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Monday, February 28, 2005
By Steven L. Taylor

Robert Reich, former Secrtary of Labor in the Clinton administration, author and professor has n interesting piece in today’sNYT that was inspired by the fight in NYC over Wal*Mart, Don’t Blame Wal-Mart, wherein he hits the nail on the head as to why Wal*Mart, and other discounters are so successful:

But isn’t Wal-Mart really being punished for our sins? After all, it’s not as if Wal-Mart’s founder, Sam Walton, and his successors created the world’s largest retailer by putting a gun to our heads and forcing us to shop there.

Instead, Wal-Mart has lured customers with low prices. “We expect our suppliers to drive the costs out of the supply chain,” a spokeswoman for Wal-Mart said. “It’s good for us and good for them.”

Wal-Mart may have perfected this technique, but you can find it almost everywhere these days. Corporations are in fierce competition to get and keep customers, so they pass the bulk of their cost cuts through to consumers as lower prices. Products are manufactured in China at a fraction of the cost of making them here, and American consumers get great deals. Back-office work, along with computer programming and data crunching, is “offshored” to India, so our dollars go even further.

Meanwhile, many of us pressure companies to give us even better bargains. I look on the Internet to find the lowest price I can and buy airline tickets, books, merchandise from just about anywhere with a click of a mouse. Don’t you?

The fact is, today’s economy offers us a Faustian bargain: it can give consumers deals largely because it hammers workers and communities.

We can blame big corporations, but we’re mostly making this bargain with ourselves. The easier it is for us to get great deals, the stronger the downward pressure on wages and benefits. Last year, the real wages of hourly workers, who make up about 80 percent of the work force, actually dropped for the first time in more than a decade; hourly workers’ health and pension benefits are in free fall. The easier it is for us to find better professional services, the harder professionals have to hustle to attract and keep clients. The more efficiently we can summon products from anywhere on the globe, the more stress we put on our own communities.

I disagree with his policy solutions (indeed, I think that they would lead to even more job/dollar flight) and, further, the assumption that the government can fix, for relatively little expense, the results of these rather powerful market forces strikes me as naive at best. No only do I think it would cost more than Reich assumes, but I am not certain it solves the problems in question.

Really: his basis thesis is that consumer like cheap stuff and that the main way by which producers and retailers provide the cheap stuff is by lower labor costs by outsourcing services or buying products from overseas manufacturers–which is all true. So, how could it possibly be the case that the way to solve the problem is to make anyone with 50 or more employees provide health insurance or via hiking the minimum wage or increasing the power of employees and unions to negotiate contracts? Won’t all of those things lead to higher labor costs, and thereby accelerate the problems concerning Reich in this column?

It seems to me that perhaps finding a way to lower labor costs in the US might help the problem, and the main ways the government can do that are through tax and regulatory policy (or via subsidies).

Part of the harsh reality is that some of these jobs are gone forever because of the lower labor (and other) costs abroad. This is simply a function of the market. And you can’t fight the market and win.

Another thing that bothers me about his overall argue (the “faustian bargain” part) is that it may simply be the case that adaptation of those workers and communities will have to take place. As economies evolve on a macro leve, micro level changes have to take place.

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4 Responses to “It’s Called the Market”

  1. bryan Says:

    It seems to me that perhaps finding a way to lower labor costs in the US might help the problem, and the main ways the government can do that are through tax and regulatory policy (or via subsidies).

    I’m not sure how that’s going to happen, when we have created a creature comfort society.

    It’s definitely a sticky wicket.

  2. Dave Schuler Says:

    Workers of world unite: you have nothing to lose but your chainstores.

  3. ATM Says:

    Well we can start by reducing personal and corporate income taxes and employer and employee payroll taxes and increasing consumptions taxes to offset the losses of revenue. The reduction in production side taxes may not be enough to offset the increase in consumption side taxes, so prices may increase some, especially for imports. On the otherhand the tax burden will be shifted away from domesticly produced goods to goods produced abroad, and will reduce the tax burden on goods made for export, which will improve the competitiveness of American exporters and their workers and pay allow for pay increases for workers in international trade exposed industries.

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