Harpers magazine 2006-07-0081115
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Harpers magazine 2006-07-0081115

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This is an article from Harpers detailing the power and leverage of the Wal-Mart Corp

This is an article from Harpers detailing the power and leverage of the Wal-Mart Corp

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Harpers magazine 2006-07-0081115 Harpers magazine 2006-07-0081115 Document Transcript

  • E S SAY B G THE CHAIN The antitrust case against Wal ..Mart By Barry C. Lynn Tere is an undeniable so much power as to throw beauty to laissez-faire the- off basic balances. The in- ory, with its promise that visible hand of the mar-. by struggling against one ketplace, and all that de- another, by grasping and rives from it, had to be elbowing and shouting and protected by the visible shoving, we create effi- hand of government. ciency and satisfaction and It is now twenty-five progress for all. This con- years since the Reagan Ad- cept has shaped, at the ministration eviscerated most fundamental levels, Americas century-long tra- how we understand and dition of antitrust enforce- engineer our basic free- ment. For a generation, big doms-economic, politi- firms have enjoyed almost cal, and moral. Until re- complete license to use cently, however, most brute economic force to politicians and economists accepted that freedom grow only bigger. And so today we find ourselves within the marketplace had to be limited, at least in a world dominated by immense global oligop- to some degree, by rules designed to ensure gen- olies that every day further limit the flexibility of eral economic and social outcomes. From Adam our economy and our personal freedom within it. Smith onward, almost all the great preachers of There are still many instances of intense compe- laissez-fairewere tempered by a strain of deep re- tition-just ask General Motors. But since the alism. Most accepted that a national economy great opening of global markets in the early 1990s, ultimately served a nation that had to survive in the tendency within most of the systems we rely an often brutal world. So, too, did most accept that on for manufactured goods, processed commodi- all economies are characterized by struggles for ties, and basic services has been toward ever more power and precedence among men and institutions extreme consolidation. Consider raw materials: run by men; in other words, that all economies are three firms control almost 75 percent of the glob- fundamentally political in nature. And so most ac- al market in iron ore. Consider manufacturing cepted the need to use the power of the state- services: Owens Illinois has rolled up roughly half most dramatically in the form of antitrust law- the global capacity to supply glass containers. We to prevent anyone man or firm from consolidating see extreme consolidation in heavy equipment; Barry C. Lynn is a senior fellow at the New America Foundation and the author of End of the Line: The Rise and Coming Fall of the Global Corporation.Illustrations by Christopher Serra ESSAY 29
  • General Electric builds 60 percent of large gas tur- of todays largest firmsare built to do just that. The bines as well as 60 percent of large wind tur- ultimate danger of monopsony is that it deprives bines. In processed materials; Coming produces the firms that actually manufacture products from 60 percent of the glass for flat-screen televisions. obtaining an adequate return on their invest- Even in sneakers; Nike and Adidas split a 60- ment. In other words, the ultimate danger of percent share of the global market. Consolidation monopsony is that, over time, it tends to destroy reigns in banking, meatpacking, oil refining, and the machines and skills on which we all rely. grains. It holds even in eyeglasses, a field in Examples of monopsony can be difficult to pin which the Italian firm Luxottica has captured down, but we are in luck in that today we have one control over five of the six national outlets in the of the best illustrations of monopsony pricing U.S. market. power in economic history: Wal-Mart. There is lit- The stakes could not be higher. In systems tle need to recount at any length the retailers where oligopolies rule unchecked by the state, power over Americas marketplace. For our pur- competition itself is transformed from a free-for- poses, a few facts will suffice-that one in every all into a kind of private-property right, a license five retail sales in America is recorded at Wal- Marts cash registers; that the firms revenue nearly equals that of the next six retailers combined; that for many goods, Wal-Mart accounts for upward of 30 percent of U.S. sales, and plans to more than double its sales within the next five years. The effects of monopsony also can be difficult to pin down. But again we have easy illustrations ready