Please read this thorough and extraordinary article from Fast Company entitled The Wal-Mart You Don’t Know. If its length discourages you, read the following excerpt (emphasis mine), and you’ll want to go back and read the rest:

If Levi [Strauss] clothing is a runaway hit at Wal-Mart, that may indeed rescue Levi as a business. But what will have been rescued? The Signature line–it includes clothing for girls, boys, men, and women–is an odd departure for a company whose brand has long been an American icon. Some of the jeans have the look, the fingertip feel, of pricier Levis. But much of the clothing has the look and feel it must have, given its price (around $23 for adult pants): cheap. Cheap and disappointing to find labeled with Levi Strauss’s name. And just five days before the cheery profit news, Levi had another announcement: It is closing its last two U.S. factories, both in San Antonio, and laying off more than 2,500 workers, or 21% of its workforce. A company that 22 years ago had 60 clothing plants in the United States–and that was known as one of the most socially reponsible corporations on the planet–will, by 2004, not make any clothes at all. It will just import them.

wal-mart dilemmaThe article brilliantly describes what I call the ‘Wal-Mart Dilemma’, which is represented by the cycle diagrammed at right in red.

The intervention in blue that can stop this ‘race to the bottom’ is anathema to ‘free’ traders. It says simply that if a product can reasonably be produced domestically, then duties and other regulations should be imposed to protect domestic producers. In other words, the alternative to ‘free’ trade is not no trade, but rather regulated trade, regulated to protect the economy and social fabric of the regulating country. That switches the cycle shown in red to the cycle shown in green.

Of course, it’s not all black and white, or we would have resisted the globalization extremists and wouldn’t be facing this dilemma today at all. In the red vicious cycle, the seduction is:

  • lower prices ‘every day’
  • low inflation

and the downside is:

  • low wages
  • low product quality
  • high unemployment
  • high poverty levels

The green cycle also is not perfect. Its seduction is:

  • high wages
  • high product quality
  • lower unemployment
  • lower poverty levels

and its downside is:

  • higher prices
  • higher inflation

You pays your money and you takes your choice. In my biased opinion, the vast majority of people are ahead with the green cycle, and the very rich few are ahead with the red cycle. Guess who’s lobbying and bribing governments for untrammeled globalization and ‘free’ trade? Contrary to what most of us are taught in school, modest inflation is the single most effective way to painlessly redistribute wealth from the rich to the poor, because it allows debts to be repaid in ‘cheaper’ future dollars. There are environmental and social advantages to the green cycle as well. The use of slave labour is discouraged. Lax environmental laws in third world countries are not exploited as much. And if the red cycle gets out of control (some would argue it already has), a possible consequence is deflation, a terrible threat to the whole economy that we need to avoid like the plague.

The answer is not to blame the Wal-Mart shopper for buying imported goods there, because in the vicious red cycle it’s all they can afford — they’re paradoxically forced to perpetuate the cycle and sustain their own and others’ poverty. And the answer is not to blame Wal-Mart either: They’re doing what their corporate charter dictates, using their immense buying power (they sell a quarter trillion dollars worth of goods each year) to increase earnings per share, and in the process they have introduced some unarguably beneficial innovations into their, and their suppliers’, business processes.

The answer is to recognize that ‘free’ trade laws need to be limited to goods and services that cannot be reasonably produced domestically, and pressure politicians to reimpose duties and other regulations on those goods and services that can. That alone would move us from the red cycle to the green, and halt the race to the bottom that threatens our nations’ very social fabric, and benefits only a handful who are rich enough already.

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36 Responses to THE WAL-MART DILEMMA

  1. Dave Pollard says:

    Postscript (I’ll add this to the main post later but I’ve got to run & catch a plane) — thanks to Gary at Teledyn for pointing out the Fast Company article to me.

  2. James Drogan says:

    I have long been a fan of the balanced scorecard. Influenced by an article by Peter Senge (Senge, P. and G. Carstedt (2001). “Innovating Our Way to the Next Industrial Revolution.” MIT Sloan Management Review 42(2): 24-28.) and discussions with my Spring 2003 international logistics graduate students (Baruch COllege) I augmented the balanced scorecard by adding a measurement for behavior.This measurement is intended to address the question “What must we do to assure we are good stewards of the world’s resources?”Your post reminds me of that and causes me to suggest that some sort of measurement beyond Sarbanes-Oxley, GAAP, etc. is required to induce the behaviorial modification you imply.Jim

  3. Raging Bee says:

    You forgot one drawback in the green cycle: if we restrict imports, other countries will restrict imports from the US, and those American workers who depend on exports will be screwed. We tried such a policy when the Great Depression started, and made it worse when other countries retaliated.

