The reality is, however that this IS income WITH work. Money is a representation of stored value. Stored value is created when you do work. Investment of money, then, is the way to transfer your work to another place. By doing so, you hope to get more out than you put in. You hope to create productive value.
Your bank takes your money and reinvests it, thereby acting on your behalf as a proxy for investment. Or you may also directly invest in stocks, and the company you invest with becomes the proxy. Or if you’re really ambitious you could invest your money as venture capital, thereby helping a business to get past the initial costs of starting up so it may create productive value. If you start your own business, this is essentially what you are doing, though investing in your own business.
Indeed, not only is it necessary to invest work (money) in the hopes of getting more out simply to survive, it is also a necessary economic factor. Economic inflation causes stored work (money) to decrease in real (rather than numerical) amounts. The only to protect stored value is to continually reinvest that value in the hopes of producing more. The fact is that anyone with retirement accounts relies on this to ensure that the value (money) they’ve saved over their lifetime retains its value so they may continue to live after they can no longer work.
Conclusion
My overall point, here, is that while many of us like to point to Walmart as a horrible organization, I believe it has been very effective at following the rules and norms of our society. Rather, because it does this so well, and I may not like some of the outcomes, I believe our society has done an awful job of setting rules and norms. Those who blame Walmart are simply trying to shirk their own responsibility, even culpability in the matter.
I do not blame a driver following a 55 MPH speed limit for causing traffic to back-up when everyone typically drives on that road at 75 MPH. Rather I blame those responsible for not building enough lanes or setting the speed limit too low. In the same sense, I don’t blame Walmart. I blame America.
I don’t agree with most of Steve’s comments, but most of them I’ve addressed in my previous posts. But where I will agree is that as long as we do a poor job creating rules that businesses will never be paying the true cost of doing business (I simply disagree with what exactly the true cost is).
By the way, in my current community, businesses are required to pay for many of the local impacts, including local improvements that are required.
The fact that many elected officials are working so hard to get the next big-box store is unfortunately representative of their constituents desires (that would be us). People want jobs, and getting a big-box store is a way to get the jobs. Do I agree with the 15-year tax abaitments? not at all. But nor can I blame the father of four children that wants to be able to put food on the table.
The recommendation to move to a barter system is also difficult. Frankly, barter is still a market system that only decreases the liquidity of goods (and has a few other not-so nice side effects that I won’t go into.) It just makes it harder to trade, but doesn’t change prices. Any system of trade will naturally gravitate to a monetary system (even if its not called that) because too much value is lost in trade effort otherwise.
In response to the “buy mom & pop” discussion, I made a similar comment in the other Walmart thread, but I think it applies here:
The fact is that an en-mass move to not buy from corporations (or to only buy from “mom and pop†stores producing their own goods) results in fragmentation of productive systems, reducing economies of scale. This causes a chain reaction which reduces the capability of individuals to specialize in work. The end result is a return to an agrarian style of life.
While some might like to move back to an agrarian society (which, I don’t believe will cure what ails our society), unfortunately it means an end to things like modern medicine, electricity, etc., since economies of scale are eliminated (you think prescription drugs are unaffordable now? Imagine the cost when it takes one person two months to produce a single bottle of that antibiotic you need.) It also means that the current world population is unsustainable. Food production and distribution plummets for lack of productivity. Those with the least to “barter†with starve. Billions die. Only then is the population finally sustainable. I just don’t think I can recommend this approach in an effort to attain what a few might call utopia.
This leads me right back to where I started; saying the rule setting for the market system is poorly done because we, the constituents of those who set the rules, have failed to hold our representatives accountable to getting the job done correctly. Walmart is not to blame, market systems are not to blameÂ… fairly enough we only have ourselves to blame.
Lightwave:
Imagine for a moment that all that has been called “economic growth” for the past ~200 years is a direct or indirect result of spending the energy stored in the earth over the past 200 million years. Assume the cost (energy out/energy to extract) of exploiting this one-time resource will approach (and eventually exceed) that of sustainable energy sources in your lifetime. Now recompute.
