THE CASE FOR BREAKING UP WAL-MART

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If you know anything...anything at all about me, you know I am anti

wal-mart...mk The Case for Breaking Up Wal-Mart By Barry C. Lynn, Harper's

Posted on July 24, 2006, Printed on July 29, 2006

http://www.alternet.org/story/39251/ There is an undeniable beauty to

laissez-faire theory, with its promise that by struggling against one another,

by grasping and elbowing and shouting and shoving, we create efficiency and

satisfaction and progress for all. This concept has shaped, at the most

fundamental levels, how we understand and engineer our basic freedoms --

economic, political, and moral. Until recently, however, most politicians and

economists accepted that freedom within the marketplace had to be limited, at

least to some degree, by rules designed to ensure general economic and social

outcomes.

 

From Adam Smith onward, almost all the great preachers of laissez-faire were

tempered by a strain of deep realism. Most accepted that a national economy

ultimately served a nation that had to survive in an often brutal world. So,

too, did most accept that all economies are characterized by struggles for power

and precedence among men and institutions run by men; in other words, that all

economies are fundamentally political in nature. And so most accepted the need

to use the power of the state -- most dramatically in the form of antitrust law

-- to prevent any one man or firm from consolidating so much power as to throw

off basic balances. The invisible hand of the marketplace, and all that derives

from it, had to be protected by the visible hand of government.

 

It is now twenty-five years since the Reagan Administration eviscerated

America's century-long tradition of antitrust enforcement. For a generation, big

firms have enjoyed almost complete license to use brute economic force to grow

only bigger. And so today we find ourselves in a world dominated by immense

global oligopolies that every day further limit the flexibility of our economy

and our personal freedom within it. There are still many instances of intense

competition -- just ask General Motors.

 

But since the great opening of global markets in the early 1990s, the tendency

within most of the systems we rely on for manufactured goods, processed

commodities, and basic services has been toward ever more extreme consolidation.

Consider raw materials: three firms control almost 75 percent of the global

market in iron ore. Consider manufacturing services: Owens Illinois has rolled

up roughly half the global capacity to supply glass containers. We see extreme

consolidation in heavy equipment; General Electric builds 60 percent of large

gas turbines as well as 60 percent of large wind turbines. In processed

materials; Corning produces 60 percent of the glass for flat-screen televisions.

Even in sneakers; Nike and Adidas split a 60- percent share of the global

market. Consolidation reigns in banking, meatpacking, oil refining, and grains.

It holds even in eyeglasses, a field in which the Italian firm Luxottica has

captured control over five of the six national outlets in

the U.S. market.

 

The stakes could not be higher. In systems where oligopolies rule unchecked by

the state, competition itself is transformed from a free-for-all into a kind of

private-property right, a license to the powerful to fence off entire

marketplaces, there to pit supplier against supplier, community against

community, and worker against worker, for their own private gain. When

oligopolies rule unchecked by the state, what is perverted is the free market

itself, and our freedom as individuals within the economy and ultimately within

our political system as well.

 

Popular notions of oligopoly and monopoly tend to focus on the danger that

firms, having gained control over a marketplace, will then be able to dictate an

unfairly high price, extracting a sort of tax from society as a whole. But what

should concern us today even more is a mirror image of monopoly called

" monopsony. " Monopsony arises when a firm captures the ability to dictate price

to its suppliers, because the suppliers have no real choice other than to deal

with that buyer. Not all oligopolists rely on the exercise of monopsony, but a

large and growing contingent of today's largest firms are built to do just that.

The ultimate danger of monopsony is that it deprives the firms that actually

manufacture products from obtaining an adequate return on their investment. In

other words, the ultimate danger of monopsony is that, over time, it tends to

destroy the machines and skills on which we all rely.