to hand, in the surprising recent tribula- tions of two iconic American firms-Coca-Cola and Kraft. Coca-Cola is the quintessen- tial seller of a product based on a "secret formula." Re- cently, though, Wal-Mart de- cided that it did not approve of the artificial sweetener Coca-Cola planned to use in a new line of diet colas. In a to the powerful to fence off entire marketplaces, response that would have been unthinkable just there to pit supplier against supplier, community a few years ago, Coca-Cola yielded to the will of against community, and worker against worker, for an outside firm and designed a second product to their own private gain. When oligopolies rule meet Val-Marts decree. Kraft, meanwhile, is a unchecked by the state, what is perverted is the producer that only four years ago was celebrated free market itself, and our freedom as individuals by Forbes for "leading the charge" in a "brutal within the economy and ultimately industry." Yet since 2004, Kraft has announced n within our political system as well. plans to shut thirty-nine plants, to let go 13,500 workers, and to eliminate a quarter of its products. Lpular notions of oligopoly and monopoly Most reports blame soaring prices of energy and tend to focus on the danger that firms, having raw materials, but in a truly free market Kraft gained control over a marketplace, will then be could have pushed at least some of these higher able to dictate an unfairly high price, extracting costs on to the consumer. This, however, is no a sort of tax from society as a whole. But what longer possible. Even as costs rise, Wal-Mart and should concern us today even more is a mirror im- other discounters continue to demand that Kraft age of monopoly called "monopsony." Monopsony lower its prices further. Kraft has found itself with arises when a firm captures the ability to dictate no other choke than to swallow the costs, and price to its suppliers, because the suppliers have hence to tear itself to pieces. no real choice other than to deal with that buy- The idea that Wal-Marts power actually sub- er. Not all oligopolists rely on the exercise of verts the functioning of the free market will seem monopsony, but a large and growing contingent shocking to some. After all, the firm rose to dom-30 HARPERS MAGAZINE I JULY 2006
  • inance in the same way that many thousands of power to determine which firms "win" and which other companies before it did-through smart "lose." Wal-Mart picks winners and losers every innovation, a unique culture, and a focus on serv- day, and the losers have no recourse to any ing the customer. Even a decade ago, Americans court or any political representative could fairly conclude that, in most respects, Wal- anywhere. Marts rise had been good for the nation. But the issue before us is not how Wal-Mart grew to scale but how Wal-Mart uses its power today and will A timonopoly sentiment in America dates to the nations founding. We see it in the acceptance use it tomorrow. The problem is that Wal-Mart, by the thirteen newly independent states of Eng- like other monopsonists, does not participate in lish common law, with its rich antimonopoly tra- the market so much as use its power to micro- dition. We see it in the most vital statement on in- manage the market, carefullycoordinating the ac- dustry in American history, Alexander Hamiltons tions of thousands of firms from a position above Repot: on Manufactures, itselfdeeply influenced by the market. Adam Smiths antimonopolywritingsin The Wealth. One of the basic premises of the free-market of Nations. We see its citizen-centered nature in a system is that actors are free to buy from or sell 1792 essay by James Madison, in which he con- to a variety of other actors. In the case of Wal- demns monopolies for denying Americans "thatMart, no one can deny that every single firm that free use of their faculties, and free choice of theirsupplies the retailer is, technically, free not to occupations, which not only constitute their prop-do so. But is this true in the real world? After erty in the generalall, once a firm comes to depend on selling senseof the word;butthrough Wal-Marts system, just how conceiv- are the means of WAL-MART DOES NOTable is the idea of walking away? Producers own acquiring propertyand maintain machines, employ skilled workers, strictly so called." PARTICIPATE IN THE MARKET SOlease land and buildings. Even with careful plan- We see it dominat- MUCH AS USE ITS POWER TOning, most would find the sudden surrender of ing many of the great20 percent or more of their revenue to be ex- political battles of MICROMANAGE THE MARKETtremely disruptive, if not suicidal. the nineteenth cen- Another basic premise of the free-market sys- tury, from Andrewtem is that the price of a commodity or good car- Jacksons war on the Second Bank of the Unitedries vital information from actor to actor within