Wal-Mart World

The World's Biggest Corporation in the Global Economy

Stanley D. Brunn

• Publisher: Routledge
• Year: 2006
• eBook ISBN: 9781135929121
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

Now that Wal-Mart has conquered the US, can it conquer the world? As Wal-Mart World shows, the corporation is certainly trying. For a number of years, Wal-Mart has been the largest company in the United States. Now, though, it is the largest company in the world. Its global labor practices and outsourcing strategies represent for many what contemporary economic globalization is all about. But Wal-Mart is not standing still, and is opening up stores everywhere. From Germany to Beijing to Mexico City to Tokyo, more than a billion shoppers can now hunt for bargains at a Wal-Mart superstore. Wal-Mart World is the first book to look at this incredibly important phenomenon in global perspective, with chapters that range from its growth in the US and impact on labor relations here to its fortunes overseas. How Wal-Mart manages this transition in the near future will play a significant role in the determining the character of the global economy. Wal-MartWorld's impressively broad scope makes it necessary reading for anyone interested in the global impact of this economic colossus.

Part I
Wal-Mart and the World

1
The Geostrategy of Global Business: Wal-Mart and Its Historical Forbears

Peter J. Hugill

Introduction

In 2004, Jon Talton, a reporter for the Arizona Republic, noted that the previous year, "The Los Angeles Times reported: 'Wal-Mart's decisions inIluence wages and working conditions across a wide swath of the world economy ... Its bsiness is so vital to developing countries that some send emissaries to the corporate headquarters in Bentonville, Ark., almost as if Wal-Mart were a sovereign nation'" (Talton 2004). Certainly Wal-Mart's annual income as the modern world's wealthiest corporation is well above the gross domestic product (GDP) of most sovereign states. With sales of $256.3 billion in 2003, Wal-Mart would have ranked twentieth, just above Austria. Talton concludes his piece by stating that Wal-Mart "is something new, a global economic superpower operating beyond the reach of fair competition, empowered workers or even national governments" (Talton 2004).

Since Wal-Mart makes few statements of purpose, it is hard to judge its behavior as a "global economic superpower" except on the basis of its performance, although when dealing with a firm, that seems entirely appropriate. Nevertheless, two significant historical-geographical facts stand out about Wal-Mart that help explain its behavior: (1) its geographical roots are in the small towns of the American South and West, regions well known for their dislike of planning and zoning, regulation, and unions, as well as for low wages, which has certainly helped promote Wal-Mart's obsessive "low price" policy; and (2) almost all the firm's international growth and success has been achieved since the end of the Cold War, in a period in which the world economy has been totally dominated by the return to global liberalism and the ideals of free trade. At one level this second fact is similar to the first: the ideals of global liberalism include free entry to the marketplace and unrestrained global wage competition. Judged by its performance, Wal-Mart's geostrategy is based on the fact of the return to a genuinely global world economy after the end of the Cold War, in which one country in particular, China, has sought to improve its relative position by offering itself as a major source of cheap labor.

The First "Global Economic Superpowers"

The historical geographer in me notes that firms such as Wal-Mart are, despite the press comments cited in the first paragraph of this chapter, not at all new or out of the ordinary. Trading companies such as the Hanseatic League operated well "beyond the reach of ... national governments" and dominated European trade for several centuries from the start of the second millennium (Hugill 1993: 50-51). Much more significantly, in the first round of expansions of the European world economy after the year 1431, two economic superpowers would emerge, operating even further "beyond the reach of fair competition, empowered workers or ... national governments" than the Hanseatic League had ever dreamed. Both were based in the emerging nation-states of the early 1600s. The first would become as powerful as any state on the planet, rule a "sovereign nation," and eventually have to be brought to heel by the state in which it was embedded. This was the British East India Company, founded in 1600 to establish trade with the Spice Islands of the Indonesian archipelago. Hie second was the Dutch Verenigde Oostindische Compagnie (VOC), founded in 1602 for the same purpose. Both quickly expanded into something much more, establishing major footholds on the Indian subcontinent in the early 1600s to acquire the cotton textiles they needed to persuade the inhabitants of the Spice Islands to part with their nutmeg, cloves, cinnamon, and pepper. This Indian textile trade quickly assumed much greater importance than the spice trade, especially for the British East India Company (Irwin 1955, 1956, 1957). French attempts to copy these British and Dutch companies were much less successful. During the Seven Years' War (1756-1763; called the French and Indian War in American history) the British East India Company, operating as a sovereign nation well beyond British control, though acting generally in British interests, used its huge private armies to wrest control of the Indian subcontinent from the French.