 

Examples of monopsony can be difficult to pin down, but we are in luck in that

today we have one of the best illustrations of monopsony pricing power in

economic history: Wal-Mart. There is little need to recount at any length the

retailer's power over America's marketplace. For our purposes, a few facts will

suffice -- that one in every five retail sales in America is recorded at

Wal-Mart's cash registers; that the firm's revenue nearly equals that of the

next six retailers combined; that for many goods, Wal-Mart accounts for upward

of 30 percent of U.S. sales, and plans to more than double its sales within the

next five years.

 

The effects of monopsony also can be difficult to pin down. But again we have

easy illustrations ready to hand, in the surprising recent tribulations of two

iconic American firms -- Coca-Cola and Kraft. Coca-Cola is the quintessential

seller of a product based on a " secret formula. " Recently, though, Wal-Mart

decided that it did not approve of the artificial sweetener Coca-Cola planned to

use in a new line of diet colas. In a response that would have been unthinkable

just a few years ago, Coca-Cola yielded to the will of an outside firm and

designed a second product to meet Wal-Mart's decree. Kraft, meanwhile, is a

producer that only four years ago was celebrated by Forbes for " leading the

charge " in a " brutal industry. " Yet since 2004, Kraft has announced plans to

shut thirty-nine plants, to let go 13,500 workers, and to eliminate a quarter of

its products. Most reports blame soaring prices of energy and raw materials, but

in a truly free market Kraft could have pushed

at least some of these higher costs on to the consumer. This, however, is no

longer possible. Even as costs rise, Wal-Mart and other discounters continue to

demand that Kraft lower its prices further. Kraft has found itself with no other

choice than to swallow the costs, and hence to tear itself to pieces.

 

The idea that Wal-Mart's power actually subverts the functioning of the free

market will seem shocking to some. After all, the firm rose to dominance in the

same way that many thousands of other companies before it did -- through smart

innovation, a unique culture, and a focus on serving the customer. Even a decade

ago, Americans could fairly conclude that, in most respects, Wal-Mart's rise had

been good for the nation. But the issue before us is not how Wal-Mart grew to

scale but how Wal-Mart uses its power today and will use it tomorrow. The

problem is that Wal-Mart, like other monopsonists, does not participate in the

market so much as use its power to micromanage the market, carefully

coordinating the actions of thousands of firms from a position above the market.

 

One of the basic premises of the free-market system is that actors are free to

buy from or sell to a variety of other actors. In the case of Wal-Mart, no one

can deny that every single firm that supplies the retailer is, technically, free

not to do so. But is this true in the real world? After all, once a firm comes

to depend on selling through Wal-Mart's system, just how conceivable is the idea

of walking away? Producers own and maintain machines, employ skilled workers,

lease land and buildings. Even with careful planning, most would find the sudden

surrender of 20 percent or more of their revenue to be extremely disruptive, if

not suicidal.

 

Another basic premise of the free-market system is that the price of a

commodity or good carries vital information from actor to actor within an

economy -- say, that cherries are scarce, or vinyl floor tiles abundant, or the

latest iPod includes a new technology. Again, no one can deny that, technically,

every firm that supplies Wal-Mart is free to ask whatever price it wants. But

again, we must ask whether this holds true in the real world. Every producer

knows that Wal-Mart is, as one of its executives told the New York Times, a

" no-nonsense negotiator, " which means the firm sets take-it-or-leave-it prices,

which as we know from the previous paragraph are far harder to leave than to

take. Every so often Wal-Mart will accept a higher price, but then the

retailer's managers may opt to punish the offending supplier, perhaps by

ratcheting up competition with its own in-house brands. Price, within the

consumer economy, increasingly carries but one bit of information -- that

Wal-Mart is powerful enough to bend everyone else to its will.

 

Those who would use the word " free " to describe the market over which Wal-Mart

presides should first consult with Coca-Cola's product-design department; or

with Kraft managers, or Kraft shareholders, or the Kraft employees who lost

their jobs. These results were decided not within the scrum of the marketplace

but by a single firm. Free-market utopians have long decried government

industrial policy because it puts into the hands of bureaucrats and politicians

the power to determine which firms " win " and which " lose. " Wal-Mart picks

winners and losers every day, and the losers have no recourse to any court or

any political representative anywhere.