  4. Evan says:

    And yet another possible drawback to the green cycle: Genuinely useful innovations from overseas may be hindered in their adoption in the US if they are at an artificial competetive disadvantage with inferior local goods. The US automotive industry is considerably better for having had to compete with Japanese cars, for example. But US auto workers are much *worse* off for having had to compete with cheap Mexican labor.The question becomes, who defines the word “reasonably” in the blue box? Maybe it’s reasonable to shock a moribund industry back to life by forcing it to compete. On the other hand, it’s clearly unreasonable to *kill* an industry by tossing it into the red vortex up at the top of your chart. Who decides which is which, and how?Alternative scenario (though obviously it’s pie-in-the-sky): What if some future trade pact were written that required all international trade goods to have been manufactured to at least the same environmental and labor standards that were required in the destination country? It seems to me that would eliminate much of the impetus to move manufacturing jobs to Saipan, and might actually create an incentive for a race to the *top*.

  5. Rob Paterson says:

    We say we want value etc but faced with cheaper we reach for it. Who will work in North American if this goes on? This is what drives factory farming as well.We tend to get self righteous and blame National Grocers, McDonalds and Wal*Mart but isn’t the fault ours? Now what to do ????

  6. Bjoern says:

    Well, it sounds easier than it is. Who decides what products can be reasonably produced domestically ? And what exactly does “reasonably” mean ??Take the US steel industry for example. It is pretty far behind and very inefficient. They got Bush to impose duties on foreign steel imports. What was the effect: they still don’t innovate and now the US car industry got a problem, because steel prices rose and made US cars less competitive… Smart move ? And what about Third Wold countries ? If they can’t export cheap manufactured goods they will never be able to get richer and afford higher environmental and labor standards.Sorry, but shutting off certain domestic markets, while trying to export freely in others hardly solves anything… Btw, isn’t that called a “beggar my neighbor” policy ?

  7. Dave Pollard says:

    Jim: Agreed. There are some economists developing such measures, mostly at the national macro level, thinks like the Genuine Progress Indicator and Well Being Index that I’ve blogged about before. Herman Daly’s work also suggests some measures. But if we continue to act on GDP and not these other measures, it won’t change behaviour.Pony Tailed Dave: True, but if you look at the massive US trade deficit, the number of people helped by import duties would far exceed the number disadvantaged by foreign companies’ duties on American exports.Evan: The issue I think is whether domestic competition is adequate to stimulate innovation. My sense is that it’s only because of the oligarchies in the US (like the big 3) that there was no incentive for them to innovate. Even with the foreign competition both the auto & steel industries in the US are struggling and slow to innovate. If new upstart American car & steel companies didn’t have to fend off cheap foreign imports, I think they’d force the big lazy companies to innovate more effectively than the Japanese have done, and save jobs in the process.Bjoern: ‘Reasonable’ is, of course, subjective, and would need to be made more objective to enact in trade law. I think it would need to vary from sector to sector. Growing coffee in the US would not, IMO, be reasonable, but manufacturing quality pants in the US sure would. As for exporting cheap manufactured goods in 3rd world countries, I’m far from convinced that that would lead to them becoming richer, or lead to higher environmental standards. I don’t think it follows.