I’m not advocating an end to the free market system. Rather I am advocating that we start such a thing. As Chesterton famously quipped: “Too much capitalism does not mean too many capitalists, but too few capitalists.”
I’m not advocating utopia, much less the death of billions, but rather a reality check. “Economies of scale” are usually just better and faster ways of exploiting limited resources. Sure, technology can be used to actually conserve resources… and eventually it will be used to do thus. But this hasn’t happened yet because, in addition to and because of bald human greed, it is the business of governments to promote “economic growth”, which being translated is simply more thorough consumption of the non-renewable resources of the earth. Cars today are about twice as efficient in miles/gallon/pound as they were 30 years ago. Yet we have more cars and drive more miles per car (with far more horsepower/pound). The net effect: consumption goes up–not down.
This will only be able to continue for a little while (15-30 years) longer, and then we’ll be thrust back to the reality that the human race (as it has for most of the last million years) gets the energy it gets from the sun. Nuclear may be able to get us over the hump, but the complete replacement of fossil with nuclear will cost the world several years worth of its “GDP”… either way we’re looking at a long protracted depression–the exurbs (today filled with 4-acre stripped farmland plots with 4000 sq ft homes and multiple SUVs) will need to be reclaimed for farmland. If we don’t want billions to die, then we’ll need mature, sustainable, civil, and free (and I would argue devoutly religious) communities…. and NOT more of the same from the Corporate World.
Cheers!
Steve, I’d be careful about that before making any jumps to conclusions. What you described applies to a large trend of American life: sprawl.
I don’t like sprawl either: my loathing of malls, new subdivisions and highways (Die, Mon-Fayette, die!) is well-known in my family, but c’est la vie.
Perhaps Funky should post some websites for companies (physical and web-based) that sell more sustainable stuff. The interest in such things is growing–heck, even Giant Eagle is bulking up its organically grown and evironmentally friendly offerings. They’ve been selling Seventh Generation paper and cleaning products for several years…
Well, with that Jerry we are agreed. But our most potent weapon against sprawl is to avoid (as far as it is in our power to do so) patronizing and availing ourselves of it.
Lightwave, if I take anything away from your reponse here, it is that we need to fix the rules, i.e. government intervention. I disagree on two fronts:
1) The Nature of Modern Governments. Sustainable market systems will never happen because of the complete triumph of Capitalism over the past 500 years, as manifested by Free Trade, Mercantilism, Colonialism, and Economic Warfare. Socialism is a proven failure. (Not that I’d be happy if it wasn’t.) Politics in Western Liberal Democracies has become uniformly a race between center-left and center-right parties, neither of which questions the utility of free markets, or the need for direct gov’t policy intervention to keep the ball (the artifice of economic “growth”) rolling. Only a severely duped citizen would doubt that the United States has and will continue to fight a wars solely in defense of economic interests. The haves will continue to have and get more (of course by “legal” means because any system is always set up to benefit the powerful), and will always do so at the expense of those who have not.
2) The Nature of Man. Sustainable market systems make it difficult or impossible to maintain the illusion of wealth “creation” on an individual or corporate level. It requires individuals to be content with what they can make themselves or procure from locally owned and operating businesses. Human nature, being what is, i.e., fabulously wicked and greedy, will not long stand for this. Those with the power to take that which does not rightfully belong to them (e.g., labor of the poor or disenfrachised, future beauty and productivity of land, future quality of life in a particular region, the time of others in traffic jams because people must now drive to supply their needs) usually will. Therefore “free” people will not stand for their gov’t taking “liberties” away from them, nor will they rationally give up their power to abuse.
The problem can only be answered at the individual, personal, family, and community level. People may be “rational” economic beings (i.e., always choosing what benefits them), but all of us don’t have to be. We can be super-rational in our balance sheets, upholding the priceless value of transcendant beauty and communal good, vis-a-vis any mere dollar. Again, I recommend Mr. Berry’s 17 Sensible Steps as a starting point to re-think economics and community.
