‘Assembled in the USA,’ but made in China

Walmart is selling TV sets with the label, “Assembled in the USA,” but the Association for American Manufacturing has complained to the Federal Trade Commission that the TV sets are actually made in China.

FTC rules say that a product can’t be labeled as assembled in the USA unless the principal assembly takes part in the USA, and the assembly work is substantial.  Walmart’s supplier, Element Electronics, doesn’t do enough assembly to qualify, the complaint says.

One reason American manufacturers have shifted production overseas is to meet Walmart’s demand for low prices.  Walmart is the USA’s largest importer.  That’s something for American Christman shoppers to think about.

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How Walmart Destroyed U.S. Manufacturing by Molly McGrath and Brad Markell for the Walmart 1 Percent.

Walmart Workers Ramp Up Protests for Black Friday by Diane Krauthamer for Labor Notes.

Free enterprise and the failure of feedback

The advantage of a free market economy over a centrally planned one is the feedback provided by the law of supply and demand.  If the supply of something decreases, the price increases and demand (at the increased price) decreases until the increased price brings forth an increased supply.  This admittedly is a crude system, but it is superior to central planning because it is impersonal.  It does not require a genius to make it work.

Ian Welsh, in a recent post, pointed out that one of the main reasons for the collapse of the Soviet economy was lack of feedback.  In a command economy, the planners need correct information.  I question whether any relatively small group of people could assimilate the information needed to direct a large and complicated economy.  Welsh, on the contrary, said the Soviet economy actually was successful for a time, but broke down when the feedback system failed.  Too many people within the system found it to their advantage to manipulate information for their own advantage.

The present-day U.S. economy is not all that different.  Our big corporations and financial institutions have become little miniature Soviet Unions, in which feedback does not work, either internally or externally

The advantage of capitalism v. central planning, is that information is sent through prices, supply and demand.  This information feedback, however, is still game-able by power blocs.  The exact strategies are different than in a command economy, but the end result is the same.  The West and America are currently undergoing this exact problem.

The entire financial crisis was about inaccurate feedback, and broken feedback loops: it was about the financial and housing industries deliberately damaging the feedback system.   Then, when it finally went off a cliff, they destroyed the capitalistic feedback system, which when properly operating, makes companies go bankrupt, by obtaining bailouts due to owning western governments.

There are myriad other problems with feedback in the developed world right now, from massive subsidies of corn and oil, to oligopolistic practices rife through telecom and insurance, to the runaway printing of money by banks, to the concealment of losses by mark to fantasy on bank books, to the complete inability and unwillingness to price in the effects of pollution and climate change.

via Ian Welsh on The Fall of the USSR.

Here is how lack of feedback plays out in an individual firm.

This company is being managed by the quarter. We have executives who have no vested interest in Walmart. All they care about is their salary and bonus. So when they make poor decisions, for example this Christmas when they had a One Hour Guarantee for multiple items. This was a complete [financial] disaster but yet the executive praise what a big success it was. […]

You know what direction us managers were given to do in January? Remember Walmart’s fiscal year ends January 31st. You guess it, cut hours. For the poor decision made by executives at Walmart who could care less where the company is at in 10 or 20 years, we had to cut hours. 

Not only that we had to cut all expenses. Home office put a hold on all our ordering of supplies and try explaining to customers you don’t have toilet paper for the rest rooms. We had to cut all our part-time associates from 32 hours to 25.5 hours. All our full-time associates had their hours cut too. […]

Do you know how hard it is to go to someone that make $8.85 an hour and tell him, sorry but I have to cut you down to 25.5 hours. These people can barely pay their rent as it is and with no notice we cut their hours.

via Decades of Greed: Behind the Scenes With An Angry Walmart Manager.

I don’t have a good answer to this.  It is a moral problem as much as or more than it is a structural problem.  I don’t see how any complicated economic or political structure can function unless there is a critical mass of people who care about the truth, and care about the common good, especially but not only at the top.

The passing scene: Links & notes 12/1/13

The latest health issue for the elderly: ‘observation purgatory’ in hospitals by June McCoy for The Guardian.  Hat tip to naked capitalism.

Medicare’s payment structure gives hospitals an incentive to designate elderly patients as “observations” rather than “admissions.”  This means less care for the patient and higher bills for their families.

23andMe is Terrifying But Not for the Reason the FDA Thinks by Charles Seife for Scientific American.  Hat tip to naked capitalism.

The U.S. Food and Drug Administration has ordered a genetics testing company to stop selling its products until it can prove its tests are accurate.  But the writer says the real danger is creating a genetics database on millions of Americans that could be tapped by Big Brother.

