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Frontline: Is Wal-Mart Good For America?

Hedrick Smith
Senior Producer, Correspondent
Wednesday, November 17, 2004; 11:00 AM

Frontline offers two starkly contrasting images: one of empty storefronts in Circleville, Ohio, where the local TV manufacturing plant has closed down; the other -- a sea of high rises in the South China boomtown of Shenzhen. The connection between American job losses and soaring Chinese exports? Wal-Mart.

For Wal-Mart, China has become the cheapest, most reliable production platform in the world, the source of up to $25 billion in annual imports that help the company deliver everyday low prices to 100 million customers a week. But while some economists credit Wal-Mart's single-minded focus on low costs with helping contain U.S. inflation, others charge that the company is the main force driving the massive overseas shift to China in the production of American consumer goods, resulting in hundreds of thousands of lost jobs and a lower standard of living here at home.

Watch "Is Wal-Mart Good For America?" on Tuesday, Nov. 16, at 9 p.m. ET on PBS (check local listings). Producer/correspondent Hedrick Smith was online Wednesday, Nov. 17, at 11 a.m. ET to discuss the report.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.


washingtonpost.com: Thank you for joining us today Hedrick.

Given today's news of a merger between Sears and K-Mart, creating a potential real competitor for Wal-Mart, do you think the newly combined companies will mimic the Wal-Mart model and, if so, what does that mean for the future of U.S. manufacturing? Is Wal-Mart's other biggest competitor -- Target -- also relying heavily on goods manufactured in China?

Hedrick Smith: Kmart in particular but also Sears went to China and Asia to start buying foreign imports several years before Walmart. Walmart was playing catch up when it went to Asia in the late 1970's but it was much more efficient in running its supply chain and logistics, so it overtook the others. But they have all been following the same model for the past 20 years and I don't think the merger is going to change that. It will just accelerate the trend because the competition is going to get hotter.

This is an issue of not just one company - although Walmart is king of the hill and epitomizes the problem. But this is a problem for the country as a whole. How can we get a more level playing field in our trade with China? Do we need to make sure that our retailers and importers are always operating within the rules of trade established under the WTO? Can we be sure that they are not contracting to buy goods from Chinese producers that violate human rights and impose sweatshop conditions? Is the Chinese currencey fairly valued in the world market? If the Chinese value is traded fairly and rose against the dollar, wouldn't that make Chinese goods more expensive and make American based manufacturers more competitive? Would that protect more American jobs and help the American economy and raise standard of living?

The merger only emphasizes the importance of these issues and the need for public debate.


Hedrick Smith: Yes target is playing this game too. And it is a tough bargainer on prices and costs though the producers we talked with said that Target was not as inflexible and penny pinching as Walmart. One Chinese producer said to me, "At least Target understands that everyone has to make some profit, so they don't squeeze as hard as Walmart."


Groton, Conn.: Do you get the impression that Ross Perot was right in 1994 when he said the NAFTA & GATT treaties were going to be a giant sucking sound in terms of jobs leaving the country ?

Hedrick Smith: The problem with Walmart and the big box retailers is not primarily triggered by NAFTA, which relates to our trade with Mexico and Canada. But yes, Ross Perot was right in general when he was referring to trade agreements with countries that have much lower living standards and wage rates and environmental standards than the U.S. Other people like Alex Tonelson of the US Business and Industry Council make the argument that the U.S. is going to have big trade deficits and lose jobs when it has opened trading agreements with countries with third world economies. The real problem today is that China is so much larger than Mexico that it can have a much much larger impact on the U.S.

People like Tonelson argue that our trade agreements should be first and foremost trying to open up countries like Japan and Korea to American imports as well as given them full access to the American market because their living standards are much higher than China or Mexico. And their consumers can afford to buy many more of our products and that way there is a more even balance of trade.


Phoenixville, Pa.: I have read that 82 percent of American families made a Wal-Mart purchase last year and I would be willing to bet that the viewership of the Frontline feature was overwhelmingly from the 18 percent that didn't. Given that many of Wal-Mart's loyalists are employed by manufacturers that the global retail model is killing, how can that segment of the population be made aware of how dire and vast problem that Wal-mart represents is?

