One of the things that really interests me is that, as a sociologist, you talk about power -- power in the economy, the organization of the economy ... power to move things. Who [has] the power in the global economy today?

The question of who has power has actually shifted dramatically in the last 30, 40 years. It used to be that manufacturers -- big, multinational manufacturers -- had the most power, companies like General Motors and General Electric. Today, global retailers actually have become the most powerful companies in the global economy because they have the ability to shape global supply chains, global sourcing networks, and make decisions about where products are made around the world, at what price and how fast things have to be moved. And that kind of power is dramatically new, and we've just seen that emerging in the last 15 years or so.

... Do you see production shifts going on? And if so what's driving it? People talk about the Asian tigers, the Asian miracle reaching out to export to the world. I just wonder, what's your explanation? Who's driving change, if there is this big change in production?

It's absolutely correct to say that the center of gravity for global manufacturing has shifted south. It's shifted into what we think of as developing countries in Asia, Latin America, parts of Africa. What's been driving this process is the fact that companies that are selling products internationally are making decisions about what to buy based largely in terms of low cost. And low-cost producers have actually been moving out of the developed countries, like the United States or Western Europe or Japan, initially into the East Asian tigers.

The very first move was where Japan became a strong manufacturer back in the 1950s and 1960s. Japan was followed quickly by these East Asian tigers: Taiwan, South Korea, Hong Kong, Singapore. And in the 1970s and 1980s, people were focusing on those four economies.

But if you look at the 1990s, what do you see going on?

If we look in the 1990s, we see Asia becoming the epicenter of the global manufacturing system. We see manufacturing moving initially from Japan to these four tigers -- Taiwan, South Korea, Hong Kong, Singapore -- but very quickly then moving into Southeast Asia. And in the '90s, the big player has become China. Since the early 1990s, China has become the dominant factory of the world. China is the leading exporter in a wide range of manufacturing industries, and it's become the number one U.S. supplier for most products that we consume. So China has become the 800-pound gorilla of the global economy.

New, big countries are also becoming important. India is becoming a very, very important country, especially in the information technology field. So a lot of the white-collar jobs that are moving offshore, many of them have been moving to India.

But China and India aren't the whole story. China itself is being pushed to some degree by even lower-cost producers, like Bangladesh or Vietnam, where you can make certain goods more cheaply there. So where China is going, even though it's now the factory of the world, China wants to move from the low-cost, labor-intensive industries into higher-technology, higher value-added industries.

So China, in the next 10, 15 years, is going to become a major competitor to the developed countries, because it has a combination of a very large, multi-skilled labor market and a huge domestic market as well. So in a sense, China is rapidly becoming one of the most important economies in the world, not just as an export base, but also as a market itself.

Now, you're talking about China becoming the "factory of the world" by the 1990s. Why is this happening? Who's pushing that? Who's pulling that? Are the Chinese doing this, or is somebody else doing this?

There [are] several reasons why China has become the factory of the world. One is that the retailers that have been looking for the best places around the world to make high-volume, low-cost products identify China as a country that has a tremendously large labor force, highly motivated to work long hours. So on the production side, China has become the favorite location for many U.S. retailers.

That part of the China success story, however, is that the factories in China aren't being run by Chinese-owned companies per se, that you have a group of global middlemen. You have Hong Kong, Taiwanese and Korean companies that used to supply the U.S. retailers in the past who have now moved their production operations to China, and they actually manage about two-thirds of China's exports. So two-thirds of China's exports to the United States are run by foreign-owned companies.

I think China wants to change that, and they want to start to move towards more domestically owned firms and move these middlemen out. China's growth in the global economy has been a combination of retailers driving production, moving into China, but the production there being coordinated by Hong Kong, Taiwanese, Korean companies that know what U.S. buyers want and are able to find the factories in China that are able to deliver those products at the right price and quickly.

It sounds as though you're describing not a supplier-driven, but a buyer-driven global economy. ... Why has China become so important? Who's driving the process?

In the last 10 or 15 years, we have moved dramatically from a supplier-driven to a buyer-driven global economy. The key buyers are global retailers, on the one hand--

Like Wal-Mart?