States to William Jennings Bryans populist cam-an economy-say, that cherries are scarce, or paign of 1896.vinyl floor tiles abundant, or the latest iPod in- It would be wrong, however, to regard Ameri-cludes a new technology. Again, no one can cas powerfulantitrust law of the twentieth centurydeny that, technically, every firm that supplies as especially populist in nature. By the time Con-Wal-Mart is free to ask whatever price it wants. gress passed the Sherman Antitrust Act in 1890,But again, we must ask whether this holds true in the industrial explosion that began during thethe real world. Every producer knows that Wal- Civil War had resulted in the rise of hundreds ofMart is, as one of its executives told the New York big firms, which often proved far more efficientTimes, a "no-nonsense negotiator," which means than their older, smaller competitors. The phe-the firm sets take-it-or-leave-it prices, which as we nomenal productivity of these newcomers tem-know from the previous paragraph are far harder pered support for more radical antimonopoly pro-to leave than to take. Everyso often Wal-Mart will posals. The result was a sort of compromise,accept a higher price, but then the retailers man- engineered mainly by the progressive wing of theagersmay opt to punish the offendingsupplier,per- Republican Party. The Sherman Act came to behaps bv ratcheting up competition with its own in- seen not as a license to destroy all big firmssimplyhouse brands. Price, within the consumer because they were big but as a very big stick witheconomy, increasingly carries but one bit of in- which to convince the average firm not to over-formation-that Wal-Mart is powerful enough reach, and on rare occasions to break companiesto bend everyone else to its will. likeStandard Oil, which had developed reputations Those who would use the word "free" to de- for grosslyabusing power. Most big firmswere al-scribe the market over which Wal-Mart presides lowed to remain big as long as they avoided out-should first consult with Coca-Colas product- right collusion with competitors, or extreme abusedesign department; or with Kraft managers, or of their consumers,or overlyrapid predation againstKraft shareholders, or the Kraft employees who smaller property holders.lost their jobs. These results were decided not Thus did antitrust power come to serve as a sortwithin the scrum of the marketplace but by a of constitutional law within Americas politicalsingle firm. Free-market utopians have long de- economy. The goal was to enforce a balance ofcried government industrial policy because it puts power among economic actors of all sizes,to main-into the hands of bureaucrats and politicians the tain some degree of liberty at all levels within the ESSAY 31
  • economy. In recent years it has become a truism spilled many thousands of patents onto the mar- that antitrust law is designed to protect only the ket, where they were available to any American consumer. But the fact that Congress intended competitor for free. these lawsalso to preserve both competition per se When Ronald Reagan took power in 1981, one and to shelter entire classes of entrepreneurs of his first targets was antitrust law. The new ad- (among whom is the individual worker) was clear ministration put forth a variety of arguments-not at the beginning and has been made clearer many least that international competition, especially times since. The text of the Sherman Act itself is with Japan, had rendered moot the old fearsof mo- famouslyvague, but the Supreme Courts decision nopoly. Yet the driving motive clearly was the in the 1911 Standard Oil case was based flatly on philosophical antipathy of the Reaganites to the the assumption that the need to ensure robust idea that the American people, acting through competition sometimes outweighs the benefits of their representatives, had any business whatso- near-term efficiency. Standards roll-up of the oil ever telling business what to do. And the practi- industry cut the cost of kerosene by nearly 70 per- cal effect was to harness the institution of the cent, and yet the justices shattered the firm into corporation to that administrations larger project thirty-four pieces. For many legislators, this was of shifting power and profit from the working, not nearly enough. middle, and entrepreneurial classesto the powerful Three years later, and rich. The radical nature of Reagans attack on WAL-MART HAS GROWN SO Congress greatly antitrust law is, in retrospect, astounding. Early in strengthened the the administration, Attorney General William POWERFUL THAT IT CAN TURN rules against inter- French Smith declared that "bigness is not nec- firm price discrimi- essarily badness," Antitrust enforcer William EVEN ITS LARGEST SUPPLIERS nation, in the Clay- Baxter held that big firms were more efficient INTO EXTENSIONS OF ITSELF ton Antitrust Act. than smaller and said he