The price of low prices

Charles Fishman, author of The Wal-Mart Effect, spoke on Friday as keynote speaker for the university’s 17th annual International Festival. The Wal-Mart Effect, a work critics have credited with revealing many aspects of contemporary globalization through an analysis of Wal-Mart’s marketing strategies, is a national best seller and was named by The Economist one of the Best Books of 2006.

Choosing a keynote speaker for Carnegie Mellon’s International Festival involved long and careful thought, said Emily Half, the festival’s coordinator. “We wanted to ensure that those attending could make up their own minds about the issues involved in globalization — to challenge participants, but also meet them where they stand,” she said. With many Carnegie Mellon students enrolled in the Tepper School of Business and in engineering, computer science, and public policy programs, choosing a speaker who could analyze globalization from an angle relevant and potentially helpful to business and technology interests was important to Half and other International Festival committee members.

Fishman, a business journalist who is senior editor at the trade magazine Fast Company, began with a sobering analysis of what he calls “the Wal-Mart effect.” The corporation we know as Wal-Mart, explained Fishman, is more than just a name — and more than just a single, isolated business.

From its start as a small store in Bentonville, Ark., Wal-Mart has evolved into a massive transnational corporation. The company draws so many customers that it shapes, rather than follows, market forces. This tremendous influence, says Fishman, gives Wal-Mart’s decisions and policies a resonance and ripple effect outside the store walls. Indeed, there are no boundaries for the effect of Wal-Mart: Whether we shop there or not, says Fishman, we all exist in a Wal-Mart ecosystem. “Even if you never shop at Wal-Mart, if you aggressively refuse to shop at Wal-Mart, the locally owned businesses you frequent consciously revolve in Wal-Mart’s orbit, and structure their business according to Wal-Mart’s activities,” he said.

There are few checks on the power of Wal-Mart or the measures the company undertakes to get the low prices. Companies whose goods are sold at Wal-Mart have little choice but to submit to Wal-Mart’s requests to move production plants overseas in order to lower production costs. Additionally, Wal-Mart’s demands often force producers to manufacture goods in conditions that violate numerous safety codes. Wal-Mart store managers in the U.S. and abroad, facing tremendous pressure to keep within a weekly budget, have compelled store employees to work off the clock (“That phrase sounds so charming, doesn’t it?” Fishman commented. “But basically, they’re forced to work for free”), sometimes locking them in the store overnight. Naturally, Wal-Mart has made an effort to conceal these practices necessary to give Americans, and consumers everywhere, the irresistible combination of high-quality goods at the lowest possible prices.

Within this tremendous power to set the tempo and mode of production and consumption, Fishman sees great potential for positive change. As an example, Fishman cited Wal-Mart’s recent reforms in shrimp production, which has in the past destroyed wetlands and communities, as well as produced shrimp dangerously laden with chemical residue. Fishman says Wal-Mart has become interested in environmental sustainability due to public concern, and the positive changes they have made will set the standard for the industry. Still, Fishman believes much responsibility for changing Wal-Mart’s behavior lies with the individual consumer.

Wal-Mart has the power in the global economy to raise standards, a power that even governments cannot command. The way this power shapes business is determined by consumers expressing their concern through their product selection. “The global economy is not a weather system. It’s a reflection of our decisions as buyers,” Fishman said. “The responsibility and leverage come from our wallets, so it’s our job to shop in ways that align the global economy with our values.”

Fishman does, however, admit that this is antithetical to our instinct to go for the deal: “We want microwaves at $29.99, and we want the employees to be paid $20 an hour,” he said. “These things just don’t go together.” As privileged consumers, we have to look with clear vision at the manner of production, and the price exacted behind the temptingly low price tag — a shadow price that our globally connected community inevitably pays by sacrificing the rights of others.

Aspiring business students can learn from Wal-Mart’s accomplishments and failures, Fishman said. He praised the company for its discipline, focus, and frugality, values that enabled Wal-Mart to form a covenant around low prices and stay relentlessly faithful to it, in the interests of customers. However, Fishman warned that unrelenting blind focus can be dangerous. “Remember, when you’re heading out into business, that things change,” he said. “Wal-Mart’s vision was appropriate in a certain place, when the company itself was a certain scale. A change in scale necessitates re-evaluation of your business practices, and staying true to your core mission cannot justify mistreatment of the rest of the world.”