Like Wal-Mart.

Target?

Like Target, JCPenney, Sears -- big department stores. That's one group of buyers. And another big group of global buyers are the global brands: Nike, Liz Claiborne, Disney -- companies that don't have stores, don't have factories, but they've got a brand, and they want to supply those products in the cheapest fashion.

Those two [types of] companies -- global retailers and global brands -- together with the manufacturers in the U.S. who have outsourced their production, those three groups of companies have together formed this buyer-driven model, and it's really turned economics on its head. We've moved from a supply-side view of the world economy to this buyer-driven model of the world economy, and it's put power in the hands of a very different set of firms than the ones we traditionally would think of in terms of who drives modern capitalism.

Well, how did the Wal-Marts of the world get this power? What gives them this power?

The reason Wal-Mart was able to get the power they have is the U.S. economy has gone through a major transition where jobs have been moved offshore for cost reasons. Once jobs have moved offshore, U.S. manufacturers no longer have an edge in terms of where things are made, and it really shifts power to the hands of the companies that are selling these products, that know what U.S. consumers want. So Wal-Mart and other companies like them have developed global sourcing networks that allow them to identify factories all around the world that can make what they need at a relatively low price and with all the other features or specifications that Wal-Mart wants.

So these global retailers have really become the companies that scan the globe for the best producers anywhere in the world. They've become disconnected from the production side.

So are you saying retailers like Wal-Mart are deciding where things are going to be produced; that it's Wal-Mart deciding it's going to be done in China, rather than India or Bangladesh?

Right. Retailers like Wal-Mart are deciding where production should take place around the world and how production should shift from one country to another. …

So where does Wal-Mart get this clout?

Wal-Mart gets its economic power because it is a gateway to the U.S. consumer. Wal-Mart is the largest retailer in the United States. It's the largest employer in the United States. The demand for Wal-Mart stores is what provides China and other countries in Asia with their access to the most powerful capitalist economy in the world. So Wal-Mart is providing a gateway into the American economy for overseas suppliers in China and elsewhere, and it's doing it on a scale that is unprecedented. No company has had the kind of economic power that Wal-Mart does, to be able to source products from around the world. ... Wal-Mart is able to transfer whole U.S. industries to overseas economies.

[Can you name a few of the industries?]

Well, for example, Wal-Mart is the number one supplier in the United States for clothing, for sporting goods, for groceries, for toys. So in a sense, Wal-Mart controls the fate of these U.S. industries in terms of where it's making its purchasing decisions. In the past, those products used to come from the United States. Today, those products come from overseas.

In 1995, 6 percent of Wal-Mart's total merchandise was imported. Today, in 2004, 60 percent of Wal-Mart's total merchandise is imported. That is a dramatic shift that is really taking jobs from the U.S. economy to overseas economies, and Wal-Mart, therefore, becomes the gatekeeper, in many ways, to the U.S. economy.

And this is concentrated demand, because it represents 100 million shoppers a week. It has that power. Is that what does it?

Right. Well, Wal-Mart is a big part of this buyer-driven model of the world economy that exists today, but it's so much bigger than all of the other retailers together that Wal-Mart is almost single-handedly shaping access to U.S. demand. It's really become the paragon company for the buyer-driven global economy. It's got the fate of many U.S. industries in its hands, and it's because Wal-Mart is able to make these concentrated decisions about where goods are going to be produced around the world. And if it wants to shift goods from different offshore locations, it can do it.

But at the beginning, Wal-Mart was one of the key forces that propelled global outsourcing, offshoring of U.S. jobs, precisely because it controls so much of the purchasing power of the U.S. economy. They say that 20 percent of total U.S. demand in the retail sector comes from Wal-Mart sales. So when Wal-Mart has that kind of concentrated clout within the U.S. economy, the decisions it makes about where it's going to go around the world don't just affect the U.S. economy, but they affect the fate of the countries that are exporting to the United States as well. Other countries really want Wal-Mart to be going to them, and so Wal-Mart is in a position to orchestrate what goes on in many different countries around the world, not just the U.S. economy.

