To change Wal-Mart, first change America

Joseph Nocera
The New York Times

At the turn of the last century, a new phenomenon arose in America: the supermarket chain store. The most dominant such chain was the Great Atlantic and Pacific Tea Co., known as A&P. By 1930 it had become the fifth-largest corporation in the United States, with $1 billion in sales, and was "opening stores at a rate unprecedented in the history of American retailing," according to Richard Tedlow, author of "New and Improved: The Story of Mass Marketing in America."

The New York Times described A&P that year as "the world's greatest retailing machine." Its president, John Hartford, attributed the company's success to its policy, as the Times put it, "of immediately passing on reductions in wholesale commodity prices to the consumer." Under Hartford, writes Tedlow, "A&P had one dominant mission: to sell quality food at low prices."

Of course, the rise of A&P had other consequences as well. When A&P came to town, it usually meant that most of the mom-and-pop grocery stores went out of business. Food wholesalers got squeezed, and were sometimes cut out entirely, as A&P took ever greater control of the supply chain. And the company's emphasis on keeping prices low for its customers meant that it was ruthless about keeping wages low for its workers.

You can guess what happened. Unions agitated, sometimes violently, to organize A&P's poorly paid workers. Laws were passed intending to prevent the big supermarket chains from getting price breaks from manufacturers that small grocers could not get. More than half the states enacted "chain taxes." And anti-chain store rhetoric flourished. "We can whip these chain stores," one populist radio commentator used to proclaim. "We can drive them out in 30 days if you people will stay out of their stores."

But people didn't stay out of the stores. Instead, they kept shopping at A&P even though it meant that some of their neighbors lost their businesses, and others worked for low pay. In time, the opposition to the big supermarket chains faded away, and they became part of a commercial landscape we now completely take for granted. The desire for low prices trumped all other considerations. In America - unlike in, say, Europe - it always does.

These days, there is another huge chain-store phenomenon that finds itself under populist attack: Wal-Mart Stores. For most of its existence, the company was lauded for its low prices, its astonishing logistical capabilities, its rah-rah culture, and its rising stock price. There was a widespread feeling, shared by Wal-Mart's management, that it was doing God's work in making goods affordable. Indeed, a reasonable argument can be made that over the last 10 or 15 years, Wal-Mart has done more to keep inflation in check than Alan Greenspan. The chairman of the Federal Reserve can't force Procter & Gamble to roll back a planned increase in the wholesale price of toothpaste. Wal-Mart can, and it does.

But now that Wal-Mart vies with ExxonMobil as the largest company in the United States, with more employees than the U.S. Army, the worm has turned. Instead of embracing Wal-Mart, many communities now fight to keep the company out. Groups like Wal-Mart Watch have sprouted, bent on exposing the company's evil ways. Wal-Mart's low wages - less than $10 an hour, on average - and stingy benefits - employees often have to rely on Medicaid, the U.S. public health insurance plan for the poor, because they can't afford the company's health plan - have galvanized union activists.

Just a week ago, for instance, Wal-Mart Watch, which is allied with the unions, got ahold of an internal Wal-Mart memo, which it leaked to The New York Times, fretting about rising health care costs and suggesting the possibility that the company might start "discouraging unhealthy people from working at Wal-Mart," as The Times put it. And this past week, a new anti-Wal-Mart documentary, entitled "Wal-Mart: The High Cost of Low Price," opened in movie theaters in New York and Los Angeles.

The documentary, which I saw on DVD earlier in the week, is of the Michael Moore variety. A polemic designed to enrage viewers, it catalogues all of Wal-Mart's alleged sins, from forcing small businesses to close, to paying so little that its workers need public assistance to buy food, to its supposed reliance on Asian sweatshop labor.

Not surprisingly, Wal-Mart refused to cooperate with the film, but the movie's producer and director, Robert Greenwald, made no effort to find anyone who was remotely sympathetic to the company. The background music turns melancholy as each Wal-Mart victim tells his or her sad story.

For taking this approach, Greenwald makes no apologies. "Here is a corporation with $10 billion in profits and it's screwing over two big parts of the country: its work force and all these communities," he said a few days ago. "It's not right." (Wal-Mart's profit in 2004 was $9.1 billion, but who's counting?) The film will be shown in a few dozen theaters around the United States, but Greenwald's real strategy is to sell DVDs for $12.95 to activists who will screen it in an effort to gain more converts to the cause. "This is not a model for maximizing profits," Greenwald said proudly. He struck me as the modern equivalent of the radio populists during A&P's heyday.

So far, Wal-Mart's efforts to rebut its critics have been largely inept. On Tuesday, for instance, it sent its director of corporate affairs, Mia Masten, to New York to try to counter the film, which was being screened that night as a fund-raiser for a group called Wall-Mart Free NYC.

But no one at Wal-Mart had actually seen the movie, so Masten was reduced to mouthing platitudes, which she did both nervously and unconvincingly.

On Friday, the company held a conference for academics and journalists to examine Wal-Mart's impact on the U.S. economy. Although some of the papers presented at the conference are mildly critical of the company, the centerpiece was a study by the economic research firm Global Insight that purportedly shows, to quote the headline of the Wal-Mart news release, that "Wal-Mart Saves Working Families $2,329 Per Year." That may be true, but the fact that Wal-Mart paid for the study will undercut its ability to persuade anyone not already in its camp.

Here's the thing, though. Whatever you might think of its tactics, its wages, its effect on local communities, and its economic power, Wal-Mart has largely played by the rules that society has set out for it. That's what the anti-Wal-Mart folks tend to leave out of their analysis. "Wal-Mart has devised an extremely efficient way to deliver low prices to consumers and good returns to shareholders," said Robert Reich, a professor at Brandeis University. "That is American capitalism," he added. "That is what the system rewards."

Reich, who was Secretary of Labor under President Bill Clinton, doesn't even blame Wal-Mart for the fact that its workers often need to rely on Medicaid for their health insurance. That program, he said, "is designed for the working poor and the poor. If we are not happy about the results, then the real question we ought to be asking ourselves is whether we should be changing the rules. Wal-Mart is an invitation to have that debate."

The new documentary has a number of short clips showing the Wal-Mart chief executive, Lee Scott, speaking to investors, employees and others. In one clip, he says quite bluntly that the company can't raise wages without cutting into the profits that its shareholders expect it to generate. That may sound awfully harsh, but it is undeniably true. In America, the economic culture exalts "shareholder value" above pretty much everything else. Can you really expect Scott and his company to turn its back on that?

Similarly, what was true 70 years ago remains true today: Americans could shut down Wal-Mart, and allow small local stores to thrive, by doing one simple thing: shopping at the latter instead of the former. But Americans don't do that, and for the most basic of reasons: They care about low prices above all else. That is what the U.S. economy is built around. The growth of Wal-Mart is a direct result of its understanding of that fundamental fact.

Does America really want to change Wal-Mart? If the answer truly is yes, then Americans need to change themselves first.