Activist Malpractice by Michael Donnelly for Counterpunch.  Hat tip to Mike Connelly.

The writer slams Democrats, liberals and fake environmentalists who facilitate the Alberta tar sands mining, mining by mountaintop removal in Appalachia and clear-cutting of forests in Oregon.

Canada to file Arctic seafloor claim this week by the Canadian Press.

As the Arctic icecap melts, Canada, Russia and Denmark (which owns Greenland) are mapping their northern continental shelves and staking claims to the floor of the sea.  Canada’s claim will be the size of the provinces of Saskatchewan, Alberta and Manitoba combined.

Nicaragua canal boosts China power by Arnie Seiki for Asia Times.

China and Nicaragua have signed an agreement that would give China the right to build a canal across Nicaragua rivaling the Panama Canal.  While it’s long way from signing an agreement to actually building a canal, it is a sign of China’s emergence as a global power, and not merely an east Asian power.

Wal-Mart arrests could fuel “a new political movement of the disenfranchised,” Grayson tells Salon.

Wal-mart as a Third World nation

In its size and structure, Wal-mart is like certain Third World nations—a tiny group of privileged people on top, supported by a pyramid of hard-working low-paid workers below.

Hat tip to Mike Connelly for the chart below.  It’s from two years ago, but still basically true.

Walmart store asks food for its own employees

A Wal-mart store in the Canton, Ohio, area conducted a food drive on behalf of its own employees so they can afford a Christmas dinner.

This is terrible public relations for Wal-mart, but I actually think that the store manager who allowed this deserves credit for a kind heart.  The manager did not determine the level of Wal-mart wages, and did what could be done to help out.  But I am sure his superiors will blame him and not the company’s low wages for the unfavorable news coverage.

Sam Walton’s original idea of Wal-mart was to create a store chain with prices that working people and even poor people can afford.   It is a real irony, or paradox, or whatever you want to call it, that store employees can’t afford Thanksgiving dinner, even at Walmart’s everyday low prices.

Wal-mart CEO Bill Simon was quoted as saying the average Wal-mart employee earns just under $25,000 a year.  That’s only slightly better than the U.S. government’s poverty line of $23,550 for a family of four.

It’s unlikely the company will change any time soon and, with unemployment as high as it is, it’s unlikely anybody will be in a position any time soon to pressure the company to change.  Wal-mart got 23,000 applications for 600 job openings at stores the company plans to open in Washington, D.C.  That’s 38 applications for every job, making the odds greater than for applicants to Harvard.

Earlier this year the district’s City Council passed a law setting the minimum wage at $12.50 an hour, which is 50 percent higher than the current $8.25, for big-box retailers such as Walmart.  Corporate executives demanded Mayor Vincent Grey veto the law, and he did.

The great economist John Maynard Keynes said it is possible for a nation’s economy to get stuck in high unemployment and no wages, because nobody has enough spending power to create a good market for goods and services.  I think that’s where we Americans are now.  I think the only way to get out of it is to put people to work filling unmet needs for public services and public works.

Why subsidize the job-killer, Wal-mart?

Walmart has been given $4 million in financial incentives by the city of Darien, Conn., to convert its store there into a Super Walmart.

The usual justification for tax abatements and other subisidies for new industry is that they create local jobs.   But, as Kathleen Geier of The Washington Monthly wrote in a recent Salon article, there is no evidence of any net economic benefit to a Walmart moving in.

What Walmart does is to put local mom-and-pop stores out of business.  Some studies indicate that Walmart kills more jobs than it creates; others that it is a standoff.

Sam Walton, the founder of Walmart, was an innovator whose just-in-time system of inventory management reduced costs and enabled his company to reduce prices.   But now the company’s strategy for reducing prices is to use its market power to hold down wages and the prices it pays suppliers.  This does not benefit the areas the stores serve.

It is not just Walmart.   I think it is a mistake for any local government to offer subsidies for a new business to come in and compete with existing businesses.  I say let the businesses compete on a level playing field.

I’ll go further.  If it were up to me, the only business subsidy by American local governments would be free job training.

American businesses complain of lack of skills by new hires, but say they can’t provide training because there’s no way to stop the employees from taking their upgraded skills elsewhere.  Very well.  Let community colleges take over the responsibility for job training.

This is a form of aid that does not discriminate between existing business and new business.   It is not something the business owners can pocket and move elsewhere.  It creates value which benefits the people of the community and stays in the community.

Click on Wal-mart’s big lie: No, it doesn’t create jobs for Kathleen Geier’s complete article in Salon.

Costco: doing well by acting decently

Retail store chains face tough times because of the slow economy and competition from Amazon and other on-line sellers.  But Costco Wholesale’s sales are up, its profits are up and its stock price is up.

