Walmart, the Most Powerful Company in the World, Admits that Protests and Strikes Lead to Wage Increases

For the first time ever, a strike is taking place in America aimed at the most powerful company in the economy: Walmart. Workers at Walmart stores across the country, as Josh Eidelson reports, are threatening to walk out on Black Friday, the biggest shopping day of the year. These labor actions are coming on top of earlier labor actions at Walmart’s warehouse contractors linked to “non-payment of overtime, non-payment for all hours worked, and even pay less than the minimum wage.”

The possible strike could be very significant, because the target of the strike is the most important driver of the race to the bottom economy. Walmart is massive – the company is the largest private employer in the US, with more than 2 million employees. The average American household spends $3500 at Walmart, and in 2006, the company alone represented 2.3% of the American GDP. The company is so powerful that when a Walmart Supercenter comes into your community, the entire community’s obesity rate increases. It is also, as  New America scholar Barry Lynn has argued in End of the Linea force that has reshaped the American corporate world.

Though known for suppressing wages, I found evidence that the company is willing to change working conditions with sufficient pressure. According to St. Louis Federal Reserve President William Poole, the last time there was significant labor unrest at Walmart, in 2006, the company raised wages at 700 stores. Poole, like many at the Fed, regularly spoke with Walmart executives, and they gave him unvarnished views about their business practices because they believed (as did Poole) that the information would be used solely for macro-economic forecasting.  On March 27-28, 2006, Poole said that his Walmart contact told him the company would not raise wages, and was planning on moving their work force increasingly towards part-time employment. Poole was interested in this because of its bearing on inflation. “Wages,” he said, “and these are for hourly workers, are absolutely flat – no increases whatsoever in the last year and no increases planned going forward.” Poole continued, “About 20 percent of their associates are part time and that they are going to be increasing that share to 40 percent so they can staff at peak times and get more productivity out of their workforce.”

Just two months later, Poole offered some very different and shocking news, “My Wal-Mart contact also said that “Wal-Mart is in the process of raising starting wages in about 700 stores. This is the first time in eight years of talking with him that I’ve heard any comment like that. He said that some of the raises are part of the Wal-Mart, I’ll call it “Social/political” agenda because of all the controversy about Wal-Mart.” The FOMC transcripts are as close as we’re going to get to internal corporate dialogue without discovery or leaks. The reason I found this information is because Walmart has become a significant presence at the Fed; forecasters at the key Federal Open Market Committee meetings increasingly rely on what the retailer tells them about the economy. Now, FOMC transcripts aren’t released for at least five years, so we don’t know whether this strike is registering with those high level policymakers. But the last time there was a far less aggressive union-backed attack on Walmart‘s business practices, it did.

As for the strike, it is potentially one of the biggest stories of the year, a genuine challenge to the current economic order. Walmart has set the tone for the global economy, becoming a massive trading empire on the order of the British East Indies Trading company. Walmart has, as  New America scholar Barry Lynn argued in End of the Linereshaped the American corporate world. The key to Walmart’s dominance is the way that it electronically tracks all of its merchandise through an enormously efficient supply chain – the data Walmart has about who buys what and when is incredibly valuable to manufacturers. Beyond that, the size of Walmart – eight cents of every dollar spent on retail in the US goes through the company – means that selling at scale in the US means selling through Walmart. In order to sell there, though, Walmart walks into your company and dictates how you are to manufacture, price, and package your product. As Lynn writes:

Once set in motion, the shift of power and initiative from manufacturer to retailer tended only to accelerate. The more Wal-Mart learned about the operations of its suppliers, the more it was able to compare one supplier to another, to spot inefficiencies and demand fixes, to zero in on profit centers inside its suppliers. As time went on, Wal-Mart was able to dictate not only how its suppliers packaged and distributed their products, but what they manufactured, how they manufactured, how much money they made on their businesses, and indeed whether they would remain in business at all. Wal-Mart became not merely the market leader; in many senses, it became the market itself.