Hedrick Smith: Well, we're doing our best to give people the facts about the situation and there is evidence from the recent vote in Inglewood, Calif. to reject a Walmart supercenter and from the action of city councils from places such as Chicago represent that a growing proporation of the public is reevaluating the cost-benefit ratio of having Walmart come into communities with the potential impact on local businesses and local wage scales.

There are also a growing number of local ordinances that seek to put limits on the size of the big box retail stores to cushion the impact of this trend. So, public awareness seems to be growing, though perhaps not as rapidly as you would like.

It may interest you to know that we have just been told that the audience for this Frontline program on Walmart was the largest for any Frontine program since 2001, except for "The Choice" which is Frontline's profile of the two presidential candidates once every four years. So there's real interest in the topic and our phones are ringing off the hook.


Buffalo, N.Y.:
Overall., are U.S. goods -- be they raw or finished products -- subject to more or less tariffs than the products that are brought in from overseas?

Manufacturing labor rates aside, the U.S. should be producing SOME goods or services that are sought after in the world economy. Are we competing in a level field?

Hedrick Smith: That's a very complicated question. That would require an experienced trade official or attorney to answer. There's no question that U.S. exports of goods and services are subject either to tariffs or to bureacratic red tape and procedures that reduce our ability to export as much as we would like. This is true, for example in a country like Japan, sometimes the health requirements are cited by the local government as a reason for restricting American imports and there are a lot of other bureacratic reasons cited.

But this varies from country to country. Obviously the purpose of hte World Trade Organization is to reduce artificial barriers for the free flow of trade and reduce and eliminate tariffs. That is why so many people in Washington were eager to bring China intto the WTO with the hope that Chinese restrictions on foreign imports on goods and services would be reduced. We are told that it is happening but still there are a lot of American manufacturers -- like Walmart -- who still feel and complain about Chinese restraints on trade. If you want more details, you really need to talk to experts at the commerce departments or the international trade commission or the U.S. trade commissions office.


Charlottesville, Va.: Didn't Walmart, years ago, make a big deal about their products being "Made in America"? If so, were they being hypocritical then (doublespeak!), or is the China "partnership" something newer than that?

Hedrick Smith: You're right. Walmart did have a "Buy america" program from 1985-1992. There is an excellent piece on the PBS Frontline's Is Wal-Mart Good for America? website by Sam Hornblower that puts this program in context. I recommend you read it.

The truth is that even in the days of Sam Walton, Walmart was looking for cheap imports to bring into its stores. But the trend has accelerated dramatically since Walton's death in 1992. Walton himself estimated that Walmarts foreign imports at roughly six percent of its total sales in 1985 and recently the specialized magazine "Retail Forward" estimated that something over 50% of Walmarts non-grocery sales were imported products. So the picture has changed dramatically and even today Walmart CEO Lee Scott has been saying that Walmart wants to try to help American companies. But the record and the facts show that any special effort or concessions by Walmart to American suppliers - above and beyond any normal cost and delivery considerations - are a drop in a bucket compared to the enormous volume of their foreign imports, especially from China.


Peterboruogh, N.H.: In last night's program you did not go into extensive discussion of attempts to unionize Wal-Mart's work force, though you did have one interviewee who had been a manager and was not involved with unionizing. Could you discuss the outlook for labor reform at Wal-Mart?

Hedrick Smith: The added choice to try to break new ground and bring a bigger picture about Walmart's economic impact to viewers or to follow the path of more traditional coverage of Walmart which has looked extensively to Walmart's anti union policy and lawsuits charging Walmart with gender discrimination, complaints of Walmarts impact on mom and pop stores when it moves into new cities, and the impact of Walmarts wage scales on local wage rates as in the supermarket strikes in southern California last year -- we htough it was important to raise new and broader issues.

The union problem remains a thorny one. As you might have read recently, a union is trying to organize a union center in Quebec and Walmart has threatened to close down the store if the union tries to impose what Walmart regards as unacceptable conditions. That shows you the length to which Walmart's management is weilling to go to prevent unionization. That said, the SEIU, the Service Employee International Union, as well as the United Food and Commercial Workers Union have made organizing workers at Walmart a top priority. This battle is sure to heat up but it's hard to predict an outcome. However, based on past experience, the outlook is that Walmart will remain non-union.