  8. I like the loop you draw. I happened to be using these’Systems Thinking’ tool to analyzed problems myselfHowever, I disagree with the idea of imposing tax.As I have disagreed with you before, (^_^)the free-market machanisim will drive production towhere it is most efficient. If you go against the mechanismit will circumvent you somehow, sooner or later.As an example. An absolutely-free market would allowfree flow to both good and labor. High productivity ofthe US. will attract workers abroad to work there.But the barrier was set, so these skill labors recievelower income due to lower productivity of their region.It left the American with an unfairly higher income due tolower(than it would be) supply of labor.After globalization, the barrier is circumvented by manytype of works e.g., softwere and other kind of import.This bring the free-market system to its usual balance.You can not complain of the decreasing income. It onlymake all country more equal. However, the habit of extravagance can’t be changed quickly. American willneed to suffer a few year before they learn to live moreeconomically and more environmental-friendly.Still if your suggested measures is imposed, it will be justanother barrier to be circumvented. If you increase tax, then the price will be higher. You will lose efficiency thatwould happened. American people will need to live withmore expensive product than in other country, in order togive more local jobs. This can be either good or bad, dependon how flexible is the labor. If they are flexible, they canchange job easily and generate the same income, they wouldbe happier to by chaper products. In the short run, wherechanging job is costly, your measures can be used untilthe people can adapt to the proper jobs that fit them best.

  9. Evan says:

    “If new upstart American car & steel companies didn’t have to fend off cheap foreign imports, I think they’d force the big lazy companies to innovate more effectively than the Japanese have done, and save jobs in the process.”Could be… then again, Japan is what actually got the job done; Tucker didn’t.(Also, I wouldn’t have wanted to discourage the old VW bugs and microbuses from the market. It’s the hippie in me.)I’m not sure there _wasn’t_ competition within the US, anyway. The consolidation of the american auto industry was well under way when japanese imports began to take a major part of the market, but it didn’t get down to just the big three until chrysler ate AMC in the early 80s.

  10. Raging Bee says:

    “If new upstart American car & steel companies didn’t have to fend off cheap foreign imports, I think they’d force the big lazy companies to innovate more effectively than the Japanese have done, and save jobs in the process.”So how come this didn’t happen when we were restricting imports?Here’s another pie-in-the-sky scenario: since management and capital have gone global, organized labor must do the same. Let the AFL-CIO start organizing workers in Asia and India. This could be a great opportunity to send a message and export American values without all that pesky military stuff.

  11. Mike says:

    Quoting Evan:”Alternative scenario (though obviously it’s pie-in-the-sky): What if some future trade pact were written that required all international trade goods to have been manufactured to at least the same environmental and labor standards that were required in the destination country? It seems to me that would eliminate much of the impetus to move manufacturing jobs to Saipan, and might actually create an incentive for a race to the *top*.”Question: could this become more likely if, instead of outright restrictions, you impose an import tariff based on national differences from standardized quality-of-life measurement? Or is any race-to-the-top scenario doomed from the getgo?

  12. Philip says:

    What is inflation? A rise in prices I understand, an erosion in living standards because wages always lag behind prices. Is inflation an indication that demand exceeds supply leading to growth? I’m not so sure that inflation is the boogey-man it has been made out to be, of course economics isn’t my strong point I’m still trying to figure out what money is all about, I mean who thought up the idea in the first place? It seems to crop up in many cultures but it is not a universal. Abstracting wealth removes value from labor. And the whole idea of interest? Inanimate objects that can make more of itself? Isn’t that how money reproduces through interest? The amount of interest it can generate is directly proportional to the amount of greed/desire found in the culture. I’ll pay you twice as much as the asking price if you let me have it now and let me pay for it over time. You buy two homes with what your mortgage costs you. Owning land is a hoot you can’t really own anything that lasts longer than you you lease exclusive use of an object. Once you die ownership does to. Yep the whole modern world is a mystery. I can speak the language I understand the relationships defined what I can’t understand is why we put up with the situation created by some arbitrary definitions about abstract ideas.

  13. Dave Pollard says:

    Evan/Mike: Your solution is wonderful in theory. The problem is that there is no credible way to measure the difference in environmental and social standards, and even if there were, the cost of measuring them, using an independent auditor, would be immense. And as much as I am one of the dying breed who believe in the value of unions, I know how they’d be received in most of the third world — with bullets, possibly fired by some of the government execs themselves if the business execs didn’t get to them first. So as much as I dislike the idea of import duties in principle, I strongly support them in practice as the only practical, effective way to slow the race to the bottom.

  14. Raging Bee says:

    So what’s new? Unions have always been met with bullets, at least in the early stages. And it’s not as if workers in those countries are safe from bullets as it is. True, the benefits for US competitiveness will be VERY slow in coming, but it has to start sometime, and this, more than any other policy debated here, will go to the root of the problem, which is, after all, that other countries can sell their products more cheaply because they don’t have unionized workers and environmental regs making things more expensive.Besides, if import duties spark retaliation in kind, will that really slow the race to the bottom? It didn’t do much good in the 1930s.