So you're saying Wal-Mart has life-or-death decision power over many industries: bicycles, furniture, lawn mowers, microwaves -- not just clothing, apparel, toys and things we're used to seeing made overseas.

Right. Wal-Mart has life-or-death decision [power] over all the consumer goods industries that exist in the United States, because it is the number one supplier, retailer of most of our consumer goods -- goods like not just clothes, shoes, toys, but home appliances, electronic products, sporting goods, bicycles, groceries, food. Wal-Mart goes from high-tech products down to the most essential items we have in the United States, and it's in a commanding position in all of these different industries.

... There are a lot of people in this city, in Washington, who are blaming the Chinese, saying, "The Chinese are doing this; the Chinese are doing that."... In effect, you're saying when we're blaming the Chinese, we're blaming the wrong people. Is that it?

One of the big problems in the global outsourcing debate is that the United States is looking for external enemies. We're trying to blame countries like China or other big exporters to the United States for the import surge we're facing. In fact, the biggest drivers of U.S. imports are U.S. retailers. So we, ourselves, are to blame in some ways for the kind of offshoring of production. ... If we're asking, "Who's to blame for global outsourcing?," we shouldn't be looking at the countries that are exporting to the United States. We should be looking at U.S. firms that are going offshore and offsourcing products. And the biggest U.S. company that supplies goods offshore is Wal-Mart.

But they say, "Oh, we're just following consumer demand." Is that right? Are they just following consumer demand, or [are] they also shaping it? Do they have a power of decision? I mean, everybody sort of says: "It's the power of the market; it's the power of the consumers. All we're doing is responding. This process is inevitable." Is that right?

The Wal-Mart model is a double-edged sword. On the one hand, Wal-Mart is probably the most efficient company in the history of American business. It's pushed a low-cost, global sourcing model to the nth degree. It's created suppliers that produce goods cheaper than they ever could before.

The flip side of that model is that this has come at the cost of U.S. jobs that are actually moving offshore, and even Wal-Mart's own suppliers are concerned that by pushing costs down so low, companies can no longer be profitable. So in a sense, it's like we have two models in the world economy. We have the efficiency model, which is based on low cost and global sourcing, and Wal-Mart is the best company of its kind in promoting efficiency, low-cost sourcing. But we also have an innovation model based on higher wages, new products, good benefits for U.S. workers.

And those two models are in conflict to some degree. Wal-Mart has actually been producing global efficiency, but it's as though the efficiency model doesn't have a floor.

So a race to the bottom?

Wal-Mart is one of the major companies that's been promoting a global race to the bottom. It's like we're on a bus with an accelerator pedal with no brakes. We're going in this global sourcing, global efficiency direction, and it's pushing everybody's costs down to the floor, but suppliers are complaining about this model because they can't make profits. They can't pass higher costs on to Wal-Mart, because Wal-Mart is so big, it holds the fate of any one of its suppliers in its hand. And workers are concerned that, even if you work for Wal-Mart or you work for one of Wal-Mart's suppliers, this efficiency, low-cost model drives your wages to a point where you feel you can't even consume the goods that you're selling or the goods that you're making.

Wal-Mart is the biggest, most respected company in the United States, but it's very interesting to compare Wal-Mart with General Motors, which was the best known, largest, most respected company 50 years ago. I think these two models are radically different models. The Wal-Mart model is premised on global efficiency. The General Motors model was premised on having workers that could afford to buy the products that they made.

Are you suggesting here that Wal-Mart is pushing prices so low and pushing wages so low that it may, in fact, eventually bankrupt its own customers because they won't be making enough money to go shopping?

Wal-Mart is pushing wages down to a level where the people that work in Wal-Mart stores are going to be forced to buy in Wal-Mart stores, because they can't make enough money to buy goods elsewhere in the economy.

The traditional model of American capitalism from the mid-20th century was that American corporations were respected because they were globally efficient, but they also paid their workers a good wage so that workers could become consumers and part of the middle class of American society. I think we've lost that model today, because globalization has pushed Wal-Mart and companies like them towards global efficiency, where consumer prices are the only things that matter. ...