What’s noteworthy about Costco, according to Bloomberg Businessweek, is how well it treats its employees.   “If you treat customers with respect and employees with respect, good things will happen,” CEO Craig Jelinek told Bloomberg.

Costco is the second largest retail store chain in the United States, and is fast gaining on Wal-Mart, the largest.  Here are some facts and figures about the two chains.

• Average hourly pay for Costco employees is $20.89 an hour, versus $12.67 for Wal-Mart.
• 88 percent of Costco employees have company sponsored health insurance, in which they pay less than one-tenth of the cost of the premium.  Wal.Mart says “more than half” of its employees have health insurance.
• CEO Craig Jeninek got a base salary of $650,000 a year, plus a $200,000 bonus, plus stock options worth $1.2 million.  Wal-Mart’s CEO got a base salary of $1.3 million , plus a $4.4 million cash bonus, plus $13.6 million in stock.
• While Costco is doing well, Wal-Mart is in trouble

Costco’s stores are no-frills

Costco overall is a no-frills operation.  It has no public relations department, and Bloomberg reporters were able to talk to the CEO directly.  Costco does not hire managers out of business school.  Its managers are promoted from within.

Its prices, according to Bloomberg, are competitive with Amazon, which Costco managers see as its chief competitive threat.  Profit margins are thin.  About 80 percent of Costco’s gross profit comes from its annual membership fee.

Costco is not necessarily an exception, according to Bloomberg.  Nordstrom, The Container Store, Sephara, REI and Whole Foods Market, all know for treating employees well, are also doing well in the marketplace.  It is true that Amazon, which is not known for treating employees well, also is successful, but maybe they could still be profitable if they treated their warehouse workers better.

A lot of people assume that being callous toward people is always realistic and treating people decently is always naive, but Costco’s experience shows this isn’t so.  Treating employees as assets instead of costs can be good business price.  Bertrand Russell once wrote that if human beings all knew what was in their self-interest, most would be better people than they are and the world would be a better place.

The debate over Asian sweatshops

Nike factory in China

Apple Computer, Nike, Wal-Mart and many other companies depend on Asian sweatshops as suppliers—a sweatshop being defined as a factory with low pay and benefits, long working hours and child labor.

Some writers, including Nicholas Kristof, who reports from Asia and Africa for the New York Times, and Paul Krugman, winner of the Nobel Memorial Prize in Economics, say that in historic perspective, Asian sweatshops represent a step forward.  As bad as conditions are in China or Cambodia, they are better than they were under Mao.  As tough as it is to work in a Foxconn factory, many find it a lesser evil than rural poverty.  As bad as it is to have a young child working 12 hours a day in a factory, it is better than being sold into prostitution, if that is the only alternative.

SF writer Bruce Sterling made this argument many years ago in an article in Wired magazine about megaprojects in China and elsewhere.

China has a very bad government.  Nobody should fool themselves about this.  It’s a profoundly corrupt one-party dictatorship based on a bankrupt, morally discredited ideology.

However, the current Chinese government is certainly the best government any living Chinese citizen has ever seen.

Their 20th century: Corruption, Catastrophe, Foreign Repression, Revolution, Repression, Revolution, Military Coup, Chaos, Warlordism, Anarchy, Foreign Invasion, People’s War, Civil War, Communism, Starvation, Purges, Anarchist Frenzy, Counterpurges—and then, suddenly, material relief—maybe enough food and a warm place to sleep.

The 21st century is almost upon them now [this was written in 1998]: cologne, panty hose, Asian pop videos and maybe even a car.  The Chinese people are definitely with this program.  They know how much they have to lose.

Defenders of Asia sweatshops go on to say that there were sweatshops and child labor in the United States in the early days of industrialization, and, so they argue, this laid the foundation of the prosperity that we enjoy today.

The problem with this argument is that the sweatshop advocates are saying to the Chinese workers: Thus far and no further.  Because conditions were even worse in the past, you can’t expect any improvement in the future.

U.S. companies such as Apple Computer, Nike and Wal-Mart are not just adapting to Chinese conditions.  They are collaborating with the Chinese government is keeping conditions as they are.  If Chinese workers had the freedom to bargain collectively, I would not tell them they were settling for too little.  But you can’t claim to be an advocate for Chinese workers and at the same time deny them a voice.

What I would ask of Apple, Nike or Wal-Mart is that the company  live up to its own professed standards.  This would require two things:

• Have labor standards audited by a truly independent organization, such as the Hong Kong-based Students and Scholars Against Corporate Misbehavior, and publish the results of these audits.  There would be no need to set new standards.  Let the auditors use existing corporate standards.
• Cancel bonuses of an executive who subcontracts to a supplier that fails to meet the minimum labor standard.  So long as executive compensation is based solely on financial criteria, and labor standards are merely aspirational, the latter will be ignored.

