Wednesday, December 01, 2004

The Wal-Mart Empire Stumbles---is it ready to fall?

The Wal-Mart Empire stumbled at the start of the 2004 Christmas season, failing to meet even its reduced sales expectations for November. This titan of the retail universe saw other trouble-spots in its imperial dominion that could threaten its future.

Having prospered in the past decade with low prices dependent on very low-wage manufacturing workers in China, Wal-mart started seeing those workers demanding more money, the right to organize unions, and even threatening to go on strike. These primarily young and now urban workers were seeing a domestic luxury market develop, fueled by Chinese executives, investors and others who were benefiting handsomely from China's urban growth and new manufacturing prominence. They want to be consumers, too.

But while Chinese workers agitate to increase their purchasing power, the manufacturing jobs that left the U.S. contribute to declining purchasing power in the world's top consumer nation. Right now those Chinese jobs depend on Americans spending. And so does the immediate future of Wal-mart and the American economy.

Yet the Wal-Mart market and the Wal-Mart culture virtually guarantee that U.S. consumption will sooner or later go into a slide downward. Whether it starts now or later, or whether it will be a slow, gradual slide or a quick, steep one, remains to be seen. But the logic of the Wal-Mart revolution makes it inevitable.

Wal-Mart has replaced the shopping mall as America's shopping center. The shopping mall was European in origin and style. It brought urban amenities and a European philosophy to American suburbia, with pedestrian spaces, greenery, sidewalk cafes, small shops and street kiosks---all of which were new to America but common in Europe. All this was married to American retail technology, modern enclosures and comfort control, with additional models in the department store, public market and the mythical American small town square. But the basic impulse was European, as were the classic shopping mall designers like Victor Gruen.

Wal-Mart's company culture is a weird combination of Japanese corporate style of the 1980s, and southern U.S. evangelicalism. But behind the techno-boosterism and phony "associates" rhetoric, Wal-Mart brought a third world market style to retailing. Low prices are the god worshipped here, and besides an innovative and unforgiving computerized inventory and supply system, and the bait-and-switch trick of loss leaders (one low price item in each department, while the rest are no cheaper and may be more expensive than competitors' prices), this god demands low wages: not only for those Chinese workers, but for the Wal-Mart workers themselves. They are paid so badly and typically receive such bad benefits that full time Wal Mart employees regularly avail themselves of welfare, food stamps and health care paid by taxpayers (while Wal Mart executives lobby in Washington to lower taxes and cut public spending.)

When Wal-Mart prefers a Chinese manufacturer over an American one because of cost, those American jobs are lost because the plant is likely to close. Those workers who find new jobs are usually paid half or less of what they used to make---for example, at a Wal-Mart. In the short run, lower wages increase Wal Mart's market share, because it becomes the only retailer these workers can afford. But in the long run, it is a suicidal spiral, and even Wal-Mart will feel the pain of a collapsing consumer economy.

Right now the consumer economy is propped up by easy credit. That is, credit is easy to get, though increasingly hard to pay for, as credit card companies invent more hidden fees and arbitrarily raise interest rates to levels that, until banks got the laws changed, used to be considered usurious.

As incomes go down, credit payments will be harder to maintain, and bankruptcies will increase. This is on top of other economic problems that will deal a series of body blows. Already the U.S. dollar is teetering, as creditor nations---like China---get worried that federal deficits are out of control. If the consumer economy weakens, say this Christmas season, the pressure on the dollar will only get worse.

In the coming decade, the U.S. faces the apparent problem of retiring baby boomers, and the likely twin problems of declining oil reserves and the increasingly obvious effects of global heating. Just as the shopping mall symbolized an affluent society in search of comfort and fun as it made shopping into its principal cultural activity, Wal-Mart symbolizes a middle American landscape in decline. The ugly big box, a neon-studded warehouse crowded with cheap goods like a third world market, surrounded by crumbling neighborhoods, pitted highways and toxic waste dumps, will symbolize this new America, far outside the gated and guarded palaces of the wealthy, and the increasingly remote urban stage sets for celebrity television.

Beyond that is an unknown American future. It may be taking shape now. It may bring some strange constellation of cheery Wal-Mart associates and evangelical churches in a broad swath of suburban slum and slowly abandoned towns in depopulating states. Or the country may start out in a new direction, as it could have earlier this November, and apparently didn't. But the logic of what Wal-Mart has set in motion and what it represents, in combination with what is happening and not happening in Washington, is leading to crisis for the American consumer society.

It couldn't go on like this forever anyway, but there might have been---and might yet be---a more conscious transition. But the highway of the immediate future seems to be paved with deception and denial. That'does seem to be the way empires often crumble.

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