The Lean, Mean World Economy, Brought to You by Wal-Mart

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The Lean, Mean World Economy, Brought to You by Wal-Mart

Wal-Mart’s success has arguably been the most powerful driving force behind at least nine of the most significant trends shaping the 21st century:

  • Benign deflation, which is often called “disinflation.”
  • Globalization.
  • Off-shoring.
  • Domestic outsourcing.
  • The shift from a U.S. economy built on manufacturing to one based on services.
  • Supply chain optimization.
  • The decline of labor unions.
  • Rapid consolidation of the retail sector.
  • Accelerated creative destruction.

Wal-Mart’s business model is deceptively simple: It sells a wide variety of products at the lowest price in any market it enters. It can sell at the lowest price because it relentlessly drives down its costs via scale-related economies.

As a result, its prices are about 20 percent lower than its competitors’ prices. This gives consumers more spending power, and raises their standard of living. According to a study by the market research firm, Global Insight,1 Wal-Mart saves the average American household $2,300 a year.

And its impact goes beyond the 176 million people who shop at its 3,900 stores each week. The Wal-Mart phenomenon ripples throughout the entire economy, creating both positive and negative consequences for Wal-Mart’s 61,000 suppliers, its competitors, and for consumers.

For consumers, the most positive implication is the rise of disinflation. For example, when Wal-Mart sells a pair of Levi’s jeans for $19.68, or an 18-ounce box of generic breakfast cereal for $1.33, it changes the perception of what Levi’s jeans and corn flakes should cost, even among the people who never shop at Wal-Mart. Consumers come to expect low prices when they buy goods at other retailers, and those competitors either have to lower their own prices, go out of business, or find another business strategy.

Wal-Mart also has much to do with the unemployment statistics and the decline of labor unions. It is the largest private-sector employer in the U.S. and in the world, with 1.3 million employees in the U.S. and another 500,000 employees around the world.

Wal-Mart’s workforce in the U.S. is non-unionized. The company discourages its associates from joining labor unions. Since it already provides health insurance and has a policy of open communications, most employees conclude outsiders aren’t needed. As Wal-Mart spokeswoman Beth Keck told the BBC News,2 “Our employees can choose whether they want to be union members or not, and overwhelmingly they have not...

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