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Walmart: Satan to Savior? How a "Green" Walmart Could Change The Way The World Does Business


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A work in progress that provides the basis for my Bachelor\'s thesis

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Walmart: Satan to Savior? How a "Green" Walmart Could Change The Way The World Does Business

  1. 1. Walmart: What the Template Business of Industrial Capitalism Reveals about Culture and the Future Direction of the Global Economy Or Walmart: Satan to Savior? How a “Green” Walmart Could Change the Way the World Does Business Shavon Prophet December 20, 2009 Global Economic Geography Professor Waquar Ahmed
  2. 2. Abstract Wal-Mart is today the largest profit-making enterprise in the world. To provide a case study and context for analysis, I will provide a brief history of Walmart’s progress, as well as details about its standings today to illustrate the company’s remarkable growth both in size and influence over the global economy. During its ascent to the top, especially in the 1990‘s with international expansion ventures, Walmart has turned the tables of market control, as the company’s huge buying power/market share has enabled it to wrest the power of manufacturers to determine the prices of goods, and the standards of producing, packaging, and shipping them. In this way, Walmart has evolved to function more as a global commodity chain and logistics operation than a traditional discount retailer. Because of its massive size, Walmart has acquired the power to shape markets, economies, labor standards, and government policy in ways that no one company has before. In this paper I will analyze Walmart’s role as a global trendsetter and market-maker, and consider what the progress of Walmart, especially in light of its recent announcement in July 2009 for plans to create and implement a “Sustainability Index” and “Product Lifecycle Database” for some 100,000 of its suppliers might reveal about the future direction of the global economy. With these things in mind, I argue that Walmart’s new eco-centered direction and initiatives are steps that indicate the global economy is in transition from Industrial Capitalism to Natural Capitalism. I will also explore these trends through the lens of cultural economic theories by geographers Richard Peet and Jon Goss to see what changes the Sustainability Index promises to bring about could indicate about shifts in culture and human consciousness.
  3. 3. Journey to the Top Walmart was founded in 1962 first as “Walton’s Five and Dime” in Bentonville, AK by Sam Walton under the single idea that by selling every day goods even just a little cheaper than competitors, Walmart could draw customers. As we all know, Sam’s idea worked and Walmart has experienced incredible growth since its founding. (See Appendix A)1 Discount retailing depends on continual, (some would say obsessive) attention to wages and labor costs. Discounters must have two or three times the turnover of traditional department stores in order to make the same profit. (Fisher, 2006) Walmart aims to keep labor costs below 15% of total sales, about half of the labor costs of traditional department stores. Walmart bases price estimates on suppliers’ cost structures and operational efficiency, emphasizing low profit margins, rapid turnover, and high sales volumes. During the 1960’s imports in the US of foreign goods increased, especially those from East Asian countries. Walmart had modest buying power at this stage, and bought mostly national branded merchandise at the lowest prices possible, also utilizing close-out deals whenever possible. At this time manufacturers had the power to define terms of trade, and Walmart defined its own business model in terms of the efficient distribution of nationally advertised goods. (Fishman, 2006) By the 1970’s the power of large retailers increased due to the continuing growth in the accessibility to cheap imports. Walmart is attributed with leading the Business Logistics Revolution in the 70’s and 80’s by pioneering the use of innovations in information technology. For example, Walmart’s “Retail Link” is an elaborate computerized infrastructure that collects and organizes data from point of sale systems around the world (20 million customer transactions each day), and makes this information directly available to Wal-Mart’s 60,000 vendors that can use it to reduce their own inventory-management costs, enhance efficiency, and test products in a precise and cheap way. This also greatly increases understanding and sensitivity of corporations to consumer preferences.. Walmart also spearheaded the Voluntary Interindustry Commerce Standards Initiative in the 80’s which most notably standardized the 1 As I could not find a still image depicting Walmart’s growth in the US, please copy this web address into your internet browser to see a short 30 second video depicting Walmart’s growth from 1962-2004:
  4. 4. use of IT business innovations the UPC barcode label system. During this time the balance of market-making power began to shift in favor of big discounter and Walmart became a major driver of technology based productivity gains in the American economy. By the mid 1980’s, East Asian imports composed more than 70% of non automotive consumer goods. Utilized IT products and services as well as automated distribution centers. Suppliers benefited from retailers’ reorganization of supply chain. International expansion at this time forcasted even more integrated global sourcing. The number of private label suppliers increasingly reduced. Manufacturers experienced strong pressure to adapt to Walmart’s business model and increase operational efficiency. Walmart Today “…perhaps the most important part of the Walmart effect is that the rules are antiquated; they are from a different era that didn’t anticipate anything like Walmart.” (Charles Fisher, The Wal-Mart Effect, 2006) Walmart experienced incredible growth in the 1990’s by their rapid expansion into grocery retailing (the creation of super centers) and their global expansion efforts. Walmart was also one of the first large retailers to join the 90’s ecommerce trend in expanding their internet retailing unit. After 1994, supercenters made up a majority of newly opened stores. As mentioned before, Walmart has grown into the largest private enterprise on earth. In addition, it is also the largest non-oil company in the history of the world. Sam Walton‘s heirs, who own 39 percent of the company, are twice as wealthy as the family of Bill Gates. With sales of $300 billion a year, Walmart does more business than Target, Home Depot, Sears, Kmart, Safeway, and Kroger combined. Some predict that sales will probably top $1 trillion per year within a decade. (Pankaj et al. 2004) Walmart has grown to be the world’s largest employer, with more than 1.5 million workers around the globe; it is the largest private employer in Mexico, Canada, and the United States, where it is also the largest grocery retailer. Walmart singlehandedly accounts for 30% of China’s exports, a significant portion of the country‘s GDP. Walmart imports more goods from China than both the United
  5. 5. kingdom and Russia. Walmart is also the biggest marketing channel for consumer products in the world., as an estimated 140 million people shop at Walmart around the globe every day; this is a bigger audience than can be reached through mass media sources. Being a Walmart manufacturer is highly coveted, because of its size generates an opportunity to reach a huge number of global customers almost instantaneously. Consequently, Walmart gained the ability to pit manufacturers against each other to achieve lowest purchase prices; hence, manufacturers lose control over the ability to determine the prices for their goods if they choose to be a Walmart supplier. Walmart has been criticized by some community groups, women's rights groups, grassroots organizations, and labor unions, for its extensive foreign product sourcing , low rates of employee health insurance enrollment, resistance to union representation, sexism, and management efforts to pressure employees to vote for specific parties during national elections and environmental safety violations. Perhaps in effort to improve its image in the public eye (see Appendix D), Walmart has of late been dancing to a “greener” tune, by renovating stores to be more energy efficient and making any changes possible in the logistics processes to save energy (not to mention money.) Most strikingly, Walmart announced in July of 2009 that it would require all 100,000 of its suppliers to submit to surveys that would go into creating a “Sustainability Index”. The questions and rating systems involved in these indicators are: energy and climate, natural resources, material efficiency, and “people and community” (impacts? Its not quite clear to me what they might mean by this vague term) (See Appendix C: Walmart’s Corporate Fact Sheet on the Sustainability Index) In Walmart‘s own words: “The index will bring about a more transparent supply chain, drive product innovation and, ultimately, provide consumers the information they need to assess the sustainability of products. If we work together, we can create a new retail standard for the 21st century.” Mike Duke, President and Chief Executive Officer, Wal-Mart Stores, Inc.