You ask, Lightwave,
as long as people continue to be rational economic beings, and as long as the rules of economics don’t change, organizations such as Walmart will continue to thrive. Why shouldn’t they? After all, we set up the rules, asked them to play, and then complain that they’re doing such a good job of following the rules.
First off, this seems to ignore the fact that big players in the game (i.e., big corporations) don’t merely play by the rules of the game, but in fact spend billions to affect the rules of the game they’re playing, and invariably affect them in their own favor. Secondly, this is a moral cop-out. Merely “playing by the rules” does not necessarily satisfy the eithical requirements of Church teaching. “The rules” are patently unjust, again because rules are set up by those with money (or power, same thing) specifically to protect their position.
Finally I am well aware that there is no storage place for money (other than one’s mattress) where the rules of interest (i.e., earning money for no labor) are not in effect. I say in answer first that it was not until Calvin that charging interest became accepted in Christianity, and has still not become accepted among Muslims. The human race seemed to get along just fine without it. Secondly, I think it is time for us to begin weaning ourselves off this practice. Investment in real property is one way to avoid it (and you’ll still have the safety net of inflation). Of course if prices for food and commodities weren’t held artificially low by government and corporate practices that invisibly borrow against the future (again unsustainability of energy, natural resources and land use), then most of us would not have a lot of excess “wealth” to invest in the interest (money, bonds, equities) markets anyway.
I do not blame a driver following a 55 MPH speed limit for causing traffic to back-up when everyone typically drives on that road at 75 MPH. Rather I blame those responsible for not building enough lanes or setting the speed limit too low. In the same sense, I don’t blame Walmart. I blame America.
Actually I do blame the slow driver for not obeying the social obligation here to not impede traffic. Yes, the laws should be changed, but in the meantime there is much we can do to metaphorically keep the traffic flowing (keep local and humane business practices profitable). And I blame Walmart AND America, the latter being the putrid libertine cesspool out of which the monster grew.
Cheers!
Steve, let me respond to your comments:
I agree that the “nature of modern governments” is flawed. I think this puts the blame squarely on the individuals who select the government (in a Democratic Republic, that’s the citizens).
I also agree that the “nature of man” is at fault here. I agree that individuals can supersede the basic economic rationalities, but en-mass they typically don’t.
It is also true that corporations spend lots of money to influence the government. But again, I say, why shouldn’t they? Corporations are citizens in this country with just as much a stake in the future of the country. Without a vote, they have few other avenues to make their voice heard. Pluralism is the key here. If only individuals, rather than businesses had a say, the legislative environment would become so hostile as to drive businesses and jobs elsewhere. This has already happened to a certain extend in a few states.
I also see no moral distinction in investing money in real property, interest bearing accounts, or businesses. The only reason for appreciation of real property is due to scarcity. Such a proposition to eliminate all other avenues of protecting value from inflation would first create a super-elite class of property owners. Second, it would prevent property ownership by lower income individuals (remember no interest means no mortgages). Third, it would prevent the building of any decent sized factory or business (remember no investors means no construction of big expensive buildings). The result would be the end of all manufacturing and manufactured goods.
In faulting a driver for not driving faster than the speed limit, you are faulting the driver for not obeying the law (a moral imperative). I am not aware of any moral obligation not to impede traffic. Just because everyone else is doing it doesn’t make it right. Indeed, would one be morally opposed not to impede a lynch mob?
Ultimately, even if you find Walmart worth of some blame, as a rational organization, the only change can come from changes in the rules and norms in society. Until we, as a society, do the work necessary to make the changes, I don’t think we can expect to see a change from Corporate America anytime soon.
“[Wal-Mart] has been very effective at following the rules and norms of our society. [But] our society has done an awful job of setting rules and norms. Those who blame Walmart are simply trying to shirk their own responsibility, even culpability in the matter.“
We haven’t done an awful job of setting rules and norms; we have established unhealthy norms and done an excellent job of reinforcing them by rule-setting. Come up with a stupid or unhealthy behavior and Americans will (1) find a way to do it to excess, then (2) find a way to make it a fundamental right. This will continue without end (or directly to our end) unless people wake up to their individual culpability for the systemic problems that plague us. When people learn they can have the freedom to be stupid, but not the obligation to explore all the possible manifestations of stupidity, we will be much better off. But I won’t be holding my breath.