  15. Jennifer says:

    It was hard for Tucker to compete after somebody torched his factory and threatened his family…Even by the 60’s, most American car companies had either folded or sold out to one of the Big Three. (Studebaker folded, Oldsmobile was bought by GM, etc.) The few that were left were struggling against the near monopoly of the Big Three.PonyTailed Writer points out something that is true. The oligarchs during our country’s “Gilded Age” did not want to share their massive profits with their workers. They tried to keep unions out of their factories often under threat of job loss or violence. Henry Ford tried to close a plant (I believe it was in Dearborn), but the unions were able to outsmart them. There were deaths at the Haymarket Square riot in Chicago. At the Michigan Historical Museum, there’s a glass case which holds a white shirt with blood on it. It’s the shirt of a union member who was hit by a Big Three company thug during a strike in the 30’s. Union members even in the US have been under threat. But the fight is worth it. Just think of all the benefits we have today because of brave union members.

  16. Kev says:

    I have some questions. Maybe Dave or someone else can sort this out for me. :-)If it’s bad to use cheap labor, why is it okay to use technology, computers, software and robots that replace workers? Using a robot puts a manufacturing worker out of work just the same as using cheap offshore labor. You don’t hear people complaining about robots taking their jobs like you did decades ago. What happens when everything is automated and we only need a few workers to actually make things like cars, roads, and clothing? It seems to me this is the same as asking the question, “what happens when all the manufacturing jobs are offshore?”

  17. Raging Bee says:

    Jennifer: thanks for the plug. :-)I find it amazing – bordering on appalling – that so few leftists even talk about unionizing the underpaid workers who now compete with ours. Organized labor used to be the very backbone of the Western left, and its link to the reality of the daily lives of ordinary people.Perhaps the leftists don’t want to be linked to reality anymore…

  18. Raging Bee says:

    Kev: the answer to your question is: chronic worldwide double-digit unemployment; massive, ongoing civil unrest; and, in the long run, some kind of policy that taxes the capital owners out of some of the money they saved through automation, and using it to provide basic support for the people they cut out of the system.

  19. Raging Bee says:

    Another possible outcome is that all those redundant people form their own local and regional economies to support themselves and keep busy the old-fashioned way.

  20. Kev says:

    Thanks for your reply to my comment PonyTalied. However, I was asking what is the difference between using cheap labor and using robots. Because, surely people are not against using robots and technology. So, if you are against cheap labor, how can you not be against techology? Or, if you are for techology, how can you be against cheap labor. What’s the difference in terms of the effect on the ecomony?

  21. Jon Husband says:

    There may not be any final and fundamental answers/solutions to the polarities the issues above represent.What can, I think be questioned, are the basic assumptions on which capitalism (now beginning to run amok) are built…and not by suggesting the polarity this implies.We will no doubt need, at some point, another “episode of capitalism”, as Shoshana Zuboff puts it, in which it may be clearer to the suppliers (and bebeficiaries) of capital that it is in their interests to respect the interests and lives of the humans that are put to work using the capital…and isn’t this where unions came from and what they are for ?And the mechanisms and means through which they enact their purpose may need to acknowledge more effectively that has been the case to date the roles information, technology and knowledge play in the “productive” use of capital.Re: technology and cheap labour, cheap labour and technology – a very good point…I have often said that we may get to the point where unemployed people are offered a Guaranteed Income just for being “good citizens”, which I have assumed means behaving more-or-less appropriately. What I don’t like about that scenario (in my mind) is that it will be directed by oligarchs and globally-interconnected “descendants of Bush II”, and will be some form of an Orwellian nightmare which (unfortunately) the “weak signals” of which we may be seeing.

  22. Conor says:

    Whew!!! Wow, this is a great conversation! This makes me think, somehow, of the second law of thermodynamics. I see capitalism as a very clever pyramid scheme continously spreading itself outward; a sort of entopy. My question: will it spread wealth or will it spread poverty. Unless the status of women changes (true equality and parity with men)I fear it will be the latter senario. I pray I’m wrong.