  6. 6. Literature Review & Analysis Walmart’s takeoff point in the 70’s coincided with the innovations in technology, which fits nicely into Allen Scott’s theory about the creation of a new “regime of production/ accumulation” during this same time period called Flexible Production/accumulation. Allen Scott summarizes the flexible production/accumulation regime as encompassing several characteristics: 1) the ability to change process and product configurations quickly (enhanced by computer technology), 2) networks are made of “malleable external linkages and labor market relations”, 3) the externalization of production processes, 4) the revival of entrepreneurial behavior, 4) renewed competition, and 5) active technological innovation. “Lean Retailing” philosophy that displays some characteristics of flexible production at work. Characteristics of lean retailing include: the use of UPC tags and scanning devices, computerized inventory management, automated distribution centers, and the adoption of communication standards throughout the supply chain. In a collection of works about Walmart’s contributions to capitalism, Misha Petrovic and Gary G. Hamilton (2006) contend that Walmart’s role as a market-maker is part of a larger historical narrative that reflects three trends 1) A shift in the balance of market power from manufacturers to retailers, 2) The rise of new global manufacturers (especially in East Asia) and resulting decline of international competitiveness of many American manufacturers and 3) the growing power of consumers in shaping marketing and production (can also be interpreted as increased sensitivity of corporations to consumer preferences). This is a good place to start when delving into Walmart’s history. “Walmart is now the template business for world capitalism because it takes the most potent technological and logistic innovations of the twenty first century and puts them at the service of an organization whose competitive success depends upon the destruction of all that remains of New Deal-style social regulation and replaces it, in the US and abroad, with a global system that relentlessly squeezes labor costs...” (Lichtenstein, 2006) Walmart has become the business model for global industrial capitalism.
  7. 7. Unfortunately, this model depends upon the exploitation of cheap labor both inside its stores and in suppliers’ factories abroad, and putting incessant pressure upon suppliers to cut costs and outsource production, facilitating yet more exploitation. Some even blame Walmart for single-handedly creating the global “race to the bottom” in industrializing countries, who compete to lower production, labor, and environmental standards and “liberalize” government economic policies to create an attractive business climate for big foreign investors like Walmart. Changes like these are rooted out of Neoliberal economic ideas, which explained simply is about promoting the freer movement of goods, resources and enterprises in a bid to always find cheaper resources, ultimately to maximize profits and efficiency. To help accomplish this, neoliberalism requires the removal of various controls deemed as barriers to free trade, such as: tariffs, regulations, certain standards, laws, legislation and regulatory measures, and restrictions on capital flows and investment. Neoliberalism is a major influence in the economic policies of the United States government, the International Monetary Fund, and World Bank. The goal is to be able to to allow the free market to naturally balance itself via the pressures of market demands; a key to successful market-based economies. However, contrary to claims that the growth generated by neoliberal reforms translates to proportionate increases in the incomes of the poor (and hence a reduction of poverty), those that herald neoliberal policies as the solution to Third World development ills neglect to explain how this holds truth in light of the fact that these policies have increased wealth disparity (concentration of wealth) to the extent that any positive spillover effects for the poor are cancelled out (Ahmed, 2009) “Neoliberalism in the Third World, as a system based on free market, has produced a race to the bottom, essentially to the benefit of corporations. The race to the bottom is manifested in the transformation of economic policies, and in turn economic space, to the extent that local interests are being compromised.” ( Ahmed, 2009 p. 33-34) I also examine Walmart’s history and recent activities in light of Harvey and Schumpeter’s ideas of “creative destruction”. Joseph Schumpeter popularized the term to describe a “process of industrial mutation that incessantly revolutionizes the economic
  8. 8. structure from within, incessantly destroying the old one, incessantly creating a new one.” (Schumpeter, 1942) I argue that Walmart has reached a critical point in which the global climate of business and public opinion it has created is no longer sustainable for its own continued existence. Walmart must adapt or risk being trampled by other businesses that are setting the groundwork for the creation of the next production regime; I believe Walmart’s recent support for more environmentally friendly and socially responsible business standards indicates that this process is at work today- Walmart is adjusting to changes in the direction of the global economy, lest it be left behind in history with other businesses that will fail for lack of foresight or capacity to change. Richard Peet (2000) defines culture as the symbolic order a society constructed to represent its existence, which: organizes the natural world, institutes a social order, establishes ways in which socialized individuals are “fabricated”, and saturates consciousness with the motives, values, and hierarchies of social life. Peet postulates that regional ideologies, values, forms of social consciousness and social imaginaries are forces of production that go beyond the scope of their regional origins, and also constitute the most basic core of the global economy. Jon Goss (1993) applies Peet’s “Cultural Economics” to analyze the contemporary retail environment and US consumer