Do We Need "Separation Of Store And State"?

Earlier this month we asked our readers, are you a consumer or a citizen? It was sparked by comments from Robert B. Reich, who’s written a book called “Supercapitalism” that argues that we as consumers are in effect our own worst enemies—our collective desire to save a buck or earn more on our investments are contributing to the increasing “decline of democracy.” AlterNet has posted an excerpt from his book that expands on this idea of how we undermine our own best interests with, well, our other best interests.

Wal-Mart could afford to give its employees better pay and benefits, but would it remain competitive if it did? In 2005 its profit margin on sales was around 3.5 percent. This came to about $6,000 per employee. So at least in theory, Wal-Mart has some maneuverability. If it boosted wages and benefits of all full-time employees by $3.50 an hour, the extra cost would still total less than 3 percent of Wal-Mart’s sales in the United States. It could absorb that cost by raising its prices a bit or settling for somewhat lower profits. But few of us as Wal-Mart consumers would be happy to pay the higher prices. We might go elsewhere in search of better bargains. Certainly, few of us as Wal-Mart investors would be pleased with lower profits. We might move our money to where it could earn a higher return.

Reich argues that (with the exception of health care and housing) deregulated markets almost always benefit the consumer—when adjusted for inflation, prices are driven down over time by competition. Investors have benefited too. But things like job security, wages and benefits, education, the environment, and the preservation of “Main Street” have suffered as a natural consequence:

As power has shifted to us as consumers and investors, these issues have been eclipsed. We’ve entered into a Faustian bargain. Today’s economy can give us great deals largely because it punishes us in other ways. We can blame big corporations, but we’ve mostly made this bargain with ourselves.

“The Conflicted Consumer” [AlterNet]

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  1. mr_jrdn says:

    Excellent observation. This even applies in small business. I work for a small business, and wages are a big issue for the owner. He could afford to pay his employees a higher wage, but then he might not be able to afford a new Cadillac every year. The answer, as communist as it may seem, is what we in Canada call “Crown Corporations.” Simply put, they are businesses that are owned buy the government, and their goal is not profit. Their goal is to provide service to people. They have some of the highest wages in any given industry, and re-invest all profits into making the business better. Many people see this type of business as bad for reasons such as: having government dollars to invest in a business makes it harder for small business. However I believe in the end if the business can give people better wages as opposed to making larger profits, society in general will be better.

  2. mrosedal says:

    I do think that we as the consumer cause most of our own problems…but that does not put the big business off the hook.

  3. DarkMage77 says:

    I would agree with the fact that a deregulated economy would benefit the consumer ultimately, and I would consider myself a libertarian to that end, except for the fact that I see what deregulation really does to a society: It promotes corporations to the same level as individual citizens, and competition is actually stifled as mergers and acquisitions happen for the corporations’ best interests. Don’t believe me? Look at AT&T.

    I believe that regulations are absolutely essential for a fair-market. Notice I said ‘fair’, not ‘free’. I feel the only way to stimulate market competition – and thus, lower prices – is to level the playing field between industries and markets. Only then will we see Wal-Mart playing fair with its prices AND to its employees.

  4. Caroofikus says:

    The problem with this post is that they’re using two sets of numbers in their examples. If Wal-Mart were to boost pay $3.50 across the board, over a year that would result in a difference of pay in $7280 per employee, or a net loss of $1280 ($3.50 * 40 hours/week * 52 weeks/year).

    The sets of numbers they’re using are a profit margin of 3.5% and then total sales of 3%. Three percent of sales doesn’t mean the same as three percent of profit.

  5. dextrone says:

    Pay More = Get More (at least most of the time).

    I would definitely pay more if I can get benefits, I mean:

    If I was a repeat customer (say like B&H in NYC) and the prices there are reasonable, but obviously not the cheapest, then if I had a problem it would be more likely to be honored and considered beyond what we get today. Perhaps I lost the receipt to get a refund, no problem, just give us your telephone number (there’s a reason why we collect that, unlike those other stores who try to telemarket you or sell your number). Here you go, I printed out your receipt…..and since you are in the refund area, give me your items and would you like store credit or a cash refund. Store credit please. Here you go.

    {actual story; they are great, did I mention they can give free candy, pretzel sticks (snack size), coke, and (some weird carbonated drink[not sprite]) drink for free during the summer =P}

    The Lesson: Pay more does sometimes mean get more, even if you don’t pay more, for example, I get free refreshments (avail to the public) and great service. All of this because I pay reasonable prices, where they make a good profit and I get good benefits.

  6. woertink says:

    Where do Walmart’s profits go? If they spend the profits on the employees instead of other things, then what happens? Does that mean there will be less money given to investors? How many people have mutual funds that have Walmart stock? Was the money going to go to build new stores? How many new people would have gotten jobs because of it? We cannot say that paying their employees more would be better without a comparison of where the money would have gone instead.

