Nickdfresh
06-15-2005, 02:42 PM
From PBS' FRONTLINE: Is Walmart Good For America? (http://www.pbs.org/wgbh/pages/frontline/shows/walmart/)
trade with china: expectations vs. reality by ned barker
A closer look at the debate over U.S. trade with China: What has been the result of permanent trade relations and China's entry into the World Trade Organization, how much does the trade deficit matter, do the Chinese have unfair advantages and what's the outlook going forward?
In the late 1990s, Washington was a sharply divided political city, but there was a growing consensus on one big issue. Most Republicans and Democrats agreed that trade with China would be a boon for America.
President Clinton summed up the mainstream consensus in Washington with a message to Congress in the spring of 2000. In a letter circulated to House members, he wrote, "China with more than a billion people is home to the largest potential market in the world… If Congress makes the right decision, our companies will be able to sell and distribute products in China made by American workers on American soil, without being forced to relocate manufacturing to China. …We will be able to export products without exporting jobs."
Clinton was pushing Congress to permanently normalize trade relations with Beijing, helping to ease China's entry into the World Trade Organization (WTO). Big business was furiously lobbying Capitol Hill in favor of the legislation. It saw China, with its 1.2 billion consumers, as a vast new emerging market and many parts of Corporate America wanted a piece of the action.
Just weeks before the legislation received the president's signature, Robert Burt, chairman of the Business Roundtable, an association of CEOs of leading American corporations, spoke boldly about the future. "This historic legislation will be remembered as the key that opened the door for America to sell its products and services to the world's largest emerging marketplace," he declared.
Other executives around the U.S. were equally strong in supporting U.S. trade with Beijing, and China's efforts to get into the WTO because they reasoned that China would then be required to play by the same trading rules as the WTO's other members. Moreover, as Europeans rushed to do business in China, American corporate captains did not want to be left behind. They worried that unless the U.S. backed the move, they would lose out to the Europeans, a worry Chinese officials played upon effectively from time to time during the 1990s.
On Capitol Hill, legislation to normalize trade with China got overwhelming bipartisan support in the Senate, where it passed, 83 votes to 15. Even in the House, where Democrats were split on the issue, the president received support from three-quarters of the Republicans, and the legislation passed by a wide margin, 237 to 197.
President Clinton signed the legislation at the White House in early October, and China joined the WTO 14 months later, on Dec. 11, 2001.
So How Did the U.S. Trade Opening with China Work Out?
For many, America's trade with China has not lived up to the enthusiastic advance billing from the Clinton administration, its Republican supporters on Capitol Hill and Corporate America.
Expanded trade with China has, in fact, been a blessing for large U.S. multinationals like Boeing, Caterpillar, and Cargill, which had trumpeted the prospect of a massive Chinese market for American products and services. China is the world's fastest growing market for commercial aviation, and needs billions of dollars worth of airplanes from Boeing. Its growing infrastructure has been a boon for companies like Caterpillar, which produces tractors and other heavy equipment. And it is importing billions of dollars worth of farm products, a boon to companies like Cargill. Last year, China bought $2.9 billion worth of soybeans -- the top U.S. export crop to China. China also has proven to be a growing market for U.S.-made fertilizer and chemicals.
But China has been a tougher market to crack for smaller and mid-sized American companies, like those selling bicycles, vacuum cleaners, and lawn mowers, who face stiff price competition from Chinese manufacturers of these products. And they also face discriminatory rules, burdensome red tape, language difficulties, and a population that earns only a fraction of what U.S. consumers make, and therefore lacks the purchasing power to buy consumer goods made in America.
Yvonne Smith, the communications director at the Port of Long Beach, literally sees the imbalance in U.S.-China trade. She reports that through Long Beach alone, the U.S. is importing $36 billion in goods yearly from China and exporting just $3 billion. By her account, the mix of products is very unfavorable to the U.S.
"We export cotton, we import clothing," Smith reports. "We export hides, we bring in shoes. We export scrap metal. We bring back machinery. We're exporting waste paper, we bring back cardboard boxes with products inside them."
Overall, the U.S. trade deficit with China reached a record $124 billion dollars in 2003 and the figure is headed even higher this year. Today, U.S. imports from China outpace U.S. exports to China by more than five to one, and the deficit shows no signs of abating.
These deficits are much larger than the trade deficits that the United States experienced in the 1980s and 1990s with Asian trading partners such as Japan. Put in historical perspective, America's current trade deficit with China is roughly double what it was at its height with Japan in the mid-1980s, when trade frictions between the U.S. and Japan led Sen. Lloyd Bentsen (D-Texas) to famously declare on the floor of the U.S. Senate: "We're in a trade war, and we're losing it."
Does the Trade Deficit with China Matter?
Economists disagree about the significance of the U.S. trade deficit with China. The U.S.-China Economic and Security Review Commission, a 12-member panel set up by Congress several years ago to report annually on our relations with China, says the burgeoning trade deficit is a matter of "long-term economic health and national security" for the U.S.
Conservative economist Paul Craig Roberts, who served in the Reagan administration, predicts the trade deficit will cause a crash of the U.S. dollar before long, and warns that the U.S. will wind up having a third-world economy, supplying raw-materials to other countries, who then ship back finished goods to the U.S. Economist Larry Mishel, president of the liberal Economic Policy Institute, contends that the trade deficit with China has cost the United States more than a million jobs over the past decade.
But free-traders like Washington Times columnist Bruce Bartlett argue that the U.S. can afford high trade deficits with countries like China because China and other countries from which we buy consumer goods turn around and invest roughly $500 billion a year of their capital in the U.S. economy.
"Economic theory tells us that if we ever reach the point where it becomes a problem, there is an automatic adjustment mechanism, which is that the dollar will fall in value," Bartlett says. "When the dollar falls, then that makes U.S. exports cheaper on the international market in terms of foreign currencies and it makes imports more expensive in terms of dollars."
Brink Lindsey, economist and vice president for research at the libertarian Cato Institute in Washington, adds that the bilateral trade deficit with China should not worry Washington. "Bilateral trade deficits don't matter at all -- except politically," Lindsey asserts. "It's an eyesore, politically, that we sell less to China than we buy. And it drives up protectionist pressures, so in that sense it's something to be concerned about. But as far as economic fundamentals, the fact that we run a trade deficit with China doesn't particularly matter. What matters is our overall trade balance."
However, it is the overall trade balance, now running at more than $500 billion a year, that worries some on Wall Street, as well as economists such as Larry Mishel.
"We have a trade deficit now that's running around 5 percent of GDP," says Mishel. "This is very large by historical standards, and you run the risk of foreign investors losing confidence in the United States, pulling back from the dollar, the exchange rate falling, and interest rates rising, and all that could cause a major recession in the United States."
Another reason for concern about the trade deficit with China among American industrialists and the U.S. labor movement is the size of China's massive population. With a workforce that is far larger than the combined populations of Japan, Korea and the other so-called "Asian Tigers," China is fast becoming the world's primary factory, producing everything from footwear, clothing, furniture, toys, and computers to big-screen television sets, lasers, space components and huge port cranes.
Analysts concerned with long-term U.S. economic security see China's seemingly inexhaustible supply of cheap labor, coupled with the Chinese government's commitment to a rapid development strategy and the movement of Chinese industries into high-tech sectors, as posing a long-term threat to American producers across the board.
Is There a Level Playing Field?
Some critics of U.S. trade policy with China complain the main problem is that the commercial playing field is tilted toward China. Alan Tonelson, a research fellow at the U.S. Business and Industry Council, an association of small and mid-sized businesses, says the Chinese government gives its companies huge advantages. "They subsidize land costs," he says. "They forgive taxes, they subsidize fuel costs, and they also give a subsidy when you export. We don't subsidize exports at all. We don't subsidize production."
Many American trade lawyers agree with the U.S.-China Economic and Security Review Commission, which gives China poor marks on living up to its trade obligations under rules of the World Trade Organization, and urges the Bush administration to pressure Beijing on a number of issues, including the country's exchange rate policies, which has a big impact on the cost of its exports.
China's currency, which is pegged to the U.S. dollar, is a major point of contention with many U.S. manufacturers and trade groups. Skip Hartquist, an attorney at Collier Shannon Scott, a Washington law firm that specializes in international trade matters, estimates that Chinese manufacturers get an unfair advantage because the Chinese currency is undervalued by about 40 percent, making Chinese products much cheaper for Americans to import. Many American manufacturers share this view.
Americans in industry and in Congress are not alone in calling on China to revalue its currency and let it float freely on the market. The International Monetary Fund appealed in September for the Chinese to uncouple the Chinese yuan from its fixed rate to the dollar. Rodrigo de Rato, the IMF Managing Director, declared: "There should be more flexible currencies, not only for China but the whole of Asia."
Privately, the Bush administration has added its voice for Chinese currency revaluation, but without pressing the issue vigorously in public. Some administration economists fear a run on the yuan and a bank collapse in China if exchange rates are altered too quickly.
Is Chinese Dumping Hurting U.S. Industry?
Another major source of friction between the U.S. and China has been the fairly frequent American charge that Chinese producers are guilty of dumping -- that is, producing exports and selling them in the U.S. below the price in China, or below what it costs to manufacture and ship abroad.