had the "science" to Then in 1936, Con- prove it. When the Reagan team published its gress did so again, new Merger Guidelines in 1982, the document even more resoundingly, by passing the Robin- formalized two revolutionary changes: it rede- son-Patman Act. Wright Patman, the Texas De- fined the American marketplace as global in na- mocrat who was the main force behind the bill, ture, and it severely restricted who could be re- made sure everyone understood Congresss intent. garded as a victim of monopoly. From this point "The expressedpurpose of the Act is to protect the on, only one action could be regarded as truly independent merchant," he wrote on the firstpage unacceptable-to gouge the consumer. Any firm of a book he published to explain the law, "and the that avoided such a clumsy act was, for all intents, manufacturer from whom he buys." free to gouge any other class of citizen, not During the twentieth century, antitrust law least through predatory pricing and the blatant shaped the American economy more than did exercise of power over suppliers any other government power. Over the years, and workers. . many thousands of antitrust caseswere filed,by fed- eral and state governments against particular firms and by one firm against another. Antitrust law I f a single business deal illuminates the degree to which Wal-Mart has centralized control over determined not merely how big a firm could grow Americas consumer economy, it was last years but where it could do business, how it was man- takeover of Gillette by Procter & Gamble. Gillette aged, how it could compete, even what lines of would seem one of the last firms likely to find it- business it could enter. As the industrial scholar self unable to protect its pricing power; its 70 per- Alfred D. Chandler has noted, the vertically in- cent share of global razor salesgives it some weight tegrated firm-which dominated the American at the negotiating table. Yet the Boston-based economy for most of the last century-was to a firm discovered that it could no longer keep its great degree the product of antitrust enforcement. profit margins safely out of the grasp of the When Theodore Roosevelt began to limit the Arkansas retailer. And so wasconceived the largest ability of large companies to grow horizontally, in a long list of buyouts due at least in part to many responded. by buying outside suppliers and Wal-Marts power, including Newells takeover of integrating their operations into vertical lines of Rubbermaid, Kelloggs purchase of Keebler, and production. Many also set up internal research Krafts buyout of Nabisco. And of course there is labs to improve existing products and develop the long list of firms that have ended up dead or new ones. Antitrust law later played a huge role in Chapter 11 reorganization at least partly because in launching the information revolution. During of their dealings with Wal-Mart. Some are small the Cold War, the Justice Department routinely fry, like Vlasic Foods. Others were once powers, used antitrust suits to force high-tech firms to like Pillowtex. Some were beloved brands, like share the technologies they had developed. Tar- Schwinn. Others were family enterprises, like geted firms like IBM, RCA, AT&T, and Xerox Lovable Garments.32 HARPERS MAGAZINE I JULY 2006
  • Even with Gillette in hand, Procter & Gamble a producer like Colgate-Palmolive will end up itself is anything but safe. For decades, P&G was working intensely with firms it formerly com-regarded by retailers as the "BOO-poundgorilla" peted with, such as Crest manufacturer P&G, toamong suppliers of home products. It was one of . find the mix of products that will allow Wal-two firms that most spurred Sam Walton as he Mart to earn the most it can from its shelf space.built Wal-Mart-the competitor to beat was IfWal-Mart discovers that a supplier promotes itsK-Mart; the supplier to tame, P&G. By the time own product at the expense ofWal-Marts rev-Walton died in the early 19905,he wasable to brag enue, the retailer may name a new captain in itsof how he had forced P&G to accept a "win-win stead: Not surprisingly, one common result ispartnership" based on the sharing of information. that many producers simply stop competing headHad he lived a few years longer, though, Walwn to head. In many instances, a single firm ends upwould have witnessed what amounts to the out- controlling 70 percent or more of U.S. sales inright capture of his foe. And for a man who spent an entire product line, such as canned soups ormuch of his lifescroungingfor deals on lingerie and chips. In exchange, its competitor will expecthawking hula-hoop knockoffs, he would surely that firm to yield 70 percent or more of somehave relished how this struggle for the heights of other product line, say, snacks or spices. Suchthe consumer economy was de-cided by the power to price toi-let paper and detergent. In re-cent