Rubbermaid and Newell, Kellogg’s and Keebler, Kraft and Nabisco, and Procter & Gamble and Gillette are all mergers forced by Walmart’s buying system. As Lynn notes, “Wal-Mart is so powerful that even many giant and long-independent producers—firms like Procter & Gamble and Unilever—dare not question its dictates.” The logistics revolution that has ripped through the American economy, de-industrializing the country and deflating wages, came through Walmart. This process brings low prices, but has also put the entire economy at risk with its lack of redundancy and concentration of key supply bottlenecks in unstable areas.

The company, not surprisingly, is also known for brutal tactics against workers. It is known for retaliating against employers who attempt to organize. Walmart employees often rely on food stamps and Medicaid, because of insufficient wages and lack of adequate health care. In 2005, according to St Louis Federal Reserve President William Poole, Walmart “observed among their own employees a reduction in health care utilization – that is, fewer doctors’ visits – but an increase in emergency room visits. Apparently employees are struggling some to make the co-payments and that kind of thing, again emphasizing the stress that exists in many lower-income households.”

It is also a huge political force - the company successfully fought off a massive gender discrimination suit struck down by the Supreme Court on technical grounds. New York Public Advocate Bill de Blasio unveiled the site Six Degrees of Walmart after the company was caught in a bribery scandal in Mexico (where it is the largest private employer). Deflating worker wages and weakening political constraints are core to the Walmart model, as important as pulling in products from China and forcing a restructuring of the American supply chain.

Beyond that, Walmart has become a significant contributor to macro-economic forecasting. I went through the transcripts of Federal Open Market Committee meetings for the Federal Reserve from 1999-2006, searching for Walmart. The FOMC is the key economic policymaking body in the central bank, making decisions about interest rates based on the discussions among the various officials at the Fed. Walmart was mentioned at every single meeting in 2006, often multiple times. In 2005, the company was mentioned at every meeting but one. In fact, Walmart has been a constant topic of discussion at the FOMC from 2001 onward. Because of its scale and remarkable amount of data, the company actually has more granular data about the economy than most macro-economic forecasters. As Fed Board Governor Randall Kroszner said in a June 2006 meeting, Walmart officials ”effectively know what retail sales are before the numbers are reported because their sales are so highly correlated with overall retail sales.”

Starting in 2001, the FOMC began relying more and more on Walmart in its discussions. In 2002, the company was mentioned in the context of a longshoreman’s strike and inflation. In May 2003, the Fed Governors looked to Walmart to see if there was a sales bounce due to the end of the war in Iraq (there wasn’t). In June, the FOMC began to gauge the macro-economic impact of inequality using advice from Walmart – Walmart officials “were not optimistic” that Bush’s second tax cuts would help sales, because the tax cuts went mostly to wealthy people who didn’t shop there. In 2004, Walmart began warning of high energy prices, and that consumers were “liquidity-constrained”. The company saw in its sales figures that consumers were increasingly living paycheck to paycheck. In 2005, the company began worrying about a “strange” situation – the consumer was tapped out, but sales were up and Walmart couldn’t figure out why. This was a hint of the credit bubble, but the Fed ignored it.

The company at this point isn’t just a key purveyor of lower labor standards and a globalized and concentrated supply chain, it is a key tell for policymakers. Walmart data was used by the Federal Reserve’s FOMC to understand labor markets, inequality, health care costs, supply chains, and inflation.  As the global recession began to come into view, one FOMC member noted, ”It’s certainly disconcerting to hear that one of the largest private institutions in the world – Wal-Mart – is missing its growth targets fairly significantly.” It is as if the new maxim had become, what’s good for Walmart is good for America.

In the 1950s, the so-called “Treaty of Detroit”, an agreement between government, business, and labor for ever increasing wages at automakers, set the tone for the next twenty years of political economy. From the 1970s onward, the new social contract was increasingly set, not just by companies like Walmart, but by Walmart itself. As a new social contract, let’s call it the “Treaty of Walmart”, emerged as a deal cut between the US government, the Chinese government, and global trading corporations, American society began to reflect a race to the bottom. This strike is thus worth watching – if Walmart loses some pricing pressure because of tactics that impact the company’s supply chain or ability to sell, we’ll be in uncharted territory.

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