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

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.

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: http://www.youtube.com/watch?v=EGzHBtoVvpc

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

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.

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.

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

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

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

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

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.

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 21 st

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 http://www.investopedia.com/terms/c/creativedestruction.asp

11) Garcia, Arnoldo, Martinez, Elizabeth of CorporateWatch.org, What is Neoliberalism?” A

definition for activists, by at http://www.globalissues.org/article/39/a-primer-on-

neoliberalism#Neoliberalismis

12) Critical Fact Sheets at www.WalmartWatch.com

12) Walmart corporate website fact sheets at www.WalmartStores.com

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 http://www.youtube.com/watch?v=EGzHBtoVvpc

(copy web address into your internet browser)

Appendix B: Interview with Natural Capitalism founder Hunter Lovins at:

http://www.youtube.com/watch?v=KzNTRwxlRKg&NR=1

Appendix C: Walmart Corporate Sustainability Index Fact Sheet

Walmart Sustainability Index Corporate Fact Sheet Cont’d…:

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.

Appendix D: 2008 Walmart customer survey, conducted by WalmartWatch.com