  7. bohemian says:

    The people who shop at Walmart or buy solely on price generally are not the ones that care or have a clue about how screwed up our government is.

    I heard the author speak on NPR this week. He does have a very valid point. We need to be running this country as citizens, not as consumers. There is a significant percentage of people who have been convinced to do what is in the best interest of businesses to the detriment of themselves and everyone else.

  8. OKH says:

    Wait – people want to save money? I’m shocked.

  9. Keter says:

    Simple answer: vote with your dollars. Don’t spend money in places that support things you don’t agree with, or that are abusive to their employees while the top execs get exorbitantly rich.

    Be willing to pay a little more to keep the local business in business when the big box retailer comes to town. Healthy communities stay healthy through local, not national or international, commerce as a source of good jobs and good service.

    Don’t buy the Chinese-made item when there’s a suitable American made one. This is a national security issue: we have almost completely lost our manufacturing capacity, and in time of a major war or large-scale natural disaster, we will be in a terrible fix if our supply lines are disrupted because we can’t replace stuff that gets destroyed!

    Support your local farmer’s market – get healthier food and ensure that at least your locality will have an active source of food (see scenario above).

    Be willing to take more time to get to work to stay off foreign-controlled toll roads. (This is such a shocking risk to national security, I cannot believe this was allowed to happen, but it’s spreading!)

    You don’t have to be fanatical about it, just be educated and aware, and willing to think before you buy.

    For more information on the politics of economics and building sustainable economic systems that benefit communities, see Solari.com.

  10. chili_dog says:

    As a business owner I am constantly prodded by workers to “pay more”, “Gimme a raise”. But the sad fact is that I’m the one, using my own money entered into the business in hopes that 1) It would work well enough that I could make money at it 2) Exposed myself to all the potential ass raping the banks may provide if the business failed. Not the employee.

    After all is said and done, if the business is successful, and the employees are paid a wage that is commensurate with their productivity then guess what. New Buick for me.

    But on a side note, if I were to increase wages as either pay or benefits then there is a cost that I must accept in actual productivity growth. Fact is, most employees, if given a wage increase will not equally increase their performance or productivity.

    On a side note, employers that fail to promote, provide incentives for better performance and opportunity fail themselves as much as their employees. An unhappy employee is an unproductive employee.

  11. FrankTheTank says:

    Wow, a piece on Conusmerist, that questions consumer behavior and doesn’t unilaterally make large companies out to be demonic monsters?

    Chris Walters, who the hell are you and what are you doing at Consumerist?

    Seriously, though. This is an interesting point.
    Consumers do ultimately have the power to determine what kinds of businesses succeed and where dollars move in our marketplace.

    Every “good” decision a company makes is hurting someone, and every “bad” decision is helping someone somewhere.

    Good to think about.

  12. PeggyK says:

    I don’t think you can really do such a simple calculation. Sure if Walmart improved pay and benefits that would be an additional cash outlay of $x. However, better paid happier employees are probably less likely to quit and less likely to pilfer, so some of that additional cost may be made up by less pilferage and lower employee hiring and training costs.

    Also, in markets where Walmart has put the competition out of business, raising prices probably wouldn’t affect sales much, because people don’t have anywhere else to go. It’s in more competitive markets where Walmart would probably be hurt by higher prices. The people I know here in SoCal who shop at Walmart only do it for the cheaper prices and know the quality is crap – a price increase would send them elsewhere.

  13. MyCokesBiggerThanYours says:

    In an ideal world the consumer would make responsible and intelligent choices. … And therefore forcing “evil’ corporations out of business. But lets acknowledge the elephant in the room. Government screws just as much or more as any corporation. If they aren’t trying to control your private life, they are devising more behavior control laws and more ways to tax you.

    Unfortunately, most of the US need the government to manage your lives and take care of your responsibilities. Americans are either irresponsible or unintelligent.

  14. yahonza says:

    I think Reich is writing nonsense. Maybe he and his ilk thinks we are somehow worse off from all of the amazingly great things we have today, but honestly, isn’t it somehow ridiculous? Change is part of life. There is no year in the past I would want to go back and live in, because this is the best year so far. I think that every year pretty much.

  15. TechnoDestructo says:

    @mr_jrdn:

    State-owned businesses probably belong on the top of any list of “things that have failed miserably the vast majority of times they have been tried.”

    I wouldn’t call them a general solution for anything. Maybe in cases where the government couldn’t fail any harder than private industry, but other than that?

    @yahonza:

    If you take it as axiomatic that everything is great, I don’t think you can be an objective judge of anyone’s arguments against that.

  16. Jean Naimard says:

    @mr_jrdn: In theory, “crown croporations” may be good, but not always.