 

Antimonopoly sentiment in America dates to the nation's founding. We see it in

the acceptance by the thirteen newly independent states of English common law,

with its rich antimonopoly tradition. We see it in the most vital statement on

industry in American history, Alexander Hamilton's Report on Manufactures,

itself deeply influenced by Adam Smith's antimonopoly writings in The Wealth of

Nations. We see its citizen-centered nature in a 1792 essay by James Madison, in

which he condemns monopolies for denying Americans " that free use of their

faculties, and free choice of their occupations, which not only constitute their

property in the general sense of the word; but are the means of acquiring

property strictly so called. " We see it dominating many of the great political

battles of the nineteenth century, from Andrew Jackson's war on the Second Bank

of the United States to William Jennings Bryan's populist campaign of 1896.

 

It would be wrong, however, to regard America's powerful antitrust law of the

twentieth century as especially populist in nature. By the time Congress passed

the Sherman Antitrust Act in 1890, the industrial explosion that began during

the Civil War had resulted in the rise of hundreds of big firms, which often

proved far more efficient than their older, smaller competitors. The phenomenal

productivity of these newcomers tempered support for more radical antimonopoly

proposals. The result was a sort of compromise, engineered mainly by the

progressive wing of the Republican Party. The Sherman Act came to be seen not as

a license to destroy all big firms simply because they were big but as a very

big stick with which to convince the average firm not to overreach, and on rare

occasions to break companies like Standard Oil, which had developed reputations

for grossly abusing power. Most big firms were allowed to remain big as long as

they avoided outright collusion with

competitors, or extreme abuse of their consumers, or overly rapid predation

against smaller property holders.

 

Thus did antitrust power come to serve as a sort of constitutional law within

America's political economy. The goal was to enforce a balance of power among

economic actors of all sizes, to maintain some degree of liberty at all levels

within the economy. In recent years it has become a truism that antitrust law is

designed to protect only the consumer. But the fact that Congress intended these

laws also to preserve both competition per se and to shelter entire classes of

entrepreneurs (among whom is the individual worker) was clear at the beginning

and has been made clearer many times since. The text of the Sherman Act itself

is famously vague, but the Supreme Court's decision in the 1911 Standard Oil

case was based flatly on the assumption that the need to ensure robust

competition sometimes outweighs the benefits of near-term efficiency. Standard's

roll-up of the oil industry cut the cost of kerosene by nearly 70 percent, and

yet the justices shattered the firm into

thirty-four pieces. For many legislators, this was not nearly enough. Three

years later, Congress greatly strengthened the rules against inter-firm price

discrimination, in the Clayton Antitrust Act. Then in 1936, Congress did so

again, even more resoundingly, by passing the Robinson-Patman Act. Wright

Patman, the Texas Democrat who was the main force behind the bill, made sure

everyone understood Congress's intent. " The expressed purpose of the Act is to

protect the independent merchant, " he wrote on the first page of a book he

published to explain the law, " and the manufacturer from whom he buys. "

 

During the twentieth century, antitrust law shaped the American economy more

than did any other government power. Over the years, many thousands of antitrust

cases were filed, by federal and state governments against particular firms and

by one firm against another. Antitrust law determined not merely how big a firm

could grow but where it could do business, how it was managed, how it could

compete, even what lines of business it could enter. As the industrial scholar

Alfred D. Chandler has noted, the vertically integrated firm -- which dominated

the American economy for most of the last century -- was to a great degree the

product of antitrust enforcement. When Theodore Roosevelt began to limit the

ability of large companies to grow horizontally, many responded by buying

outside suppliers and integrating their operations into vertical lines of

production. Many also set up internal research labs to improve existing products

and develop new ones. Antitrust law later played

a huge role in launching the information revolution. During the Cold War, the

Justice Department routinely used antitrust suits to force high-tech firms to

share the technologies they had developed. Targeted firms like IBM, RCA, AT & T,

and Xerox spilled many thousands of patents onto the market, where they were

available to any American competitor for free.