years, Wal-Mart beat P&Ginto submission by mercilesslypitting its in-house brands againsttop P&G brands; the retailer, forinstance, introduced not one buttwo detergents to compete withTide and, in a particularly auda-cious move, grabbed outright thecopyright for the White Cloudline of toilet paper, after P&Gunwiselyforgot to protect its ownbrands name. With the purchase of Gillette,P&G has achieved a new scopeand scale, vaulting past Unileverto become the worlds biggestmaker of consumer goods.Yet thenew balance of power is unlikely to last. Wal-Mart sharing out of markets by oligopolies is.takinghas become so strong, so sure of the invulnerabil- place throughout the non-branded economy-ity of its position, that not only does it not fear.con- in grains, meats, medical devices, chemicals,solidation among its suppliers; it actually forces electronic components. But nowhere is it moremany of them to form fully self-conscious, collu- visible than in the aisles of Wal-Mart.sive oligopolieswith their rivals.Not that these re- In essence, Wal-Mart has grown so powerfullationships are advertised as such. The key here is that it can tum even its largest suppliers, and en-the innocuous-sounding term "category manage- tire oligopolized industries, into extensions of it-ment," and it describes a practice that isnow com- self. The effects of this practice are most obviousmon to all large retailers. But it is a practice that in Wal-Marts horizontal competition against oth-grewout ofWal-Marts original "partnership" with er retailers. Retail experts sometimes talk of aP&G, and it is a practice that has been pushed es-pecially hard by Wal-Mart. * Such blatantly enforced coUusionhas not gone entirely un- Until recently, every retailer would draw up its noticed in Washington. Toward the end of its time in of-own merchandising plan, detailing which brands fice, even the merger-happy Clinton Administration al-to promote, how much shelf space to grant each, lowed the Federal Trade Commission to launch anwhich products to place at eye level. These days, investigation of these practices, and an FTC report in ear- 1y 2001 identified four ways that Category ManagementWal-Mart and a growing number of other retail- may violate even the remarkably loose antitrust guidelinesers ask a single supplier to serve as its "Category of the last generation. All four of these violations cut rightCaptain" and to manage the shelving and mar- to the core of the free-market system. As the FTC put it,keting decisions for an entire family of products, a category captain might "( 1) learn confidential informa- tion about rivals plans; (2) hinder the expansion of ri-say, dental care. Wal-Mart then requires all oth- vals, (3) promote coUusion among retailers; or (4) facili-er producers of this class of products to cooperate tate collusion among manufacturers." 1n Wal-Martswith the new "Captain." One obvious result is that world, aUfour violationsare present to at least some extent. ESSAY 33
  • "waterbed effect," which takes place when a sup- tent, even to the most powerful of its suppliers. plier insists on collecting from weaker retailers at Because no longer is the retailers attention fo- least some of the rent a more powerful firm refuses cused only on firms that produce Tvshirts, elec- to pay. One recent study of how such power plays trical cords, and breakfast cereal. Every day Wal- out within an entire system shows that a small re- Mart expands its share of the U.S. markets for tailer can expect to pay upward of 10 percent magazines, recorded music, films on DVD, and more than a powerful firm for the same basket of books. This means that every day its tastes, in- items. The effect also explains what takes place terests, and peculiarities weigh that much more economically between communities served by on decisions made in Hollywood studios, in Man- Wal-Mart and those served by less powerful hattan publishing houses, and in the editorial of- firms-the more power Wal-Mart accrues, the fices of newspapers and network news shows. more it is able to shift costs from, say, suburb to Americans who favor abortion have much to city. And so every worry about these days, between South Dakotas day the competitive recent ban and the appointment to the SupremeRELATIVE TO WAL-MART, THE A&P landscape tilts just Court of Justice Joseph Alito. But at least these that much more in battles are taking place entirely in the public eye,WAS A FAR LESS AWESOME FORCE- Wal-Marts favor. and the decisions are being made by democrati- And so, every year, cally elected representatives. Such was not the BUT IT WAS REPEATEDLY HAULED the landscape is lit- case when Wal-Mart recently decided to allow INTO COURT FOR ITS ABUSES tered with that each individual pharmacist in the company to many more dead or choose whether or not to stock the "morning af- half-dead retailers- ter" pill. Given the degree to