Posted on 01/01/2006 3:06:28 PM PST by flixxx
The Wal-Mart Model
The American economy continues to surge ahead, though you won't read much about it in mainstream media. Economic growth in the third quarter was 4.1 percent--despite Hurricane Katrina!--the 10th consecutive quarter with growth over 3 percent. Unemployment is 5.0 percent--lower than the average for the 1970s, 1980s, or 1990s. Since April 2003 the economy has created a net 5.1 million new jobs. Core inflation is only 2.1 percent, and gas prices, which surged above $3 a gallon after Katrina, are now down around $2. Productivity growth for the five-year period of 2000-2005 is 3.4 percent, the highest of any five-year period in 50 years.
This is a remarkable performance and owes something surely to the Bush tax cuts and to Alan Greenspan's stewardship at the Federal Reserve. But it also tells us something broader about the American economy. Mainstream media coverage about the economy tends to be full of bad news, especially during Republican administrations, and to focus on economic problems. But over the longer term the story of the American economy is one of success. A quarter century ago many economic commentators said that the era of low-inflation, high-job-creation economic growth was over. In the ensuing 25 years it has come to be the norm.
The negative bias of economic coverage can be seen in stories about the current No. 1 private-sector employer in America, Wal-Mart, and the No. 1 employer back in the 1970s, General Motors. The GM story is genuinely grim: The company is laying off thousands of workers and closing plants and is threatened with bankruptcy. Stories about Wal-Mart tend to focus on allegedly low wages and healthcare benefits, and to say less about the company's continual profitability and the low prices that benefit consumers. These companies are not entirely comparable; they're in different businesses. But some of the differences between them illustrate why the American economy, which seemed to have run out of gas 25 years ago, is now doing so well.
One big difference is this: General Motors' business model was designed for a static economy; Wal-Mart's for a dynamic economy. From the 1930s, GM--as one of only three major automakers--was able to pass along to consumers the high costs imposed by wages, pensions, and health benefits negotiated with the United Auto Workers. When emerging foreign competition started to make life tougher for Detroit executives in the 1970s, they tried to insulate themselves with government tariffs and domestic-content requirements. More recently, they've tried to offload their high healthcare costs onto the government. Wal-Mart, in contrast, started off with many retail competitors and has sought more, by taking on supermarkets. It competes by holding down costs and prices for consumers.
Quick reaction. Wal-Mart has been much more skilled at adapting to market conditions. Its computers keep it instantly apprised of sales, and its distribution system keeps stores stocked with items consumers want. Someone making a 3-ton car cannot adapt so quickly, but even so it still takes GM years to get new models on the market--and often they're not what consumers turn out to want.
Then there are employment costs. Yes, Wal-Mart does not pay high wages or provide healthcare benefits to all employees. But not all workers today want full-time jobs (they may want to be home when kids return from school) or health insurance (many are covered by a spouse's policy or Medicare). And Wal-Mart promotes from within: You can work your way up from the store floor to management ranks. GM and the UAW, in contrast, insist on a sharp line between labor and management, with all employees working full time and getting full benefits. That made sense when almost all workers were men supporting families. But it is a poor fit with a labor market in which many workers are women, teenagers, or retirees seeking extra income.
In retrospect it's not so surprising that 25 years ago, when GM was deemed the prototypical firm, experts were pessimistic about the American economy. They failed to foresee that more nimble firms like Wal-Mart would rise and would supply the amazing resilience that has enabled the American economy to thrive, as Greenspan has observed, even when hit by calamities like September 11 and Katrina.
Walmart is the devil!
:) HA!
It's Bush's Fault!
I thought it was Karl Rove's?
Barone is the best. Why is Walmart successful? Speed and flexibility. Especially speed to able to adapt quickly. In the modern business world, speed = strength.
"Attention Wal-Mart bashers..."
As recently as 2003 GM's net income was in excess of $4 billion dollars. It had unions then. It had pension and health care costs then, too. It also had products which people wanted to buy. In the last three years as the cost of fuel has doubled the big honking SUVs that GM made so much money on and which it bet it's future on have lost a lot of their lusture, and GM management never positioned itself for the next round of new products. You have to blame the leadership for that more than the unions or the health care costs.
The Wal-Mart Model
The Wal-Mart model is based in no small part on what has become the corporate model for the entire country. Employees are not assets, they're liabilities. Keep salaries low, discourage long term employees, and never stop looking for ways to cut what benefits you do offer. Companies like Costco sell their products just as cheaply as Sam's Club, their stock price is doing a lot better that Wal-Mart, and they provide a much higher salary and quality of benefits to more of their employees than Wal-Mart does. They find that these costs are more than offset by reduced recruiting and training costs, the ability to attract a higher quality of employee thus needing fewer of them, and possibly through increased customer satisfaction.
Cheap whine spill in Aisle Three!
You're both wrong. Everyone knows it's the Whitehouse nightshift pastry chef.
Costco also fires employees for their moral convictions. In Canada a guy lost his job when his Knights of Columbus hall wouldn't rent out to another Costco employee for her gay "wedding reception."
If I remember right, GM had nothing but negative coverage back in the 1970's when it had 60% share of the market. There were plenty of left wingers saying GM had to be broken up by the government in order for its competitors to survive. Looks like the left is against whoever is on top at a given point in time.
I was just checking the threads while my wife is out at Walmart. She had to return to the store since the Electric razor/trimmer we bought to cut our sons hair was already used.
Imagine opening a new product, or so you think and seeing someone elses hair come tumbling out. I told her to just return it as I'll pay the extra $2 for a clean product from Target.
Not that it will affect their overall success but that can turn you off to the whole chain.
Wal-Mart treats its employees fairly. If they have a problem, they can talk to anyone in management. They don't need a union to hold their hand and nobody is holding a gun to their head demanding that they work there.
Keep salaries low, discourage long term employees, and never stop looking for ways to cut what benefits you do offer.
Most Wal-Mart employees are part-time (students or those using Wal-Mart as a second job) or semi-retirees. They either refuse to take the benefits, are ineligible for them because they're new hires or some other reason (not because of Wal-Mart) or already have benefits. As for long term employees, please - Wal-Mart is one of the few companies that strongly promotes from within. A lowly cart pusher can work his way up into assistant manager, for example.
Excellent article.
That's not germane to Wal-Mart being the pre-eminent employer in the nation and earning $10 billion in profit.
ROFLMSS!!!!!
Dang and this looked so much like a thread with great potential :)
Bumping for Monday Morning Coffee Break. :)
Works for me!!!
See you in the morning :)
They will come out the woodwork with the same old tired phrases, you know the ones---ALL they sell is stuff made in China, etc...... Can't wait for the old tough guy, Kelly, to start the insults again.
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