Sunday, April 16, 2006

Fortune Magazine: Why Globalism Matters to You



In the November 28, 2005 issue of Fortune is an article I think is important for people to read. It eliminates the mystique of hatred for Wal-Mart and points the reader in the direction of why globalism is a force that is sweeping away old economics. The problem of globalism is caused by consumers like you and me. We like stuff cheap. Wal-Mart has merely capitalized on gloabl economies better than any other company.

Please read this article.

Dave




Executives at Wal-Mart are worried that Robert Greenwald’s new documentary film about the company—Wal-Mart: The High Cost of Low Price—could become a cult hit on the order of Michael Moore’s anti-GM rant, Roger & Me. So my first piece of advice to CEO Lee Scott and his team is: Stop worrying about the movie. It’s a jeremiad—a ham-handed snore with none of the humor, craft, or story sense that made Moore’s film so engaging. The people who already hate you will love it, but nobody else will be able to sit through it. My second piece of advice is to worry deeply about what the film represents. It’s a response to the great social disrupter of our time—the emergence of a friction-free global economy. This new film, awful though it may be, is a cry from the hearts of people being wrenched from the old world into the new and not liking it. There are millions of them, and they will demand to be heard in the media, the markets, and government. And the world’s largest corporation is, inevitably, the most inviting target they can find.

Why they’re unhappy is no mystery. In the new world it’s possible to coordinate supply chains and distribution networks with precision and efficiency never before imagined. Result: big-box retailers with extremely low prices. Wal-Mart’s critics (including the new movie) dwell heavily on how the company heartlessly drives small-town stores out of business. One never hears the obvious problem with that allegation: that Wal-Mart can’t drive anyone out of business. Only customers can do that, and millions of them happily drive right past those little stores because they’d rather pay lower prices. Of course it isn’t just Wal-Mart that draws them. Home Depot and Lowe’s have been death for small hardware stores, Zales for mom-and-pop jewelry shops, Sports Authority for the old sporting goods retailers. They’re all using the plunging cost of computing power and telecommunication to create previously impossible business models that give customers what they want. That trend is not going to stop.

The new world also makes it impossible for employers to pay people as they used to. Maybe the most important part of the new world for many Americans is the advent of a genuinely global labor market, in which workers around the world compete. Of course nobody in Mumbai can directly take the job of a retail clerk on the floor of a Wal-Mart. But a lot of labor is fungible; a given person could work in a store or factory or office. So global competition for workers in factories or info-based jobs, where work can be offshored, pushes down the pay of millions of others—bad news for Wal-Mart employees and potential employees.

A big chunk of the documentary concerns the fact that many Wal-Mart workers don’t get very good medical coverage—or any at all. Again, welcome to 2005. Everybody’s medical coverage is getting stingier because in a global economy, where U.S. workers compete with those in Datang and Wal-Mart competes for capital with every other business on earth, American companies can’t continue paying the world’s highest health-care costs. Don’t blame Wal-Mart; blame America’s inability to devise a national health plan that takes the burden off employers.

The film includes a few allegations of illegal conduct by Wal-Mart managers, and obviously nothing can excuse that. The big question is whether such behavior is systemic, as the film suggests but doesn’t prove. Until there’s better evidence, one should be agnostic on this question, which is not the same as giving Wal-Mart the benefit of the doubt. The company’s growth has been slowing, and it’s under pressure from investors to improve results. As that pressure gets transmitted down to stores, it’s easy to imagine managers doing things they shouldn’t.

If that’s happening and Wal-Mart doesn’t fix it, the results could be dire. This is a battle, and nothing ordains that Wal-Mart must win. The forces of discontent could enable competitors to find toeholds and over time reduce it to just one of America’s several major retailers. What’s critical to realize is that it wouldn’t really matter. This film’s greatest disservice is to tell people, as it does in its closing sequence, that victory consists of stopping Wal-Mart. That’s a delusion. The only true victory will be adapting to the world that’s coming, like it or not and regardless of who brings it.