In recent years, U.S. companies in a variety of industrial sectors have brought trade complaints to the International Trade Commission (ITC), an independent, nonpartisan, quasi-judicial federal agency in Washington that provides trade expertise to both the legislative and executive branches of government, determines the impact of imports on U.S. industries, and directs actions against certain unfair trade practices, such as patent, trademark, and copyright infringement. The American companies have accused Chinese companies of dumping everything from shrimp to household goods like brushes and plastic bags, from tissue paper and bedroom furniture to color television sets.
"It's not a matter of China versus the U.S.," says Hartquist, who has represented several American companies in anti-dumping cases against the Chinese. "It's a matter of the Chinese producers are pricing their products in a manner that simply doesn't allow anybody else in the world to compete with that, and that's not fair," he says.
Earlier this year, the ITC gave relief to a company Hartquist represents, Five Rivers Electronic Innovations, located in Greeneville, Tenn. It employs more than 700 workers, and is the last American-owned color TV maker in the U.S.
In May 2003, Five Rivers filed an anti-dumping petition in Washington, charging that color television makers in China were illegally dumping their larger-sized color sets in the U.S., thereby threatening to put Five Rivers out of business. The company tracked TV imports from China and found that sales of the Chinese televisions skyrocketed from just over 50,000 sets in 2001 to 1.5 million sets during the first nine months of 2003.
Last December, Five Rivers CEO Tom Hopson told a congressional committee, "Imports of large screen TVs from China have created havoc in the U.S. marketplace. In my 24 years in the television business, I have never a similar or more worrisome situation."
In May 2004, the ITC unanimously agreed that the surge of these imports from China had injured Five Rivers, and then imposed duties averaging about 23 percent on these sets.
Hopson says without the decision, Five Rivers would have gone out of business. "I strongly believe that we would have already closed this factory," he says. "Had we not found the data … we would have looked very strongly at … laying our employees off."
The Current Political Debate in Washington
Although the ITC is an important forum for resolving individual trade disputes, it does not set U.S. trade policy. The White House, the Department of Commerce, the U.S. Trade Representative, and Congress are the leading policy players, and in the four years since President Clinton signed the permanent normal trade relations agreement with China, Republicans and Democrats have clashed over how to implement it.
Sen. Fritz Hollings (D-S.C.) and Rep. Sander Levin (D-Mich.), a leading member of the House Ways and Means Committee, have charged President Bush and his administration with a lax approach to trade with China. Hollings has warned of the imminent collapse of the Carolina textile industry under the pressure of Chinese competition. Levin has called on the administration to publicly cite China for manipulating its currency, police China's adherence to trade agreements more vigorously, and trigger various safeguard provisions designed to protect American industries.
"We have failed to make trade more of a two-way street," Levin asserts. "There is within the administration … the thought that the more trade the better, and it doesn't matter how it is done. It's a kind of hands-off approach to trade."
Republicans from rust-belt states like Ohio and Pennsylvania have also urged more vigorous defense of U.S. manufacturing. Sen. George Voinovich (R-Ohio) has bemoaned his state's double-digit job losses in manufacturing in the last few years, and he has introduced legislation calling for a more aggressive approach by the U.S. Treasury Department in dealing with China's currency practices. Rep. Phil English (R-Penn.) has introduced several bills to give the Treasury Department, the Department of Commerce, and the U.S. Trade Representative new tools and more authority to level the economic playing field with China.
In response, the Bush administration and its supporters have pointed to the benefit to American consumers from a flood of low-cost Chinese imports.
"We tend to focus on the cost, that imports clearly are a challenge to U.S. businesses that compete against those imports, says Brink Lindsey of the Cato Institute. "But we can't forget that those imports didn't just wash up here on American shores unbidden. They came here because people wanted to buy them," he argues.
In addition, the administration has taken action to aid U.S. apparel makers recently by limiting Chinese imports of knit fabrics, robes and bras. Earlier this year, it filed its first formal complaint against China at the WTO, accusing Beijing of giving illegal rebates to domestic semiconductor producers -- tax breaks that weren't available to exporters of these products to China.
In March, U.S. Trade Representative Robert Zoellick issued a statement asserting that, "As a WTO member, China must live up to its WTO obligations; it cannot impose measures that discriminate against U.S. products." The issue was soon resolved when China agreed to end the practice of illegal rebates to Chinese semiconductor producers.
On larger issues, such as the charge that the Chinese government is manipulating its currency to gain a trade advantage, the administration has moved cautiously. Treasury Secretary John Snow is reported to have raised the currency issue in high-level private talks, but the administration has been hesitant to press the Chinese hard, arguing that quick currency changes could upset China's precarious banking system.
On another tack, the administration has tried to reduce the trade deficit by trying to boost U.S. exports to China. Exports have increased significantly in the past few years, but not nearly as much as the flood of Chinese imports to the U.S.
What's the Outlook?
Controversy over the issue of trade with China seems destined to sharpen in the second Bush administration, as America's trade deficit with China rises still further and as more industries are hit by competition from China.
The single most significant challenge that looms immediately on the economic horizon is the scheduled lifting of worldwide textile quotas at the end of 2004. American textile experts and other economists warn that once the quotas are gone, China's cheap labor market will act as a magnet, drawing in millions of textile and apparel jobs from around the world, and eliminating hundreds of thousands of jobs in the U.S. at companies making products as diverse as sheets, towels, pillowcases, t-shirts, and socks.
Some U.S. textile groups predict a flood of trade cases in Washington to try to prevent the shift in U.S. jobs before it gains dangerous momentum. Retailers and importers, however, say protectionist moves won't help workers. They contend that in the long run, such measures will only hurt consumers.
Others, such as Alan Tonelson of the U.S. Business and Industry Council, argue that the U.S. needs to change course and raise trade barriers. "We have to recognize that our trade and manufacturing crisis has become so grave that we have no choice but to start thinking seriously about restricting trade in various ways," Tonelson asserts.
He contends that the majority consensus on the benefits of trade with China was wrong a few years ago. "China had too much production power and too little consumption power to be digested into the world trading system all at once," he says. To Tonelson, this is why the U.S. is hemorrhaging jobs to China.
Free-traders like Brink Lindsey of the Cato Institute take issue with that assessment. "Trade policy, or trade flows, one way or another don't have an effect on overall employment numbers," says Lindsey. "They affect the kinds of jobs we have. And so some number of jobs have definitely been eliminated because of Chinese competition. Elsewhere in the economy, other jobs have been created because of Chinese competition. Because American consumers have saved at Wal-Mart buying Chinese goods, they've got more money in their pocket to buy something else, which creates business opportunities for those other business, which means they hire workers they would not have hired, otherwise. The net effect, most economists think, is a wash."
But there is no consensus on that view either. "Theoretically, the gains from trade offset the losses from trade," observes Larry Mishel, president of the Economic Policy Institute. "But nothing says there were more winners than losers, and nothing says that for the bottom three-fourths of America that they are net gainers. In fact, I believe that most people have been losers from trade."
Ned Barker is the associate producer on "Is Wal-Mart Good for America?"
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/china/trade.html
Nickdfresh
06-15-2005, 03:25 PM
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/art/lehmanp.jpg
Jon Lehman worked for Wal-Mart for 17 years, managing six stores in four different states before he left the company in 2001 to work for a union trying to organize Wal-Mart employees. In this interview, he recounts how he became disillusioned with the company's focus on profit, and why he feels that the current management has strayed from the principles of Wal-Mart founder Sam Walton. Lehman also describes how Wal-Mart developed its efficient supply chain, how Wal-Mart's buyers negotiate with manufacturers to drive down costs, and when he first noticed Wal-Mart's importing low-cost goods from China. This transcript is drawn from two interviews with Lehman, conducted on June 4 and Oct. 7, 2004.
.. Talk for a minute, from the perspective of somebody who was inside Wal-Mart. What is [its] logistical system? What is this supply system like? Why does it work? Why is it important? Why did it drive Wal-Mart's success to the extent that it did?
To give you some background about this, back in the '80s, most of the merchandise that Wal-Mart was receiving in their stores was ship-and-bill, ship-and-bill meaning you order it today, invoice it, you get it two weeks from now. And as the company picked up volume and velocity and the merchandise that they were selling, their sales took off. The company had to figure out a way to cut those lead times from two weeks to a week to three days.
Now they've got the lead times on warehouse merchandise. You order something like a tube of toothpaste today, it's automatically ordered through the point-of-sale system, and you have it tomorrow night on the shelf.
I think a lot of that was through the genius of a guy named David Glass, the CEO for several years. He kind of brought that to the company, and that's, I think, why [Wal-Mart's current CEO] Lee Scott is in the position that he's in today, because logistically, these guys are geniuses. They know how to move goods, and they know how to put pressure on manufacturers to move goods.
So what is it David Glass did as CEO?
Well, David Glass, I think, was responsible for bringing technology to the company when the company was back in the Dark Ages, when they had the old banger registers where you had to punch in the numbers. And now they went to scanning. I think back in the late '80s is when they retooled the stores 100 percent.
To bar codes?
To bar codes, [yes]. ...
... What do you get from a bar code when you're running Wal-Mart or a Wal-Mart store?