which Wal-Mart has including such once-big names as Winn Dixie, rolled up the pharmaceutical business in many Albertsons, K-Mart, Toys R Us, and Sears. towns and regions across the country, this act This advantage is simply what can be quanti- amounted, for all intents, to a de facto ban on fied in price. Many of the benefits Wal-Mart ex- these pills in many communities. This tracts from its suppliers lie in a realm far beyond political decision was made and en- the market economy. If Wal-Marts aim were forced by a private monopoly. simply to dictate the price it will pay for a prod- uct, then leave up to its suppliers all decisions as to how to get to that price, it would cause far less T o appreciate just how blatantly Wal-Mart de- fiesAmericas antitrust tradition, consider how our economic damage than it does now. But that is grandparents handled the last retailer to gather not Wal-Marts way. Instead, the firm is also one extreme power: the Great Atlantic & Pacific Tea of the worlds most intrusive, jealous, fastidious Company. Better known as the A&P, the grocer micromanagers, and its aim is nothing less than at its height operated more than 4,000 super- to remake entirely how its suppliers do business, markets in nearly forty states and wielded im- not least so that it can shift many of its own mense influence over the entire food economy. costs of doing business onto them. In addition to The A&P was famous for its innovations in dis- dictating what price its suppliers must accept, count retailing, in distribution, in advertising. Wal-Mart also dictates how they package their And it was infamous for its use of monopsony products, how they ship those products, and how power, not least its perfection of the art of setting they gather and process information on the in-house brands against producers who resisted its movement of those products. Take, for instance, will. Relative to Wal-Mart today, the A&P a Levi Strauss & Co. Wal-Mart dictates that its half century ago was a far less awesome force. suppliers tell it what price they charge Wal- The firm sold only groceries; it was only double Marts competitors, that they accept payment the size of its nearest competitor; and its total entirely on Wal-Marts terms, and that they workforce was, as a percentage of the U.S. pop- share information all the way back to the pur- ulation, only a fifth as large as Wal-Marts is now. chase of raw materials. Take, for instance, Newell Even so, the A&P was widely and vociferouslyde- Rubbermaid. Wal-Mart controls with whom its nounced by local communities, state govern- suppliers speak, how and where they can sell ments, newspapers, and labor unions as a threat their goods, and even encourages them to support to the American way of life. Wal-Mart in its political fights. Take, for in- Over the years, the federal government re- stance, Disney. Wal-Mart all but dictates to sup- peatedly hauled the A&P into court for abusing pliers where to manufacture their products, as its market power. The government first began to well as how to design those products and what scrutinize the firm in 1915, when Cream of Wheat materials and ingredients to use in those products. refused to sell to the A&P because of its pricing Take, for instance, Coca-Cola. policy. Then in 1936 came the Robinson- We should be most disturbed by the fact that Patman law, which was popularly known as the Wal-Mart has gathered the power to dictate con- "Anti-A&P Act." A year later, the Federal Trade34 HARPERS MAGAZINE / JULY 2006
  • Commission filed suit against the A&P, charging N ike, Boeing,3M, and Merck. Although it has be- that the company had forced a Maryland veg- come commonplaceto trace the phenomenon of etable packer to grant it a special 4 percent dis- "outsourcing" to the emergence of new tech- count. In November 1942, the Antitrust Divi- nologies and changes in the global "marketplace," sion filed a Sherman Act case against the retailer, it is much more accurate to trace it back to the dis- one section of which detailed how the A&P had appearance of antitrust enforcement. The change used "several turns of the screw" to coerce Ralston in law that gave Wal-Mart license to grow to such Purina into granting it a discount three and a half a huge size also gave to many manufacturers the times what the cereal packer offered any other license to recast themselves in WaI-Marts image firm. Three years after winning that case, the Jus- and become retailers themselves. The result?More tice Department was back in court in September and more production systems are run by compa- 1949 with another Sherman Act suit, this time nies designed not to manufacture but to trade in asking for the dismemberment of the A&P. Filed components manufactured by other, smaller firms, at a time when the grocer was already clearly in over which they can exercise at least decline-not least because of antitrust