... One of the things you hear Wal-Mart executives, CEO Lee Scott, their CFO [Thomas M. Schoewe], telling Wall Street analysts -- and they don't say this to the broad public very often -- but what they say is global sourcing is improving their profit margins. ...

Right. Global sourcing has not only made Wal-Mart one of the most efficient companies in the world, but it's also made them one of the most profitable companies in the world. Five of the 10 richest Americans are part of the Walton family. That same prosperity, however, hasn't been passed on to Wal-Mart workers, or even to the suppliers that are selling Wal-Mart the goods that they use.

We've got a bifurcated model here. Wal-Mart is doing fine for Wall Street. It's one of the most profitable companies in America. But Wal-Mart is not doing fine for Main Street. Even though it's the largest retailer, competitors to Wal-Mart, other retailers that could afford to pay their workers higher wages [and] more benefits, are being driven out of business by the Wal-Mart phenomenon.

So how does Main Street suffer?

Main Street is suffering because every time Wal-Mart moves into a community, other, smaller retailers get pushed out, because Wal-Mart can undercut their prices 20, 30 percent. And Wal-Mart has deep pockets. Wal-Mart can stay there. Other retailers leave. ...

Is Wal-Mart good for America?

Wal-Mart is both good for America and bad for America. The good side of Wal-Mart is that no other company has been able to deliver the kind of low prices on a continual basis that Wal-Mart has delivered for the U.S. consumer. And it's done so across a wide range of goods.

Wal-Mart is bad for America because it's hurting jobs in the United States. It's hurting jobs in two ways. Wal-Mart is putting a lot of pressure on the jobs of its suppliers, who are finding that they can't meet Wal-Mart prices, so Wal-Mart goes offshore. Those suppliers go out of business.

Wal-Mart is also having a negative impact on employment in the retail sector. Wal-Mart is the largest employer in the United States after the federal government. But Wal-Mart is also very well known for being a non-union company and pushing non-union conditions on its workforce. ... It pays its workers at a minimum pay scale with very few fringe benefits. Because Wal-Mart's the largest private employer in the United States, whatever Wal-Mart does in terms of the labor market, all other businesses have to follow. So Wal-Mart is really determining the direction in which the U.S. labor market is moving.

... In 1994, the most admired company in America was Rubbermaid. In 2003, the most admired company, according to Fortune magazine, was Wal-Mart. If you go back and you talk to people about Rubbermaid, they talk about quality; they talk about value; they talk about innovation. Rubbermaid didn't always charge the lowest price, but it insisted its trash cans and its totes were a lot better, because they were resistant to the sun, and the paint stayed on better and so on and so forth. So they got a premium price. They were not trying to get the lowest price. Then Wal-Mart comes along, and it's, as you said, going for the lowest price, the lowest price, the lowest price. ... If you look at the shift from Rubbermaid as the most admired company in 1994 [to] Wal-Mart as the most admired company today, in terms of the larger American economy, what does that mean? What does that say about the touchstones of success?

Rubbermaid represents an innovation-oriented, high road towards U.S. competitiveness. Wal-Mart represents a cost-driven, low-price low road towards U.S. competitiveness. And in a sense, they're two dramatically different styles in which the U.S. economy can be organized. The Wal-Mart model -- the global sourcing, efficiency model -- is winning out over the innovation-oriented model to a large degree. And that becomes a real challenge for the U.S. workforce. ...

... Suppliers like Rubbermaid valued innovation. They valued good quality for American products, and they also valued skilled workforces. Wal-Mart, on the other hand, has really led a race to the bottom in the U.S. economy, where buyers have the motivation to cut costs and lower prices, but U.S. jobs, U.S. suppliers are irrelevant to that process. ...

When does Wal-Mart go to China, to Asia, to start buying significant amounts of products? And is it the leader, or is it following others?

In the mid-1980s, Wal-Mart pioneered its "Buy America" campaign. At that point, imports were only 6 percent of total Wal-Mart merchandise. In the 1990s, however, Wal-Mart really began to follow a set of other U.S. companies that were going to Asia on a global sourcing model.