Before the emergence of the territorially bounded nation-state (a complex process that cannot be said to have gotten under way until the Peace of Westphalia ended the Thirty Years' War in 1648, and which was not completed until the emergence of the "New Nationalism" in the late 1800s), such private economic superpowers were a normal part of the geopolitical process as Europeans reached out to the rest of the world and, as many claim, began to exploit it. Only powerful states could control powerful firms.

Although for these eighteenth-century firms we lack the accurate financial data that we now have for the present day, which allows us to calculate national accounts, we can be sure that in its heyday the British East India Company ranked well above twentieth as a global power. It cannot be measured as simply as we can today measure the strength of a firm such as Wal-Mart, by expressing its sales as a percentage of GDP. Much of the econom ic return to Britain from the East India Company actually came from the private activities of its employees, who were paid extremely poor wages, speculated very heavily on the side, and returned, or hoped to return, to Britain with large private fortunes (Furber 1976: 227). Nearly all the output of economies before the Industrial Revolution of the late 1700s was agricultural, thus a product primarily of the natural endowment of land, soil, and climate. Nearly all the output of a modern economy is in industry and services, thus a product of capital and labor.

Chaudhuri's monumental econometric analysis ofthe East India Company between 1660 and 1760 indicates that the annual official receipts for the period 1710-45 averaged just over £1.5 million per year (Chaudhuri 1978: 438). This would have represented $188 million per year in 1990, the 1990 dollar being the baseline used by Maddison for long-run international comparisons (Maddison 1995:164-79). The vast majority of this GDP was, however, generated in the agricultural sector, not in the trade or manufacturing that dominate a modern economy and that typified the activities of the East India Company, which in the mid-1700s would have dominated that sector. The East India Company also offered long-term returns that modern companies only dream of, although risks were clearly very much higher.

Because it was Parliament that granted the East India Company its monopoly on trade to the East within Britain, and because of the East India Company's increasingly central importance to the British economy of the period, it was involved from its very inception with both parliamentary and City of London politics. Many stockholders of the East India Company were wealthy, and they combined their forces and seats to protect their interests against a Parliament that was always seeking ways to increase the share of the company's revenue that it took for providing it with its monopoly (Sutherland 1952: 17-19, 86, 411-12).

Beginning with a representation of 60 members [out of a total of 558] in July 1784, the East India membership increased by August 1802 to 95 [by which time the Act of Union with Ireland had increased Parliament to 658] and in October 1806 achieved a maximum of 103... . between 1830 and 1834 it fell from 62 to 45. (Philips 1961: 299)

These members were notorious for having little to do with British party politics of the period, although because of"the opnly expressed dislike of the Whigs for the Company as a commercial body ... they worked more cheerfully and easily under a Tory Government" (Philips 1961: 300). They always, however, worked first and foremost for the good of the East India Company.

