Wal-Mart & CAFTA
Defending bad trade
July 15, 2005
MYTH: Wal-Mart is a great family company that does great things for this country
The sudden death in a plane crash last week of John Walton at the age of 58 provides an opportunity to reflect on some of the great things that he and his family have done for America .
...On the business side, Wal-Mart offers Americans a bewildering array of decently made products at reasonable prices and hundreds of thousands of steady jobs that pay more than minimum wage. But so-called community activists are unhappy with the way these "big box" stores give "mom and pop establishments" a run for their money. Labor unions meanwhile are infuriated that Wal-Mart's employees are not organized, that many work only part-time without benefits, and that full-time wages are often less than what union workers make.
...
John's sister, Alice, just purchased Asher B. Durand's "Kindred Spirits" (1849), which depicts Thomas Cole, the founder of the Hudson River School of painting, with the poet William Cullen Bryant. The two stand along a rock ledge, a tree arching above, a river tumbling below and a hilly vista stretching to the horizon. It's as if, looking out on the scene and imagining America 's great potential, they can almost see a Wal-Mart rising in the distance.
-- Editorial, "An American Family," The Wall Street Journal, 7/8/05
REALITY
Polianna is sympathetic to any person who loses their life prematurely. The Walton family has certainly suffered a great tragedy with the death of John Walton, the son of Wal-Mart's founder. However, this misfortune should not cloud America 's thinking enough to convince it that Wal-Mart is a noble enterprise, because it is not.
Wal-Mart is evil, but it does not have to be. Wal-Mart, as it exists today, is not a friend to anyone, not to its employees, the people who manufacture their products, or the communities that the stores move into. Wal-Mart forces other businesses, including small mom-and-pop local businesses, to try and compete with their low prices, which are a result of the enormous economies of scale it enjoys from its position as the largest retailer of goods in the world.
The more distressing trend, however, is the manner in which Wal-Mart treats both its employees and suppliers. Wal-Mart has been accused of employing illegal immigrants to clean its stores. One major claim of groups opposed to companies employing illegal immigrants is that such employment drives down wages for everyone else. The average retail wage in a small community is $12/hr . The average wage for a Wal-Mart employee is $8/hr . What happens to the retail establishments that on average pay their employees $12/hr but now have to compete, in terms of price levels, with a business that only pays its employees $8/hr? That $4/hr difference spread across all employees can add up to a huge cost-base difference. Wal-Mart also is notorious for not allowing the formation of unions in its stores or extending good heath care to its employees.
At the very least, Wal-Mart should attempt to pay its employees a living wage . The current poverty line for a family of four in the United States is an income of $19,350 a year; for an individual is an income of $9,570 a year. If a person works at Wal-Mart and earns an average Wal-Mart wage of $8/hr, this person will make $16,000/yr, assuming they take two weeks of vacation a year and work 40 hours per week. This means that as soon as your household is comprised of more than 2 people, working at Wal-Mart as a means of supporting yourself will not provide you with an income that will move your family out of poverty. Even if a household is comprised of 2 Wal-Mart workers who work full-time, their yearly combined income will still only earn $32,000. If this couple has children, part of this money will most likely have to go to pay for daycare or baby-sitting, since one of the parents will no longer be able to stay home with the children. Also important to note is that Wal-Mart does not generally supply its workers with health care benefits . Less than half of all Wal-Mart workers are eligible to receive health care benefits from the company. If one of our Wal-Mart workers is eligible for health care, the family will still have to pay $218 per month to receive family coverage. Assuming this is pre-tax money, the family health care payments will drop the family's available income to $29,284/year, with health care deductibles still ranging from $350 to $3,000. For comparison's sake, roughly 66% of employees at comparable national companies like Wal-Mart receive health care from their employer.
By contrast, Costco , the wholesale giant, pays a starting wage of $10/hour, with full-time workers able to make $40,000/year within 3 years of starting work at Costco. Therefore, even if a full-time Costco employee only makes the starting wage, this employee will still get an annual wage of $20,000, which would put that employee over the poverty line for a family of four. Costco also provides 82% of its employees with health care, while also picking up 92% of the cost of health care premiums. Which company would you rather work for?
Aside from the benefit that employees would receive from Wal-Mart's paying of higher wages, Wal-Mart itself would see returns. Going back to the Costco comparison, Costco -- with its health care coverage, higher wage, and lower health care premiums -- had a 24% employee turnover rate in 2003. Wal-Mart, with it's below poverty wages, pray-you-don't-get-sick-health-care, and blocking of labor unions had a 50% employee turnover during that same period. Which workforce do you think is going to be more productive for the company--the one that is steady and there for the long-haul or the workforce that is always tied up in new-employee training? The same is true of for the health care coverage and higher wages. Costco employees are less apt to be seriously ill and they are also less apt to have second jobs to supplement the low income of their first job. All of this adds up to employees being more present and more productive in the workplace.