Larkspur, Colo.: Is anyone connecting the dots between local government and their use of eminent domain to acquire private property, and the big box retailers like Wal-Mart, Target, Lowe's, Costco, Home Depot, etc., and master developers like Miller/Weingarten where the private property is transferred to these private parties for sales tax revenues? Is shifting manufacturing overseas by Wal-Mart the whole story, or is there much more? The redevelopment projects use tax dollars to underwrite these retailers. Who loses? Why small property owners, small businesses and America. Isn't private ownership of property one of the factors that has made America great?

Hedrick Smith: You got a couple of questions here.
1. I'm sure that some local jurisdictions have their attorneys examining the questions of eminent domains. THere are often sharp local disputes about the demands made by Walmart and other big box retailers on local government for the provision of services such as roads, powerlines, sewer and so forth at the cost of taxpayers thus reducing the overall construction costs for the retailer. This varies from one locality to another. In some instances, such as the one in circleville ohio on which we reported, the city government and specifically former Mayor Roy Wunch rejected Walmart's demands that the city spend several thousands of dollars to help bring in a new Walmart. Walmart went to the county government and got them to give them a subsidy. And so Walmart is building its supercenter just outside the city limits. The point of the story is that retailers such as Walmart play off jurisdications against each other with promise of jobs and sales tax revenues repaying the local government for its upfront investment.

However, the local governments don't always agree with the accounting by what Walmart has to offer. Some cities say that they are better off and some say they are worse off in several years.

2. Of course, there are lots of other issues about the business model that Walmart represents beyond the issues of job loss and foreign imports. I mentioned several of them in an earlier answer to N.H. who was asking about Walmart and unions.


Annapolis, Md.: I see Wal-Mart as a symptom of the current economic system -- not the problem. Wal-Mart is acting quite rationally within our free trade/global capitalist society.

Hedrick Smith: There are a lot of people who feel the way you do. And certainly, there is an argument that the trade agreements signed by the Clinton administration set a framework which Walmart has capitalized on, as we said in our program. Also, others argue that the Bush administration has been lax in enforcing the safeguards to protect American industry and American jobs, which were written into the trade agreements. So there are larger public policy issues at work here.

But the history of American capitalism shows that when too much power within any one sector of the economy gets concentrated in too few hands, either regulation or trust busting is the result. That certainly goes back to Teddy Roosevelt and the trust busters and more recently includes the break up of AT&T by judicial ruling. We may be approaching a time when either competitors, suppliers of Walmart or local communities or federal government will conclude that Walmart is acting in restraint of trade and against the public interest in healthy free market competition. Obviously, so far, no one has seen fit or reason to take such action but as Walmart grows beyond the $256 billion size of last year, and even with the merger today of Kmart and Sears, increased scrutiny of alogopoly of the retail sector seems likely.


Memphis, Tenn.: So what is the solution to bringing jobs back to America? Do we try to shift from a manufacturing country to a more highly-educated technology (or other) focused workforce? And how do we do that given the current state of the educational system in the U.S.?

Hedrick Smith: One first step would be for the U.S. government to openly and persistently press the Chinese government to revalue its currency relative to the U.S. dollar. If Chinese costs are raised through an increase of the value of the Chinese currency say, by 10, 20 or 40 percent as some U.S. manufacturers contend should be done, then that's going to save quit a few American companies and jobs without a major reshaping of the American economy.

The second step would be for a much more vigorous effort to be made to try to ensure that Chinese workers are actually being treated in a accordance with Chinese law to reduce unpaid overtime and sweatshop conditions. That also keeps Chinese production costs artificially low. Some people suggest that American importers like the big box retailers should be held responsible to certify that the goods they buy are produced under legal conditions that meet the rules of the WTO. Third, some of the middle and smaller manufacturers in America which find themselves on an intense competitive pressure from imports need help in modernizing their equipment and technology and it may well behoove state, local and federal governments to provide them assistance in order to protect the jobs, companies and tax revenues that they represent. The same goes for upgrading the education and technical qualifications of workers in these same enterprises.

So those are steps that can be taken far short of what you suggest. And having been to China and seen the way that Chinese industry is going high tech, I'm skeptical of people who advocate a strategy of the U.S. going more and more high tech in order to escape foreign competition at medium tech sectors because the Chinese and the Indians are going to chase us in the high tech sectors too. This is a mirage on the horizon and we'll never get there.

