TCS Daily


Forget the World Bank, Try Wal-Mart

By Michael Strong - August 22, 2006 12:00 AM

Between 1990 and 2002 more than 174 million people escaped poverty in China, about 1.2 million per month.[1] With an estimated $23 billion in Chinese exports in 2005 (out of a total of $713 billion in manufacturing exports),[2] Wal-Mart might well be single-handedly responsible for bringing about 38,000 people out of poverty in China each month, about 460,000 per year.

There are estimates that 70 percent of Wal-Mart's products are made in China.[3] One writer vividly suggests that "One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market." [4] Even without considering the $263 billion in consumer savings that Wal-Mart provides for low-income Americans, or the millions lifted out of poverty by Wal-Mart in other developing nations, it is unlikely that there is any single organization on the planet that alleviates poverty so effectively for so many people.[5] Moreover, insofar as China's rapid manufacturing growth has been associated with a decline in its status as a global arms dealer, Wal-Mart has also done more than its share in contributing to global peace.[6]

How can this be, given the vast and growing literature documenting Wal-Mart's faults? We have seen workers in the factories of Wal-Mart's suppliers complain on tape about being forced to work long hours under terrible conditions. Certainly no one should be forced at any workplace. And yet even articles documenting Wal-Mart's faults often mention other facts that ought to be considered before coming to too quick a judgment concerning the overall impact of the corporation. In a Washington Post story titled "Chinese Workers Pay for Wal-Mart's Low Prices," documenting abuses of workers at Wal-Mart suppliers in China, the authors point out that:

"China is the most populous country, with 1.3 billion people, most still poor enough to willingly move hundreds of miles from home for jobs that would be shunned by anyone with better prospects."

If we care about alleviating global poverty we need to take this fact seriously. Without Wal-Mart, about half a million of these people each year would be stuck in rural poverty that is, for most of them, far worse than sweatshop labor.

D. Gale Johnson, an economist who studied regional inequality within China, described the enormous disparity between urban and rural workers as "the great injustice."[7] Urban workers earn about 2.5 times as much as rural workers.[8] Even after counting the higher cost of living in urban areas, urban workers make about twice as much.[9] Not surprisingly, massive numbers of people are moving to the city to work in factories. In 1990, 71 percent of China's labor force was in agriculture, whereas by 2000 that percentage had dropped to 63 percent: this great migration represents roughly 100 million people leaving rural areas to earn, on average, twice as much as they had on the farm.[10]

Other than economic growth, there is no way to double the salaries of a 100 million people (and growing). After the 2004 Asian Tsunami, more than one-third of Americans gave more than $400 million in charitable aid, an extraordinary outburst of giving by any standard. And yet there are more than 630 million rural Chinese remaining, many of whom are living on less than a dollar per day. While each would welcome a charitable dollar if we could get it to them, that charitable dollar, representing one good day's worth of income, would not do them nearly as much good as would a job in the city paying twice as much day in, day out. Charity cannot take place on an adequate scale to solve global poverty.

Despite Jeff Sachs' enthusiasm for foreign aid, Bill Easterly makes a compelling case that government-to-government aid damages economies as often as it helps them.[11] Does anyone think the World Bank raises more people out of poverty than does Wal-Mart?

What about social entrepreneurship? Ashoka, the highly regarded social entrepreneurship organization certified as among the "Best in America" charities, highlights among its hundreds of projects a worker's cooperative in Brazil that is growing rapidly:

Each member contracts individually with Coopa-Roca, but the collective meets weekly. Membership in the cooperative grew from eight members in 1982 to 16 in 2000, and has surged to 70 steady members today.[12]

Is it heroic to raise one person up out of poverty each month, but merely a statistic to raise a million up?[13]

Grameen Bank, the granddaddy of the social entrepreneurship movement, has now served 5 million borrowers. Over a period of twenty-five years, their five million served is thus of the same order of magnitude as the five million or so brought out of poverty by Wal-Mart in the last fifteen years. Micro-finance has become a hit with global development experts because it is the only poverty alleviation initiative, other than economic growth, that appears to be scalable.

