Corporate Power, Walmart and the Undermining of the Democratic Process

By Joel A. Harrison

On February 1, the San Diego City Council repealed its recently passed “Big-Box Statute” which required an economic and environmental impact study precede approval to build stores of 90,000 or more square feet with 10 percent of floor space dedicated to nontaxable items such as groceries and prescription drugs. Similar ordinances exist around the nation. While currently this only applies to the City of San Diego, the basic principle affects us all. Prior to and following passage of the “Big-Box Statute” Walmart has spent millions of dollars on ads, full-page, radio and TV, created a front group “San Diego Consumers for Choice,” and a signature drive to get it on the ballot. Given the City of San Diego’s economic condition, the cost of a special election would have been prohibitive, so the City Council gave in. Does this mean anytime a rich powerful corporation disagrees with an elective body all they have to do is spend enough money, e.g. timing a signature drive for an off-election cycle, and they will get their way? This is not about the Big-Box Statute; but democracy itself.

Studies have shown a significant correlation between monies spent and the outcome of elections. While there are still instances where an initiative or candidate with fewer resources has won, more and more these instances are becoming the “exceptions that prove the rule.” Following the January 2010 Citizens United ruling by our Supreme Court allowing corporations to use their enormous wealth to directly influence elections, one can expect ever fewer instances where the side with limited resources win (see recent report by Public Citizen, “12 Months After: The Effects of Citizens United on Elections and the Integrity of the Legislative Process,” January 2011). Conservatives and Liberals alike have overwhelmingly disagreed with the Supreme Court’s ruling. Now we find Walmart going one step further and actually creating a situation where a financially strapped city government gave in to one powerful corporation. This reminds me of table stakes poker. I could hold a royal flush and another person not even a pair; but if they see me and raise me more money than I have, they win. Well, maybe this is OK in poker; but it signifies a major blow to deliberative democracy when a rich powerful corporation can bully a financially strapped city government into getting their own way. If we want to save money maybe we should stop electing our City Council and allow San Diego’s 10 wealthiest corporations to appoint it?

As has been said many times, democracy is not a perfect system; but it is better than any other. Elected City Councils constitute deliberative bodies. They hold public hearings, have legislative aids who prepare position papers, and then vote on an issue. Their votes are probably one part deliberation based on the “facts”, one part ideology based on their political values, and one part based on “pressures/influence” from constituents, campaign contributors, and powerful vested interests. People sign petitions for a variety of reasons. Many sign them assuming if the issue gets on the ballot they will have time to study it more carefully. Others are simply influenced by 30-second sound bites. Just because enough signatures were obtained, it doesn’t mean in an election it would win. Members of the City Council who disagree with the “Big-Box Statute” may see this as an excuse to get their way; but what happens next time when some wealthy corporation or individuals disagree with something they support?

The actual impact study called for by the statute would have cost far less than what Walmart has spent against it. Why are they so against an impact study? What have they got to hide? They can pick a few employees to portray in TV ads; but groups who support the Statute, small businesses and unions, do not have the funds to show people who have lost their jobs or suffered declining wages when Walmarts have moved into their cities. The debate as presented is one-sided, presented by one of the wealthiest corporations in the world. I would love for someone to conduct a study that looks at the following:

1. Percentage of Walmart employees still with the company after five years and ten years compared with unionized workers;
2. Comparison of average starting salaries and benefits, after five and ten years.
3. Comparison of percentage of workers who are promoted to managerial positions.
4. Comparison of estimates of percentage of gross revenue retained in the community, e.g. workers salaries and benefits, taxes, charitable contributions, etc.
5. Impact on wages, jobs, small businesses, and environment on communities before and after Walmart had moved in.

Walmart has already spent far more than the three million dollar cost of a special election. Under current circumstances our city council repealed the Statute. The repeal of the Statute sets a precedent that money, powerful corporations have a carte blanche to determine the future of our city.

In addition, Councilman Tony Young has tried to get Walmart and other stores to locate in his district where 180,000 residents are served by only two stores. If the Ordinance doesn’t contain a waiver process, I’m sure our Council could have added one. A waiver of performing the Impact Study could be given for areas “clearly” underserved following a public hearing. Areas such as University City with an abundance of stores would require the Impact Study. If Walmart is so eager to serve the community, why haven’t they offered to build in Councilman Young’s district?

Without the Impact studies, if the Big Box stores affect our community, either or both economically and environmentally, once in place it would be virtually impossible to undo the damage. Who remembers the debate on deregulating our public utilities, promises of lower rates and better service? Once passed, we went through a time of rolling brownouts and blackouts and exponentially increasing rates.

With the repeal of the Statute, it is time to consider changing the initiative/special election section of our City Charter (Art. 1 Chap 4) first passed on March 16, 1889, in a very different world. We have regularly scheduled elections every two years. Initiatives collecting the requisite signatures should go on the next scheduled election. If the initiative supporters want a special election, they should pay for it!

What is the Impact of Walmart on a Community?