So we need to figure out in practical terms how we can compete with the world as it is. This may even mean renegotiating trade agreements in terms of our exports balancing foreign imports. We would have been a lot smarter in the late 1990's to have negotiated open trade agreements with Japan before we did it with China. Japan has a high enough standard of living that its population can afford American made goods. We used to have a problem with Japanese imports but after currency evaluations, the Japanese became less of a threat because the playing field became more leve. Before we do anything else, we need to make sure that the playing field with China is level so that our efficient producers have a chance to compete.


San Antonio, Tex.: Have you heard of any concers from the banking industry about Wal-Mart moving forward with it's own bank?

Hedrick Smith: Yes. As Walmart keeps moving into new sectors trying to become a universal retail service, each new area hit by Walmart complains so the bankers are complaining, worried about losing their business. But I don't know where the fight is coming out.


Poplar Bluff, Mo.: If one million jobs have been lost -- how many jobs has Wal-Mart created with good pay and benefits even for PT associates?

Hedrick Smith: Walmart employs 1.2 million people and I don't have at my fingertips how many it employed in the early 90's when the estimates of job loss to China begin. Nor do I have any details to precisely how many local mom and pop businesses had to shut down and how many jobs were lost when Walmart's supercenters moved in. Those job calculations are extremely complicated. One academic study in southern caifornia over the battles last year for plans of a spuer enter in inglewood estimated that for every two jobs Walmart creates by coming into an area, it destroys three others by putting local shops out of business. Certainly for people out of work and want temporary or part time jobs, Walmart is just what they are looking for and the jobs that they provide are important to these people. Talk to the people working for Walmart and they are generally enthusiastic for working for Walmart and grateful for thier jobs. Talk to people who have stopped working for Walmart - and Walmart has pretty significant turnover every year -- and many will tell you that the pay was low and sometimes over time is not paid and that its health benefits are meager and expensive and many employees have to rely on health benefits of their spouses. It depends on who you talk with. But the workers in Circleville who had jobs in 10 or 20 years at the Thompson/RCA tv plant who were making $15 or $16 an hour and no longer have the jobs partly because of Walmart, will have to take a steep cut in pay and benefits if they can only take a job locally at the Walmart supercenter. That is a story that you find repeatedly again and again throughout America. We have a serious problem of downward mobility of America's working middle class. It is also creating problems for local governments trying to raise money for school bond issues and pay for fire and police protection because their tax base is eroding. Drive almost anywhere in Ohio and talk to the local mayor.


Washington, D.C.: It was obvious that getting an employer to talk openly about the pressure on them to relocate their operations to China was difficult. What did you learn that you were unable to air? Do these employers feel threatened if they discuss this publicly?

Hedrick Smith: Yes, it was almost impossible to get Walmart suppliers to go on camera in public and say anything critical about Walmart although privately they were highly critical. In public, they will say that Walmart is "tough" because Walmart calls itself tough. Privately, they will call Walmart inflexible, ruthless, vindictive and worse. Some said privately that Walmart has told them point blank that they must move production over seas, some usually to China. Some say that Walmart buyers even check up on them to see if they are meeting what amounts to a quota to overseas production that Walmart has given them, something close to 30 percent, especially if they want to sell to Walmart's low "opening price" point marketing program. In some instances, we did talk to Walmart suppliers who had been extremely candid about their situations when talking to us privately and they spoke to us very differently on camera. We were unable to use those interviews because we felt that the comments made would be misleading to the public since the suppliers were saying things in public contrary to what they were saying in private.


Hedrick Smith: I'd like to say in conclusion that there a lot of positive things that Walmart has contributed to the American economy. It is extraordinarily efficient, it has improved American productivity both of its own, suppliers and competitors and those things help the American economy. It has been a leader of the use of information technology and it has refined consumer oriented marketing and production through its extensive data on and knowledge of consumer behavior. It has brought significant retail outlets to many rural and small town regions of America that felt underserved. And it has certainly brought prices down for many millions of American families.

But our point is that hte walmart business model which is shared to a considerable degree by other mass discount retailers like Target, Home Depot and Toys R Us has significant costs in the workplace and any sensible economic strategy for our country should weigh costs as well as benefits so that we don't ignore the unintended consequences or the largely unnoted consequences of competitive market strategies that look good and deliver good results for consumers. As a society and as individuals we need to do well both as consumers and as producers or workers. Any strategy that emphasizes one over the cost of the other would probably wind up hurting us in the long run. So we need to think about what we are doing very carefully.


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