The Economic World Orders of Liberalism and Protectionism

Global economic superpowers such as the British East India Company and the VOC were so strong because they had first developed in a world of weak nation-states bounded primarily by free trade, thus part of an economic world order of global liberalism. Beginning in 1641, the British attempted to limit Dutch global liberalism with the Navigation Acts, which challenged the control of the emerging world economy that the Dutch had come to enjoy using their version of free trade, mare liber urn, or "free seas." By the early 1800s, however, with the publication of David Ricardo's landmark work on free trade and the adoption of his ideas by Adam Smith, the British state had embraced global liberalism, and the British-dominated world economy that emerged after the Congress of Vienna of 1815 was defined almost entirely by these values. This bedrock British belief in free trade was, however, brought into question after the middle of the nineteenth century, first by the American adoption of high tariffs in 1862, then by the German shift in 1878. Thereafter, the world economy slipped increasingly into the protectionist world order, beginning a halting return to global liberalism only when the Bretton Woods conference of 1944 imposed American economic hegemony Even so, from 1944 through 1989 a significant fraction of the world economy, a Communist bloc dominated by Russia and China, remained outside the pull of global liberalism, and a complete return did not come until the end of the Cold War and the fall of the Berlin Wall.

In this chapter, Wal-Mart, which established its first store outside America in Mexico in 1991, is compared with three earlier American multinational firms: Woolworth's, Ford, and General Motors. All three of these rose to prominence during the period of the protectionist world order and within a heavily protected domestic economy. It is important to bear in mind that the economic world order in which Wal-Mart has grown to prominence is one marked, since the end of the Cold War, by a virtually complete return to global liberalism. The current period is therefore much more like the liberal economic world order of the early 1600s or the early 1800s than the world order of the period of protectionism, which extended from 1862 to 1944 and to a lesser extent through 1989.

Geostrategy and Geopolitics

Geostrategy, like its parent term, geopolitics, is an ill-defined, flexible, misused concept, but there are clear archetypes for each term, based on the type of state employing the concept in question. Geostrategy is pursued almost entirely by trading states, which by definition are states heavily committed to global liberalism. I argue here that it is also pursued by the firms embedded in those states. Geopolitics is pursued by territorial states, which may or may not have any commitment to global liberalism and which have often used protectionist economic policies to distance themselves from a world economy dominated by the trading states (Hugill 2005). The geopolitics of the territorial state is "classic" geopolitics, first conceived by Ratzel in the late 1800s and defined most strongly by the work of Halford Mackinder (1902, 1904, 1919) in his attempt to understand and perhaps arrest the decline of British power as the protectionist world order developed. In keeping with Britain's role as the principal trading state in the world economy of the early 1900s, Mackinder, as his principal biographer notes, preferred the term geostrategy to geopolitics (Blouet 2005, personal communication).

At its most malignant, the geopolitics of the territorial state informed the work of German geopolitician Karl Haushofer and found its most thorough expression in his journal, Zeitschrift filr Geopolitik. The geopolitics of the territorial state aimed to dominate the world economy by controlling vast swaths of earth space both for the military geographic advantages it gave and for the resources contained in that earth space. Mackinder argued, in his famous dictum of 1919, that if any one state came to control the heartland region of central Eurasia, it would come to control the "world-island" of Eurasia and Africa, and ultimately the entire world (Mackinder 1919: 150). By the 1930s, Haushofer's geopolitical ideas called for a world made up of three major pan-regions—one German, one Japanese, and one American—each pan-region extending from pole to pole in order to ensure access to needed agricultural resources grown in a wide variety of climatic zones as well as to the minerals contained in such a vast area (Whittlesey 1943).

In the inception and development of these ideas about the geopolitics of the territorial state, one central idea stood out. Mackinder's original formulation of geopolitics in 1904 was concerned with the possible emergence of a world state, in which he asked the geographer's question: "Where is the likely seat of power of such a state?" (Blouet 1987: 117-18). His famous answer was, as embodied in the title of his famous article, at "the geographical pivot of history," a concept he redefined in his 1919 book as "the Heartland," a region that would be most easily controlled by either Russia or Germany. Whereas in 1904 it was not clear whether Russia or Germany would be the greater problem, by 1919 Mackinder naturally leaned toward the conclusion that the trouble lay with Germany.