    In the mid-1970′s, fed-up with the recurrent Canadian National Ralways deficit, the canadian liberal government told CN to sharpen-up it’s act. It promptly whined that it need to get rid of it’s passenger operations.

    So the liberal government setup VIA Rail Canada as an empty shell that was simply billed by CN to provide passenger services. Suddenly, CN became profitable: it simply billed it’s deficit plus profits to VIA Rail (VIA was not allowed to have itemized bills, not to own as much as a hammer, so it was charged, for example, $200 per day to pick-up some garbage bags left on a long-distance train).

    The net result is that over the last 30 years, Canada’s fine passenger rail service got basically gutted to next to nothing.

    By comparison, Americans did it right with Amtrak from the onset (yes, there is something good with Amtrak): Amtrak can force freight railroads to use it’s tracks for a predetermined fee, and there’s nothing the freight railroads can do about it but say “yes sir”.

  17. I’d like to see this playout further before passing judgement

    @FrankTheTank: We get those every now and then :) Makes everything look atleast like its not one-sided.

  18. mr_jrdn says:

    @TechnoDestructo:
    @Jean Naimard:
    Always quick to point out flaws in the system eh? Well that’s true. There have been countless government businesses that have failed horribly. A prime example would have to be government run agriculture. If I remember correctly the USSR tried that and it never worked for them. However you seem to forget that every day in our capitalist world businesses fail. Also everyday government businesses post record sales and profit. Where I live there is a government run telephone company, and they make lots of money everyday. The difference between them and a privately owned company is that the government company funnels its money back into the community in various ways. I have chosen them to provide my phone services because I believe in how they run their business. “Voting with dollars” as they call it.

  19. Lordstrom says:

    Robert Reich is one of those doom and gloom talking heads who will systematically trash our economy while the country reaches new highs in the amount of millionaires and high income earners we have. He really really wants us to believe we were better off in a high tax-and-hoard Clinton economy.

  20. floofy says:

    Maybe I’m reading this wrong, or misunderstanding. I don’t understand what the difference is. (As a general rule for all corporations, and not just Walmart) Prices go up because employees are paid more. Prices go down because employees are paid less. People are still going to invest the same amount of money, aren’t they? They are making more but paying more or they are making less but paying less for things. Wouldn’t it all average out to the same amount of money?

  21. Chicago7 says:

    How can Costco afford to pay so much more than Wal-Mart?

  22. Chicago7 says:

    @lorddave:

    Weren’t we better off in the Clinton economy? Bush has doubled the deficit and STILL the markets are barely above when he first came into office.

  23. JiminyChristmas says:

    If Wal-Mart paid higher wages, where would the money go?

    Well, for beginners, maybe Alice, Christy, Helen, Jim, John and Robson Walton wouldn’t be worth about $16.5Billion each.

    The fact that people sit on personal wealth of that magnitude is amoral. Honestly, how can any member of the Walton family sleep at night knowing that much of their money is made on the backs of people working for their company who are still eligible for food stamps?

    Seriously, is maybe $1Billion in personal wealth not enough? With that amount of money neither you, your children, or their children will ever want for anything in their entire lives.

  24. JiminyChristmas says:

    @lorddave: Yeah, enjoy the new highs. The next time you pass an elementary school thank the children for paying off the debt-financed tax cuts you’re enjoying with their future earnings.

  25. timmus says:

    deregulated markets almost always benefit the consumer

    What about the airlines prior to the 1978 deregulation? I mean, yeah, there are some cheap fares here and there (though the last sub-$150 tickets I got were in 1987), but it seems everything has gone down the drain. No meals, bad service, packed planes, and tickets pretty much always $300 to $550.

  26. Lordstrom says:

    I am enjoying the new highs thank you :)

  27. zolielo says:

    Competition only takes 3 fairly equal firms according to many lines of economic thought.

    A firm can pay an employee any amount as long as that employee can generate six times that wage in output.

    Just some food for thought.

  28. TechnoDestructo says:

    @Chicago7:

    We were in a bubble.

  29. magilacudy says:

    Isn’t that the kind of thinking that Ayn Rand was worried about in Atlas Shrugged?

  30. Jesse in Japan says:

    “Decline of democracy?” When the hell was America ever a democracy? Nothing has changed from the Gilded Age over a century ago.

  31. I’d like to see this amendment to the Constitution:

    “Congress shall make no law respecting a corporation or privately owned business, or prohibiting the free exercise thereof.”

    Simple as that. We can still have laws that prevent criminal behavior, but by using the same wording that protects free speech and separation of church & state, get the government out of the business of regulating or subsidizing commerce.

  32. synergy says:

    Well said.

  33. infinitysnake says:

    @Keter: Problem is, most people with dollars use them to vote for themselves. :-(

  34. infinitysnake says:

    @permissionmag: That’s inviting innummerable nightmares.