November 7, 2003


The Downsizing of America

By Robert H. Linnell

Southern California wild fire news blotted out news about the 70,000 workers on strike in supermarkets there. Understanding this strike and its ramifications for America is important. I want to discuss the idea of a “level playing field” and “connect the dots”. This strike can be related to Detroit, to the growing crisis in health care and to Congressional action (or lack of it).

Walmart is moving into Southern California and will underprice existing supermarkets. Nonunion Walmart pays lower wages than its unionized competitors and offers poorer health care benefits. Labor accounts for two-thirds of supermarket fixed costs. Existing supermarkets say they must cut costs to compete. Walmart is the nation’s largest employer. Walmart Supercenters sell just about anything at prices generally lower than its competitors. Isn’t this the way capitalism is supposed to work?  

First, many Walmart workers make so little that they are eligible for federal tax rebates from the Earned Income Tax Credit (EITC) program; these payments, up to $4,000 a year, are a direct cost to all taxpayers and amount to a subsidy. Other taxpayer subsidies include food stamps, Medicaid and some tax-paid state assistance programs. And this is just the tip of the iceberg of hidden costs of Walmart policies.

Federal agents have raided 60 Walmart stores in 21 different states and found hundreds of illegal alien workers. It seems that even Walmart wages were not low enough so, to save money, management hired outside contractors to clean its stores. The independent company cut its costs by using underpaid illegals but Walmart shrewdly claims lack of knowledge of this fact. These underpaid illegals keep higher paid Americans from those jobs.

Walmart is the largest importer of goods from China, accounting for some 10% of all imports from that country. In spite of pressure from the Bush administration, China continues to keep its currency undervalued. By pricing its goods lower than they should be, they cut out potential American suppliers.

Because of its huge size, Walmart has extremely strong purchasing power. They “squeeze” their suppliers, forcing them to lower prices under threat of taking the business overseas. Some American manufacturers have lost the business, or reduced health benefits or lowered wages or even folded. Last fall over 1,000 attended a rally in Connecticut protesting the sweatshop buying practices of Walmart and other big retailers. This rally was not organized by labor but by a group of small and midsized manufacturers called “Mad in the U.S.A.”

The implications and solutions to these problems are complex but major factors are clear.  Most Walmart workers are in the lowest fifth and some in the second fifth of all income earners and they have no or minimal health benefits; they can’t buy homes or cars but struggle with second jobs to make ends meet. In contrast those Southern California supermarket workers on strike are mostly in the second and middle fifth of wage earners: they buy homes, cars and have good health benefits. Now “connect the dots.” When you buy that kitchen

ware (from China), pet food, groceries and save 10% at Walmart you shift American workers downward to lower paying jobs (or no jobs) which ripples through the economy: fewer well paid auto workers, less jobs in home construction, less home taxes to support local schools, and throughout the economy. This is no bargain. Part of the answer here is to revise international trade rules to be more fair, to create “a level playing field.”

The number of Americans without health insurance is rapidly growing and escalating costs are forcing some employers to drop coverage, others to raise employee co-payments (which causes some employees to drop out). Medicaid, a joint federal-state program for low income families is being cut back in funding, increasing the problem. Our health care system is a mess. Other industrialized nations have a single payer system. Almost all seniors are now in Medicare, a single payer system, and it works quite well. Extending this system to everyone is feasible and not nearly as costly as alleged by opponents. The current mess consumes 25% or more of fees in administration and profits whereas Medicare spends only 3-4% in overhead. Seniors who are fortunate enough to have employer health insurance extending into retirement can make a smooth transition into Medicare with employer insurance paying some of the costs not covered by Medicare.

Medicare for everyone would “level the playing field”. Walmart and others would all have the same costs through a tax added to the current Social Security/Medicare tax. The cost advantage to those companies with little or no health benefits would disappear. Private plans would continue to cover added costs. Health care costs at those Southern California markets on strike would go down and those for Walmart would go up making for more fair competition.

Walmart low prices cost us more in hidden expenses than we save. It is time for Congress to get serious about fixing our broken health care system, to increase the minimum wage in line with the cost of living and recognize problems with our international trade agreements. With an election coming next year, now is the time.

Reproduced with permission from: a member of the International Society of Weekly Newspaper Editors.

Letters to the Editor Return to the Frontpage