By the mid-1990s already, Wal-Mart was the dominant U.S. company in Asia and the dominant U.S. company in global sourcing. And in particular, Wal-Mart has a very close relationship with China. China is the largest exporter to the U.S. economy in virtually all consumer goods categories. Wal-Mart is the largest retailer in the U.S. economy in virtually all consumer goods categories.

It sounds like a commercial marriage made in heaven.

Wal-Mart and China are a joint venture, and both are determined to dominate the U.S. economy as much as they can in a wide range of industries. To illustrate ... Wal-Mart is China's biggest customer in the United States. Last year, Wal-Mart imported $15 billion worth of goods from China.

Directly?

Directly.

How about indirectly?

Indirectly, it would have imported far more than that. But if Wal-Mart were a country, Wal-Mart would have a larger share of China's export than Germany and Great Britain. So Wal-Mart has an enormous hold also on the Chinese economy.

You've been to China. You've talked to the Wal-Mart people in China. What do they tell you? Just what are the basic facts about the numbers of suppliers that Wal-Mart has in China?

When I was in China, I interviewed people in Wal-Mart's global procurement center in Shenzhen and I asked them about the total number of Wal-Mart suppliers, and I was told that Wal-Mart has 6,000 global suppliers. Eighty percent of those suppliers are in China. ... Wal-Mart has suppliers across hundreds and thousands of product lines, but 80 percent of Wal-Mart's global suppliers are located in one country, China.

Were you staggered by that?

I think that's an extremely significant concentration of suppliers. ...

Just how big is Wal-Mart's trade with China, do you think, overall?

We have to look at Wal-Mart's trade with China in two ways: direct Wal-Mart imports from China and indirect imports. Wal-Mart's direct imports from China last year were $15 billion, [making] it the largest single purchaser of Chinese goods.

But Wal-Mart also sources indirectly from China, because many of the brands that are sold in Wal-Mart, like Hasbro and Mattel and [others in] the toy business, those companies also have China factories. So in a sense, Wal-Mart's share of Chinese goods is multiplied. It's got the products it imports directly and the products that it sells through other, branded manufacturers who themselves buy their goods from China.

So what do you guess Wal-Mart's real imports from China are if you put direct and indirect together, $30, $40, $50 billion?

If we put direct and indirect imports together, Wal-Mart could have -- if Wal-Mart's direct imports from China are $15 billion last year, I think its direct and indirect, its total imports from China could be two or three times that number. ...

It's a staggering number.

... You mentioned ... Wal-Mart's "Buy America" campaign, how prominent it was in the mid-'90s. At the time of that "Buy America" program of Sam Walton, was Wal-Mart also importing, or did the importing come along later?

Even at the height of Wal-Mart's "Buy America" campaign, it was purchasing a lot of goods from international sources, because it would be buying from U.S. importers. So "Buy America" meant, "I buy from a company located, headquartered in the United States." It didn't tell us where those companies purchased their goods from.

Wal-Mart's "Buy America" campaign was a bit disingenuous for the American public, because even if Wal-Mart had a low level of direct imports back in the early 1990s, indirectly Wal-Mart was buying from U.S. companies that were sourcing their goods overseas. ...

It's important to understand that even during Wal-Mart's "Buy America" campaign, it was importing directly from overseas sources at a fairly low level -- perhaps less than 10 percent -- but many of Wal-Mart's products were indirect imports from overseas, because the U.S. brands or ... the U.S. companies that Wal-Mart bought from were importing their goods from offshore locations.

So from the very beginning, even during the height of Wal-Mart's "Buy America" campaign, a lot more goods were coming from offshore sources ... than official, direct statistics would indicate.

Now, for the American retail world, which you've described as being enormously powerful, did Wal-Mart lead the way going to China, or did others lead the way and it followed and very rapidly became the biggest?

Wal-Mart didn't lead the way in going to China. The first U.S. retailers that went to Asia back in the 1960s, and especially the 1970s, were companies like Sears, Kmart, JCPenney. They were the early globalizers in the U.S. retail industry.