enforce- some degree of monopsony power. ment-the 1949 case was dropped five years lat- er. But this was only after the A&P admittedguilt, agreed to dissolve an internal company that S ome ofWal-Marts more sophisticated boost- ers will defend the company by defending the ex- traded in agricultural products, and signed an out- ercise of monopsony power itself. Wal-Mart, inright prohibition against "dictating systematical- their view, should be seen as a firm that aggregates ly" to suppliers.The final antitrust case against the our will and buying power as consumers in muchA&P was not resolved until February 1979, a the same way that unions once aggregated the month after a West German grocerymogul bought interests of workers. One of the better knowncontrol over the remnants of the once-huge firm. versions of the argument was put forth by Jason Antitrust enforcement against the A&P and Furman, a former campaign adviser to Senator other big firmslike Sears prevented any twentieth- John Kerry, who last year published a strong de-century American retailer from ever growingnear- fense of Wal-Mart. The huge retailer, Furman ly as powerful as Wal-Mart is today. But since the wrote, is "a progressive success story" that hasReagan Administration, the only effective con- brought "huge benefits" to the "American middlestraints on Wal-Mart have been set by investors class." Sure, this argument goes, Wal-Mart mayand revenue flow.Even during the 1990s,when the employ its power with a certain Stalinist flair; butClinton Administration targeted a few companies it does so in our name, and the result is to makefor abusing their pricing power, the Arkansas- the production system on which we all rely morebased retailer somehow managed to avoid any ac- efficient. This efficiency is good for all society, tion. It is unclear whether this was in any way due and it is especially good for those poor folks who to the close relationship between the Clinton fam- cling to the lower rungs of the economic ladder. ilyand Wal-Mart, on whose board Hillary Clinton There are two great flaws in such thinking.served for many years. But even as Staples and The first and most obvious is that it ignores theMcCormick & Co. were sued, a firm with vastly effects of monopoly on our political system-themore power over the American economy was left consolidation of vision and voice, the de factoentirely free to extend its domain in whatever di- merger of private and public spheres, the gatheringrection and to whatever extent it wished. In fact, of power unchecked and unaccountable. It is toin one of the highest-profile antitrust cases of the view American society through an entirely ma-1990s, an FTC suit against Toys R Us for collud- terialistic prism, to measure "human progress"ing with toy manufacturers, WaI-Mart emerged only in terms of how many calories or blousesas one of the biggest winners. can be stuffed into an individuals shopping cart. The Reagan Administrations assault on an- It is to viewthe American citizen not as someonetitrust enforcement had an even more dramatic ef- who yearns to decide for himself or herself whatfect on manufacturers.Complete license to expand to buy and where to work in a free market but tohorizontallyresulted, in many industries,in the vir- say, instead, "Let them eat T asrykake."tual collapse of the vertically integrated firm. The second flaw is economic, and is of evenOnce they consolidated control over their mar- more immediate concern. Even if the Americanketplaces, scores of big manufacturers shut down people did choose to bear the extreme politicalor spun off most or even all of such naturally ex- costs of monopoly, the particular type of powerpensive and risky activities as production and re- wielded by Wal-Mart and its emulators makes nosearch. These firms opted instead to purchase economic sense in the long run. On the surface,components and other manufacturing "services" it may seem to matter little who wins the great bat-from smaller companies whose main or only path tles between such goliaths as Wal-Mart and Kraft,to the final marketplace passed through their of- or between Wal-Mart and P&G. Yet which firmfices. This is true of corporations as diverse as prevails can have a huge effect on the welfare of ESSAY 35