This:
Corporations are citizens in this country with just as much a stake in the future of the country. Without a vote, they have few other avenues to make their voice heard.
… is a legal fiction dreamed up and implemented by powerful moneyed interests in the 19th century. It has no basis in revealed religion or natural law. Corporations present a fundamental conflict of interest that an individual person could never have: the needs of persons working for me vs. the needs of persons (other than myself) expecting a return on their investment (illgotten profit without labor). Furthermore the corporation is a (no doubt clever) way to insulate interested individuals (they are, after all, limited liability partnerships) from ethical behavior that would normally be required by either law or convention. We would do well to fight (as much as we are able) against the existence of corporations. (Yes, I realize the quixotic nature of such a suggestion, but get enough folks out there swinging at windmills, and you might do at least a little good in the world.)
The driving 55 mph speel limit analogy admittedly only goes so far. There are no laws against spending one’s own resources in such as a way as to promote sustainable communities and production, and thus no moral ambiguity.
Theo’s take on human nature is (alas!) accurate. But, I think though we have to get over trying to change the whole world, and rather spend our resources changing what we can change (or at least influence), ourselves, our families, and local communities. It is not for us to immanentize eschaton.
My $0.02
Lightwave, I think the difference of opinion here is more fundamental than the various explanations of corporate finance or consumer economics. It is a difference of mindset. You (and you’re far from alone on this) seem to hold the capitalistic system in such a sacred place. I’m not saying it should be categorically trashed, but restrained just a little bit? Yes.
I was raised with specific values that seem to be invariably at odds with people who find ways to make money for themselves without addressing the social effects of their business decisions. For me, given the religious influence I have been exposed to, there are business approaches that seem quite wrong to me, no matter how normal they seem to anyone else.
Please note that I don’t necessarily believe a company has to be unionized to meet its social responsibility. I have never stated this, and when I mentioned my experiences with my own employer, I might have done better to switch my employer for any one of several other companies I know that meet these social responsibilities without ever having to negotiate a union contract, or even do battle with a union organizing drive. Union organizing, I should note for the uninitiated, operate on something of a market-driven level themselves. That is: no demand, no drive.
There are many companies in various industries who (grocery retail, for one) who understand the business sense of treating their employees as fairly as possible from the jump — these companies rarely have to wrangle union organizing drives (a subject of which I have intimate knowledge). The reason? When they take it upon themselves to treat their workers well, there’s no demand from the inside — so when a union organizer comes around, employees aren’t usually interested.
This is not the case at Wal-Mart (again, personal experience with organizing is the basis of my statement here). Experienced Wal-Mart workers, when they come into contact with a union organizer outside of the shadow of their employer, are often very receptive to the message of attaining fair compensation. Workers who have a positive overall view of their employer generally don’t show as much interest.
What Wal-Mart does to combat union organizing is retain the services of highly paid and extremely effective teams of corporate union-busters (I’ve seen them up close, and I have at least two long-time acquaintances who were dismissed from their jobs immediately after having been reported as talking with a union organizer). This is a very forced approach to staying union free. Rather than deal with demand, they choose to deal with the people who decide they might want to join a union (a practice which, however hard to prove in court these days, is still a federal labor violation).
I just have trouble understanding how, if one were to take sides, they’d rationalize the behavior that Wal-Mart has made into an art, rather than side with poverty level wages being increased, or God forbid accessible healthcare options that don’t cost half a month’s take-home.
But then, I was raised with the notion that the weak need protection, not the strong. Call me when Wal-Mart’s in actual danger and maybe I’ll consider taking their side.
Until then, I’ll save my sympathy for more deserving entities.
I appreciate the comments made, and certainly I understand (and often agree with) many of the points of view folks have mentioned here.
