Break up Wal-Mart

Is it time to treat Wal-Mart like Standard Oil?

Published June 23, 2006 6:15PM (EDT)

Barry Lynn, scourge of corporate globalization, has been popping up in this space frequently of late, so it wasn't much of a surprise to see his byline in the July issue of Harper's.

In terms of factual content, "Breaking the Chain: The Antitrust Case Against Wal-Mart" doesn't break any news regarding the unhealthy stranglehold Wal-Mart has on its suppliers. Readers of Charles Fishman's "The Wal-Mart Effect" will find most of it familiar. The difference lies in the analysis. Lynn sees Wal-Mart's "monopsonistic" power to dictate price to its suppliers -- even to mighty conglomerates such as Procter & Gamble -- as ultimately deleterious to the U.S. economy, and argues that the company should be broken up by federal regulators, just as Standard Oil was once dismantled.

The context: "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."

That's a fairly standard left-wing critique. More intriguing is how Lynn connects the dots to outsourcing and offshoring:

"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."

Four of Wal-Mart's top 10 suppliers have filed for bankruptcy in recent years, which is ample evidence, according to Lynn, of how Wal-Mart's relentless pressure on suppliers to cut their prices is devastating the companies and workers who actually make things. Low prices may feel good for the consumer, Lynn argues, but they are eroding the bedrock of the real economy.

"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 twentieth-century America. It is to celebrate rationalization to the point of complete irrationality."

UPDATE: A reader points out that the sentence that begins "Four of Wal-Mart's top 10 suppliers have filed for bankruptcy in recent years," is misleading. This assertion is based on a 2001 study that looked only at the top ten suppliers for the year 1994. In the six years following 1994, four of those suppliers filed for bankruptcy.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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Globalization How The World Works Wal-mart