Ford vs. Wal-Mart: A Tale of Two Companies
by David Batstone and David Chandler
The AFL-CIO has launched a major campaign to draw attention to the business practices of Wal-Mart. "The biggest corporation in America today has a business plan that lowers standards, first among its own employees and ultimately for all Americans," says John Sweeney, president of the AFL-CIO.
Is Sweeney's assessment fair and accurate? Wal-Mart, with over $250 billion in annual sales, is more often praised for its streamlined business model. Its inventory system and distribution network are beyond compare in the retail industry.
Wal-Mart's recipe for success, however, does depend as well on squeezing labor costs. The majority of its hourly workers earn less than $8.50 an hour, which means that a full-time sales clerk at Wal-Mart falls under the official U.S. poverty level for a family of four.
Nearly a century ago, Henry Ford planned for his employees to be his best customers. Challenging the conventional wisdom that the best way to maximize profits was to tailor your product to the wealthiest segment of society, Ford decided to market his black Model T as "America's Everyman car."
For Ford, mass production went hand-in-hand with mass consumption. He established a simple benchmark for worker compensation: His workers should be able to buy the product they were making. Ford promised a $5-a-day minimum wage for all his workers - twice the prevailing automobile industry average.
Doing so, Ford created a virtuous circle. Workers flocked to his factory to apply for positions. If they managed to secure a coveted job, then in time they too would be able to afford one of his cars. The company flourished on these twin pillars - a desirable product and a highly motivated employee base. By the time production of the Model T ceased in 1927, Ford had sold more than 15 million cars - half the world's output.
Compare Ford's virtuous cycle with Wal-Mart's dual strategy of ruthless cost-cutting and "Everyday low prices." On the surface, the goal is the same - produce goods that consumers want and can afford to buy. The result in implementation, however, is vastly different.
While Ford's business model helped lay the foundation for a rising middle class in America, the Wal-Mart model reinforces downward mobility. Wal-Mart today is the largest commercial employer of labor in the United States. In 2002, 82 percent of American households bought something at Wal-Mart. Americans must love to shop at Wal-Mart; on the other hand, maybe they have no choice. A sizeable percentage of Wal-Mart's sales come from low-income households.
The effort to minimize production costs is a legitimate business strategy; no argument there. But does Wal-Mart realize that the employees whose wages they squeeze are often the customers upon whom they rely to fuel their business?
While Ford created demand and wealth with a new and innovative product, Wal-Mart displaces existing demand - siphoning consumption from elsewhere by under-cutting prices. Wal-Mart sets the pricing agenda in whichever market it enters. Suppliers and competitors are squeezed - forced either to push jobs overseas themselves, or forced out of business altogether. For every Wal-Mart supercenter that opens in the next five years, two other supermarkets will close.
Now that it has reached the bargain basement on domestic production costs, Wal-Mart is increasingly turning to overseas operations to stock its shelves. Wal-Mart's domination of the U.S. retail economy has ramifications beyond its own profit margin.
Many economists present Wal-Mart as a net-positive for the U.S. economy. The popular interpretation of anti-trust law today holds that large companies are only a threat to the community if their dominance results in rising prices for consumers. Hence, Wal-Mart escapes regulation because the company's domination of the retail sector delivers lower prices, across the board. Little long-term thought is given to the wider implications of the methods the company uses to produce those lower prices.
The single-minded pursuit of economic growth can exact a heavy toll on a community. Our economic goal of creating wealth should coincide with our ideals of human and societal development. In today's business environment dominated by Wal-Mart, Henry Ford's ideas would be as revolutionary as they were when they were first applied.
David Batstone is author of Saving the Corporate Soul and Executive Editor of Sojourners magazine.
David Chandler is the Associate Director of the Center for Non-Profit Management at the University of Miami (FL).