When Ronald Reagan took power in 1981, one of his first targets was antitrust

law. The new administration put forth a variety of arguments -- not least that

international competition, especially with Japan, had rendered moot the old

fears of monopoly. Yet the driving motive clearly was the philosophical

antipathy of the Reaganites to the idea that the American people, acting through

their representatives, had any business whatsoever telling business what to do.

And the practical effect was to harness the institution of the corporation to

that administration's larger project of shifting power and profit from the

working, middle, and entrepreneurial classes to the powerful and rich. The

radical nature of Reagan's attack on antitrust law is, in retrospect,

astounding. Early in the administration, Attorney General William French Smith

declared that " bigness is not necessarily badness. "

 

Antitrust enforcer William Baxter held that big firms were more efficient than

smaller and said he had the " science " to prove it. When the Reagan team

published its new Merger Guidelines in 1982, the document formalized two

revolutionary changes: it redefined the American marketplace as global in

nature, and it severely restricted who could be regarded as a victim of

monopoly. From this point on, only one action could be regarded as truly

unacceptable -- to gouge the consumer. Any firm that avoided such a clumsy act

was, for all intents, free to gouge any other class of citizen, not least

through predatory pricing and the blatant exercise of power over suppliers and

workers.

 

If a single business deal illuminates the degree to which Wal-Mart has

centralized control over America's consumer economy, it was last year's takeover

of Gillette by Procter & Gamble. Gillette would seem one of the last firms

likely to find itself unable to protect its pricing power; its 70 percent share

of global razor sales gives it some weight at the negotiating table. Yet the

Boston-based firm discovered that it could no longer keep its profit margins

safely out of the grasp of the Arkansas retailer. And so was conceived the

largest in a long list of buyouts due at least in part to Wal-Mart's power,

including Newell's takeover of Rubbermaid, Kellogg's purchase of Keebler, and

Kraft's buyout of Nabisco. And of course there is the long list of firms that

have ended up dead or in Chapter 11 reorganization at least partly because of

their dealings with Wal-Mart. Some are small fry, like Vlasic Foods. Others were

once powers, like Pillowtex. Some were beloved brands, like

Schwinn. Others were family enterprises, like Lovable Garments.

 

Even with Gillette in hand, Procter & Gamble itself is anything but safe. For

decades, P & G was regarded by retailers as the " 800-pound gorilla " among

suppliers of home products. It was one of two firms that most spurred Sam Walton

as he built Wal-Mart -- the competitor to beat was K-Mart; the supplier to tame,

P & G. By the time Walton died in the early 1990s, he was able to brag of how he

had forced P & G to accept a " win-win partnership " based on the sharing of

information. Had he lived a few years longer, though, Walton would have

witnessed what amounts to the outright capture of his foe. And for a man who

spent much of his life scrounging for deals on lingerie and hawking hula-hoop

knockoffs, he would surely have relished how this struggle for the heights of

the consumer economy was decided by the power to price toilet paper and

detergent.

 

In recent years, Wal-Mart beat P & G into submission by mercilessly pitting its

in-house brands against top P & G brands; the retailer, for instance, introduced

not one but two detergents to compete with Tide and, in a particularly audacious

move, grabbed outright the copyright for the White Cloud line of toilet paper,

after P & G unwisely forgot to protect its own brand's name.

 

With the purchase of Gillette, P & G has achieved a new scope and scale,

vaulting past Unilever to become the world's biggest maker of consumer goods.

Yet the new balance of power is unlikely to last. Wal-Mart has become so strong,

so sure of the invulnerability of its position, that not only does it not fear

consolidation among its suppliers; it actually forces many of them to form fully

self-conscious, collusive oligopolies with their rivals. Not that these

relationships are advertised as such. The key here is the innocuous-sounding

term " category management, " and it describes a practice that is now common to

all large retailers. But it is a practice that grew out of Wal-Mart's original

" partnership " with P & G, and it is a practice that has been pushed especially

hard by Wal-Mart.