culture. Goss supports Peet’s ideas of how culture influences the structure of economies, and observes that in the context of modern capitalism, for the first time material and symbolic production occupy the same space in contemporary retail environments; consequently, retailers now have an enormous amount of influence in shaping social imaginaries for their benefit. (Goss, 1993) Through the increased influence of advertisement in mass media, modern consumers are subjected to the distortion of their human needs via the manipulation of their desires through the promotion technique of connecting products with desirable personal/cultural values. This attachment of “coolness” to goods, or “signification“, leads to the creation of what Goss calls “hyperreality” and the corresponding “pseudo-places/spaces” that are designed and constructed to sustain its consumerist objectives- our malls and shopping centers. Goss says that this is what distinguishes the current consumer climate from all others, in that it is “no longer clear whether the value of the commodity originates in the sphere of material or symbolic
  9. 9. production” (p. 21) and also that “productive activity is organized to produce simultaneously the objects of consumption and the social subjects to consume them.” (p. 20) So, if global economic structures are a direct expression of culture, (says Peet) and now more than ever, producers of goods now participate in making culture, then we can interpret changes in those structures as a reflection of concomitant changes in the cultures that produce them. In light of Walmart’s position as a global trendsetter and market-maker, we must consider what Walmart’s plans to create and implement a “Sustainability Index” and “Product Lifecycle Database” implies about culture- is it also shifting, like the production processes and priorities of our businesses? Does the influx of green businesses and renovations/enviro-friendly changes in the production cycle in turn reflect a “greening” of culture? Could Walmart, a company that some accuse of single-handedly created the global “race to the bottom” in production and labor standards, potentially lead the world in implementing environmentally and socially responsible business practices? Using the lenses of cultural economic theories of Peet and Goss, the answer is yes. I argue that Walmart’s new eco-centered direction and initiatives are steps that indicate the global economy is in transition from Industrial Capitalism to Natural Capitalism. Natural capitalism recognizes the critical interdependency between the production and use of human- made capital and the maintenance and supply of natural capital. This definition contrasts the priorities expressed by traditional Industrial Capitalism, which defines capital more narrowly as accumulated wealth in the form of investments, factories and equipment. Natural Capitalism advocates that the natural environment is not a minor factor of production but rather is “an envelopecontaining, provisioning, and sustaining the entire economy” , and hence worth saving, lest we bring about the destruction of the natural world on which all of our economic prosperity depends. (Lovins, 2000, p. 10) (See Appendix B) “Capitalism, as practiced, is a financially profitable, nonsustainable aberration in human development. Industrial capitalism does not fully conform to its own accounting principles- it neglects to assign any value to the largest stock of capital it employs- the natural resources and living systems, as well as the social and cultural systems that are the basis of human
  10. 10. capital…As more people and businesses place greater strain on living systems, limits to [economic] prosperity are coming to be determined by natural capital rather than industrial prowess.” -Natural Capitalism: The Next Industrial Revolution (Lovins, Lovins, and Hawken, 2000) The Fundamental Assumptions of Natural Capitalism are as follows: - The limiting factor to future economic development is the availability and functionality of natural capital, in particular, life-supporting services that have no substitutes and currently have no market value. - Misconceived or badly designed business systems, population growth, and wasteful patterns of consumption are the primary causes of the loss of natural capital, and all three must be addressed to achieve a sustainable economy. - Future economic progress can best take place in democratic, market-based systems of production and distribution in which all forms of capital are fully valued, including human, manufactured, financial, and natural capital. - One of the keys to the most beneficial employment of people, money, and the environment is radical increases in resource productivity. - Human welfare is best served by improving the quality and flow of desired services delivered, rather than by merely increasing the total dollar flow. - Economic and environmental sustainability depends on redressing global inequities of income and material well-being. After Natural Capitalism? Though it is impossible to truly predict the direction of future global economy, as the kind of foresight required for this might be beyond fact gathering and more conjecture, conjecture is still imperative to good discourse. Let’s say the global economy does shift its processes and priorities to emulate Natural Capitalism- what is the next stage after that? What innovations will threaten Natural Capitalism’s hegemonic ideological position if we
  11. 11. believe in the process of Creative Destruction? Was walmart just postponing the inevitable by eco-conscious production standards? Or, is tailoring our production processes to emulate and exist in harmony with the closed-cycle systems in nature the ultimate stage of economic development? With the huge changes in production processes and infrastructure this would imply, can we assume there will also be a corresponding change in human consciousness and cultures?. This project is a work in progress, and has actually inspired the subject of my Bachelor’s thesis, while also expanding my worldview and giving me a more targeted direction for future studies and career paths. That is invaluable.