  • our society over time. The difference between a share many of Wal-Marts political interests; la- system dominated by firms built to produce and a bor unions now committed to Wal-Marts de- systemdominated by firmsbuilt to exercisemonop- struction could overnight become equally as sony power over producers is extreme. The pro- committed to the further extension of Wal- ducers that dominated the American economy Marts power; and new bureaucracies will gener- for most of the twentieth century were geared to ally tend to sympathize with the firms they reg- build more and to introduce new, to protect their ulate. We can also, of course, choose to do capital investments against overly predatory in- nothing, and surrender to the immense retailer vestors, to raise price faster than cost, to show all the decisions that in the past were made some degree ot loyaltv to workers and outside sup- within the marketplace itself or by democrati- pliers and communities. Wal-Mart and a growing cally elected legislators. In other words, we can number of todays dominant firms, by contrast, cede to Wal-Mart the role it so relentlessly are programmed to cut cost faster than price, to seeks for itself-to be dictator over the central slow the introduction of new technologies and functions of the U.S. consumer economy. techniques, to dictate downward the wages and If, however, we choose the path of the free profits of the millions of people and smaller firms market, and of individual freedom within the who make and grow what they sell, to break down market; if we choose to ensure the health and entire lines of production in the name of effi- flexibility of our economy and our industrial ciency. The effectsof this change are clear: We see systems and our society; if we choose to protect them in the collapsing profit margins of the firms our republican way of government, which de- caught in Wal-Marts system. We see them in the pends on the separation of powers within our fact that ofWal-Marts top ten suppliers in 1994, economy just as in our political system-then four have sought bankruptcy protection. we have only one choice. We must restore an- In a world of rising tensions within and among titrust law to its central role in protecting the nations, of accelerating climate and environ- economic rights, properties, and liberties of the mental change, we would be wise to design the American citizen, and first of all use that power production systems on which we rely to be able to break Wal-Mart into pieces. We can devise to evolve as rapidly as the human and natural no magic formula or scientific plan for doing worlds around us evolve. Instead, we have pro- so-all antitrust decisions are inherently sub- grammed the dominant institutions within our jective in nature. But when we do so, we economy to eliminate all the wonderful chaos of should be confident that we act squarely in the a free-market system. Rather than speed up the American tradition, as illuminated by the cases random motion and serendipitous collisions that against Standard Oil and the A&P. We should have for so long propelled the American econ- act knowing that the ultimate fault lies not omy, Wal-Mart and other monopsonists are slow- with Wal-Mart but with our last generation of ly freezing our economy into an ever more rigid representatives, who have abjectly failed to en- crystal that holds each of us ever more tightly in force laws refined over the course of two cen- place, and that every day is more liable to collapse turies. We should act knowing that much simi- from some sudden shock. To defend Wal-Mart lar work lies ahead, against many other giant for its low prices is to claim that the most perfect oligopolies, in many other sectors. We should form of economic organization more closely act knowing that to falter is to guarantee polit- resembles the Soviet Union in 1950 than ical and perhaps economic disaster. twentieth-century America. It is to celebrate As we make our case, we should be sure to rationalization to the point of com- call one expert witness in particular. Last year, rJ" plete irrationality. Wal-Mart CEO Lee Scott called on the British government to take antitrust action against the ~here are many ways to counterbalance the U.K. grocery chain T esco. Whenever a firm nears power of Wal-Mart and the other new goliaths. a 30 percent share of any market, Scott said, In the case of Wal-Mart, we could encourage "there is a point where government is compelled yet more mergers among its suppliers and its to intervene." Now, Wal-Mart has never been competitors. Or we could make it easier for its shy about using antitrust for its own purposes. In workers to unionize. Or we could micromanage addition to the Toys R Us case, the firm was the firm through our state and municipal gov- also the instigator of a Sherman Act suit against ernments (e.g., requiring it, as Maryland recent- Visa and MasterCard. And so such a statement, ly did, to devote 8 percent of its payroll to by the CEO of a firm that already controls upward health insurance). Yet everyone of these ap- of 30 percent of many markets and has an- proaches runs the risk of only further warping nounced plans to more than double its sales, sets our economy and perhaps even reinforcing a new standard for hubris. It also sets a simple goal Wal-Marts power by creating new allies for it. for us-elect representatives who will take Cit- After all, super-consolidated suppliers already izen Scott at his word. _36 HARPERS MAGAZltE / JULY 2006