That said; there is a thatched-ceiling to poverty alleviation through micro-finance.[14] It may well be the case that the vast majority of Grameen Bank micro-entrepreneurs experience considerably greater pride and happiness in their work than do the factory workers hired by Wal-Mart suppliers. But most of these micro-entrepreneurs, who borrow less than $100 each and then repay the loan, do not experience as large an increase in standard of living as do those rural Chinese who move to urban areas and thereby earn an extra $1 or so per day, $365 or so dollars per year. Poor, rural micro-entrepreneurs selling eggs to other poor rural peasants simply do not have access to the vast pipeline of wealth from the developed world.

Moreover, most of the sweatshops workers in Japan in the 1950s and 60s, as well as the most of the sweatshop workers in Taiwan and South Korea in the 1970s and 80s, are now middle class retirees in developed nations. Likewise most of the "underpaid" Chinese workers of today will retire in a state of comfort and luxury unimaginable to them in their rural youth, as average Chinese wages will gradually rise just as they have risen in every other nation that has experienced long-term economic growth. At present rates of economic growth, China will reach a U.S. standard of living in 2031.

Paul Krugman, one of the most aggressively left-liberal economists writing today, understands how economic growth helps the poor:

"These improvements ... [are] the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better."[15]

The Nobel laureate economist Robert Lucas once said "Once you start thinking about economic growth, it is hard to think about anything else." Non-economists, especially those associated with the environmental movement, regard this as evidence that economics is a form of brain damage, a cancer on our earth. But rural Chinese peasants surviving on less than a dollar per day do not regard economic growth, or Wal-Mart factory jobs, as a cancer. When a Mongolian student at a U.S. workshop on globalization heard U.S. college students denounce sweatshops, he shouted: "Please give us your sweatshops!

An unreflective passion for social justice may be one of the biggest obstacles to creating peace and prosperity in the 21st century. While there are most certainly factory owners in China whom we would rightly regard as criminal in their treatment of their workers, it is very important not to confuse these incidents with the phenomenon of globalization. It is a good thing that Wal-Mart is encouraging more humane standards in its supplier's factories. And yet it is also important to remember that Wal-Mart's "vast pipeline that gives non-U.S. companies direct access to the American market" is a vast pipeline of prosperity for the hundreds of millions of rural Chinese whose lives are more difficult than we can imagine.

Act locally, think globally: Shop Wal-Mart.

Michael Strong is CEO and co-founder (with John Mackey) of FLOW.



[1] See The Asian Development Bank, "Key Indicators 2004: Poverty in Asia," http://www.adb.org/Documents/Books/Key_Indicators/2004/default.asp, Table 15.

[2] John McClenahan, "China Poised to Pass U.S. in Manufactured Goods Exports," Industry Week, May 1, 2006 for total numbers, Wal-Mart figure extrapolated from China Daily, "Wal-Mart's China Inventory to Hit U.S. $18 Billion This Year," November 29, 2004, http://www.chinadaily.com.cn/english/doc/2004-11/29/content_395728.htm.

[3] China Daily, op. cit.

[4] Charles Fishman, "The Wal-Mart You Don't Know," Fast Company, December 2003.

[5] See Global Impact, "The Economic Impact of Wal-Mart," http://www.globalinsight.com/MultiClientStudy/MultiClientStudyDetail2438.htm.

[6] In 1990 China was the third-largest arms dealer on earth, now they are a relatively minor player in the global arms trade. Had Russia likewise experienced such growth, rogue states and warlords would not be so well-armed, http://www.nti.org/db/china/conpos.htm.

[7] Lin, Wang, and Zhao, "Regional Inequality and Labor Transfers in China," Paper prepared for the D. Gale Johnson Memorial Conference, Chicago, Oct. 25, 2003, revised March 2004, pg. 2.

[8] Lin, Wang, and Zhao, pg. 5.

[9] Martin Ravallion and Shaohua Chen calculate a 41 percent higher cost of living in urban areas, Ravallion, Martin and Chen, Shaohua, "China's (Uneven) Progress Against Poverty" (September 2004). World Bank Policy Research Working Paper No. 3408. Available at SSRN: http://ssrn.com/abstract=625285, pg. 8.

[10] Lin, Wang, and Zhao, pg. 6.

[11] William Easterly, White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good, Penguin, 2006.

[12] "Shanty Town Seamstresses Fuel the Fashion Industry" By Shannon Walbran, http://www.changemakers.net/journal/02june/walbran.cfm.