While I don’t hold capitalism and market systems as sacred, I don’t know of a better system for managing as complex a market as this society has developed. Indeed, so far no one has been able to demonstrate another truly effective system on such a scale. Democracy is the worst except for all others…I think capitalism fits too.
The fact is, meddling with market systems often has unintended consequences with massive impact. Think back to the price fixing done by the Nixson Administration.
Regardless of historical precedent of businesses influence on government, I believe business is as much a stakeholder in the future of the country as individuals. The founding fathers saw that pluralism was the key to avoiding the dangers of majority rule, and giving business a voice adds but another dimension to the plurality. Absent a vote however, financial support for lobbying efforts is the only method left.
Just because Walmart is doing well doesn’t make the organization unworthy of defense. Indeed, as an organization that creates real value (often expressed in the form of profit); it is responsible for the creation of jobs and economic activity, which benefits everyone. I won’t go so far as to say “what is good for Ford is good for America”, but the reality is I’ve seen what happens when the balance tips too far toward individual interest (I’ll refer back to my mention of the steel industry).
As a Democrat who has spent his last 12 years working in government, let me say that I am typically last to defend business from wrongdoings. Here, however, my conscience tells me the blame belongs somewhere else.
Lightwave, the problem lies right here:
I don’t know of a better system [than capitalism] for managing as complex a market as this society has developed.
You’re assuming that a) we need (or ought to have) as “complex a market” as has been developed, and b) it must be managed. Neither of these is obviously true. Sure, “meddling with market systems often has unintended consequences with massive impact”. But this is not what I’m suggesting. In fact I’m suggesting precisely the opposite. Don’t meddle with the (globalized, corporatized) market system… don’t even participate in it if possible. Wean yourself off the system entirely. Buy local, barter, even give stuff away.
Of course the blame cast mostly upon Walmart is to be shared… first by all who own stock in or avail themselves of “extra low prices”. In the same way, we cannot completely fault Al Capone. He was merely providing something his “customers” wanted, i.e., booze. And of course the blame must be shared by US government capitulation to moneyed interests over the past 216 years. And we need to blame the colonizing British, Spanish, French, and Portuguese “venture capitalists” before that for automatically assuming that, with the backing of kings’ money and armies, the Western and Southern hemispheres existed merely for their taking.
Now Walmart “is responsible for the creation of jobs and economic activity, which benefits everyone”? Really?? Creation of jobs??? Shifting of jobs would be more accurate–out of small locally owned and operated businesses and out of town centers to the grey strip sprawl where wages are lower and everyone gets to drive farther. Economic activity “benefits everyone”? Everyone? Really? How ’bout the last guy holding the dollar–the least greatest fool? That’s who all this economic activity benefits.
It is not by magic that Walmart (or any of a number of assorted “marts”) can offer such extra low prices. Their prices are subsidized by
1) cheap (usually exploitative overseas) labor;
2) gov’t subsidized (by military force if necessary) cheap energy, shipping, rail, and roads;
3) future productivity of land destroyed by the existence of their stores and warehouses;
4) gov’t sponsored safety nets for their stateside employees;
5) the quality of life of anyone who lives near or has need to pass by these facilities; and
6) (usually) “incentives” by state and local governments who are pissing themselves to try and get the biggest, fattest Mart to build and locate with them.
All I’d ask for is a level playing field where EVERY player would have to pay the TRUE COST of doing business. If we had that, I suspect Walmart, K-mart, Barnes & Noble, May Co., &c. simply wouldn’t exist…
Cheers!
“
3) future productivity of land destroyed by the existence of their stores and warehouses;”
Right, ‘cos mom and pop shops don’t take up any valuable land, and their suppliers don’t have warehouses or factories that hurt anyone. 🙂
Mom & Pop shops don’t require new zoning laws to put up a county sized parking lot, trebling of road capacity, new traffic lights, and more electric power than consumed in all of Botswana. In fact, the best and truest Mom & Pop shops are operating out Mom & Pop’s house, selling things made on the premises. “Efficient”? Depends what you mean by “efficient”… Sustainable? Yes.
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