Walmart claims to save households an annual average of $2,300, increase consumer choice and market competition. As with energy deregulation, polls show San Diegans overwhelmingly in favor of Walmart. Two questions need to be carefully considered:

1. Does Walmart save consumers money and how much?
2. What effect does Walmart have on local economies?

The average savings claimed by Walmart is based on a select small number of consumer items, the Consumer Price Index (CPI), and average annual household expenditures. However, 60% of the CPI is based on non-household consumer items such as energy, medical, and housing costs. At best then Walmart saves consumer families $920 per year (0.4 x $2300). This assumes similar savings for all items purchased at Walmart, a highly questionable assumption. I personally have found many items at local stores, Vons, Albertsons, and Ralphs, when registered in their discount programs, to be comparable to Walmarts.

Walmart contributes ca. $30 billion dollars to our trade deficit with China alone, contributing as much as $80 - $100 billion to our trade deficit. This includes U.S. suppliers who outsource to Third World nations. Each dollar circulating in a local economy actually adds 1.5 dollars (multiplier function), so Walmart contributes to up to $120 billion lost to our economy, dollars lost to taxes which fund services such as fire departments, street repairs and libraries, dollars lost to churches and charities, and dollars lost to the purchase of goods and services.

As Walmart gains a foothold in a local market, job availability, wages and benefits experience downward pressures. The 2003 supermarket strike in Southern California followed company claims that they needed to lower salaries and benefits to compete with Walmart. It now takes 30 months for a new hire’s family to get health insurance. So why should we care if supermarket employees are paid less and lack health insurance? Forget that morally, full time workers should be able to afford the basics of food, shelter and medical care. Many Walmart employees received Medi-Cal ($40 million per year) and food stamps paid for by our taxes. Uninsured and underinsured people delay seeking care, resulting in increased emergency room visits. As emergency rooms fill, ambulances are diverted to more distant hospitals, increasing time to treatment with increased risks for death or disability for all of us. Bad publicity and enormous pressure forced Walmart to improve health care benefits to its employees; but they still remain inadequate at the same time that benefits to the unionized workers deteriorated.

The “real wage” as calculated by economists measures what people can actually buy with their wages, taking into account the prices of things that have gone up (health insurance, housing) as well as the cheap goods available from importers like Walmart. Productivity gains are supposed to translate into increased wages and benefits. Yet, over the past 30 years with significant increases in both productivity and low cost imports, average wages for most people have barely risen and for many have fallen. This indicates that the downward pressure on wages from “the Walmart model” has for most Americans outweighed the positive effect of cheap imported goods.

In 2005, Costco, a company that offers excellent wages and benefits, posted a 2.0% profit margin compared with Walmarts 3.6%. In 1997, Walmart posted a 2.9% profit margin. The Economic Policy Institute calculated that if Walmart returned to its 1997 profit margin it would retain half the difference with Costco, yet be able to offer non-managerial employees a 13% salary increase (more than $2,000 per year). This increase would be spent locally. Walmart, as the largest employer and one of the most powerful companies in the U.S. dominates the market. Its wealth and power allows it to dictate to suppliers, contribute to downward pressure on jobs, salaries, and benefits, expend enormous sums on lobbying, full page ads in local newspapers and contribute significantly to our trade deficit. And Walmart has been the beneficiary of government subsidies worth well over $1 billion, e.g. building of access roads, tax relief, etc.

Over 20 years ago when I was working as a researcher in Houston, Texas, I began shopping at Walmart following their “Buy America” campaign. Later it was revealed that often only one American-made item could be found on each rack, the others produced in Third World country sweat shops, often by child labor. This was just the beginning of revelation after revelation. Each time, Walmart, spending enormous amounts of money, has conducted campaigns to deflect attention from such practices which included locking doors to force workers to work unpaid overtime hours.

People often like to quote Adam Smith, usually out-of-context, without having actually read him, so a few quotes from his book “The Wealth of Nations:”

• No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged (Book I, Chapter VIII, pg.94).
• Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people (Book I, Chapter IX, pg.117).
• People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary (Book I, Chapter X, Part II, pg.152).

And probably the most misquoted of all the “invisible hand:”

“As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it (Book IV, Chapter II, p. 488-489).” This is found in Book IV, Chapter II “Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home.” If Smith were alive today and an American, his “invisible hand” would be a call to “Buy American!”, not support corporations that export jobs, and to give employees pay and benefits that accord them a decent standard of living.

I’ve gone a bit astray in this OpEd as my main purpose was to draw attention to the threat to democracy represented by the enormous amounts of money corporations can muster against our financially strapped elected governments. Even if Walmart represented the absolute best of corporate citizenship, something quite questionable, repealing a Statute because a wealthy corporation can mimic table-stakes poker by calling and raising with enormous sums of money is a threat to us all.

Joel A. Harrison, PhD, MPH, a native San Diegan, is a semi-retired epidemiologist. He has worked in the areas of preventive medicine, infectious diseases, medical outcomes research, and evidence-based clinical practice guidelines. He is currently active in supporting the adoption of a single-payer health care system in the United States. For more information on single-payer go to Physicians for a National Health Program’s website.