  23. sherrie says:

    Give me a break, what else can you now blame on Wal*Mart. You have had unions in this country, that has outpriced all products. If wal*Mart raised their prices you would probably be the first to complain. I just b ought a Levi Skirt from Kohls, and one from Wal8Mart. one was 36 dollaars and one was 26 dollars. Looking at the garments from both stores and the construction of both Levis skirts, Guess what everything was the same except where they placed the Levi lable. It looks like you are just whining cause you can’t buy cheap and make big bucks at the same time…..

  24. Monjo says:

    If there were no trade tariffs it would better the world economy by an estimated $1.5trillion a year (and some of this would benefit the overall US economy). Yes some Americans would lose jobs in inefficient markets in the US, yet the US economy would still gain oiverall by having cheaper goods = higher standard of living. Yet if we try to protect all jobs and resist change, then most Americans today would still be working in agriculture.

  25. Sacha says:

    Free Trade can only work if and only if prices represent true cost. Most of these “competive prices” exclude the cost the impose on nature.For example Black Tiger prawn production in Thailand … “Every shrimp crop produces a layer of black sludge on the bottom of the pond

  26. Sacha says:

    Free Trade can only work if and only if prices represent true cost. Most of these “competive prices” exclude the cost the impose on nature.For example Black Tiger prawn production in Thailand … “Every shrimp crop produces a layer of black sludge on the bottom of the pond

  27. Sacha says:

    Free Trade can only work if and only if prices represent true cost. Most of these “competive prices” exclude the cost the impose on nature.For example Black Tiger prawn production in Thailand … “Every shrimp crop produces a layer of black sludge on the bottom of the pond

  28. Sacha says:

    Free Trade can only work if and only if prices represent true cost. Most of these “competive prices” exclude the cost the impose on nature.For example Black Tiger prawn production in Thailand … “Every shrimp crop produces a layer of black sludge on the bottom of the pond

  29. Sacha says:

    Free Trade can only work if and only if prices represent true cost. Most of these “competive prices” exclude the cost the impose on nature.For example Black Tiger prawn production in Thailand … “Every shrimp crop produces a layer of black sludge on the bottom of the pond

  30. Sacha says:

    Free Trade can only work if and only if prices represent true cost. Most of these “competive prices” exclude the cost the impose on nature.For example Black Tiger prawn production in Thailand … “Every shrimp crop produces a layer of black sludge on the bottom of the pond

  31. says:

    The problem is not offshoring. Robots are:,1518,368155,00.htmlJeremy Rifkin on Europe’s Uncertain Future: The End of Work – International – SPIEGEL ONLINE – NewsEuropean politicians often like to blame outsourcing for the disappearance of jobs. But in reality the work isn’t going to the Chinese — it’s going to the robots.

  32. Brian Pearson says:

    If Levi would keep an eye on quality — and they don’t seem to be insofar as I can tell from the last jeans I bought from them (Made in some South American country) — it has gone down. I comlained to them about it and they asked me to send the jeans I bought to them. Not at my expense!

  33. peter says:

    great review!

