The Wal-Mart juggernaut rolls on

Giant retailer dominates rivals with combination of lower prices and meagre wages

"One nation under God," proclaims the Pledge of Allegiance which every American has known by heart since childhood. These days, however, in matters economic if not ideological, those words might be amended to read, One Nation obsessed by Wal-Mart.

Love it or loathe it, the retail colossus founded 40 years ago by the late legendary Sam Walton is making headlines on every front: for the relentless efficiency and expansion that have turned it into America's most admired company; for alleged labour practices and lawsuits whose outcome will set precedents for every employer in the US, and for a running battle with organised labour which raises the conflict at the very heart of a modern market economy.

Both the praise and the criticism heaped upon Wal-Mart have a common cause - the company's unceasing search for ever lower prices, and the pressure it puts on its suppliers and its employees to secure them. As a result, Wal-Mart has become a prism through which to examine the vices and virtues of 21st century capitalism, American-style.

Once it was the "robber barons" as they built their mighty industrial and financial empires. Half a century ago General Motors became the touchstone, as its former president Charles Wilson declared: "What's good for GM is good for America". And indeed, the largest US car maker brought prosperity to factory towns, and decent wages and safe jobs for its unionised workers who became the envy of the world.

Now the model, for better or worse, is Wal-Mart, a friend of the consumer if not of organised labour, which over four decades has grown into a juggernaut virtually without precedent, even by the outsized standards of US corporations. Wal-Mart began business in 1962 as a single store in the modest town of Rogers in north-western Arkansas. In 2002, its current but equally unassuming headquarters, in nearby Bentonville, reported annual sales of $245bn. The figure is eight times the turnover of Microsoft and equivalent to no less than 2 per cent of America's entire GDP. Wal-Mart's contribution to the country's impressive productivity in recent years is estimated at double that or more.

With over 1 million people, or "associates", on its payroll, the company is the second largest US employer after the federal government. It is America's largest seller of groceries, toys, furniture, jewellery and a host of other products. The national economy may have been in the doldrums, but Wal-Mart sales are set to rise 11 per cent or more in 2003.

But, many now wonder, is what is undoubtedly good for Wal-Mart's shoppers and shareholders really an unmitigated good for America? Should ever falling prices for consumers be the only goal? Is there a point at which human dislocations and economic injustices caused by the hunt for cheaper goods outweigh the benefits? And, most pertinently of all - has America, in the corporate person of Wal-Mart, reached that point? As it has grown, the company has inevitably been a lightning rod for controversy. The early spread of its giant stores was held responsible for killing off small commercial busines-ses and sucking the life from small-town America. Wal-Mart, it was said, had been an inspiration for "Anywhere USA", the identical ugly sprawl that defaces the suburbs of cities great and small across the country.

Partly thanks to Wal-Mart's success, "Anywhere USA" has become an unchallenged fact of American life. Today Wal-Mart's current legal battles, stretching from alleged gender discrimination to suggestions it may have violated federal immigration laws in its search for cheap labour, call into question how that success has been achieved, and whether it has become too much of a good thing.

In San Francisco, federal judges are considering whether to give the go-ahead for what would be the largest class action suit in US history, alleging systematic discrimination in terms of pay and promotion against the 700,000 women who have worked at Wal-Mart since 1996. In October, a second legal front opened when raids by federal immigration officials at 60 Wal-Marts across the US rounded up 250 illegal aliens working as all-night janitors.

Wal-Mart predictably denies any systematic or deliberate wrong-doing, insisting that its policy is to treat female employees as fairly as males, and promising to halt any immigration violations by local subcontractors, of which senior management knew nothing.

Innocent or guilty, however, the company plainly has a Wal-Mart-sized PR problem. With its quest for ever lower prices from suppliers, wherever they are located, Wal-Mart is being depicted as a prime villain in the haemorrhage of US manufacturing jobs to China and other low-wage countries, an issue likely to figure large in the 2004 election campaign.

Most fundamental of all however is Wal-Mart's intensifying struggle with organised labour. Skirmishes have taken place across the country, but a climax is now approaching in California, where the company wants to enter the grocery business next year by opening 40 Supercenters. These are the biggest Wal-Marts yet: 200,000 sq ft emporia with a full-range food market and a discount mega-store - and entirely staffed by non-union employees.

For the heavily unionised supermarket chains, which face head on competition from the Sam Walton's low-cost juggernaut, the prospect is nightmarish. Their relatively paternalistic way of doing things is under challenge; the GM model of economic advancement, in other words, now faces the Wal-Mart model. The chains, with an average hourly wage (including substantial health care benefits) of $19 must compete against a newcomer whose workers receive an average $9 an hour and meagre health insurance.

Not surprisingly, the price of a typical Wal-Mart basket of groceries can undercut that of its rivals by 20 per cent or more - and not surprisingly the established chains are trying to cut their costs by reducing benefits and holding down wages. Hence the recent strikes by California's grocery workers, ostensibly against their employers but in reality against the unseen presence of Wal-Mart at the negotiating table.

Theoretically of course, there is a neat answer to the dilemma. Unionise Wal-Mart, and thus push its prices higher, reducing its present competitive advantage. But that would be to take on not only Wal-Mart's historic resistance to unionisation (employees say they have been forced out for trying to establish even an embryonic union presence) but its very raison d'être.

The issue ultimately can only be resolved by the American consumer. The national schizophrenia over Wal-Mart reflects the most basic human nature. Sam Walton's company is profoundly admired. Yet it is also the company described by one magazine as "The Beast of Bentonville". A Business Week cover recently demanded "Is Wal-Mart too powerful?" Yes, readers will be tempted to conclude. But these critical faculties freeze as those same readers enter a Wal-Mart store to inspect the unmatchable prices within. Social justice is a very fine thing. But Wal-Mart's current tribulations are unlikely to change human nature. For who can resist a bargain?