From the Smart Growth Livable Communities Email List

Wal-Mart's Costs Can't Always Be Measured

If Wal-Mart Stores Inc. is famous for anything, it's
the ruthless way it wrings the last few pennies of cost
from every transaction.

So last week, when the Los Angeles County Economic
Development Corp. released a study finding that the
expansion of Wal-Mart's grocery business into Southern
California would be, on balance, a great thing, my
first reaction was that the company had purchased the
LAEDC's reputation cheaply for the $65,000 it paid for
the study.

But to be fair, LAEDC's team, headed by Gregory
Freeman, its director of policy consulting, did a
responsible job with what data it had, much of which
was provided by Wal-Mart, and not without a fair amount
of tugging.

One can even accept Freeman's claim to have identified
and rectified a flaw in other, alarmist studies of
Wal-Mart's impact on local economies: that while those
studies focus on how the downward pressure on retail
wages produced by Wal-Mart's arrival leads to job
losses, they don't explore the converse — whether the
increased purchasing power of shoppers at Wal-Mart and
its price-cutting rivals might pump enough money into a
local economy to stimulate employment. Freeman argues
that over time, the extra cash in Wal-Mart shoppers'
pockets will mean a net gain in Southern California of
tens of thousands of jobs. And if someone wants to
challenge his math, at least he lays out his
calculations in his report's 40 pages.



For all that, when it comes to gauging Wal-Mart's
influence on local communities, much of that influence
either can't be measured by standard economics or
hasn't yet generated enough data to allow economists to
work their mathematical magic.

It's hard to ignore the markers of this report's
provenance as the product of a commercial contract.
Plenty of it reads as though it was aimed for the ears
of Freeman's exacting client. For example: "Wal-Mart
makes a point of always listening to its customers, and
focuses on the consumer's bottom line," Freeman writes
at the close of an admiring section on the
corporation's devotion to frugality. Well, maybe. But
this sounds more like the language of PR flackery than
of objective economics.

Freeman says every word of the text is his own. He also
says he knew his conclusions would be controversial,
especially in light of the supermarket labor dispute,
and strove to be objective: "I'm not here to defend
Wal-Mart or disguise the issues," he told me.

The LAEDC says Wal-Mart reviewed the report before it
was issued to the public. That's conventional practice
with consulting clients, the organization says, whether
they're corporations like Wal-Mart or agencies like the
Metropolitan Transportation Authority. The idea is to
allow the client to ferret out factual inaccuracies
rather than cavil about wording. But it's also true
that Wal-Mart had the contractual right to veto the
report's public release if it didn't like its
conclusions.

Since the company OKd its publication, no one should be
surprised that it lauded the LAEDC's conclusion that
the arrival of Wal-Mart Supercenters, which sell
general merchandise along with groceries, would be a
net boon for the Southland. "This is a great day for
California consumers," said Wal-Mart spokeswoman Mona
Williams, a statement that fills me with the same
gratitude I feel when my bank tells me it's raising its
fees in order to serve me better.

The fact is that while the LAEDC report may be fine as
far as it goes, it doesn't go far enough in analyzing
the Wal-Mart effect on a community. And by leaving out
a few perceptible but unquantifiable consequences of
Wal-Mart policies, it makes the overall effect look
more favorable than it really is.

Consider an alleged Wal-Mart habit currently being
scrutinized in a federal courthouse in San Francisco:
pervasive sex discrimination. Lawyers for the
plaintiffs in the case say that women in virtually
every job classification across the country are paid
less than men with the same responsibilities and
seniority; women make up two-thirds of the company's
hourly workforce but one-third of its management.
Calculating the economic impact of such a trend is
difficult, if not impossible, but the accusation hardly
portrays Wal-Mart as a force for social enlightenment.
(The company has denied that it discriminates, but also
says it is trying to make its pay and promotion system
less subjective than before.)

On employment practices and benefits in general, the
LAEDC report takes Wal-Mart at its word. The company
claims to provide such perquisites as profit sharing
and a 15% discount on company stock it presents without
comment, beyond saying "the value of these benefits
varies." Indeed, Wal-Mart's critics note that its
famously lean management structure means that as few as
10 workers in a store employing 300 to 500 might be
eligible for profit sharing, and its low wages mean
that few employees have the wherewithal to accumulate a
significant investment in its stock at any discount.

The company's claim to provide health benefits also
deserves greater scrutiny. Although the LAEDC report
notes that Wal-Mart provides employees with health
insurance, it doesn't explore the implications of how
it does so. As this column has pointed out in the past,
not only do Wal-Mart workers pay a larger share of
their health insurance premiums than the average worker
nationwide, but the company also excludes coverage of
many routine medical services, such as contraceptives
and child vaccinations.

Instead, Wal-Mart focuses on covering such
"catastrophic" needs as cancer treatment and organ
transplants. This allows the company to release gaudy
numbers to make itself seem softhearted, such as by
noting that it pays for 60 transplants a year at more
than $1 million each. But these are obviously rare
events — 60 transplant patients would be the equivalent
of just over one-hundredth of 1% of Wal-Mart's 500,000
insured employees, for example.

What happens when the child of a Wal-Mart employee on
an hourly wage needs a shot for measles, chicken pox or
the flu? The worker faces the choice of shelling out,
say, $75 to get the shot at a private clinic (that's
more than a day's pay for many of the workers); or
going to a public, tax-supported clinic, which means we
all pay; or trusting to luck that the child won't get
sick, which would force the employee to stay home for a
couple of days, losing more pay.

Wal-Mart freely, even boastfully, acknowledges that as
many as 40% of its employees get their health coverage
elsewhere, such as from the employers of spouses or
parents or from programs like MediCal and Medicare.
This is community-mindedness the Wal-Mart way: Stick
the other guy with the responsibility for your own
workforce. Wal-Mart ruthlessly prices its health
coverage to discourage employees from placing their own
spouses and children on its plans, but it's not above
pushing its own workers on other companies. Then it
argues smugly that its competitors are only whining
because they don't know to cut costs as efficiently as
it does.

This sheds a different light on the LAEDC report's
contention that other studies have overestimated the
wage gap between Wal-Mart grocery employees and
unionized supermarket workers. The LAEDC estimates that
the overall average difference in Southern California
will amount to $2.50 to $3.50 an hour. But it doesn't
calculate the additional advantage the union members
have had from their comprehensive company-paid health
insurance coverage or, for that matter, from the
company-financed pension benefits they have long
enjoyed.

Neither benefit is matched by Wal-Mart. Both, as it
happens, are mortally threatened today, because the
supermarket chains engaged in the labor dispute are
determined to move their labor costs closer to the
Wal-Mart standard. The full import of this change,
Freeman told me, was "outside the scope" of his study,
if only because healthcare costs have become a national
issue and it's impossible to tell what company-paid
health insurance plans will look like in five or 10
years. That's true enough, but it looks like a fair bet
today that healthcare will be taking a bigger chunk out
of most workers' paychecks tomorrow. Wal-Mart's
influence on that trend can't be discounted.

Perhaps, then, we should defer applauding the
inevitable arrival of Wal-Mart Supercenters in
California. It may be, as the LAEDC concluded, that
we'll all benefit hugely from their relentless price
cutting. But we haven't even begun to learn how to
measure the supercenters' cost.

Bill Bronson