Well, the amount of merchandise now that you can get through the computer systems and bar codes, universal product codes, is -- believe it or not, you can track sales on specific items, specific weeks, specific days, specific hours of the day, when you sell merchandise the most. You can find out what size of toothpaste is your best seller, what times of the year you sell that toothpaste. You can track sales spikes during the year, during certain seasonal periods and --
Clothes.
It's incredible.
Sizes of clothes.
Clothes, sizes, colors, flavors -- all of those things. It's really incredible.
So what does that mean? ... Step back and describe how this thing operates. ... What happens when a sale is made?
OK. Well, let's talk about [cat food]. Let's say you have a cat, and your cat likes tuna-flavored 9 Lives or something. So you go to the counter, and you pick up some tuna 9 Lives. And maybe you pick up some chicken- and some beef-flavored as well, and you take all that to the cashier. ...
Well, as soon as that cashier picks up the cans of cat food and scans it, then the cat food is recorded by the computer. The sale's recorded, and then an order is generated. An order is automatically generated that evening at midnight, when the home office pulls that information through their data ports. Then that order goes to the distribution facilities throughout the company, and that distribution facility, the warehouse, fills that order, and it's sitting back on the shelf the next night or the following night. ...
So the efficiency is enormous.
Oh, yeah. And it has to be. And it keeps getting more and more, faster and faster. ...
... What is the opening price point? Why is it so key to Wal-Mart's strategy?
OK, it's lawn-and-garden time. Your grass is getting high. Your lawn mower is broken from last year, or you need a new lawn mower. You're going to go to Wal-Mart. So you go to Wal-Mart, and you're looking for a lawn mower, and to your delight, you walk in, and you see this $99 lawn mower. You may not want a cheap, basic lawn mower, but you see that price point on an end cap or a big display stack base, and you say, "Wow, what a great price." And it draws you in. It lures you into the department, and you form the perception immediately that "Hey, Wal-Mart's got the lowest prices in town. Look at this item right here. How could they sell it for $99?" ...
But as you walk into the department and look for that $269 power-drive lawn mower that you really are after, they're not losing money on that item. And it may not be the lowest price in town. Wal-Mart used to advertise "Always the low price." They don't do that anymore.
Because?
They got in trouble. Some of the other competitors sued them, tried to go after them and say, "You can't say 'Always the low price,' because you're not always the low price." They did a study -- a very critical study, very thorough study -- and found that Wal-Mart was not always the low price. And Target and Kmart got a little miffed, and some other competitors that [said], "How can Wal-Mart advertise this and it's not true?"
So what you're saying is Wal-Mart, when it says, "Always low prices," it's not always the lowest price on every lawn mower or every microwave oven or every vacuum cleaner or every TV set.
Absolutely not.
So what does the opening price point mean?
The opening price point is ... to get you in. You look at that, and you think, "Wow, what a great price." ...
And usually, more times than not, those items are imports. They're not domestically made; they're from other countries.
Why?
Well, the price of labor is so cheap. In China, Malaysia, Bangladesh, you can make stuff for a fraction of the cost that you can domestically, so that price is the rock-bottom price.
So are you saying that the opening price is the lowest price and actually will beat the competition, but maybe other items in the same category aren't necessarily the lowest price?
Oh, absolutely not. It's just like fishing: You want to entice that fish to that lure. ... Once you walk past that opening price point, they've got you, because you've already formed the perception that everything in that department is the lowest price in town.
And maybe it's not.
No, it's not. No, I can tell you it's not. I can tell you from experience it's not. ...
... How central is [the opening price point] to Wal-Mart's marketing strategy?
It's the heart of Wal-Mart's pricing strategy. Wal-Mart puts [a] tremendous amount of planning, organization and thinking into what their opening price points are going to be, based on last year's sales, based on customer requests, what's in demand this year, what's the newest, hottest item on the market.
Based on bar code information?
Oh, absolutely, absolutely.
When you say they put [in] tremendous effort, what does that mean? When you're a store manager, are you generating extra displays? Are you getting extra shipments? What does it mean when they've picked a few items as opening-price items for a season?
Well, you have to look at the days of Sam Walton. Sam had an old Ford pickup truck, and he'd go down the road and buy ladies' panties and sell them at a ridiculously low price -- you know, 10 for a buck or something like that back in his day. ...
Did Sam Walton talk about opening price points?
Oh, yeah. That was his idea.
It was his idea?
That was his idea, yeah: Let's get the hottest item that we can find within a category, the item that customers, they're going to look at that, and they're going to equate that to the lowest price in town. They're going to see that, and they're going to say, "Wow," and they'll form an opinion that this is the best place to shop. And Wal-Mart doesn't run too many sales, as you probably know, but "I can come here every day and find the items that I want at the lowest price in town." But they're duped.
And that impression gets set by the opening price point, the lowest price in town?
That's right. ... Wal-Mart forms an opinion in your mind, whether you like it or not, subliminally, or whatever you want to say. You see the item; you see it on an end cap; you say, "Wow, how can they sell it at that price?" ...
Then they've got you, because you walk about 10 more feet, and you see the item you really want in that same category. Then you buy that item, but it's not going to be, probably, the lowest price in town. You may be able to go down the street to Home Depot, for example, and find that same lawn mower that you just bought for either the same price or a little lower. ...
... Is the opening price point a big chunk of Wal-Mart's business?
Oh, absolutely. Yeah. I remember when I was working for Wal-Mart that you do 30 to 40 percent of your volume the first week on those opening price points. And typically, Wal-Mart cannot sustain the in-stock on that item. A lot of times, what they do is they'll put as many of those lawn mowers in their distribution centers as they can. We're talking trainloads and truckloads and truckloads in the distribution centers, the warehouses. And then you open the department up for the season.
For example, we keep talking about lawn and garden, but we could be talking about trim-a-tree for Christmas. The best artificial Christmas tree -- they'll buy thousands and thousands, sometimes millions, of that item and stock it in their distribution centers. They open the department, and the customers come in, and they just go crazy. It's a feeding frenzy on that item. And you'll sell out in one day.
Then the computer system will say, whoa, and it reorders that same amount that you sold that day. Or you can bump it up. If you sold 192 pieces the day before, as a store manager, I'd say, "Wow, if I sold 192 yesterday, I can probably sell 300 tomorrow." So you'd bump the order up, and you get that 300 in the next day. And what you do is, [in] all these stores -- you've got 2,500-some-odd stores -- you very quickly deplete what the warehouse has in stock, and then they try to quickly go back after the item, but many times it's too late. Many times a week or two passes, and the customer's already got it; you know, you've saturated the market with that item. So you've got to have a sense of urgency. ...
Wal-Mart's got this enormous set of stores, and they know what people are buying in every region of the country, what's going out literally today, not two weeks from now. What does that do to the relationship, the power relationship, the marketing relationship between Wal-Mart and the producers? ... Does Wal-Mart wind up knowing almost more about the business of, say, Rubbermaid or Huffy Bicycle or some lawn-mower maker than the people themselves?
I think so. Now, you have to understand, I was a store manager. But it's my understanding, through listening to buyers from [Wal-Mart's headquarters in] Bentonville, [Ark.] that buy the merchandise -- for example, electronics buyers -- they visit these factories; they visit the manufacturers. They want to look in their books; they want to look at the cost of manufacturing, the cost of packaging, the cost of shipping, the cost of production. All of those things are factored in, and Wal-Mart wants to see all that. ...
Well, take a case like Rubbermaid. There was a very, very well-known American company. They're making all kinds of products, office products, in-and-out trays and garbage cans and all kinds of things in plastics and so forth. And they got into quite a confrontation [with Wal-Mart]. Who's in charge at that point? Was Rubbermaid selling stuff to Wal-Mart, or was Wal-Mart dictating terms of what it wants to buy? ...
... Wal-Mart puts the pressure on these manufacturers to: "Come in here and sell me the same merchandise you sold me last year, but sell it at a reduced cost. And we know you can sell it to us at a reduced cost, because we've been to your factory. We've seen your books. We've seen your cost of product, cost of shipping," so on and so forth, "your wage cost." They look at all that, and they call it "partnership."
So this information technology -- I mean, Wal-Mart makes a big thing about sharing information technology. I guess Retail Link was the software that they had.
Retail Link, that's right.
Retail Link. They shared Retail Link with their suppliers. So this is presented as being really a win-win situation. This is a partnership. You're saying it's something else?
I think it's arrogance. I think what it boils down to -- and we talked about Rubbermaid for a second there. Rubbermaid had a situation they got into with the cost of resin to produce their product. Rubbermaid tried to communicate that there was a price increase in the cost of raw materials that it took to make these totes and storage containers that they sold at Wal-Mart.
And the buyers at Wal-Mart -- my understanding is that the buyer said: "No way. You're not going to raise your cost. If you can't sell it to us for the same price or less than you did last year, we'll find somebody else. We'll go to another company." And that's what Wal-Mart tried to do, and it really hurt Rubbermaid.
The communication is one way: It's our way or the highway. You do it our way, or you hit the highway. We'll find somebody else.
Why can't a Procter & Gamble or a Rubbermaid or a Huffy Bicycle or almost anybody, why can't they just say, "Look, we're not going to do it at this price"? This is Rubbermaid, after all. At the time, they were the most admired company in America. Why can't they just say: "I'm sorry. We're not doing it that way"? What gives Wal-Mart the ability to, as you put it, dictate the terms?