 

Until recently, every retailer would draw up its own merchandising plan,

detailing which brands to promote, how much shelf space to grant each, which

products to place at eye level. These days, Wal-Mart and a growing number of

other retailers ask a single supplier to serve as its " Category Captain " and to

manage the shelving and marketing decisions for an entire family of products,

say, dental care. Wal-Mart then requires all other producers of this class of

products to cooperate with the new " Captain. " One obvious result is that a

producer like Colgate-Palmolive will end up working intensely with firms it

formerly competed with, such as Crest manufacturer P & G, to find the mix of

products that will allow Wal-Mart to earn the most it can from its shelf space.

If Wal-Mart discovers that a supplier promotes its own product at the expense of

Wal-Mart's revenue, the retailer may name a new captain in its stead.

 

Not surprisingly, one common result is that many producers simply stop

competing head to head. In many instances, a single firm ends up controlling 70

percent or more of U.S. sales in an entire product line, such as canned soups or

chips. In exchange, its competitor will expect that firm to yield 70 percent or

more of some other product line, say, snacks or spices. Such sharing out of

markets by oligopolies is taking place throughout the non-branded economy -- in

grains, meats, medical devices, chemicals, electronic components. But nowhere is

it more visible than in the aisles of Wal-Mart.

 

In essence, Wal-Mart has grown so powerful that it can turn even its largest

suppliers, and entire oligopolized industries, into extensions of itself. The

effects of this practice are most obvious in Wal-Mart's horizontal competition

against other retailers. Retail experts sometimes talk of a " waterbed effect, "

which takes place when a supplier insists on collecting from weaker retailers at

least some of the rent a more powerful firm refuses to pay. One recent study of

how such power plays out within an entire system shows that a small retailer can

expect to pay upward of 10 percent more than a powerful firm for the same basket

of items. The effect also explains what takes place economically between

communities served by Wal-Mart and those served by less powerful firms -- the

more power Wal-Mart accrues, the more it is able to shift costs from, say,

suburb to city. And so every day the competitive landscape tilts just that much

more in Wal-Mart's favor. And so, every

year, the landscape is littered with that many more dead or half-dead retailers

-- including such once-big names as Winn Dixie, Albertsons, K-Mart, Toys R Us,

and Sears.

 

This advantage is simply what can be quantified in price. Many of the benefits

Wal-Mart extracts from its suppliers lie in a realm far beyond the market

economy. If Wal-Mart's aim were simply to dictate the price it will pay for a

product, then leave up to its suppliers all decisions as to how to get to that

price, it would cause far less economic damage than it does now. But that is not

Wal-Mart's way.

 

Instead, the firm is also one of the world's most intrusive, jealous,

fastidious micromanagers, and its aim is nothing less than to remake entirely

how its suppliers do business, not least so that it can shift many of its own

costs of doing business onto them. In addition to dictating what price its

suppliers must accept, Wal-Mart also dictates how they package their products,

how they ship those products, and how they gather and process information on the

movement of those products. Take, for instance, Levi Strauss & Co. Wal-Mart

dictates that its suppliers tell it what price they charge Wal-Mart's

competitors, that they accept payment entirely on Wal-Mart's terms, and that

they share information all the way back to the purchase of raw materials. Take,

for instance, Newell Rubbermaid. Wal-Mart controls with whom its suppliers

speak, how and where they can sell their goods, and even encourages them to

support Wal-Mart in its political fights. Take, for instance, Disney.

Wal-Mart all but dictates to suppliers where to manufacture their products, as

well as how to design those products and what materials and ingredients to use

in those products. Take, for instance, Coca-Cola.