  12. 12. Works Cited 1) Ahmed, Waquar, Forthcoming 2010, “Enron In India” 2)Fishman, Charles, 2006. The Wal-Mart Effect: How the Worlds Most Powerful Company Really Works- And How It’s Transforming the American Economy. Penguin press, New York. 3) Hamilton and Petrovic, “Walmart and Its Suppliers” from Walmart, the Face of 21st Century Capitalism, 2006 4) Karjanen, David. “The Wal-Mart Effect and the New Face of Capitalism: labor Market and Community Impacts of the Megaretailer”, in Wal-Mart, The Face of twenty First Century Capitalism, The New Press 2006 5) Lichtenstein, Nelson, 2006. “Walmart: A Template for Twenty First Century Capitalism” in Wal-Mart, The Face of Twenty First Century Capitalism. New Press, 2006. 6) Pankaj Ghemawat, Ken Mark, Stephen Bradley, “Wal-Mart Stores in 2003” Harvard Business School Case Study, revised January 30, 2004 7) Lovins, Amory and Hunter, Hawken, Paul. Natural Capitalism: The Next Industrial Revolution, 2000 8) Serwer, Andy. “The Waltons: Inside America’s Richest Family,” Fortune, November 15, 2004, 86 9) Schumpeter, Joseph. Capitalism, Socialism and Democracy, 1942 10)Forbes Digital Dictionary at 11) Garcia, Arnoldo, Martinez, Elizabeth of, What is Neoliberalism?” A definition for activists, by at neoliberalism#Neoliberalismis 12) Critical Fact Sheets at 12) Walmart corporate website fact sheets at
  13. 13. Further Research David Harvey, Justice, Nature, and the Geography of Difference, 1996 ______________ Natural Capitalism: The Next Industrial Revolution, Hunter and Amory Lovins, and ________ The Small-Mart Revolution, Michael Shuman, 2007 ______ Going Local, Michal Shuman, 1993 _____ Market research about the growth trends in green tech/building industries. The list grows continually…. Appendix A: Video depicting Walmart’s growth in the US from its founding in 1962 to 2004, titled: Walmart and Economies of density at (copy web address into your internet browser) Appendix B: Interview with Natural Capitalism founder Hunter Lovins at: Appendix C: Walmart Corporate Sustainability Index Fact Sheet
  14. 14. Walmart Sustainability Index Corporate Fact Sheet Cont’d…:
  15. 15. Index Step 2: Lifecycle Analysis Database As a second step, Walmart is helping create a consortium of universities that will collaborate with suppliers, retailers, NGOs and government to develop a global database of information on the lifecycle of products – from raw materials to disposal. Walmart will provide the initial funding for the consortium, but it is not our intention to create or own this index. The company will also partner with one or more leading technology companies to create an open platform that will power the index. Arizona State University and the University of Arkansas will jointly administer the consortium. Talks are underway with additional universities to join the newly formed consortium. Index Step 3: A Simple Tool for Consumers The final step of the index is to provide customers with product information in a simple, convenient, easy to understand rating, so they can make choices and consume in a more sustainable way. How that information is delivered to consumers is still undetermined, but could take the form of a numeric score, color code or some other type of label. The sustainability consortium will help determine the scoring process in the coming months and years.
  16. 16. Appendix D: 2008 Walmart customer survey, conducted by