  34. David James says:

    I am using the US in my coverage below, but it could be any group that is considering taxing goods and services imported.I don’t perceive that ANYTHING is solved by taxing a transaction between two parties. It may temporarily shunt a line of trade (that crosses an international border) but is this even really desireable?That added burden of a tax isn’t even paying for anything, it is just a burden with no exchange, and is really just a “bribe” paid to governments for the privlege of of communicating and exchanging goods and services with others.The green cycle may appear to work for those in the US (temporarily) to the disadvantage of producers in the rest of the world.So the US gets to raise its standard of living while taxing a business in another country? What is the real benefit.It sound like a plan for turning the entire US into a giant labor union.Higher-quality goods are recognized as such, and (if effectively communicated) the better goods will find markets–potentially worldwide.Why not just let the US companies find out what they can be best at (and most able to compete in a global marketplace with) and have them product THAT? OK, so we don’t make the least expensive steel. So what? Buy it from somewhere cheap and make the best cars. If we can’t make cost-effective cars, then we make some product or service that we can excel at.If we can’t make anything more cost-effectively than other, maybe we should look at our bad schools, our re-direction of tons of money to go and fight with others, our unwillingness to allow free trade and other things.Do you really want to raise taxes so that you can have a job making denim on a loom somewhere? Why not get to be the best at making automated loom robots or something? US labor unions resulted in US products being priced out of the world market.Why camoflage a hole? Why pretend we are good at something when we aren’t? Why don’t we just import the cheap steel and have a personwith some education supervise the robots efficiently making the cars?What if a state or province decided to do this? A tariff on goods coming into California from other states perhaps? Maybe Florida doesn’t like the fact that oranges grown in California cost less to produce, so Florida charges a tax on “imported” oranges. This really just sounds like a scheme to throw garbage over the fence. “Here. Take our lack of initiative. Here’s some poor education and some lack of willingness to learn a foreign language. We’ll throw in some ‘bad global citizen’ attitude and back it up with the threat of military action.”Maybe it could be extended to other areas. Let’s say that the government charges a tax to newspapers and magazines for each picture of a good-looking person printed. That way, more ugly people will get their pictures in the paper!Maybe the next time we host the Olympics, we could levy a 10 second penalty on foreign runners and swimmers–give us the edge in exchange for hosting the games.Make all swimming pools shallower to be more fair to people that can’t swim.Now the world is starting to sound a bit more fair!If the US is only at the Special Olympics level in making something, the US should get paid correspondingly. Then the motivation exists to get busy and find something you are actually good at.Frédéric Bastiat was right: “When goods don’t cross borders, soldiers will.”

  35. says:

    People have been recommending tariffs to boost domestic production since Hamilton wanted to encourage “domestic manufactures” in the 1790s, but the steel industry still doesn’t think they’re ready for worldwide competition. The last time this approach was tried, steel imports went down and domestic steel cost more (that was the point), but domestic industries that use steel saw their costs rise. So a cheaper way to import steel for things like refrigerators and cars was to import them rather than steel, thus harming domestic manufacturing rather than helping it. You could then impose a tariff on those goods. Unfortunately, the increased profits end up in the pockets of industrialists rather than the workers, who may still have jobs but will surely be spending every cent on formerly inexpensive stuff.BTW, contra Bjoern, the steel industry is still producing at or near record high levels with a fraction of the workforce they had 30 years ago. Jobs are not being lost to foreigners so much as capital investments are making workers more productive. We still produce as much or more stuff in this country as ever, and export more than ever, but we also import more. Higher productivity has led to higher wages has led to more disposable income has led to more buying. If there is one thing that would fix the problem, it would be to increase saving, but that doesn’t seem to have shown up in your diagram (I thought the Senge book was overrated in part because he didn’t seem to care much about the quality of the diagrams so much as the aesthetics of them).My wife’s blog is about the apparel industry and supporting the thousands of small apparel manufacturers here in the US. Their suppliers, the textile manufacturers, are among the biggest whiners about NAFTA, but they will hardly talk to the small apparel manufacturers. They want to continue running large batches and have learned nothing from Toyota and their small batch, just-in-time production system. Toyota developed that in an era in which highly capitalized American manufacturers were kicking their a$$; now they have brought it to North America where they make 2/3 of the cars they sell here.The Sloan/Dupont/Brown model of production dominated the world for 30-40 years simply because the United States was the victor in WWII, not because it was inherently better. Trying to revive that model with protective tariffs is a waste of time and energy. Lean production — Chapter 7 in Natural Capitalism — is a better management model. And if you really want to help workers, you might look at ways of shifting power from political entrepreneurs to laborers. For example, by putting an end to subsidies and regulations that favor large producers over small.

  36. MacJanet says:

    Being human means thinking about all human beings, not just the ones that are US citizens. As citizens of the world, we cannot afford to consider the problem inside a box that excludes people in all other countries but our own (in my case Australia.)The problems arising from driving down prices and standards apply in all capitalist production where there is no monopoly (and monopoly has other problems), ie competition. I don’t claim to be able to explain it all – but it seems to me that a better starting point for those of us who want to change the world would be to work with the real producers (not the profit taking owners), the wage labourers, for solidarity to raise wages around the world, so that there are better conditions for the majority of consumers (who depend on wages) – and that productivity gains can be shared in the form of more jobs, less unemployment and shorter hours. Gotta go.

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