... Well, what's happening across America is Wal-Mart is eliminating competition. ... Wal-Mart is extremely fine-tuned on their ... pricing policies. ...
What do you mean... ?
... As a store manager, I'll give you an example. Memorial Day, I'd go out to the local competition and look at the price of, say, for example, ketchup, mustard, relish, mayonnaise. And if my competitor lowballed me on a price, if they undercut me on, say, Heinz ketchup, then what I would do is I'd come back and say, "OK, you're going to play with me on Heinz ketchup?" The company's policy that I followed was that "OK, I'll take it, and I'll match the price." OK? I'll match the price.
Then I would go back and check it the next day or the following day at the same competitor. And if they'd lowered their price again, then I'd come back, and I would lower my price 5 percent under their price, plus I'd hit five more items in that category. So I would not only take the ketchup; I'd take mayonnaise, mustard, relish, whatever was there, five other items in that same category, as if to say: "Don't mess with me. I'll come after you."
But isn't that good for the consumer? Isn't that exactly what Wal-Mart says it's doing? Isn't that American competition in the free market?
Well, it depends on what you describe as good. Good for the consumer? Maybe in the short run, but in the long run, no.
Why not?
Well, because for Wal-Mart to be able to do that, if they're selling merchandise at these ridiculously low prices ... then there's a cost to that. And the cost in America is the low-paid American domestic workers that Wal-Mart has. They pay their people a poverty-level wage.
And also, by doing this ... they're really hurting the competition. Competition is supposed to be good for you, like you said. Competition is supposed to be good for consumers. But what ends up happening, I think, is if you don't have a level playing field ... then you eliminate competition. ...
What's the point of all this? Is this just to get lower prices?
No, it's bigger than that. You've got to look beyond that. Lower prices -- that's what Wal-Mart wants you to believe. It's all about low prices, "Roll back America," "We've got the low price every day."
But beyond that veil is, you have to look at when manufacturers that have their offices here in Bentonville -- they're required to do so by Wal-Mart corporate --when they go across that street to deal with the Wal-Mart buyer in the buyers' room, which is a little room about the size of this room, maybe 10 by 10. It's a ruthless situation, because the buyer already knows before that vendor walks in there how much your cost of production is, how much your cost of raw material is. So you're transparent. You're naked in front of that buyer.
Wal-Mart buyer.
Yes, the Wal-Mart buyer. Yeah, the Wal-Mart buyer knows all about you before you walk in, even knows the new product that you're going to come and present to him that day. They know that in advance. So you get there. You bring the product; you set it in front of them and say, "Here it is."
And the buyer says: "Look, I know what it costs you to manufacture that. We've been to your plant. We've seen your books. We want you to sell it to us for 5 percent on a dollar -- at cost -- lower this year than you did last year. And that's what we expect. Don't say you can't do it. There is no can't at Wal-Mart; you have to do it."
So what you're saying is Wal-Mart's got all the leverage in the situation?
Yeah. So let's say I'm Black & Decker or whatever. I go to Wal-Mart in Bentonville. I go walk across the street or drive across the street, because the Wal-Mart buyer's calling me. He wants to negotiate pricing. So I go over there and sit down with the buyer, and he says: "I want you to make those cordless screwdrivers this year for less than you did last year. We bought 60 train carloads last year. We're going to buy 160 this year if you can sell them to us at this price."
And there is no saying no, because Wal-Mart already knows the cost of your raw materials, the cost of your production, the cost of your shipping, the cost of your everything. They know everything. …
And so what do these manufacturers do? They walk away, and, you know, I can envision these phone calls that take place back to their corporate: "You're not going to believe what Wal-Mart wants us to do." "What is it this time?" "Well, they want us to sell that same product that we sold them last year, but they want it at a 2 percent discount in cost this year." And they're already just making ends meet.
So now the company has to look at it and say: "We can't make it here in America anymore. We might have a union plant where we're paying you good, living, union wages. I think we need to close this plant, maybe move it over to China or move it down to Monterrey, Mexico. We've got NAFTA, so let's take advantage of it."
So you're saying Wal-Mart is shoving jobs out of America by the pressure it's putting on suppliers?
What I'm saying is we hear a lot of talk today in the media, and especially going into this campaign, that it's all about manufacturers exporting jobs and "Benedict Arnold CEOs" exporting jobs.
Well, I say look behind that veil. Let's look at the cause and effect here. Here we have the world's largest retailer. Now, they've got to have some effect on these manufacturers. Look behind the manufacturers. The manufacturers are trying to deal with this ... retailer out there ... that wants to look at their books, that wants to "partner" with them on these things.
So who's driving the process? … What does it look like to you? You've been inside Wal-Mart. You've seen it. You've talked to Wal-Mart buyers; you've seen suppliers; you've heard the story. ... You just said these companies are having trouble bargaining... I mean, it's pretty hard to escape the conclusion, isn't it, that Wal-Mart is a factor pushing the jobs to China?
Absolutely. The company's completed shifted its focus again from the founding principles of Sam Walton, who, by the way, used to really enjoy and take a lot of pride in what's called the "Buy America" program, "Made in America," "Bring it home to the USA." He was all about going to factories in America that were closing, like a flannel-shirt factory. I remember one example of that. They couldn't make flannel shirts in America as cheap[ly] as they could in China, so the factory closed. Three hundred-something jobs went down.
Well, Sam went to that owner of that manufacturer and said: "Look, if you'll make flannel shirts just for Wal-Mart exclusively for the next three years, I'll retool your plant. I'll give you a loan ... get your business up and going, and you just sell them to us." And that's what he was all about.
I recently heard a speech by Lee Scott, the CEO, and in his speech, what was disturbing to me is he said -- somebody questioned him about China: "Why are you doing so much business in China?" And he just kind of resigned himself to it and said: "Well, it's just the way it's got to be. This is a global economy now. We've got to do business with China. We have no other choice."
What happened to Sam Walton's founding principles? What happened to "Buy America," "Bring it home to the USA," good, American, union jobs? What happened to that?
Well, you were a store manager at the point that became an issue under the previous CEO, David Glass, weren't you? Tell me about that episode. What happened?
Well, I think what happened at Wal-Mart was when Sam Walton passed away, it took about a year, but the company changed its focus. And shortly after that, a year or two after that, David Glass, the CEO, went on a national news program, and they questioned him, the CEO. They said, "What about this 'Buy America' program that you have all through your stores? What about that?" And Mr. Glass defended it and said, "Well, we buy American."
And then they brought up this hidden-camera thing and showed shots of people walking through Wal-Mart stores looking at racks of clothing, for example, that had a "Buy America" topper on the sign, or "Made in America" or "Bring it home to the USA" topper on the sign, and they looked at the actual merchandise. It was made in Malaysia, Honduras -- everywhere but the United States.
It was kind of like a sting, you know? … And then it was just like 24 hours after that, there was an emergency that took place in the company. We had to go through all of our stores and pull every "Buy America" sign, every "Made in the USA" sign, everything that was red, white and blue that was hanging on the walls. We even had permanent signs that were liquid-nailed to the cement walls, concrete walls, that we had to rip down that said "Buy America." And it was just a frenzy. And it had to be done by a certain deadline. And if you didn't do it, your job was on the line. It was an emergency situation.
The company was embarrassed?
Oh, yeah. The company was very humiliated and caught off guard...
[Were you] getting goods made in China at that point? ...
Well, shortly, again, after Sam Walton passed away, we saw this -- I saw this as a store manger -- an influx, a giant influx, of imported merchandise coming in. And it said "Wal-Mart import" on the box. Now, I don't know where these boxes came from, but when you looked at the outside of a carton, it said, "Wal-Mart import." It didn't say the country of origin, for example, Brazil or Honduras or China. It didn't say that, but when you popped open the box and looked at the product, the product had little individual stickers on them, little gold stickers, that say "Made in China," "Made in Malaysia," "Made in Macao," wherever. ...
What I'm trying to say to you is that when Sam Walton died -- it took about a year or two -- the stores were inundated with inventory, inundated. We had so much of this cheap crap floating around the store, we didn't know what to do with it. So most of the store managers that I know actually rented trailers and started putting stuff on trailers out behind the store, because they didn't have room to sell it.
So why were you inundated with this inventory from overseas?
The reason that we were inundated with what I think is Wal-Mart merchandise from overseas is because it's high-profit. ... That high profit hits the bottom line, hits your profit-loss statements immediately, because you're invoiced electronically.
So it makes Wal-Mart look as though it's making more of a profit right away?
It inflates your net profit. It inflates what's called gross margin on your profit-and-loss statement, which dictates the rest of your profit-loss statement. ...
[What were the margins on the foreign merchandise?]
The margins on the merchandise that were coming in from the Wal-Mart import items were incredible.
Like what?
Sixty, 70, 80 percent -- incredible.
Compared with what from American-made items?
Well, compare that to an electric razor that you might be making 20 percent on or 18 percent on, or 22 percent.
So you're saying that Wal-Mart is making much bigger profits on these items that are made in China or these low-wage countries. Is that right?
That's absolutely right. ...
So when we see all these billions coming in from China, we're seeing not only cheaper goods for us as buyers, but tremendous profit margins for Wal-Mart. Is that right?
