Book: The Wal-Mart Effect by Charles Fishman

Good; reasonably objective, but not without flaws

Charles Fishman
The Wal-Mart Effect: How the World's Most Powerful Company Really Works -- and How It's Transforming the American Economy
Penguin, 2006
ISBN: 1-59420-076-9
262 pages

Near the beginning of The Wal-Mart Effect the author, Charles Fishman, tells us that he regularly shops there. That's a nice, humanizing touch and it also lets us put what Mr Fishman tells us into some perspective. Perhaps I should do the same. I don't shop there. Or, more exactly, I haven't yet. It's not a "religious" thing for me, I just haven't yet been in a situation in which Wal-Mart seemed like the best option for shopping. That may have to do with the fact that I live in Minneapolis, which is amply supplied with Target stores.

Everyone knows that Wal-Mart is big, but Mr Fishman reminds us just how big it is. He argues persuasively that the things the company does affect all Americans, whether they shop there or not, and that they affect many people in other countries. Mr Fishman tells us, among other things, that Wal-Mart is the world's largest private employer, that its sales are the equivalent of more than $2,000 for every American household, and that people make more visits to Wal-Mart stores every year than there are people on the planet. And Wal-Mart is not just big. It's a lot bigger than its competition. That's a potentially somewhat scary concentration of economic power. The Wal-Mart effect is large and pervasive and Mr Fishman generally does a fine job describing it.

It's not surprising that Wal-Mart's single-minded focus on delivering low prices started with the company's founder, Sam Walton. It is a bit surprising that, as Mr Fishman tells us, Mr Walton seems to have been no great genius, but rather an extremely competitive workaholic who took ordinary good retailing practices and applied them with considerable determination.

Wal-Mart delivers its low prices by keeping costs low, and Mr Fishman makes it clear that everyone at Wal-Mart is expected to work at that. Everyone knows that Wal-Mart salespeople aren't highly paid. But it's also true that Wal-Mart managers and executives work long hours. Indeed, Wal-Mart buyers' offices are routinely furnished with mismatched sample chairs that hopeful vendors have left behind.

Mr Fishman is also clear about the considerable good that Wal-Mart does for consumers. Vendors, under considerable pressure to keep their costs to Wal-Mart low, routinely find real efficiencies in their production and distribution systems. And the net benefits to society from finding those efficiencies are considerable, especially since Wal-Mart generally passes on almost all of its savings as lower prices to the consumer. That, of course, disproportionately benefits lower-income consumers because they spend proportionately more of their income on necessities of the sort that Wal-Mart sells. Even consumers who don't shop at Wal-Mart benefit because the same efficiencies generally apply to the vendor's production for all retailers.

Of course, it's not all sweetness and light. Under considerable and relentless pressure to reduce costs, some of Wal-Mart's vendors (and indeed, it seems, some of its managers) don't always have good ideas about increasing efficiency and instead resort to bad ones. Selling a gallon of pickles for $2.97 seems not to have done anyone much good.

The bad ides don't necessarily include moving manufacturing overseas. American manufacturing output has been rising for a long time. And American unemployment is currently low while labor-market participation is high. (That is, relatively few people are out of work and many people are in work.) It's true that fewer people work in manufacturing in America than once did, but that's an indication of efficiency. It used to take half of the America's population to grow its food and that made food much more expensive than it is now. Low unemployment suggests that the people who have lost manufacturing jobs have found other ones. Finding out just what jobs they have found and weighing the net benefit or disadvantage to society of the disruption felt by those people and their families against the advantages of cheaper products for everyone is beyond the scope of a book review. It might be the job of a very careful and clever economist or it might be a value judgment for an individual to make, but it's not just an issue of emotion. It would have been nice of Mr Fishman had made more of an effort in that direction. The book ends with a transcript of a discussion among people who lost their jobs at a lawn-sprinkler manufacturer when it moved most of its manufacturing to China, largely it seems because of price pressure from Wal-Mart. No one can avoid being affected by that conversation. By that time the reader gets to that part of the book, the discussion of the numerous small advantages that accrue to a very large number of people way back at the beginning may not be fresh in the reader's mind. Most of Mr Fishman's analysis is better than that.

Still, there are other flaws in some criticisms of Wal-Mart that Mr Fishman repeats. It seems that the factories in developing countries that supply Wal-Mart pollute more than factories are allowed to in America. But it appears, in general, that people become concerned with their environment after they have reached a certain level of income. It may be that the best way to affect developing countries' environments for the better is to keep buying their products.

There's also an issue with the criticism of Wal-Mart's suppliers' using "sweatshop" labor. Mr Fishman makes much of two Bangladeshi women who had worked for a Wal-Mart supplier and were brought to America to discuss their working conditions by the National Labor Committee, a pressure group. There are two possible flaws in the discussion. The first is that the workers' salaries as quoted don't seem to have been adjusted for purchasing-power parity (PPP). That is, one worker, Robina Akther, said that she earned $26.98 a month. But of course, that's not literally true. Her salary would have been in taka, the Bangladeshi currency. It would be literally true to say that her salary was the equivalent of $26.98 a month. But even though literally true, that's not a very informative statement. That's where PPP comes in. Quoting Ms Akther's salary in dollars isn't very informative because her expenses weren't in dollars. Especially in a developing country such as Bangladesh, costs for some things such as food and shelter are often lower than they are in America. Adjusting for PPP when quoting incomes in developing countries helps to give numbers that are actually comparable to developed-country incomes. The adjustment is not huge. It doesn't make someone who seems poor appear rich. But it routinely does make someone who seems poor appear perceptibly less poor.

I do not mean to suggest that I think that Ms Akther was paid well by the factory that she worked for. And the physical abuse that she seems to have endured there is inexcusable. But if Mr Fishman had done his analysis a little more carefully, it would have been more persuasive. The second flaw is that Mr Fishman doesn't report what Ms Akther was doing before she chose to go to work for the factory.

It's not that Mr Fishman can't discuss issues of economics well. There is, for example, a fascinating section on the difficulties inherent in calculating the consumer price index. Still, it's hyperbole when he says, "Wal-Mart isn't subject to the market forces because it is creating them" (p. 236).

Mr Fishman is surely right when he points out that Wal-Mart has needlessly bad public relations. The company doesn't seem to be very good at getting its own story out. The relentlessly cheery site seems rather short on actual facts. Indeed, the company seems to be tight-lipped almost to the point of paranoia. But near the end of the book, Mr Fishman argues that Wal-Mart should be forced to reveal more information about its business so that it can be regulated more. Perhaps that paranoia isn't so irrational.

There's a tiny editing error in that there's "due" where "do" is wanted on page 204.

Posted: Thu - April 20, 2006 at 08:11   Main   Category: