What to Do About Wal-Mart?

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JULY 2006

What to Do About Wal-Mart?

by Todd Steen and Steve VanderVeen

Even though eight in ten Americans shop at Wal-Mart, it is one of America’s most reviled retailers. According to a recent Zogby International poll (26 December 2005), fifty-six percent of Americans agree that “Wal- Mart is bad for America.” Christians as a group seem similarly conflicted about the chain, as their actions range from an active embrace of it through casual use to concerted opposition. So what should Christians do about Wal-Mart?

History

To understand the issues that feed the debate about Wal-Mart, it is helpful to understand the principles on which it was founded. During the Great Depression Sam Walton enrolled at the University of Missouri and majored in economics; he also worked as a part-time clerk in a local five-and-dime store. Upon graduation Walton took a job as a management trainee with retailer JC Penney and learned the “Penney Idea” of putting customer satisfaction ahead of company profits. JC Penney was also known for locating stores in small towns and cities.

Following World War II Walton operated a Ben Franklin Variety Store in Newport, Arkansas, before moving to Big MartBentonville (the current headquarters of Wal-Mart), where he took over an existing variety store and re-named it Walton Five-and-Dime. The process of simultaneously opening that store and closing the one in Newport gave him the idea that he could operate stores in multiple towns. By the late 1950s Walton owned eleven variety stores. He had also discovered the “Kmart Concept” of discount retailing developed by Harry Cunningham, the successor to retail tycoon S.S. Kresge.

Walton first tried to blend the Penney Idea and the Kmart Concept as a Ben Franklin franchisee; he would buy direct in large quantities and offer discount prices to consumers. When the Ben Franklin executives rebuffed his idea, Walton decided to go out on his own. He opened his first discount retail store, “Wal-Mart,” in 1962. Unlike Kmart, he focused on small towns, and he designed his stores after those of a regional discount retailer named Gibson’s, which sold “marked down goods off shelves of minimally decorated barn-like stores.”1

Today Wal-Mart operates more than 5000 stores and wholesale clubs worldwide, generating more than $285 billion in revenue. It serves 15.7 million customers daily, accounts for thirty five percent of all dog food and twenty four percent of all toothpaste sold in the United States, and is projected to have a market capitalization of $11.1 trillion by the year 2020. Through its tremendous success and growth, its purpose appears to have remained the same: to give the customers what they want. And what customers want more than anything else, it seems, is low prices.

Issues

Nonetheless, not everyone is satisfied. One of Wal-Mart’s biggest critics, the Center for Community and Corporate Ethics (sponsor of Wal-Mart Watch), argues that Wal-Mart’s low prices hide many costs. The first is an invisible tax: Wal-Mart receives federal subsidies of over $1.5 billion annually in the form of tax breaks and infrastructure development. In addition, Wal-Mart’s pay structure forces many of its employees to “rely on Medicaid, food stamps, and public housing assistance to make ends meet” (Wal-Mart Watch Annual Report, 2005 [WWAR], p. 4). Third, Wal-Mart either drives down wages for employees at other retailers or drives out local competitors, especially in rural markets. Thus in the long run, small towns lose their tax base and Wal-Mart customers end up with decaying downtown areas. Fourth, consumers who shop at Wal-Mart encourage it to scour the globe for lowpriced products, reducing demand for jobs in the United States.

Furthermore, the critics claim that Wal-Mart’s buying power and drive for lower supplier prices have promoted “harmful business practices” like sex discrimination, anti-union activities, the tolerance of sweatshop abuses, and forcing employees to work overtime after they have clocked out. Then there are environmental costs such as “the loss of open space and homogenization of rural landscapes; worsening traffic adding to air quality degradation; deterioration of historic commercial centers; loss of wildlife habitat to Wal-Mart sprawl; and hundreds of abandoned buildings and parking lots left behind as Wal-Mart closes stores and opens larger Supercenters elsewhere, often just steps away” (WWAR, 2005, p. 11). Finally, opponents have faulted Wal-Mart for reducing cultural heterogeneity, although this charge could be leveled at most “big box” and “chain stores.” In fact, the activities of most large retailers entail the same costs as those charged to Wal-Mart, although other companies receive much less attention and rebuke.

Responses from Christians

Christians have responded in a variety of ways to the Wal-Mart business model. Many have actively embraced it. Because Wal-Mart gives them low prices, shopping there becomes an exercise in stewardship–and for poor people, a lifeline to making ends meet.

This response gives little consideration to the methods of Wal-Mart and their impact on workers, the environment, and other businesses. Other Christians laud Wal-Mart as a paragon of capitalistic efficiency. For these believers the capitalistic system, while not perfect, is the best system available, especially in a fallen world. In particular it offers the best route for countries to develop and to provide the goods that are necessary for their people to flourish. Wal-Mart therefore should be appreciated for its ability to deliver goods efficiently and at very low costs. In this view the benefits again outweigh the costs, but both are seen solely within an economic context.A third, more critical response sees Christians making a conscious choice to shop at Wal-Mart despite some misgivings about its methods. After all, the money saved by shopping at Wal-Mart can be devoted to “kingdom causes,” a benefit that outweighs any ethical issues involved. This argument is also heard from Christians when they choose jobs that provide higher salaries but may involve some questionable ethical issues, or when Christians invest in the stock market principally for the financial returns of the stock they choose to purchase.

Other Christians take a much less charitable view of Wal-Mart. Some in this fourth group have a general distrust of the company based on reports that they have heard, and choose to avoid this store while still shopping at similar (ironically, “Wal- Mart wannabee”) stores such as Target and Kmart. In this view Wal-Mart seems more ethically challenged than these other stores, although this impression may be based solely on the fact that Wal-Mart is in the news more.

A fifth group of Christians take a much more active approach, not only against Wal-Mart but against all its big-box kin. In their eyes such companies are unethical due to their size, reflecting an assumption that small enterprises cannot become large without sacrificing some moral standards. These Christians attempt to live out their ethical convictions by shopping at small businesses wherever possible, believing that keeping their money “close to home” is a good way to support the local community. In practice, however, dealing primarily with local businesses is almost impossible. Automobiles, appliances, and many other products that we consume are produced by large companies, and have to be if they are to be affordable. When we travel, we use large airlines and often stay at hotels that are part of multinational chains. The facts on the ground make it difficult to maintain a consistent ethical approach.

Often Christians in this group also have a significant antipathy toward globalization in general and oppose Wal- Mart as a major factor promoting that trend. They have substantial concerns for the poor in developing countries and support initiatives such as fair-trade coffee. While these concerns are appropriate, there is little consideration of the possibility that globalization may in some cases benefit those who need it most.

Finally, some Christians actively oppose Wal-Mart as the embodiment and cause of consumerism and materialism. Their response is to promote “simple lifestyles”–reducing their consumption of goods whenever possible, while being good stewards of the resources that they possess. This type of behavior is defended as being very beneficial to the environment and to the poor of the world because it consumes fewer resources. Critics reply, however, that a simple lifestyle too can carry hidden costs; if it were adopted by a majority of the population, many jobs based on people’s current consumption patterns would of necessity fall by the wayside.

All of these responses by Christians are understandable reactions to the ethical issues that emerge from the rise of large discount retailers such as Wal- Mart. The fundamental issue that needs to be addressed, however, is that Wal- Mart succeeds because it gives most consumers what they want: low prices. While seeking low prices is not a bad policy for Christians to follow per se, we believe that as long as the primary criterion in choosing stores is low prices, many of the costs associated with low prices will remain. We think Christians need to move away from the one-dimensional criterion of price to multi-dimensional criteria so that price is but one consideration in store choice. Collectively, the criteria involved should fit within a holistic vision of shalom.

A Vision for Shalom

As outlined by Nicholas Wolterstorff in his book Until Justice and Peace Embrace (Eerdmans, 1983), the biblical notion of shalom not only describes a future condition but also prescribes what we must strive for now. The idea includes the goodness of, and our consequent delight in, three interrelated sets of right and harmonious relationships: the first, “to God and delight in his service;” the second, “to other human beings and delight in human community;” the third, “to nature and delight in our physical surroundings” (70). 

As Christians we often can find it convenient to blame businesses for practices that we find unethical, immoral, or challenged in terms of stewardship. Always Low PricesHowever, in many ways, Wal-Mart and its practices are merely a response to our preferences as we express them in the marketplace. Businesses respond to consumers’ desires, a phenomenon that the economics literature calls “consumer sovereignty.” Consumers search for the lowest prices on goods while rarely considering other aspects of the product (how it was made, its impact on the environment, etc.). For example, how many Sunday mornings have we spent preparing for worship by searching through the flyers that come with the Sunday paper looking for “deals”? It should be no surprise to us that Wal-Mart has become so successful with the slogan “Always Low Prices.”