Yeah. And I think the motive is, Wal-Mart's got to keep that stock price up; they've got to keep their quarterly earnings report showing growth; they've got to continually jump through the hoops, raise the bar. Wal-Mart always talks about raising the bar of expectations -- selling more, doing more with less.
But raising the bar means finding a way to increase the gap between the cost -- the profit -- and the price.
There you go. Yeah. ...
What kind of relationship is there in the bargaining between Wal-Mart and the suppliers?
Well, it's very one-sided. There is no negotiation. There's not much negotiation at all. It's the manufacturer walks into the room. I've been in these little cubicles; I've seen it happen. The manufacturer walks in, sits down with a buyer, and the buyer brings up last year's cost and says, "We want to buy this much more this year, but we want you to manufacture for this much less and sell it to us and cut your lead time in half, cut your shipping cost in half, ship it to us on prepackaged displays instead of cartons."...
Is the Wal-Mart buyer in China doing the same thing to China's suppliers, pushing them to cut their costs? Or do you say: "Gee, costs are already low in China. We'll just buy anything you've got"?
Well, of course. The buyers in China are no different than the buyers domestically here in the United States. The pressure's the same. The company's the same -- same philosophy of driving the costs down; driving shipping costs down; production costs; putting it on the shelf at a cheaper price than we had it last year so we can say it's a rollback, so we can run a commercial and show the little Zorro guy slashing the prices, so you'll be happy to go in the store and say, "You know, I save a lot of money when I come in here." ...
Now, let me just ask you a personal question. Wal-Mart is a non-union company, and it is widely regarded as being an anti-union company. You were a Wal-Mart manager, and you now represent a union that is trying to organize Wal-Mart. Why did you go from being a Wal-Mart manager to being a union representative trying to organize Wal-Mart?
Well, to put it in a nutshell, the reason that I left Wal-Mart and do what I do today, which is try to help the workers get a union contract, is because I used to stand up in front of my workers and lie to them. I used to say the talking points, that the union's a cult: "You don't want to join a union. It's a cult. Why pay somebody to speak for you? You can speak for yourself, as a worker."
What I didn't tell the workers was that "If you have a union contract, you might get better pay. You might be able to negotiate with your employer to have your health care completely paid for. You might even get a pension someday." Those are the things that I didn't say.
I had the opportunity in 1997 to go to work for a union company for two years, called the Meijer Corporation. I left Wal-Mart on good terms, went to work for Meijer. Meijer has a [union] contract. Meijer is a company based in Grand Rapids, Mich., that has 126 stores. They have a union contract, and the workers are treated right. They have negotiated incremental raises, and it's a much more professional relationship that that employer has with its workers.
Now, I went back to Wal-Mart, and I wanted to take that truth back to Wal-Mart, and I did. I went back to Wal-Mart as a store manager, worked for two more years and left the company on good terms and then left to go to work for the UFCW [United Food and Commercial Workers], because I wanted to bring that back to them. I wanted to bring the truth back to Wal-Mart workers.
... Wal-Mart's essentially saying it's doing a good job for its workers, and it's providing good jobs in the communities that it moves into, and it's helping fill holes when American manufacturing jobs and other jobs are lost. You apparently don't agree with that. Why don't you agree with the picture that Wal-Mart is putting forward about itself, saying it's doing positive things?
... For example, Wal-Mart says that 90 percent of its workers -- they were very skilled at saying this -- they said 90 percent of its workers have health insurance. But they may have it through their spouse's employer, who, by the way, may be a union employer. So a lot of times, the union contract employer is actually bearing an undue burden by picking up a Wal-Mart associate, for example.
I think the truth is more like 38, 39 percent of Wal-Mart associates take the health care program. The rest of them can't afford it or opt not to take it because it's so crappy, basically.
.. One of the arguments made in Southern California against bringing in Wal-Mart stores is that they will dump an unfair burden on the public services of the local community, whether it's Inglewood or Los Angeles or wherever. And I just want to ask you, as a Wal-Mart manager who managed several stores in four different states, did you, in fact, counsel your employees to take advantage of public assistance because Wal-Mart wasn't providing adequate care for its employees?
I had a Rolodex on my desk, and I still have the Rolodex; I took it home with me. But it's full of business cards of social service outfits in the local city that I was running a store: indigent health care organizations that provided indigent health care, soup kitchens, everything, the United Way -- all these people that I had lined up that I would call in the event that an associate came into my office and said, "I can't afford to take my child to the doctor," "I can't afford groceries," or "I'm getting kicked out of my house," or whatever. And I would actually call these places. Many times, I would take the worker down to the United Way in my truck. They didn't know what to do. I'd take them down, help them make [an] application and get some help, you know.
So you actively encouraged and involved Wal-Mart employees, as a Wal-Mart manager, in using public assistance for programs and benefits that Wal-Mart itself didn't offer?
Yes, sir. Sure, I did it all the time. And I thought I was doing a good thing at the time. Now when I look back, I think, "Wow, that's incredibly poor that the company doesn't care enough about its workers to pay them a living wage and to help them with their medical costs, to pay for their medical expenses and things like that." ...
... If you were talking straight to American voters, what would you say about American jobs lost over the last decade and the role of companies like Wal-Mart?
It's an excellent question. I would say: "Look behind the veil. Look behind the smoke and mirrors." It's not just manufacturers that are making these decisions. They're being put in undue-pressure situations. They're being hammered on. Wal-Mart has a lot of these manufacturers in a chokehold. We're talking about the world's largest and most powerful and most profitable corporation that, by the way, happens to reside in "aw shucks" Bentonville, Ark., the good ol' boys: "We're just a bunch of good ol' people down here in Bentonville, Ark."
Well, the truth is they're ruthless; they're smart; they're intelligent. They're geniuses at making profit. They've taken the foundation that Sam built, and now it's on steroids. This company is out of control. I would say look beyond that.
But "Look beyond that"? What are you going to see? ...
Well, when you look at it, if you really look at it, these manufacturers are exporting jobs. Yes, they are. But why are they doing that? Because the cost of the goods -- the production costs, the shipping costs -- are being scrutinized every day by this company, by Wal-Mart. Wal-Mart is putting enormous pressure on these manufacturers. And these manufacturers want to stay in business; they want to stay afloat. So what do they end up doing? Many times, crushing good, American union jobs, manufacturing jobs. And these manufacturers in many cases are forced with a decision: Do we go to China? Do we go to Mexico? We've got NAFTA; we can use that as an excuse. Wal-Mart's eating our lunch. We can't get out of bed with Wal-Mart now. We've been in bed too long. We have nobody else to sell our merchandise to that matters anymore.
So Wal-Mart is putting the critical pressure on them to make a decision to move jobs overseas.
Absolutely, absolutely. And I'm so happy to see that the focus is shifting now from "It's just manufacturers and Benedict Arnold CEOs at these manufacturers" -- so-called Benedict Arnold. They're making decisions, yes, to shut down plants and send the jobs overseas, yes, but why are they doing that?
And how did Wal-Mart get that leverage to be able to dictate those terms? If you say they're putting on the critical pressure, what was the critical thing that gave Wal-Mart the leverage?
It wasn't one thing. It was a process that occurred over many years. And we talked about the technology that Wal-Mart has spent so much money [on] -- millions and millions of dollars' worth of technology. David Glass, the CEO for many years, said, "We've got to make the technology pay for itself." Well, they certainly have. Those satellite dishes, those computers, they do pay for [them]selves.
The POS [point-of-sale] systems -- they know every fact and figure that these manufacturers have. They know their books; they know their costs; they know their business practices, everything. So what's a manufacturer left to do? They sit naked in front of Wal-Mart. Wal-Mart calls the shots: "If you want to do business with us, if you want to stay in business, then you're going to do it our way." And it's all about driving down the cost of goods.
Now, is Wal-Mart any different from Target or Kmart or Home Depot or any other retailer?
Well, yes, they are. Wal-Mart has a predatory pricing policy. They are always talking about bringing the prices down for the American consumer when it's all about, really, raising profits in Bentonville, Ark., and raising profits for the shareholders and continuing the growth, continuing the accountability to the quarterly earnings report that comes out every quarter. It's all about growth. It's all about profit.
And what's the cost of that? What's wrong with that? That's American. That's the way the market works. What's the cost of that? Is there a price that America is paying because Wal-Mart's shareholders are making more money? I mean, that's a very American thing to do.
... Yeah. Wal-Mart is making this profit basically on the backs of their workers. The workers are bearing the burden. The workers that have made this company great are being paid a poverty-level wage, lousy benefits, worked off the clock, cheated out of overtime. ... Gender discrimination lawsuits. Now, the company has mistreating its workers, and they're making billions on the backs of their workers. So yes, there is a cost.
But I think the average American consumer doesn't see that. They see that shopping cart full of merchandise; those big, blue bags; and they saved $20 this week because they went to Wal-Mart. But Wal-Mart doesn't pay their people a responsible wage. ...
[b]... Sam Walton dies in April of 1992. So what's the mood? What's the talk inside Wal-Mart when Sam Walton dies?
Well, we all knew that he was going to die. We didn't expect him to die so suddenly. He had leukemia. We knew he was getting really frail. He won the Medal of Freedom. George Bush Sr. went and presented it to him down in Bentonville. And then he died. And we were all watching the stock price. We all had our stock, and I was concerned that the stock was going to fall, as were my fellow store-manager colleagues out there. And we just kept watching it, and it didn't really fall, immediately.