 

We should be most disturbed by the fact that Wal-Mart has gathered the power

to dictate content, even to the most powerful of its suppliers. Because no

longer is the retailer's attention focused only on firms that produce T-shirts,

electrical cords, and breakfast cereal. Every day Wal-Mart expands its share of

the U.S. markets for magazines, recorded music, films on DVD, and books. This

means that every day its tastes, interests, and peculiarities weigh that much

more on decisions made in Hollywood studios, in Manhattan publishing houses, and

in the editorial offices of newspapers and network news shows.

 

Americans who favor abortion have much to worry about these days, between

South Dakota's recent ban and the appointment to the Supreme Court of Justice

Joseph Alito. But at least these battles are taking place entirely in the public

eye, and the decisions are being made by democratically elected representatives.

Such was not the case when Wal-Mart recently decided to allow each individual

pharmacist in the company to choose whether or not to stock the " morning after "

pill. Given the degree to which Wal-Mart has rolled up the pharmaceutical

business in many towns and regions across the country, this act amounted, for

all intents, to a de facto ban on these pills in many communities. This

political decision was made and en-forced by a private monopoly.

 

To appreciate just how blatantly Wal-Mart defies America's antitrust

tradition, consider how our grandparents handled the last retailer to gather

extreme power: the Great Atlantic & Pacific Tea Company. Better known as the

A & P, the grocer at its height operated more than 4,000 supermarkets in nearly

forty states and wielded immense influence over the entire food economy. The A & P

was famous for its innovations in discount retailing, in distribution, in

advertising. And it was infamous for its use of monopsony power, not least its

perfection of the art of setting in-house brands against producers who resisted

its will. Relative to Wal-Mart today, the A & P a half century ago was a far less

awesome force. The firm sold only groceries; it was only double the size of its

nearest competitor; and its total workforce was, as a percentage of the U.S.

population, only a fifth as large as Wal-Mart's is now. Even so, the A & P was

widely and vociferously denounced by local communities,

state governments, newspapers, and labor unions as a threat to the American way

of life.

 

Over the years, the federal government repeatedly hauled the A & P into court

for abusing its market power. The government first began to scrutinize the firm

in 1915, when Cream of Wheat refused to sell to the A & P because of its pricing

policy. Then in 1936 came the Robinson-Patman law, which was popularly known as

the " Anti-A & P Act. " A year later, the Federal Trade Commission filed suit

against the A & P, charging that the company had forced a Maryland vegetable

packer to grant it a special 4 percent discount. In November 1942, the Antitrust

Division filed a Sherman Act case against the retailer, one section of which

detailed how the A & P had used " several turns of the screw " to coerce Ralston

Purina into granting it a discount three and a half times what the cereal packer

offered any other firm. Three years after winning that case, the Justice

Department was back in court in September 1949 with another Sherman Act suit,

this time asking for the dismemberment of the A & P.

 

Filed at a time when the grocer was already clearly in decline--not least

because of antitrust enforcement -- the 1949 case was dropped five years later.

But this was only after the A & P admitted guilt, agreed to dissolve an internal

company that traded in agricultural products, and signed an outright prohibition

against " dictating systematically " to suppliers. The final antitrust case

against the A & P was not resolved until February 1979, a month after a West

German grocery mogul bought control over the remnants of the once-huge firm.

 

Antitrust enforcement against the A & P and other big firms like Sears prevented

any twentieth-century American retailer from ever growing nearly as powerful as

Wal-Mart is today. But since the Reagan Administration, the only effective

constraints on Wal-Mart have been set by investors and revenue flow. Even during

the 1990s, when the Clinton Administration targeted a few companies for abusing

their pricing power, the Arkansas-based retailer somehow managed to avoid any

action. It is unclear whether this was in any way due to the close relationship

between the Clinton family and Wal-Mart, on whose board Hillary Clinton served

for many years. But even as Staples and McCormick & Co. were sued, a firm with

vastly more power over the American economy was left entirely free to extend its

domain in whatever direction and to whatever extent it wished. In fact, in one

of the highest-profile antitrust cases of the 1990s, an FTC suit against Toys R

Us for colluding with toy

manufacturers, Wal-Mart emerged as one of the biggest winners.

