The high cost of subsidizing Wal-Mart’s profits

Each United States Wal-Mart costs taxpayers nearly $1 million because of the miserably low pay at the same time that the four heirs to the Wal-Mart fortune possess $107 billion in wealth. That’s no coincidence.

You subsidize Wal-Mart whether you shop there or not. And if you do shop there, you are facilitating the movement of production to countries with the harshest sweatshop conditions.

That Wal-Mart workers are often forced to use food stamps and other public-benefit programs is well known; but the company also receives a myriad of local tax benefits, free or reduced-price land, property- and sales-tax exemptions and various grants that, together, are difficult to quantify. The company’s known U.S. subsidies are far in excess of a billion dollars.

SerfsA study prepared by the Democratic Party staff of the U.S. House of Representatives Committee on Education and the Workforce estimates that each Wal-Mart costs taxpayers nearly $1 million in public-assistance programs alone. The study said:

“[Wal-Mart’s] business model has long relied upon strictly controlled labor costs: low wages, inconsiderable benefits and aggressive avoidance of collective bargaining with its employees. As the largest private-sector employer in the U.S., Wal-Mart’s business model exerts considerable downward pressure on wages throughout the retail sector and the broader economy. … While employers like Wal-Mart seek to reap significant profits through the depression of labor costs, the social costs of this low-wage strategy are externalized. Low wages not only harm workers and their families — they cost taxpayers. When low wages leave Wal-Mart workers unable to afford the necessities of life, taxpayers pick up the tab.” [page 2]

To reach this conclusion, the congressional staff analyzed data obtained from the Wisconsin Medicaid program because they were believed to be “the most recent and comprehensive.” Data from that program showed that more Wal-Mart employees were enrolled in Wisconsin’s program for low-income people, BadgerCare, than from any other employer.

Low pay is expensive

Extrapolating from the numbers it found, the authors of the report estimated that a single 300-employee Wal-Mart “super-center” store in Wisconsin likely costs taxpayers at least $904,542 per year — about $3,105 per employee. If all eligible Wal-Mart workers were to enroll in all public-assistance programs in which they are eligible, each Wal-Mart would cost the state’s taxpayers up to $1,744,590 per year.

That is far from exhausting the list of public subsidies to Wal-Mart. The grassroots advocacy group Good Jobs First has tallied 279 “economic development” subsidies totaling roughly $1.16 billion. These are not necessarily small outlays — 33 separate handouts are worth at least $10 million each. The largest of these, for a distribution center in Schoharie County, New York, will save Wal-Mart $46 million over 20 years because the county government took title to the facility so that the company would not have to pay taxes. That’s $1,433 per county resident!

The cheap goods Wal-Mart sells in its subsidized stores rest not only on exploitation of its in-store clerks, but on a ruthless system of sweatshops to which production is outsourced. This is a product of capitalist competition and “market forces” — competitors’ “innovations” in reducing costs must be matched to be able to survive — but also of Wal-Mart’s leadership in moving production to the lowest-wage countries. Although this an industry-wide phenomenon (inevitably mimicked in other industries), one company will be the most ruthless at this, and Wal-Mart is it.

The prices that Wal-Mart will pay its suppliers are so low, they had no choice but to move overseas or go out of business. Because of Wal-Mart’s domination of retail, there was no alternative to knuckling under to its demands. China was that destination, but now the garment industry is increasingly outsourcing to Bangladesh, a low-wage alternative to China with non-existent labor and safety standards, as the April 2013 fire that killed more than 1,100 trapped workers testifies.

Billions at the top, little at the bottom

How dominant is Wal-Mart? The company’s US$470 billion of revenue in 2012 is larger than the world’s next four largest retailers combined. The four heirs of founder Sam Walton are each among the 17 richest people on Earth — worth a combined $107 billion, making them the world’s richest family. Outgoing Wal-Mart chief executive officer Mike Duke is paid more than 900 times the average company employee, and those employees are paid more than 12 percent less than the dismal pay of retail workers elsewhere.

The average wage of a Bangladeshi garment worker is US$70 to $100 per month. The Institute for Global Labour and Human Rights estimates that a worker in Bangladesh would have to labor fifteen and one-half hours to buy a gallon of milk, while CEO Duke needs to work one second to buy that gallon.

If you have drawn the conclusion that Wal-Mart racks up huge profits, you are correct. The company, the world’s largest private employer, reported profits of $75.8 billion for its five most recent fiscal years.

