6 Sep 2006

The Wal-Martisation of the Australian Economy

By James Wheeldon
Keywords: 
James Wheeldon examines the connections between Wal-Mart's American business model and John Howard's WorkChoices legislation

Wal-Mart is, from one point of view, a great American success story. It is the biggest retailer and the second biggest company, by revenue, in the world. It clearly has a successful formula for growth.

But Australians would do well to look at how Wal-Mart runs its business and treats its employees. Although Wal-Mart doesn't yet have stores here, Australia now has a workplace relations system designed to encourage business to emulate Wal-Mart's American labour practices.

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The key to Wal-Mart's success is cutting costs. It does this by ruthlessly applying its massive buying power to obtain goods from manufacturers at the cheapest possible price. But it is equally ruthless in treating its employee's wages and benefits as just another input cost to be minimised.

In seeking to reduce its labour costs, Wal-Mart takes full advantage of the relative lack of protection afforded workers under American law. Not one of Wal-Mart's 1.3 million American employees is unionised but it would be hard to argue they wouldn't benefit from union representation.

America doesn't have 'award' wages, and many thousands of Wal-Mart's employees receive the Federal minimum wage of US$5.15 per hour, without health insurance or leave entitlements. The average full-time wage for Wal-Mart employees is US$10.11 per hour. Many Wal-Mart employees, and their families, live below the poverty line, and the company's failure to provide adequate benefits (especially health care) imposes massive costs on taxpayers who have to pick up the slack.

In recent years, Wal-Mart has had to pay tens of millions of dollars to settle claims that it forced workers to work 'off the clock' to avoid overtime. And according to the New York Times, Wal-Mart's own internal audits have revealed extensive violations of child-labour laws and regulations regarding employee free time. The Wall Street Journal has reported claims that Wal-Mart managers are judged on their ability to keep payroll costs at a strict percentage of sales and that, to hit these targets, managers will routinely force out older, more highly paid workers and replace them with new, low-wage hires.

The absence of union representation amongst Wal-Mart employees in the US is not through lack of effort. In February 2000, for example, a majority of the dozen butchers in the meat department of a Jacksonville, Texas, Wal-Mart voted to unionise the first and last time that Wal-Mart employees in the US would do so. A mere 11 days later, Wal-Mart citing operational reasons announced the elimination of butchering operations in every Wal-Mart outlet. Wal-Mart no longer had to negotiate with the newly-unionised workers, all of whom were transferred to less skilled stocking jobs that offered fewer opportunities for raises and promotions.

The termination of the butchers sent an unmistakeable message to Wal-Mart's employees: Wal-Mart will take extreme measures to prevent its employees from organising to protect their rights, and has permission under US law to do so. All subsequent efforts at unionising Wal-Mart's US employees have failed. According to the company, it's a simple matter of the workers 'choosing' to remain on individual agreements.

It's nearly the same story in Canada, but more worker friendly Canadian laws have mitigated some of the harm. In 2004, an outlet in Jonquière, Quebec, became the only unionised Wal-Mart store in North America. Six months later, Wal-Mart again, citing operational reasons closed the outlet and fired all 190 employees. The Quebec Labour Relations Board later ruled the closing amounted to illegal retaliation and ordered compensation. (The Board has also found the company harassed and intimidated workers who sought to join a union at another Quebec store.)

The scary thing for Australians is that John Howard's WorkChoices is specifically crafted to encourage Australian employers to pursue Wal-Mart's model, and employers who strive to treat their employees decently will now have to compete with ruthless cost-cutters who have plenty of new weapons to use against workers.

With WorkChoices's restrictions on collective bargaining, it is much harder for employees to establish or join a union or obtain union assistance in negotiating contracts and much, much easier for employers to apply pressure on individual employees to accept reduced benefits. In fact, in some respects the law here is now even harsher on workers than it is in the US: there are now tighter restrictions in Australia than in America on what collective bargaining agreements can include, and accepted US practices such as 'pattern bargaining' are illegal here.

Thanks to Emo


A real boon for the Wal-Mart wannabes of the Australian economy, though, is the new power of employers to legally dismiss employees, without compensation, for 'genuine operational reasons.' This will benefit huge employers who can fire large numbers of employees to send a message to a troublesome few. As American workers have seen, this power to dismiss is such an effective weapon that the mere threat of its exercise is enough to achieve an intimidatory effect.

However, looking at Wal-Mart's competitors in the US, and even at Wal-Mart's operations outside North America, shows it is possible to return profits to shareholders while providing workers with reasonable benefits, negotiated collectively.

Wal-Mart derives about a tenth of its revenue from its British arm, Asda. Wal-Mart got off to a rocky start with Asda's employees, a large percentage of whom are union members. In February, Asda was fined £850,000 for illegally offering employees raises in exchange for giving up collective bargaining rights. Then, in June, when Asda's distribution centre employees demanded they be granted nationwide collective bargaining rights, a strike was averted at the last minute when management buckled and offered up 'exactly what the union demanded,' according to a union negotiator.

'We're pleased to have signed an agreement acceptable to both sides to end the current dispute good news for our customers and colleagues alike,' said Asda's chief operating officer, apparently acknowledging that even in a (relatively) worker friendly regulatory environment like Britain's, Wal-Mart can still run its business in a way that keeps its stores open, its employees happy and its financials in the black.

Indeed, the experience of Wal-Mart's US rival, Costco, provides evidence that the Wal-Mart model of labour relations isn't the most efficient. In 2004, BusinessWeek hardly a union mouthpiece found that 'by compensating employees generously to motivate and retain good workers, one-fifth of whom are unionised, Costco gets lower turnover and higher productivity' than Wal-Mart. (And that's before taking into account Wal-Mart's 'negative externalities' the costs it imposes on taxpayers and society, such as the burden of providing health care and other benefits to families that live in poverty, or the negative social effects of rising income inequality.)

Australia has built a first-class economy without treating workers as a mere cost or liability, and no sound economic argument has been presented for changing that course. Perversely, John Howard argues that the wealth, prosperity and employment created under the pre-WorkChoices IR system somehow demonstrates the obsolescence of that system.

In evaluating Howard's economic arguments, Australians should understand that claims of business or operational necessity are often just negotiating tactics. This holds at the 'micro' level, where Wal-Mart fires whole classes of employees to make a point to perceived trouble-makers. It also works at the 'macro' level, where outfits such as the Business Council of Australia claim, without empirical evidence, that the implementation of WorkChoices is necessary for continued growth in the economy.

In any event, a lot of Australian workers are going to have to adjust to the Wal-Mart style if WorkChoices remains in place. There are rumours Wal-Mart may bid to acquire Coles Myer or Woolworths; a 'leveraged buy out consortium' has already approached the Coles Board with an offer. 'Leveraged' means the acquisition would be financed using debt, and debt-funded buyers typically look for profits from cost cutting. As in America, retail employees here may soon be in the front lines of the war on workers.

Sustained economic prosperity depends not on reducing labour costs by encouraging business to make their employees do as much work as possible for the least possible amount of wages and benefits, but rather on increasing labour value by ensuring Australian workers are highly educated and skilled and create goods and services of the highest quality.

Howard and his ideological allies at Wal-Mart should also remember that labour costs represent the actual living, breathing human beings who not only do the work that keeps the economy going but who also should be the beneficiaries of economic growth.
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