We the people could choose to buy only from companies that have independent audits and meet minimum labor standards.  Shareholder activists could demand independent audits and labor standards.  The U.S. Congress could finance independent auditors and impose taxes or penalties on imported products produced under inhuman conditions.

This would not mean the deindustrialization of China or other poor countries.  It would be a lever to both protect American workers and improve conditions in those countries.  It would not be a zero-sum game.  Prosperous Chinese would be good potential customers.

Such leverage has been used to improve the quality of manufactured products.  The ISO 9000 standards for assuring a quality manufacturing process spread outward from Germany to the European Union to the whole world.  It should be possible to use similar techniques to inprove labor standards.

The strenuous efforts by the Chinese government and Chinese governments to suppress unions and blacklist malcontents, and the suicides among stressed-out workers at Foxconn, the big Chinese electronic components supplier, show that Chinese workers—some of them, at least—want something better than they have.  We Americans should not be accomplices in holding them down.

Click on Outsourcing: the Good Side of Asian Sweatshops for the pro-sweatshop argument.

Click on Behind the Label for a collection of interesting brief essays on the issue of Asian sweatshops.

Click on Sacom for the home page of Students and Scholars Against Corporate Misbehavior and its continuing reporting on labor issues in China.

Click on The Spirit of Mega for Bruce Sterling’s entire 1998 article.

Labor unions and small business, unite!

The strongest and most dependable supporter of the Democratic Party is the AFL-CIO.   The strongest and most dependable supporter of the Republican Party is the National Federation of Independent Business.  Yet the top elected leaders of both political parties are serve the interests of monopolistic corporations which are driving down the incomes of working people and small business owners alike.

Barry C. Lynn, in an interesting article in The Washington Monthly, wrote that the time has come for a political alliance of labor unions and small business owners against the big corporations that are squeezing them both.

Last August, on a blazing-hot Nebraska evening, I sat in a cool hotel bar in downtown Omaha and listened as a team of Dockers-clad union organizers joked, drank, and argued their way into an alliance with a group of southern and western ranchers.  The organizers, from the United Food and Commercial Workers (UFCW), made a simple argument: Meat-packing houses like JBS and Smithfield— their already immense power swelled from years of mergers—are using their dominance of cattle markets to hammer down what they pay for beef and for in-house unionized meatcutters.  So rather than “scrap over nickels,” perhaps the ranchers and workers should lock arms and fight for bigger stakes.

Cowboys and labor? Plotting together? Polo shirt and bolo tie? …  Half a year on, it’s evident that the alliance was no momentary fling, no mere “enemy of my enemy” excuse to clink a few beer bottles before stumbling back to opposite ends of the political corral. When the Justice Department held a series of hearings last year on concentration in agriculture markets, including cattle, the UFCW helped to pack the room for the cattlemen’s testimony, one of the only times in recent decades that an American labor union has promoted stronger enforcement of anti-monopoly law.

And in exchange? While in that room, the UFCW got a chance to make the case that the trustbusters should take on Walmart.  The union views the retailing goliath as the main force smashing down the wages and benefits of the retail workers the union represents.  More to the point, the union has also come to view Walmart as the real power driving the big meatpackers’ assault on both cattlemen and packinghouse workers. 

The basic thinking here is that Walmart now controls such a giant swath of the U.S. marketplace that it can dictate prices even to the biggest of suppliers, which leaves less money in the system for the people who actually produce goods and provide labor.

via The Real Enemy of Unions.

Most small business owners regard labor unions as the enemy and big businesses such as Walmart as larger versions of themselves.  Labor unions historically have favored big business because they think it is easier to organize workers in one giant corporation than many small businesses.  But Walmart shows the falsity of both ideas.  Walmart’s monopoly power enables it to dictate low prices to suppliers and low wages to workers.

There is an inherent conflict between the interests of employers and employees, no matter whether the employer is a large business, a small business, a non-profit organization or a government.  But in the United States in the present era, workers and small-business owners have in common that their fates are tied to the future of the United States and to the localities in which they live.  The largest corporations and banks can operate anywhere in the world.  They don’t need the United States.  Workers and small business owners do.

Clyde Prestowitz, who was U.S. trade negotiator in the Reagan administration, once illustrated this point with a story of how his son invited him to invest in a snow removal company.  Why a snow removal company? he asked.   “Dad,” the son said, “they can’t move the snow to India.”