Now, after about a year, it started to kind of go over the hill and start a decline, a steady decline, and it didn't recover. And it got down in the 20s, and Wal-Mart got very nervous. It got lower and lower and approaching that $20 mark. And that $20 mark seemed to be like the threshold: "If it gets down below $20, it's going to be a panic." And it did. And it became a panic. It was a knee-jerk reaction I think the company took. ...
What's the perception inside Wal-Mart? What's the talk inside Wal-Mart? What is your regional vice president saying? Or what are you hearing from Bentonville about the stock going down? Is Wall Street losing confidence? Is the new leadership panicking? What's the talk inside Wal-Mart at that point?
... The communication that I got from Bentonville as a store manager was: "We've got to save on expenses. We've got to cut wage costs. We've got to cut payroll. We've got to stop markdowns -- whatever we can do to preserve any profit that we've got here so we can bring the quarter in, or bring the month in on our profit-loss statement."
So the worry was about profits?
Oh, it's all about profit, yeah. And immediately what happened is that as the stock price continued a steady decline and we approached that $20 threshold, the company panicked. And Sam was dead and gone, and we had David Glass as our CEO or chairman, whatever, and he got with Bill Fields, who was the executive vice president of the buying office, and they just went after imports like crazy, like on steroids. The company just went after China.
I don't know what happened. All I know as a store manager is I started having these trucks back up with all this cheap garbage. I hated it. (Chuckling) But I did like the margin. The margin was 60, 70, 80 percent gross margin -- or "markup" is what most people identify with, the word "markup." It was tremendous markup. I was used to items that had 20, 30 percent, 15 percent or negative 15 percent markup. …
You said the margin was good for you. You were the manager. What about Wal-Mart itself? Did it boost Wal-Mart's profits?
It absolutely did, immediately. ... What happened to Wal-Mart's profits when they went after these imports is that -- you have to understand when that truck backs up to your back door, you immediately realize the gross margin hit on your profit-and-loss statement.
So you get a paper profit at once even before you sell it.
Immediately. Even before you sell it. You load that stuff into the store. And as a store manager, it's kind of bittersweet, because your profit-loss statement is going to be better, going to be enhanced for that month, but now you've got all this stuff. What are you going to do with it? If you can't sell it, you get bogged down. You can't buy other stuff that really sells.
But your profit goes up, as a store manager.
Right.
What happens to Wal-Mart?
Well, temporarily and artificially, Wal-Mart's profit goes up.
It's inflated.
It goes up. Artificially inflated, I would say, because there's a price for that. There's a circumstance; there's a consequence to buying all that stuff. ...
When you talk about them in Bentonville "pulling the lever," as you put it, and flooding the stores with imports, did you talk to people in Bentonville? ... What did people at higher levels tell you they were doing?
Well, you have to understand that I was a store manager, so I took great pride in the conditions and standards at my store. I also took great pride in turning merchandise and keeping my backroom empty. So one of my frustrations [was] whenever that backroom, the receiving room would fill up with imports, I didn't have anywhere to put it on the shelves. The shelves were already full of imports in those areas of the store where that stuff was supposed to go.
Did you call Bentonville and say, "Stop"?
Absolutely.
Tell me about that. What did they say?
I'd go to my office, pick up the phone and dial [the number] and ask for the buyer of that department and say: "What's going on? Why am I getting so much of this stuff?" And many times, I'd get a buyer that was frustrated himself: "I don't have any control over this. They're making me do this. I'm sorry."
What's the best answer you got from Bentonville? Was there anybody in Bentonville that told you what was really going on?
... The best answer I finally got from Wal-Mart was -- I called an old friend of mine... And this guy was now a senior vice president, a divisional merchandise manager of Wal-Mart. ... And I said, "Bill, what's going on? I'm a store manager. I'm drowning out here with this stuff."
And he told me the truth. He told me that the reason the company's doing this, and before this -- I didn't know prior to this -- he said: "It's because it's all about you've got to hit your numbers. This company's got to hit its quarterly earnings report, projections. It's got to hit its annual projections. It's got to keep the stock price up, got to keep the analysts happy. We've got to do this."
So you've got a guy at the vice presidential level in Bentonville telling you that the reason you're getting flooded with all these imports is Wal-Mart needs to boost its profit picture?
That's right. That's exactly right. And I trust the guy. ...
When do you sense that you've got the market share, that Wal-Mart can really kind of dictate to everybody else? When does the atmosphere in those buyers' rooms in Bentonville change? It's a partnership at one point, and then at another point, you said to me: "There's no negotiation going on in those rooms. Wal-Mart is essentially dictating the terms." ...
Well, Sam Walton changed, back in the '80s, the store-manager bonus program, which got us excited, got us motivated. He was very sharp, very smart in that respect. There was a lot of talk about Kmart and Sears, our two biggest competitors. Target was not even a major player at that time. They were there, but they weren't really hurting us too bad.
But there was a lot of talk about those companies being asleep at the wheel, being fat, dumb and happy. And we didn't want to be fat, dumb and happy. We wanted to be aggressive. There was a lot of adrenaline and motivation that went along with that kind of talk. And between the years of 1985 and 1990 and then '91, leading up to Sam's death, it was just a tremendous force and a very exciting company to be a part of and to be a leader in.
And I never anticipated leaving the company at that point. I was raking in the money, making good money as a store manager, having a great time doing it. ...
When did you feel Wal-Mart has become the big player?
Aw, man, I tell you, it happened '92, '93, '94, '95. Those years right there were just golden years for the company [in terms of] growth and profitability. Stock price was splitting. Stock was struggling for a while, but then they fixed the problem, and it started to split again; and a lot of people were getting wealthy off of Wal-Mart stock.
The company took off.
The company took off, yeah, like a rocket.
And what was the feeling inside the company?
The feeling was, and the slogan was, "Are you a bull rider, or are you a bureaucrat? Which are you?" And of course Wal-Mart wanted you to be a bull rider. You know, you're the boss; Wal-Mart's the boss, whatever. Market share dictated everything. Market share dictated its communication process with the manufacturers, the way they dealt with the customers, the way they dealt with everything, the way they dealt with the government. And Wal-Mart got too big for its britches.
But it got in a real bullish mood.
Oh, absolutely. A lot of people were getting wealthy off of it, a lot of egos, big egos. ...
But what was it that was wrong, in your opinion? ... I mean, you sound disillusioned with Wal-Mart. What was it you were disillusioned about?
Well, in the beginning, when I started with Wal-Mart, I wasn't disillusioned. I was excited, because Sam Walton was alive. His three founding principles were in place: respect for the individual, strive for excellence, customer service. Those were the guiding principles of the company, and I saw a decline and erosion take place. And when he passed away, it continued and got worse.
And I saw the workers -- they used to wear these buttons that said, "Our people make the difference," and on the back of their smock it said, "Our people make the difference." All of a sudden, the company sends out new smocks and aprons that say, "How may I help you?" on the back. They kind of lost focus. Wal-Mart lost touch with its workers.
I didn't want to lose touch with the workers. I saw all that happen, and I also knew that what I was saying about unions being bad to the workers was not true. And I had a change of heart. I had to get out of that, and I had to bring the truth back to the workers.
... What was it that bothered you about Wal-Mart from the perspective of your experience as a manager?
Well, the discouragement that I experienced was over a period of years, really. I saw Sam Walton in action, got to meet him on several occasions. I understood what made him tick. One of the things that he believed in was partnership. And the honest truth is when I first heard him say that -- "I want to partner with my workers. You're a partner; you're not just a stock boy," or whatever; "You're my partner, and I want to share some of my profits" -- I thought it was kind of hokey. But he put his money where his mouth was. Some of those people are millionaires today that stayed with him. Truly, they are. ...
But what happens to the workers? I mean, so an attitude changes, and you don't like that, but [did] something happen to their pay? Are they paid the same? Are they paid differently? Are the benefits different? Is there really a difference between now and back when Sam was alive in terms of actual pay? Was it part-time work, a 32-hour week? It used to be a 28-hour week. That all existed under Sam.
Yes. Comparatively speaking, there is a difference in pay. If you look at it from the wages that Mr. Sam paid -- now, he wasn't real generous with wages, but he did have a good profit-sharing program. Many of those people, many of those "associates" he called them in the beginning, are now millionaires. Some of them are in my hometown. There's a lady that I've known for years, she's got $17.5-some-odd-million in her profit sharing. She's still working there in Harrison, Ark.
You won't make that today. The profit-sharing program at Wal-Mart is a token plan. "We still partner," is what they say, "with you on this profit-sharing plan. We want to share the profits. Make sure you don't use too many light bulbs or too much floor wax. It will help your profits." ...
Is Wal-Mart good for America?
... I don't think Wal-Mart is good for America because what's happening is, yeah, you can get maybe a bag of groceries more, or you might spend $50 at Wal-Mart and spend $50 at Target or Kmart and you might get a few more items at Wal-Mart because of the prices.
But there's a cost to low prices. And the cost is [that] good, American jobs are being shipped overseas. … Many times union jobs are going away, and those same people are having to go to work at Wal-Mart, making a fraction of what they made there and not getting good health care; not getting a good company-paid pension, company-paid health care.