Workers are paid too little for their physical survival so that a handful of plutocrats can grab more money than anybody could possibly spend — although the Walton family, notoriously stingy in its charitable giving, does play a prominent role in funding the U.S. movement to privatize public schools. Three sets of billionaires — the Walton family, Microsoft founder Bill Gates, and construction and insurance magnate Eli Broad — provide the money for the “charter school” movement that is a thinly disguised initiative to bust unions and place schools under corporate control so that students are taught narrow technical skills without being given the tools to think independently so they become corporate drones.

But even if the family chose to spread a bit of its largesse on charity not benefiting themselves, why would we want to live in a world in which the vast majority is dependent on a lord deigning to bestow his or her benevolence on us? Shouldn’t social decisions be made democratically to advance the health and welfare of society rather than by the self-interested whims of a few people consumed by personal greed? Modern capitalism is taking us back to feudalism.

9 comments on “The high cost of subsidizing Wal-Mart’s profits

  1. Vassilis says:

    Now, this would stand for Greece as well, for all jobs in the private sector, since the government decided to control wages by law (lowest net wage 460 Euros, without recognition of previous experience, studies, foreign languages or even marital status…). I have been working for 20 years, and when I was fired in 2010 the benefit was 730 Euros, (married with one child). Now the benefit for a married with two children is 460 Euros, but the cost of life is still as high as in 2010. But the Greek government played safe, by handing out lower unemployment benefits for less time. After one year you are off the benefit… So with 3.4 million unemployed (half working population) , only 1.3 appear in the official unemployment list. Hail to the Greek ingenuity…So somebody pays, obviously the working man, but nobody gets paid, except the big businesses.

    • In the U.S., they do the same thing — when your unemployment benefits run out, you no longer count as unemployed. Nor do you if you are working part-time but need full-time work. Working people always pay, in whatever capitalist country we are in.

  2. It’s great to see WalMart workers self-organizing to demand better wages. Especially on Black Friday: http://www.salon.com/2013/11/29/breaking_massive_black_friday_strike_and_arrests_planned_as_workers_defy_wal_mart/

    • “ ‘I’m sacrificing myself, along with others, to do this,’ he told me, ‘to show Wal-Mart that hey, I’m not afraid, they not afraid, we not afraid.’ ”

      Solidarity and working together, across borders – that is what it will take to create a better world. Losing our fear is the first step, whether facing Wal-Mart or any other oppressor.

  3. Jeff Nguyen says:

    I love when billionaires who became successful in their sphere, albeit through ruthless, monopolistic practices, then think they know what’s best for other fields. The Walton family and Gates Foundation are both heavily invested in capturing the education “market” under the guise of “reforming” the public school systems. Both have poured millions into the Common Core/PARCC consortium that includes punitive teacher evaluation systems linked to VAM algorithms that are indecipherable and merit pay. So a profession that relies on collaboration and shared knowledge based on years of experience and professional judgement and expertise becomes effectively divided and conquered. The most cynical part of me wanders if the Waltons/Gates of the world really do believe their hype or are merely looking to social engineer a compliant and complacent future workforce.

    This is a great article, the catch-22 is that even individuals want to support local businesses, every nickel counts for those on tight budgets making Wal-Mart’s prices hard to resist. The vicious hamster wheel keeps on turning.

    • If you spend enough of your life surrounded by sycophants and hired propagandists who ceaselessly proclaim you a genius in a social milieu that measures worth only in financial terms, it becomes possible to believe you are a genius in all fields even for those like Bill Gates who lucked into a monopoly and don’t have to make products that work well.

      Nickels do count for many people; the downward spiral of wages fuels more Wal-Marts. But how much does it really cost to shop at Wal-Mart when we add the costs of the subsidies, government benefits and social costs? The Wal-Mart shopper saving a nickle is an illusion, albeit one obscured because those extra costs aren’t charged at the checkout line.

  4. David says:

    The community of Sparks Nevada is pushing back against the building of a new Wal-mart. Let’s face it, Walmarts are not good for America. No More Walmarts.

    • Good luck! Wal-Marts have kept out of New York City, Seattle and most of Vermont, so it is possible. And I like the idea suggested by one of your commenters: “I think we should pass a law that says that any company that has more than 5% of their workforce on federal assistance loses all tax deductions. If they have more than 10%, then they also get a minimum corporate tax rate of 99%.” Now that’s a reform.

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