At the same time, as investors, we often focus in on companies that generate the highest financial returns. The financial pages of our newspapers are filled mostly by numbers, with very little information on broader issues. As employees at various companies we also tend to emphasize our self-interest. How many workers go on strike so that the company will promote greater care for the environment or become a better neighbor in the community? How often do we encourage our company or organization to promote the “webbing together of God, humans, and all creation in justice, fulfillment, and delight,”2 even if that means a smaller raise for next year? It is unreasonable for us to expect businesses on their own to promote shalom if we care only about getting the greatest returns, the lowest prices, or the highest wages and fringe benefits.

In order to exercise stewardship and promote shalom in the marketplace, Christians need to understand the interlocking relationships between four groups in our economy: consumers, businesses, investors, and employees. Businesses depend on consumers to buy their products. Businesses also need to have employees to produce and sell goods and services, as well as investors who will finance the enterprise. The decisions that business managers make have significant implications for all of these groups, because all of these groups (including other businesses) operate interdependently. When one business, or even one employee or consumer, attempts to pursue justice, fulfillment, and delight, this has consequences for everyone involved.

For example, firms may choose to spend more on a certain technology in order not to pass the costs of pollution on to the firm’s neighbors. This can result in one or more of the following consequences: higher prices, lower profits, and lower wages and salaries. A business can attempt to make stewardly decisions everywhere it can, but if consumers will not buy its products, its efforts will be in vain. If workers will not work for this company at lower wages, or if investors and suppliers will not accept lower monetary returns in exchange for greater efforts at shalom, the competitive process that predominates in our marketplace will drive this company out of business.

In addition to the four groups mentioned above, the government also plays a major role in controlling the workings of the marketplace. While few of us are directly involved in government, we can vote for officials who will create an environment where shalom is possible. Currently in many cases, existing legislation and government institutions prevent businesses, workers, consumers, and investors from making wise decisions.

Thus Christians need to recognize the seriousness of their roles as consumers, managers, investors, and employees as well as citizens. Businesses will not rise to the high expectation of advancing shalom without the efforts of all of these groups together.

We believe that as Christians we need to develop covenantal relationships and commit to working with businesses that want to move in this direction. When people make covenants with each other, as opposed to contracts, they tend to go beyond what is normally required of them. People who enter covenants are willing to make sacrifices in order to promote a larger vision. While contracts can be made with people of diverse worldviews, covenants, says Christian businessman Max DePree, rest on “shared commitment to ideas, to values, to goals, and to management processes.”3

How Then Shall We Shop?

The simple answer to this question is to broaden our decision-making criteria to include more than searching out the lowest price. But this is a most difficult answer to implement, for it requires that consumers, businesses, investors, and employees have the same overarching commitment to the biblical notion of shalom.

Suppose we decide to shop at the neighborhood store, where we know we will pay more for toothpaste than we would at Wal- Mart. The question is: What is the benefit of paying the extra cost? Perhaps that store owner just hired an at-risk youth so, at least initially, the owner is sacrificing some efficiency, which leads to higher prices and/or lower profits. Unfortunately, the owner likely has already paid more for that toothpaste because she buys in smaller quantities than does Wal-Mart. Then we have to imagine what the surrounding neighborhood would look like without the store. If the owner charges extra high prices, we have to determine whether those extra dollars are lining the investor’s pockets or being reinvested back into the neighborhood. Likewise, we need think about other related businesses: What is the banker doing with the interest income that he earns from the mortgage on the building? What is the manufacturer of the toothpaste doing with its profits? Obviously, the choice to expand our decision-making criteria beyond price makes shopping much more complicated, but if we have a vision for shalom, we must try.

Technology might help us gather information in order to make better decisions about the products that we buy. But more important than information is the need for a covenantal community built around a shared vision of shalom. Absent these relationships and this vision, there is always Wal-Mart and the conflict among Christians over what we think about that giant and our shopping behavior. There is something to be said for capitalist efficiency, for saving money, and for putting the savings in the collection plate. But there is a whole lot more to say for shalom.

Notes:

1 Vance H. Trimble, Sam Walton (New York: Dutton/Penguin Books, 1990), 99.

2 Cornelius Plantinga, Engaging God’s World: A Christian Vision of Faith, Learning, and Living (Grand Rapids: Eerdmans, 2002), 14.

3Leadership is an Art (New York: Dell/Bantam/ Doubleday, 1989), 60.

 

Todd Steen is a professor of economics at Hope College in Holland, Michgan.
Steve VanderVeen is a professor of management at Hope College in Holland, Michigan.