So no, I would say Wal-Mart is not good for America. I think the average person out there that you run into in a Wal-Mart store may say: "Yeah, I love this place, because look at the stuff I can get. Look at the cheap prices." But there's a cost for these low prices, and many people don't realize that.
So in effect, what you're saying is Wal-Mart is good for customers, and Wal-Mart's not good for workers?
Yeah, I think Wal-Mart is temporarily good for the economy. Certainly the stock price, the investment value of Wal-Mart stock -- those things are good for our economy on a short-term . I think there's going to be a correction that takes place, though, eventually. I don't know what's going to happen.
[b]... Is Wal-Mart good for America in the long run? ... You said in the short run, temporarily it's good, lower prices, and the stock value is good.
Well, what I mean by that is the consumer. It's good for the low-wage consumer, a blue-collar worker out there that is just barely making ends meet. Yeah, they can go to Wal-Mart, fill up their shopping cart and save $20, $30 that week, which may help to pay for the kids' lunches at school or whatever. It may help pay for their gas bill that month, or electricity bill. So yeah, Wal-Mart is good in that respect, OK?
But many people don't look behind that big, yellow smiley face that they show on TV and see the reality of what's happening to our economy here, what's happening to good, American jobs in the United States here. ... Workers are being worked off the clock many times. There's lawsuits, class-action lawsuits, in over 30 states right now of workers saying: "Enough is enough. I'm being worked off the clock, not paid for my overtime." ...
And look behind that yellow smiley face and see what's really happening to workers. Good, American jobs like at Thomson Electronics in Circleville, Ohio -- that poor guy making $15, $16 an hour, now he's [going to be] making a fraction of that, $7, $8 an hour, working 32 hours a week; a meager health care plan that he's got to pay for now, token health care plan; no pension; no future. There's a revolving door at Wal-Mart -- workers coming in, seeing the reality of it. They've been duped by the yellow smiley face many times. Then they go right back out the same door they came in a week later, a month later, a year later, whatever, however long they choose to stay. That's what's happening behind closed doors. That's what's happening [behind] that big, yellow smiley face. ...
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/interviews/lehman.html
Eddie's Booze
07-26-2007, 12:14 PM
Originally posted by Nickdfresh
From PBS' FRONTLINE: Is Walmart Good For America? (http://www.pbs.org/wgbh/pages/frontline/shows/walmart/)
trade with china: expectations vs. reality by ned barker
A closer look at the debate over U.S. trade with China: What has been the result of permanent trade relations and China's entry into the World Trade Organization, how much does the trade deficit matter, do the Chinese have unfair advantages and what's the outlook going forward?
In the late 1990s, Washington was a sharply divided political city, but there was a growing consensus on one big issue. Most Republicans and Democrats agreed that trade with China would be a boon for America.
President Clinton summed up the mainstream consensus in Washington with a message to Congress in the spring of 2000. In a letter circulated to House members, he wrote, "China with more than a billion people is home to the largest potential market in the world… If Congress makes the right decision, our companies will be able to sell and distribute products in China made by American workers on American soil, without being forced to relocate manufacturing to China. …We will be able to export products without exporting jobs."
Clinton was pushing Congress to permanently normalize trade relations with Beijing, helping to ease China's entry into the World Trade Organization (WTO). Big business was furiously lobbying Capitol Hill in favor of the legislation. It saw China, with its 1.2 billion consumers, as a vast new emerging market and many parts of Corporate America wanted a piece of the action.
Just weeks before the legislation received the president's signature, Robert Burt, chairman of the Business Roundtable, an association of CEOs of leading American corporations, spoke boldly about the future. "This historic legislation will be remembered as the key that opened the door for America to sell its products and services to the world's largest emerging marketplace," he declared.
Other executives around the U.S. were equally strong in supporting U.S. trade with Beijing, and China's efforts to get into the WTO because they reasoned that China would then be required to play by the same trading rules as the WTO's other members. Moreover, as Europeans rushed to do business in China, American corporate captains did not want to be left behind. They worried that unless the U.S. backed the move, they would lose out to the Europeans, a worry Chinese officials played upon effectively from time to time during the 1990s.
On Capitol Hill, legislation to normalize trade with China got overwhelming bipartisan support in the Senate, where it passed, 83 votes to 15. Even in the House, where Democrats were split on the issue, the president received support from three-quarters of the Republicans, and the legislation passed by a wide margin, 237 to 197.
President Clinton signed the legislation at the White House in early October, and China joined the WTO 14 months later, on Dec. 11, 2001.
So How Did the U.S. Trade Opening with China Work Out?
For many, America's trade with China has not lived up to the enthusiastic advance billing from the Clinton administration, its Republican supporters on Capitol Hill and Corporate America.
Expanded trade with China has, in fact, been a blessing for large U.S. multinationals like Boeing, Caterpillar, and Cargill, which had trumpeted the prospect of a massive Chinese market for American products and services. China is the world's fastest growing market for commercial aviation, and needs billions of dollars worth of airplanes from Boeing. Its growing infrastructure has been a boon for companies like Caterpillar, which produces tractors and other heavy equipment. And it is importing billions of dollars worth of farm products, a boon to companies like Cargill. Last year, China bought $2.9 billion worth of soybeans -- the top U.S. export crop to China. China also has proven to be a growing market for U.S.-made fertilizer and chemicals.
But China has been a tougher market to crack for smaller and mid-sized American companies, like those selling bicycles, vacuum cleaners, and lawn mowers, who face stiff price competition from Chinese manufacturers of these products. And they also face discriminatory rules, burdensome red tape, language difficulties, and a population that earns only a fraction of what U.S. consumers make, and therefore lacks the purchasing power to buy consumer goods made in America.
Yvonne Smith, the communications director at the Port of Long Beach, literally sees the imbalance in U.S.-China trade. She reports that through Long Beach alone, the U.S. is importing $36 billion in goods yearly from China and exporting just $3 billion. By her account, the mix of products is very unfavorable to the U.S.
"We export cotton, we import clothing," Smith reports. "We export hides, we bring in shoes. We export scrap metal. We bring back machinery. We're exporting waste paper, we bring back cardboard boxes with products inside them."
Overall, the U.S. trade deficit with China reached a record $124 billion dollars in 2003 and the figure is headed even higher this year. Today, U.S. imports from China outpace U.S. exports to China by more than five to one, and the deficit shows no signs of abating.
These deficits are much larger than the trade deficits that the United States experienced in the 1980s and 1990s with Asian trading partners such as Japan. Put in historical perspective, America's current trade deficit with China is roughly double what it was at its height with Japan in the mid-1980s, when trade frictions between the U.S. and Japan led Sen. Lloyd Bentsen (D-Texas) to famously declare on the floor of the U.S. Senate: "We're in a trade war, and we're losing it."
Does the Trade Deficit with China Matter?
Economists disagree about the significance of the U.S. trade deficit with China. The U.S.-China Economic and Security Review Commission, a 12-member panel set up by Congress several years ago to report annually on our relations with China, says the burgeoning trade deficit is a matter of "long-term economic health and national security" for the U.S.
Conservative economist Paul Craig Roberts, who served in the Reagan administration, predicts the trade deficit will cause a crash of the U.S. dollar before long, and warns that the U.S. will wind up having a third-world economy, supplying raw-materials to other countries, who then ship back finished goods to the U.S. Economist Larry Mishel, president of the liberal Economic Policy Institute, contends that the trade deficit with China has cost the United States more than a million jobs over the past decade.
But free-traders like Washington Times columnist Bruce Bartlett argue that the U.S. can afford high trade deficits with countries like China because China and other countries from which we buy consumer goods turn around and invest roughly $500 billion a year of their capital in the U.S. economy.
"Economic theory tells us that if we ever reach the point where it becomes a problem, there is an automatic adjustment mechanism, which is that the dollar will fall in value," Bartlett says. "When the dollar falls, then that makes U.S. exports cheaper on the international market in terms of foreign currencies and it makes imports more expensive in terms of dollars."
Brink Lindsey, economist and vice president for research at the libertarian Cato Institute in Washington, adds that the bilateral trade deficit with China should not worry Washington. "Bilateral trade deficits don't matter at all -- except politically," Lindsey asserts. "It's an eyesore, politically, that we sell less to China than we buy. And it drives up protectionist pressures, so in that sense it's something to be concerned about. But as far as economic fundamentals, the fact that we run a trade deficit with China doesn't particularly matter. What matters is our overall trade balance."
However, it is the overall trade balance, now running at more than $500 billion a year, that worries some on Wall Street, as well as economists such as Larry Mishel.
"We have a trade deficit now that's running around 5 percent of GDP," says Mishel. "This is very large by historical standards, and you run the risk of foreign investors losing confidence in the United States, pulling back from the dollar, the exchange rate falling, and interest rates rising, and all that could cause a major recession in the United States."
Another reason for concern about the trade deficit with China among American industrialists and the U.S. labor movement is the size of China's massive population. With a workforce that is far larger than the combined populations of Japan, Korea and the other so-called "Asian Tigers," China is fast becoming the world's primary factory, producing everything from footwear, clothing, furniture, toys, and computers to big-screen television sets, lasers, space components and huge port cranes.