Karl Haushofer, Mackinder's greatest intellectual disciple, used the Heartland concept in the 1920s to inform the geopolitics of the Third Reich. As Blouet notes, despite Haushofer's partial influence on Hitler through Haushofer's student Rudolf Hess, Hitler fortunately resisted the main lesson he ought to have learned from Haus-hofer and Mackinder, which was not to pursue the geostrategy of a maritime trading state at the same time as he pursued the geopolitics of the territorial state (Blouet 2005: 3). Haushofer's main influence on Nazi geopolitics was troublesome enough, but it lay elsewhere, in his use of personal connections with Japan to forge the Axis alliance with that country almost independently of Hitler (Hayes 2004). With the defeat of the Axis in 1945, geopolitics was quickly retired (buried might be a better term) until such American realists as Henry Kissinger and Zbigniew Brzezinski resurrected it at the height of the Cold War to help deal with the Soviet Union. In any case, Mackinder's classic formulation was never forgotten. As Yale political scientist Nicholas Spykman put it so cogently in 1942, a "Russian state from the Urals to the North Sea can be no improvement on a German state from the North Sea to the Urals" (Spykman 1942: 460). American policy throughout the Cold War was to resist a Russian-dominated heartland just as strongly as it had been to resist a German-dominated one earlier.

America's foreign policy discourse in the early twenty-first century continues to use the term geopolitics, but it does so loosely occasionally, and inaccurately (Taylor and Flint 2000: 50-51). The intellectual wing of the neoconservative camp is currently dominated by Robert Kagan's argument in his 2003 book, emerging out of a paper in Foreign Affairs by William Kristol and Robert Kagan in 1996, that America is hegemonic and can pursue pretty much whatever geopolitical designs it pleases. The neoliberal group, headed by such individuals as Charles Kupchan (2003), argues that America's period of unipolarity will be brief and that American global dominance, like all global dominances, will erode, so its geopolitical designs should be more careful and consultative. Yet America in the current period of the world economy, one of a return to unabashed global liberalism, is a trading state, not a territorial one, and our behavior in the international arena is far better termed geostrategy than geopolitics.

Geostrategy does, however, exist in the popular consciousness as the association of state behavior in the international arena with the economic advantage of the state and the firms considered central to the state in that international arena. The geostrategies people associate with such multinational firms are encapsulated, for example, in the oft-stated belief that in the Iraqi war that began in 2003 American concerns were with oil more than with the people of Iraq, and that favored firms such as Halliburton profited mightily from their links to Vice President Dick Cheney a former Halliburton executive. In this popular discourse, the economic and political interests of states and multinational firms intertwine. For example, in 1952, the former president of General Motors, Charles Erwin Wilson, was asked if, as Secretary of Defense, he could make a decision that would run counter to GM's interests; he said that he could but was not able to conceive of such a situation, because "... for years I thought what was good for our country was good for General Motors, and vice versa." The difference did not exist. Wilson's quote certainly implies equality of geostrategic interest between firm and state, and Wilson, like Cheney, served both.

The Geostrategies of American Multinationals: From Woolworth's to Wal-Mart

The geostrategies of three earlier American multinational firms are well worth examining to better understand the successes and failures of Wal-Mart's geostrategy in today's world economy: that of an earlier American retail giant, Woolworth's, and those of the two major American automobile companies, Ford and General Motors.

Woolworth's is clearly the case most comparable to that of Wal-Mart, since it was a retail discounter of substantial proportions with, at its height, considerable international investment. However, even at its height Woolworth's accounted for a mu...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Dedication
• Contents
• Introduction
• Part I Wal-Mart and the World
• Part II Early Years and Store Location
• Part III Organizational Culture
• Part IV Culture, Communities, and Conflicts
• Part V Globalization
• Bibliography
• Contributors
• Index