 

The Reagan Administration's assault on antitrust enforcement had an even more

dramatic effect on manufacturers. Complete license to expand horizontally

resulted, in many industries, in the virtual collapse of the vertically

integrated firm. Once they consolidated control over their marketplaces, scores

of big manufacturers shut down or spun off most or even all of such naturally

expensive and risky activities as production and research. These firms opted

instead to purchase components and other manufacturing " services " from smaller

companies whose main or only path to the final marketplace passed through their

offices. This is true of corporations as diverse as Nike, Boeing, 3M, and Merck.

Although it has become commonplace to trace the phenomenon of " outsourcing " to

the emergence of new technologies and changes in the global " marketplace, " it is

much more accurate to trace it back to the disappearance of antitrust

enforcement. The change in law that gave Wal-Mart license

to grow to such a huge size also gave to many manufacturers the license to

recast themselves in Wal-Mart's image and become retailers themselves. The

result? More and more production systems are run by companies designed not to

manufacture but to trade in components manufactured by other, smaller firms,

over which they can exercise at least some degree of monopsony power.

 

Some of Wal-Mart's more sophisticated boosters will defend the company by

defending the exercise of monopsony power itself. Wal-Mart, in their view,

should be seen as a firm that aggregates our will and buying power as consumers

in much the same way that unions once aggregated the interests of workers. One

of the better known versions of the argument was put forth by Jason Furman, a

former campaign adviser to Senator John Kerry, who last year published a strong

defense of Wal-Mart. The huge retailer, Furman wrote, is " a progressive success

story " that has brought " huge benefits " to the " American middle class. " Sure,

this argument goes, Wal-Mart may employ its power with a certain Stalinist

flair; but it does so in our name, and the result is to make the production

system on which we all rely more efficient. This efficiency is good for all

society, and it is especially good for those poor folks who cling to the lower

rungs of the economic ladder.

 

There are two great flaws in such thinking. The first and most obvious is that

it ignores the effects of monopoly on our political system -- the consolidation

of vision and voice, the de facto merger of private and public spheres, the

gathering of power unchecked and unaccountable. It is to view American society

through an entirely materialistic prism, to measure " human progress " only in

terms of how many calories or blouses can be stuffed into an individual's

shopping cart. It is to view the American citizen not as someone who yearns to

decide for himself or herself what to buy and where to work in a free market but

to say, instead, " Let them eat Tastykake. "

 

The second flaw is economic, and is of even more immediate concern. Even if

the American people did choose to bear the extreme political costs of monopoly,

the particular type of power wielded by Wal-Mart and its emulators makes no

economic sense in the long run. On the surface, it may seem to matter little who

wins the great battles between such goliaths as Wal-Mart and Kraft, or between

Wal-Mart and P & G. Yet which firm prevails can have a huge effect on the welfare

of our society over time. The difference between a system dominated by firms

built to produce and a system dominated by firms built to exercise monopsony

power over producers is extreme. The producers that dominated the American

economy for most of the 20th century were geared to build more and to introduce

new, to protect their capital investments against overly predatory investors, to

raise price faster than cost, to show some degree of loyalty to workers and

outside suppliers and communities.

 

Wal-Mart and a growing number of today's dominant firms, by contrast, are

programmed to cut cost faster than price, to slow the introduction of new

technologies and techniques, to dictate downward the wages and profits of the

millions of people and smaller firms who make and grow what they sell, to break

down entire lines of production in the name of efficiency. The effects of this

change are clear: We see them in the collapsing profit margins of the firms

caught in Wal-Mart's system. We see them in the fact that of Wal-Mart's top ten

suppliers in 1994, four have sought bankruptcy protection.