Analysts concerned with long-term U.S. economic security see China's seemingly inexhaustible supply of cheap labor, coupled with the Chinese government's commitment to a rapid development strategy and the movement of Chinese industries into high-tech sectors, as posing a long-term threat to American producers across the board.
Is There a Level Playing Field?
Some critics of U.S. trade policy with China complain the main problem is that the commercial playing field is tilted toward China. Alan Tonelson, a research fellow at the U.S. Business and Industry Council, an association of small and mid-sized businesses, says the Chinese government gives its companies huge advantages. "They subsidize land costs," he says. "They forgive taxes, they subsidize fuel costs, and they also give a subsidy when you export. We don't subsidize exports at all. We don't subsidize production."
Many American trade lawyers agree with the U.S.-China Economic and Security Review Commission, which gives China poor marks on living up to its trade obligations under rules of the World Trade Organization, and urges the Bush administration to pressure Beijing on a number of issues, including the country's exchange rate policies, which has a big impact on the cost of its exports.
China's currency, which is pegged to the U.S. dollar, is a major point of contention with many U.S. manufacturers and trade groups. Skip Hartquist, an attorney at Collier Shannon Scott, a Washington law firm that specializes in international trade matters, estimates that Chinese manufacturers get an unfair advantage because the Chinese currency is undervalued by about 40 percent, making Chinese products much cheaper for Americans to import. Many American manufacturers share this view.
Americans in industry and in Congress are not alone in calling on China to revalue its currency and let it float freely on the market. The International Monetary Fund appealed in September for the Chinese to uncouple the Chinese yuan from its fixed rate to the dollar. Rodrigo de Rato, the IMF Managing Director, declared: "There should be more flexible currencies, not only for China but the whole of Asia."
Privately, the Bush administration has added its voice for Chinese currency revaluation, but without pressing the issue vigorously in public. Some administration economists fear a run on the yuan and a bank collapse in China if exchange rates are altered too quickly.
Is Chinese Dumping Hurting U.S. Industry?
Another major source of friction between the U.S. and China has been the fairly frequent American charge that Chinese producers are guilty of dumping -- that is, producing exports and selling them in the U.S. below the price in China, or below what it costs to manufacture and ship abroad.
In recent years, U.S. companies in a variety of industrial sectors have brought trade complaints to the International Trade Commission (ITC), an independent, nonpartisan, quasi-judicial federal agency in Washington that provides trade expertise to both the legislative and executive branches of government, determines the impact of imports on U.S. industries, and directs actions against certain unfair trade practices, such as patent, trademark, and copyright infringement. The American companies have accused Chinese companies of dumping everything from shrimp to household goods like brushes and plastic bags, from tissue paper and bedroom furniture to color television sets.
"It's not a matter of China versus the U.S.," says Hartquist, who has represented several American companies in anti-dumping cases against the Chinese. "It's a matter of the Chinese producers are pricing their products in a manner that simply doesn't allow anybody else in the world to compete with that, and that's not fair," he says.
Earlier this year, the ITC gave relief to a company Hartquist represents, Five Rivers Electronic Innovations, located in Greeneville, Tenn. It employs more than 700 workers, and is the last American-owned color TV maker in the U.S.
In May 2003, Five Rivers filed an anti-dumping petition in Washington, charging that color television makers in China were illegally dumping their larger-sized color sets in the U.S., thereby threatening to put Five Rivers out of business. The company tracked TV imports from China and found that sales of the Chinese televisions skyrocketed from just over 50,000 sets in 2001 to 1.5 million sets during the first nine months of 2003.
Last December, Five Rivers CEO Tom Hopson told a congressional committee, "Imports of large screen TVs from China have created havoc in the U.S. marketplace. In my 24 years in the television business, I have never a similar or more worrisome situation."
In May 2004, the ITC unanimously agreed that the surge of these imports from China had injured Five Rivers, and then imposed duties averaging about 23 percent on these sets.
Hopson says without the decision, Five Rivers would have gone out of business. "I strongly believe that we would have already closed this factory," he says. "Had we not found the data … we would have looked very strongly at … laying our employees off."
The Current Political Debate in Washington
Although the ITC is an important forum for resolving individual trade disputes, it does not set U.S. trade policy. The White House, the Department of Commerce, the U.S. Trade Representative, and Congress are the leading policy players, and in the four years since President Clinton signed the permanent normal trade relations agreement with China, Republicans and Democrats have clashed over how to implement it.
Sen. Fritz Hollings (D-S.C.) and Rep. Sander Levin (D-Mich.), a leading member of the House Ways and Means Committee, have charged President Bush and his administration with a lax approach to trade with China. Hollings has warned of the imminent collapse of the Carolina textile industry under the pressure of Chinese competition. Levin has called on the administration to publicly cite China for manipulating its currency, police China's adherence to trade agreements more vigorously, and trigger various safeguard provisions designed to protect American industries.
"We have failed to make trade more of a two-way street," Levin asserts. "There is within the administration … the thought that the more trade the better, and it doesn't matter how it is done. It's a kind of hands-off approach to trade."
Republicans from rust-belt states like Ohio and Pennsylvania have also urged more vigorous defense of U.S. manufacturing. Sen. George Voinovich (R-Ohio) has bemoaned his state's double-digit job losses in manufacturing in the last few years, and he has introduced legislation calling for a more aggressive approach by the U.S. Treasury Department in dealing with China's currency practices. Rep. Phil English (R-Penn.) has introduced several bills to give the Treasury Department, the Department of Commerce, and the U.S. Trade Representative new tools and more authority to level the economic playing field with China.
In response, the Bush administration and its supporters have pointed to the benefit to American consumers from a flood of low-cost Chinese imports.
"We tend to focus on the cost, that imports clearly are a challenge to U.S. businesses that compete against those imports, says Brink Lindsey of the Cato Institute. "But we can't forget that those imports didn't just wash up here on American shores unbidden. They came here because people wanted to buy them," he argues.
In addition, the administration has taken action to aid U.S. apparel makers recently by limiting Chinese imports of knit fabrics, robes and bras. Earlier this year, it filed its first formal complaint against China at the WTO, accusing Beijing of giving illegal rebates to domestic semiconductor producers -- tax breaks that weren't available to exporters of these products to China.
In March, U.S. Trade Representative Robert Zoellick issued a statement asserting that, "As a WTO member, China must live up to its WTO obligations; it cannot impose measures that discriminate against U.S. products." The issue was soon resolved when China agreed to end the practice of illegal rebates to Chinese semiconductor producers.
On larger issues, such as the charge that the Chinese government is manipulating its currency to gain a trade advantage, the administration has moved cautiously. Treasury Secretary John Snow is reported to have raised the currency issue in high-level private talks, but the administration has been hesitant to press the Chinese hard, arguing that quick currency changes could upset China's precarious banking system.
On another tack, the administration has tried to reduce the trade deficit by trying to boost U.S. exports to China. Exports have increased significantly in the past few years, but not nearly as much as the flood of Chinese imports to the U.S.
What's the Outlook?
Controversy over the issue of trade with China seems destined to sharpen in the second Bush administration, as America's trade deficit with China rises still further and as more industries are hit by competition from China.
The single most significant challenge that looms immediately on the economic horizon is the scheduled lifting of worldwide textile quotas at the end of 2004. American textile experts and other economists warn that once the quotas are gone, China's cheap labor market will act as a magnet, drawing in millions of textile and apparel jobs from around the world, and eliminating hundreds of thousands of jobs in the U.S. at companies making products as diverse as sheets, towels, pillowcases, t-shirts, and socks.
Some U.S. textile groups predict a flood of trade cases in Washington to try to prevent the shift in U.S. jobs before it gains dangerous momentum. Retailers and importers, however, say protectionist moves won't help workers. They contend that in the long run, such measures will only hurt consumers.
Others, such as Alan Tonelson of the U.S. Business and Industry Council, argue that the U.S. needs to change course and raise trade barriers. "We have to recognize that our trade and manufacturing crisis has become so grave that we have no choice but to start thinking seriously about restricting trade in various ways," Tonelson asserts.
He contends that the majority consensus on the benefits of trade with China was wrong a few years ago. "China had too much production power and too little consumption power to be digested into the world trading system all at once," he says. To Tonelson, this is why the U.S. is hemorrhaging jobs to China.
Free-traders like Brink Lindsey of the Cato Institute take issue with that assessment. "Trade policy, or trade flows, one way or another don't have an effect on overall employment numbers," says Lindsey. "They affect the kinds of jobs we have. And so some number of jobs have definitely been eliminated because of Chinese competition. Elsewhere in the economy, other jobs have been created because of Chinese competition. Because American consumers have saved at Wal-Mart buying Chinese goods, they've got more money in their pocket to buy something else, which creates business opportunities for those other business, which means they hire workers they would not have hired, otherwise. The net effect, most economists think, is a wash."
But there is no consensus on that view either. "Theoretically, the gains from trade offset the losses from trade," observes Larry Mishel, president of the Economic Policy Institute. "But nothing says there were more winners than losers, and nothing says that for the bottom three-fourths of America that they are net gainers. In fact, I believe that most people have been losers from trade."
Ned Barker is the associate producer on "Is Wal-Mart Good for America?"
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/china/trade.html
Great find there Nick, Well done! It backs up alot of what I have posted recently about Americans being sold out. It is deplorable.
:mad:
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