[13] Consistent with this perspective, in May 2005 an Ashoka social entrepreneurship contest on how to reduce human trafficking openly refused to consider proposals that focused on increasing economic growth.

[14] Indeed in Despite Good Intentions, Thomas Dichter has credibly argued that micro-finance has done more harm than good.

[15] Paul Krugman, "In Praise of Cheap Labor," Slate, March 21, 1997, http://www.slate.com/id/1918.

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21 Comments

That picture came through all 3-d.
Cool! Maybe it's the low light here and the LCD screen, but that's neat!

By the way, Wally world is the devil.

Liberty is Prosperity
Thanks for the wonderful article. Wal-Mart's freedom to use global producers has brought more freedom and more prosperity to what will soon no longer be called the third world.

Why doesn't the left get it? Free markets are a virtuous cycle. More liberty, for both individuals and groups of individuals (such as corporations)alway leads to more prosperity which leads to even more liberty. The solution to most of the world's problems really is as simple as minding your own business and letting others mind their own business.

Digg this article!
I thought this article was terrific and submitted them to Digg and Reddit. Vote it up to help share it with others!

http://digg.com/business_finance/Forget_the_World_Bank_Try_Wal_Mart

http://reddit.com/info/ejm6/comments

Oh for those good old days down on the farm.
"D. Gale Johnson, an economist who studied regional inequality within China, described the enormous disparity between urban and rural workers as "the great injustice."[7] Urban workers earn about 2.5 times as much as rural workers.[8] Even after counting the higher cost of living in urban areas, urban workers make about twice as much.[9] Not surprisingly, massive numbers of people are moving to the city to work in factories. In 1990, 71 percent of China's labor force was in agriculture, whereas by 2000 that percentage had dropped to 63 percent: this great migration represents roughly 100 million people leaving rural areas to earn, on average, twice as much as they had on the farm.[10]"

Does anyone think this was any different in the USA 100 years ago (except for the population numbers, of course)?

To Sidwinder
Sorry, didn't mean to jump into your thread.

World Bank vs Wal Mart
I have spent my entire career in international organizations including the World Bank trying to help different countries improve their education systems as a step towards improved economic and social situations.
It has been very frustrating.
I should have gone to work for Wal-Mart!
The article is so full of common sense that I am truly impressed.
Cheers
Dr. Clifton Chadwick

Remove the poverty need psychological revolution
Iam from India. India is poor country.reason of poverty is no work for poor whole year.[2] All poor of India are illiterate and unskilled.
India need psychological revolution for remove the povery. Wal mart surely help us.

Shunned Jobs?
I love this quote:

"...for jobs that would be shunned by anyone with better prospects."

Can anybody name any job that would not be shunned by anyone with better prospects.

If I have the opportunity to get a job making $150,000 a year, but then I get a better prospect, a job making $200,000 a year, I will surely shun the $150,000 a year job.

Wal-Mart Global Sourcing
While Mr Strong makes a good point about Wal-Mart (and others,) helping bring people to a better economic life, the point that is almost always overlooked or misstated is that Wal-Mart almost single handedly is raising global working contitions.

As a supplier to Wal-Mart I can tell you that all factories that we contract with to manufacture our goods, have to be inspected and certified by Wal-Mart as to safety and working conditions. While neither Wal-Mart nor any other private or government entity cannot be at every factory every day, they do make followup surprise inspections on a continual basis. Without Wal-Mart factory certification none of our products made in a specific factory will be accepted.

Wal-Mart Global Sourcing
While Mr Strong makes a good point about Wal-Mart (and others,) helping bring people to a better economic life, the point that is almost always overlooked or misstated is that Wal-Mart almost single handedly is raising global working contitions.

As a supplier to Wal-Mart I can tell you that all factories that we contract with to manufacture our goods have to be inspected and certified by Wal-Mart as to safety and working conditions. While neither Wal-Mart nor any other private or government entity cannot be at every factory every day, they do make followup surprise inspections on a continual basis. Without Wal-Mart factory certification none of our products made in a specific factory will be accepted.

Wal-Mart in the US
Great article! You should follow up with how Wal-Mart reduces poverty in the US by lowering prices for food, medicine and clothing (and thereby lowering the cost of living for poor people), and offering jobs to low-skilled workers who often can't get a job anywhere else.