 

In a world of rising tensions within and among nations, of accelerating

climate and environmental change, we would be wise to design the production

systems on which we rely to be able to evolve as rapidly as the human and

natural worlds around us evolve. Instead, we have programmed the dominant

institutions within our economy to eliminate all the wonderful chaos of a

free-market system. Rather than speed up the random motion and serendipitous

collisions that have for so long propelled the American economy, Wal-Mart and

other monopsonists are slowly freezing our economy into an ever more rigid

crystal that holds each of us ever more tightly in place, and that every day is

more liable to collapse from some sudden shock. To defend Wal-Mart for its low

prices is to claim that the most perfect form of economic organization more

closely resembles the Soviet Union in 1950 than 20th-century America. It is to

celebrate rationalization to the point of complete irrationality.

 

There are many ways to counterbalance the power of Wal-Mart and the other new

goliaths. In the case of Wal-Mart, we could encourage yet more mergers among its

suppliers and its competitors. Or we could make it easier for its workers to

unionize. Or we could micromanage the firm through our state and municipal

governments (e.g., requiring it, as Maryland recently did, to devote 8 percent

of its payroll to health insurance). Yet every one of these approaches runs the

risk of only further warping our economy and perhaps even reinforcing Wal-Mart's

power by creating new allies for it. After all, super-consolidated suppliers

already share many of Wal-Mart's political interests; labor unions now committed

to Wal-Mart's destruction could overnight become equally as committed to the

further extension of Wal-Mart's power; and new bureaucracies will generally tend

to sympathize with the firms they regulate. We can also, of course, choose to do

nothing, and surrender to the immense

retailer all the decisions that in the past were made within the marketplace

itself or by democratically elected legislators. In other words, we can cede to

Wal-Mart the role it so relentlessly seeks for itself -- to be dictator over the

central functions of the U.S. consumer economy.

 

If, however, we choose the path of the free market, and of individual freedom

within the market; if we choose to ensure the health and flexibility of our

economy and our industrial systems and our society; if we choose to protect our

republican way of government, which depends on the separation of powers within

our economy just as in our political system -- then we have only one choice. We

must restore antitrust law to its central role in protecting the economic

rights, properties, and liberties of the American citizen, and first of all use

that power to break Wal-Mart into pieces. We can devise no magic formula or

scientific plan for doing so -- all antitrust decisions are inherently

subjective in nature. But when we do so, we should be confident that we act

squarely in the American tradition, as illuminated by the cases against Standard

Oil and the A & P. We should act knowing that the ultimate fault lies not with

Wal-Mart but with our last generation of representatives,

who have abjectly failed to enforce laws refined over the course of two

centuries. We should act knowing that much similar work lies ahead, against many

other giant oligopolies, in many other sectors. We should act knowing that to

falter is to guarantee political and perhaps economic disaster.

 

As we make our case, we should be sure to call one expert witness in

particular. Last year, Wal-Mart CEO Lee Scott called on the British government

to take antitrust action against the U.K. grocery chain Tesco. Whenever a firm

nears a 30 percent share of any market, Scott said, " there is a point where

government is compelled to intervene. " Now, Wal-Mart has never been shy about

using antitrust for its own purposes. In addition to the Toys R Us case, the

firm was also the instigator of a Sherman Act suit against Visa and MasterCard.

And so such a statement, by the CEO of a firm that already controls upward of 30

percent of many markets and has announced plans to more than double its sales,

sets a new standard for hubris. It also sets a simple goal for us -- elect

representatives who will take Citizen Scott at his word.

This article has been reprinted with permission from Harper's magazine

Copyright 2006 by Harper's Magazine.

Barry C. Lynn is a senior fellow at the New America Foundation.

© 2006 Independent Media Institute. All rights reserved.

View this story online at: http://www.alternet.org/story/39251/

 

" To be nobody-but-myself in a world which is doing its best, night and day, to

make me everybody else - means to fight the hardest battle which any human being

can fight, and never stop fighting. " -e.e. cummings-

 

 

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