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Subsidized Profits

The High Cost of Wal-Mart

by PETE DOLACK

Each United States Wal-Mart costs taxpayers nearly $1 million because of the company’s miserably low pay at the same time that the four heirs to the Wal-Mart fortune possess $107 billion in wealth. That’s no coincidence.

You subsidize Wal-Mart whether you shop there or not. And if you do shop there, you are facilitating the movement of production to countries with the harshest sweatshop conditions.

That Wal-Mart workers are often forced to use food stamps and other public-benefit programs is well known; but the company also receives a myriad of local tax benefits, free or reduced-price land, property- and sales-tax exemptions and various grants that, together, are difficult to quantify. The company’s known U.S. subsidies are far in excess of a billion dollars.

A study prepared by the Democratic Party staff of the U.S. House of Representatives Committee on Education and the Workforce estimates that each Wal-Mart costs taxpayers nearly $1 million in public-assistance programs alone. The study said:

“[Wal-Mart’s] business model has long relied upon strictly controlled labor costs: low wages, inconsiderable benefits and aggressive avoidance of collective bargaining with its employees. As the largest private-sector employer in the U.S., Wal-Mart’s business model exerts considerable downward pressure on wages throughout the retail sector and the broader economy. … While employers like Wal-Mart seek to reap significant profits through the depression of labor costs, the social costs of this low-wage strategy are externalized. Low wages not only harm workers and their families — they cost taxpayers. When low wages leave Wal-Mart workers unable to afford the necessities of life, taxpayers pick up the tab.” [page 2]

To reach this conclusion, the congressional staff analyzed data obtained from the Wisconsin Medicaid program because they were believed to be “the most recent and comprehensive.” Data from that program showed that more Wal-Mart employees were enrolled in Wisconsin’s program for low-income people, BadgerCare, than from any other employer.

Low pay is expensive

Extrapolating from the numbers it found, the authors of the report estimated that a single 300-employee Wal-Mart “super-center” store in Wisconsin likely costs taxpayers at least $904,542 per year — about $3,105 per employee. If all eligible Wal-Mart workers were to enroll in all public-assistance programs in which they are eligible, each Wal-Mart would cost the state’s taxpayers up to $1,744,590 per year.

That is far from exhausting the list of public subsidies to Wal-Mart. The grassroots advocacy group Good Jobs First has tallied 279 “economic development” subsidies totaling roughly $1.16 billion. These are not necessarily small outlays — 33 separate handouts are worth at least $10 million each. The largest of these, for a distribution center in Schoharie County, New York, will save Wal-Mart $46 million over 20 years because the county government took title to the facility so that the company would not have to pay taxes. That’s $1,433 per county resident!

The cheap goods Wal-Mart sells in its subsidized stores rest not only on exploitation of its in-store employees, but on a ruthless system of sweatshops to which production is outsourced. This is a product of capitalist competition and “market forces” — competitors’ “innovations” in reducing costs must be matched to be able to survive — but also of Wal-Mart’s leadership in moving production to the lowest-wage countries. Although this an industry-wide phenomenon (inevitably mimicked in other industries), one company will be the most ruthless at this, and Wal-Mart is it.

The prices that Wal-Mart will pay its suppliers are so low, they had no choice but to move overseas or go out of business. Because of Wal-Mart’s domination of retail, there was no alternative to knuckling under to its demands. China was that destination, but now the garment industry is increasingly outsourcing to Bangladesh, a low-wage alternative to China with non-existent labor and safety standards, as the April 2013 fire that killed more than 1,100 trapped workers testifies.

Billions at the top, little at the bottom

How dominant is Wal-Mart? The company’s US$470 billion of revenue in 2012 is larger than the world’s next four largest retailers combined. The four heirs of founder Sam Walton are each among the 17 richest people on Earth — worth a combined $107 billion, making them the world’s richest family. Mike Duke, who just stepped down as Wal-Mart chief executive officer, was paid more than 900 times the average company employee, and those employees are paid more than 12 percent less than the dismal pay of retail workers elsewhere.

The average wage of a Bangladeshi garment worker is US$70 to $100 per month. The Institute for Global Labour and Human Rights estimates that a worker in Bangladesh would have to labor fifteen and one-half hours to buy a gallon of milk, while CEO Duke needs to work one second to buy that gallon.

If you have drawn the conclusion that Wal-Mart racks up huge profits, you are correct. The company, the world’s largest private employer, reported profits of $75.8 billion for its five most recent fiscal years.

Workers are paid too little for their physical survival so that a handful of plutocrats can grab more money than anybody could possibly spend — although the Walton family, notoriously stingy in its charitable giving, does play a prominent role in funding the U.S. movement to privatize public schools. Three sets of billionaires — the Walton family, Microsoft founder Bill Gates, and construction and insurance magnate Eli Broad — provide the money for the “charter school” movement that is a thinly disguised initiative to bust unions and place schools under corporate control so that students are taught narrow technical skills without being given the tools to think independently so they become corporate drones.

But even if the family chose to spread a bit of its largesse on charity not benefiting themselves, why would we want to live in a world in which the vast majority is dependent on a lord deigning to bestow his or her benevolence on us? Shouldn’t social decisions be made democratically to advance the health and welfare of society rather than by the self-interested whims of a few people consumed by personal greed? Modern capitalism is taking us back to feudalism.

Pete Dolack writes the Systemic Disorder blog. He has been an activist with several groups.