Immigrate to USA?
If the USA allowed you to immigrate without waiting, assuming you were not a criminal or had no disease, would you?
How many Indians would follow?

Not everyone wants to be an american, not everyone can
I've been dealing with east european (specifically romanian) immigrants to the US since I was a kid. We'd help out at our church with new arrivals and the psychological adjustments to become an american were pretty significant, sometimes intensely so. Not everybody made it and sometimes people went back because they just could not survive here.

I'm sure the same is true for people from the PRC or India.

There are such things
Lots of people pass up higher paying jobs for lower ones. Past a certain income level, money drops in importance to job satisfaction. Sure, you can make 2M a year as a hot shot bond trader but sometimes that terrific job that makes 300k in the charitable or public sector pulls people out of the trading business.

At its most extreme, almost all priests and other religious could have made more money elsewhere.

The Greening of Walmart
Here's a good article regarding WMT's "greening" that appeared in Fortune last month: http://money.cnn.com/magazines/fortune/fortune_archive/2006/08/07/8382593/

Not just money.
Better prospects is not limited to simply money (at least IMO).

I simply used money as an easy target. Other things like location, type of work, benefits ect... come into play.

In your example that terrific job making 300K just might be the better prospect over the 2M job.

The evil side of Walmart
Walmart has shown:
[1] liberals are pro-union hacks
[2] private enterprise trumps government planning
[3] there are still non-illegal workers left in America
[4] capitalism works, socialism fails
[5] profit is a great motivator

TS

China & Wal-Mart
Michael Strong's article delighted me, but it stopped short. With progress comes poverty. When people have more money to spend, they push up land values, incite speculation, and in China incite real estate wars. If higher income is not to ultimately end up in speculators' pockets, then society needs to recover and share site values via a land tax or land dues coupled with a land "rent" dividend, somewhat similar to Aspen's tax on property sales and Alaska's oil dividend (but far from a perfect fit). Then higher land values will benefit everyone, not just a few insiders, and higher wages will be a _lasting_ boon.

With Wal-Mart, try sharing land values
Michael Strong's article delighted me, but it stopped short. With progress comes poverty. When people have more money to spend, they push up land values, incite speculation, and in China incite real estate wars. If higher income is not to ultimately end up in speculators' pockets, then society needs to recover and share site values via a land tax or land dues coupled with a land "rent" dividend, somewhat similar to Aspen's tax on property sales and Alaska's oil dividend (but far from a perfect fit). Then higher land values will benefit everyone, not just a few insiders, and higher wages will be a _lasting_ boon.

SMITH, Jeffery J.
President, Forum on Geonomics
jjs@geonomics.org; www.geonomics.org
Share Earth's worth to prosper and conserve.

re: liberty is prosperity
Just a gentle reminder that the values touted here by Mr. Strong are not reflective of your 'virtuous cycle' embedded magically within the free market.
many of the values of (for lack of a better term) corporate social responsibility and the move from fiduciary responsibility to incorporating stakeholders into business decisions comes from 'the left'.

I've always been rather surprised at how easily (excuse the assumption here) people from the U.S. group each other into categories of left and right - i was most impressed by Mr. Strong's statement 'An unreflective passion for social justice may be one of the biggest obstacles ...' and hope that 'trans-partisan' movements like Flow can help to overcome the ease with which people embed themselves into unassailable fortresses of ideology.

Hold on here
Walmart saves millions by passing the cost healthcare on to all of us: those workers who have no insurance still go to hospitals, but when they can't pay the bill, the cost gets covered by each of us in higher healthcare premiums and/or higher taxes.

Since 1987, 23 million Americans have lost their healthcare;fact: the cost per car at GM for healthcare is currently $1,500. Once you realize that each of us, including corporations such as GM, is subsidizing healthcare for those who can't get it at work, the cause of the current alarming rise in costs becomes clearer. The cost is also higher because people without healthcare do not get the routine check-ups that can keep them healthy, and generally end up in an ER, one of the most expensive types of care.

This does not strike me as the healthy basis for a civil society. We know in our hearts that this is a mismanagement of our nation's remarkable hospitals, doctors, and nurses. We can sense instinctively that Walmart's policies are immoral, and that statistics will always exist to rationalize thoughtless behavior.

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