Wal-mart and Social Justice

In 2005 in the United States, the top 1% of the population garnered 21,8% of total, the highest percentage since 1928. The pre-Depression benchmark is apt, as it reminds us that economic growth and stability do, in fact, depend on meeting Henry Ford's maxim of manufacturing cars that the "average person" really can afford to buy.

Consider how income inequality affects Wal-mart. Business Week's cover story on line for April 30, "Wal-mart's Midlife Crisis", describes the consumer goods giant's fundamental problem. Responding to the decline in purchasing power of the poor and lower middle-class, Wal-mart decided that it had to go up-market, only to discover that it really did not know how to, and even worse, that they were caught in the traditonal trap of trying to serve customer segments with conflicting needs.

To be fair, Wal-mart has other difficulties (among them competitors that have improved operations and Wal-mart's reputation blunders), but confronting a shrinking target segment is, without question, the company's worst problem.

For many business strategists, Wal-mart's troubles are just another case of a company struggling to adapt to environmental change. But for those of us interested in non-market strategy, Wal-mart's shrinking market is a textbook example of how not to manage government relations.

After years of preaching the ideology of "employees are partners" that don't need unions and don't need a minimum wage, but rather the "freedom" to work and move up the economic ladder, Wal-mart has suddenly changed its rhetoric. As a born-again champion of raising the minimum wage. CEO H. Lee Scott has come to the shocking conclustion that if their traditional customers lose purchasing power the company loses as well. Prior to this change, Wal-mart has been resolutely Republican in its politics, earning the enmity of labor unions and environmentalists to become the whipping boy of anti-big business.

And so, like General Motors and other big companies, Wal-mart has learned that better wages and a national health care system are good for big business, just as spending more on education will provide them with workers who are better prepared and can help increase productivity.

Perhaps, in the future, these companies will also come to realize that the traditional goal of bringing generation after generation of immigrants and the underprivileged into the middle classes is as good for business as it is for the commonweal. But this is unlikely to happen as long as top management at our largest firms continues to believe that "making it to the top" means accumulating as much money and perks as possible and that such wealth is a right that comes with success. This last asseveration is based on the simple principle that the solution to social problems can not be based on philanthrophy or charity of a privileged class that prides itself on giving back to society, but rather on defining correctly the needs of children and meeting those needs via social goods, among them education, health care, a secure environment, and jobs for their parents that pay a living wage. Addressing serious social problems is the job of civil society institutions that frame social justice in terms of rights rather than handouts. This is why we pay taxes; no one should have to thank Bill Gates for getting AIDS treatment or a decent high school education.

In future posts, I will have good deal more to say about the relationship between business, social values and public policy. One need not be Nostradamus to predict that stakeholder pressure on government and business to respond to corruption, climate change and social inequality will move center stage in the United States as frustration with our failures in domestic and foreign policy grows.