Washington June 2006

The New War Over Wal-Mart

The mounting attacks on the world’s largest company could change American business—and transform the health-care system

Wal-Mart has made its slogan (“Always Low Prices. Always.”) into a blood oath. The company has grown to prominence through legendary cost-saving acumen and a relentless adherence to low prices, which it maintains by rigid cost control. Today, Wal-Mart employs more people—1.7 million—than any other private employer, and by this measure is not just the largest company in the world but the largest company in the history of the world.

With size comes power. Several years ago, economists coined the term “Wal-Mart effect” to describe the consequences, large and small, that flow from the company’s unending war on prices. The Wal-Mart effect drives down consumer prices so powerfully that it helps check U.S. inflation. But it has hastened the outsourcing of U.S. manufacturing jobs to cheaper countries, and, some argue, it also drives down wages and benefits.

Big business in America is both admired and instinctively suspected, and the biggest business of all is a natural magnet for criticism. The overwhelming focus lately has been its health-care policy, which covers fewer than half its workers and leaves the government to care for tens of thousands of its em-ployees and their children through programs, like Medicaid, that were created to help poor people. Some states have begun to retaliate. Maryland passed a bill in January forcing any company with more than 10,000 workers to spend at least 8 percent of its payroll on employee health care—a law aimed squarely at Wal-Mart, the only company that qualifies. Similar “fair share” bills are pending or planned in thirty states. Especially in the nation’s capital, there’s a growing sense that after years of frustration the Lilliputians are finally tying down their man.

One of the major forces opposing Wal-Mart is organized labor. The United Food and Commercial Workers International Union has long wanted to organize Wal-Mart’s stores. Last year, it succeeded at a Canadian Wal-Mart, which the company immediately shut down. “If Wal-Mart doesn’t change its ways, we’ll turn it into Big Tobacco,” Chris Kofinis, communications director for the UFCW-funded Wake Up Wal-Mart, told me recently.

The company’s other main antagonist, Wal-Mart Watch, is also backed by labor, though at first glance its motivations are opaque. Wal-Mart Watch is heavily financed by the Service Employees International Union, whose president, Andy Stern, says he has no intention of organizing Wal-Mart. Not long after the Maryland law passed, I asked Stern, who helped push it, what he was up to. He smiled. A social service worker turned union organizer, Stern at fifty-five already has a full head of white hair. But he hardly resembles the stereotypical, cigar-chomping union boss. Fit and energetic, he speaks with the assuredness and big-picture worldview of a motivational speaker, an effect amplified by his bright purple shirt (purple is SEIU’s official color). The sleek purple chairs and frosted glass in the union’s Washington offices lend an air of Scandinavian minimalism and further the sense of calculated nonconformity. “Why go after Wal-Mart?” Stern replied. “Because Wal-Mart is the GM of our era. Whatever business practices they adopt have huge influence across other American businesses.”

Stern has something much grander in mind even than unionizing Wal-Mart. “Ford wasn’t created to be a health-care provider; it was created to produce cars,” Stern says. “My goal is to get Wal-Mart’s leadership out there in traffic and holler, ‘We can no longer compete in the global economy when health care is factored into the cost of our products.’ If Wal-Mart’s CEO, Lee Scott, were to come out and say, ‘We need a national health-care system that works for everyone,’ then it’s a whole new ball game.”

Stern says that he first contemplated trying to get Wal-Mart to change its practices in 2003, after the company announced plans to open forty Supercenters in California. Local grocery chains reacted by proposing to cut wages and health benefits in a pre- emptive bid to remain competitive, some even locking out their employees. The result was a massive strike. “When you saw that, you realized what an incredible effect this one company has on a market,” Stern said. It was a classic example of the Wal-Mart effect—and it didn’t stop there. When the supermarkets did in fact cut their health-care plans, the janitorial companies whose workers SEIU represents complained that they, too, could no longer remain competitive. “They came to us and said, ‘We’re not as big as the supermarket chains, and if they can’t afford to pay for health care, how can we be expected to?’” Stern said.

After the 2004 election, SEIU joined with environmentalists, women’s groups, and community activists to form Wal-Mart Watch, hiring seasoned Democratic operatives and jumping into the public debate. The new group focused much of its efforts on the company’s health-care programs, with considerable success. Wal-Mart, despite investing heavily in public relations and making slight improvements in its plans, was unable to stop the Maryland law or quiet the growing chorus of critics.

The company appears to have no clear idea of how to stop the fallout. Some Wall Street analysts believe the “headline risk” associated with the negative publicity is one reason for Wal-Mart’s sagging stock price. The company topped Fortune’s most-admired list in 2003 and 2004—but slipped to twelfth place this year.

Stern seemed to take a Bart Simpson– like delight at the spectacle of a flummoxed symbol of authority whose current chaos he’d helped devise. Spending around $5 million annually, Wal-Mart Watch has pushed anti-Wal-Mart laws in dozens of states, leaked damaging internal documents, and helped make the company known as much for its exploitation of government health plans as for its business acumen. Over the last year, and very much against its will, Wal-Mart has been moved to the center of the national debate over health care, and Stern has drawn one step closer to what he’s really after.

In Stern’s thinking, if the world’s largest company could be coaxed or bullied into publicly favoring a national health-care policy, here’s how things might play out: a rush of other companies already beset by health-care costs and accustomed to mimicking Wal-Mart would fall in line, putting business on the same side as labor. Governors burdened with soaring Medicaid costs might also join in. The pressure on the federal government would be overwhelming. Stern, in other words, is seeking to turn the Wal-Mart effect to his own ends, harnessing it to transform health-care policy just as it routinely transforms business policy. It’s an audacious plan.

In late February, Wal-Mart CEO Lee Scott gave a speech to the National Governors Association in Washington, D.C. The group’s chairman this year, Arkansas Governor Mike Huckabee, chose health care as the focus of the annual meeting. (Huckabee is an able governor and possible Republican presidential nominee, but he’s most famous for losing a hundred pounds and writing a diet book, Quit Digging Your Grave With a Knife and Fork, and he extols the virtues of healthy living just about any time he can.) In one sense Huckabee’s invitation to Scott was natural: Wal-Mart is based in Bentonville, Arkansas. But it promised a certain drama, too, because fewer than half of Wal-Mart’s American workers are covered through the company’s health plan.

Scott’s audience was also significant. Governors are caught in the middle of Wal-Mart’s health-care crisis. The company is believed to be the largest employer in at least two dozen states, so its well-being is important to them. But in many of those states, Wal-Mart workers correspondingly top the list of Medicaid recipients. The program itself has exploded, adding 8 million Americans between 2000 and 2004 and putting enormous strain on state budgets, which fund about 40 percent of Medicaid. What’s especially troubling is that so many new recipients aren’t jobless—their employers simply don’t offer health care, or not cheaply enough to keep them off public assistance. Many of these people work for Wal-Mart.

Scott got right to the point. “America is facing some pretty tough challenges these days,” he stated. “We know our benefits are not perfect.” His goal before the governors was to slow the onrushing storm directed at Wal-Mart’s health-care coverage. For maximum effect the press had been notified ahead of time that he had come bearing a peace offering of sorts—his speech would announce improvements in the company’s benefits.

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Joshua Green is a senior editor at The Atlantic.

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