The other major concern with Wal-Mart is the relationship that it has with its suppliers. Or, to put it more bluntly, the age, composition, and working conditions of its suppliers. In a very public manner in 1996, it was revealed that Wal-Mart's Kathie Lee clothing line was predominantly manufactured in a sweatshop in Honduras that was staffed by 13-15 year old girls who worked 75 hours a week for $0.31/hr. In the almost 10 years since this realization, Wal-Mart has done little to change this labor practice.
Americans have the right to shop in any store they wish, but they should be aware of what they are supporting when they spend money at a certain retailer. An American shopping at Wal-Mart supports below-living wages and a lack of adequate health care for its employees, the employment of illegal immigrants, and the use of sweatshop labor to manufacture its products. If this is what Americans want to support, they should have the right to do it. But purchasing affordable consumer goods should not be based on exploitation and intimidation.
MYTH: DR-CAFTA should be embraced by both sides of the aisle as great trade policy; any Democrat opposing DR-CAFTA is just trying to make W look bad
Nafta was one of the former President's signature achievements, and free trade one of the issues he used to define himself as a New Democrat. But last week only 10 Senate Democrats found the nerve to support Cafta, as opposed to 27 who voted for Nafta in 1993. Support among House Democrats looks even worse, with 10 or fewer expected to support Cafta when it comes up for a vote this summer, compared with 102 who backed Nafta.
...Just as startling is which Senators voted against free trade with our southern neighbors. They include Joe Biden, who is often lauded as a statesman-internationalist; Chris Dodd, the self-avowed friend of Latin American democracy; Evan Bayh, the alleged heir to the New Democrat mantle; Jon Corzine, who made a fortune from free global capital markets at Goldman Sachs; and John Kerry, who lost last year's election in part because voters suspected he wasn't what he claimed to be (e.g., a free trader).
...Why this protectionist turn by Democrats? Opponents claim that this deal is somehow worse on labor and environmental protections than Nafta and other bilateral trade accords, but in fact any differences are nominal. If anything, the Bush administration has made too many protectionist concessions to U.S. sugar growers, among others, in an attempt to appease Democratic concerns.
...A more honest explanation may be pure partisanship, as Democrats hope to deny President Bush a legislative victory. But this is still troubling, since trade has long been more of a regional than partisan issue.
-- Editorial, "Democrats and CAFTA," The Wall Street Journal, 7/9/05
REALITY
As we pointed out last week, CAFTA is one of the most disputed trade agreements in recent history with opponents on both sides of the aisle. Since Democrats were openly shut out of the negotiations, the administration have relied on pork to gain support. Democrats should not be faulted for voting against a piece of bad legislation. Isn't that how a "democracy" is supposed to work? Elected officials voting for legislation based on what is in the best interests of their constituents? Looking at the list of Democratic senators who voted against DR-CAFTA, many of whom have demonstrated interest in international affairs and aiding disadvantaged populations, should the assumption be that these senators voted against DR-CAFTA because it is bad legislation and not because they are trying to make W look bad?
The Wall Street Journal, in addition to other media outlets, has tried to pass DR-CAFTA off as the next generation NAFTA. If Republicans were nice enough to pass President Clinton's NAFTA, then Democrats should be willing to pass W's DR-CAFTA, because it is the exact same thing. This is not true.
First, let's dispel the notion that NAFTA has been an unqualified success. It hasn't. Many groups contend that NAFTA hasn't done anything to help trade for any of the three parties. Other people suggest that NAFTA has actually been a negative for the participants, with US companies relocating manufacturing to Mexico to take advantage of cheaper labor. Pro-Mexico groups have argued that NAFTA has been a relative failure for them, because the promised markets for Mexican goods have not been opened in the United States. In addition, some environmental and labor laws have been circumvented by NAFTA.
Building on NAFTA's flaws, DR-CAFTA has added many flaws of its own. (See last week's PoliAnna debunker). Problems do exist, including the lack of labor standards in some of the included countries and the agriculture-heavy nature of the legislation. The contention that senators voted against DR-CAFTA to make W look bad is ridiculous. If nothing else, it exposes an inherent weakness of the right-if legislation is bad, don't point out its faults and generate a healthy public discussion, just bully the Democrats who have the smarts to say no.