Wal-Mart came in in a big way in the late 1980s, 1990s, but by the middle of the 1990s, Wal-Mart was the leading U.S. company in terms of global sourcing, and especially doing business in China. So Wal-Mart was a follower, but a fast follower and an extremely large follower of early U.S. business ventures offshore.

... How do you account for Wal-Mart overtaking all these others? What is the secret of Wal-Mart's success? How do they build themselves into such a powerhouse in the mid- to late '90s?

Wal-Mart's growth in the mid- to late '90s is one of the great success stories in American business. They were more single-minded in terms of global cost cutting and internal efficiency than any other U.S. retailer. And that helps us understand how and why they were able to pass companies like Kmart and Sears that were the early leaders in U.S. retailing and offshore sourcing.

So Wal-Mart has really taken the global efficiency model, internalized it and perfected it to a degree that none of the other companies have. And I think Wal-Mart, as an efficiency machine, has just done better than any other U.S. retailer, or perhaps any other U.S. company in history. ...

[Can you talk about how technology contributed to Wal-Mart's success?]

One of the fascinating things about the Wal-Mart story is that we in the public think about the low prices, global cost cutting, but in fact there's a high-technology story which is behind all of this. Wal-Mart was one of the leaders in American business in terms of getting its suppliers to manage Wal-Mart's inventory and to use sophisticated vendor inventory, vendor management systems, so that suppliers knew what individual Wal-Mart stores were selling, and they had the responsibility of providing those goods to those stores. So Wal-Mart really was a pioneer in terms of the information-technology revolution and the global logistics revolution.

Behind Wal-Mart's success are enormously sophisticated computer models that tell suppliers the Wal-Mart pricing in stores, but that also are able to take goods from any global location and bring it to the United States in dramatically more efficient ways than companies could do in the past. ...

One of the secrets of Wal-Mart's success was that they took their technological sophistication from the U.S. market in terms of information technology and logistics and distribution-center management and took it global. And in particular, when they went to China, they had managed to marry the high-technology system in terms of transportation of goods and delivery of goods with low-cost production in Chinese factories. So Wal-Mart has married high tech and low tech in the U.S. retail revolution.

And even though others went to China before them, like Sears, like JCPenney, like Kmart, they were the first to take a highly technical, globalized supply chain to China. Is that it?

Other U.S. retailers have been doing business in Asia and China for a long time. I don't think any other retailer has been as good as Wal-Mart in making that China sourcing a high-tech business venture. ...

[Is] Wal-Mart telling its American suppliers to move their production to China?

Wal-Mart is telling its American suppliers that they have to meet lower price standards that Wal-Mart wants to impose. The implication of that in many cases is if you're going to be able to supply Wal-Mart at the prices Wal-Mart wants, you have to go to China or other offshore locations that would permit you to produce at lower cost. ...

And Wal-Mart's giving them that clear signal?

Wal-Mart's giving them the clear signal that you can't be a Wal-Mart supplier if you can't produce at substantially lower prices.

And the only way you can do that is go to China?

You can go to China, or, in many cases, many U.S. suppliers can't make that move, and they just go out of business, because Wal-Mart is the dominant company for many U.S. suppliers. If they can't go offshore, those suppliers end up going out of business.

So Wal-Mart wants to create a global supply base. If big U.S. suppliers can set up Chinese or other offshore operations, Wal-Mart will continue to do business with them. But many U.S. suppliers aren't big enough to do that, and this price push of Wal-Mart squeezes them either out of the market or looking for other customers and a different kind of business.

So it's either go to China or go out of business?

It's either go to China or go out of business in many cases, yes. ...

In terms of a retailer, have we ever seen anything like Wal-Mart before?

...Wal-Mart's size and the scope of products that Wal-Mart is selling to the U.S. consumer make it a unique phenomenon in U.S. retailing. It's probably the broadest and most powerful company in U.S. business history. Wal-Mart's power to shape overseas sourcing as well as U.S. sales far exceed[s] that of the largest U.S. manufacturers in the past -- whether it's oil companies like Exxon, automotive companies like General Motors or new diversified product companies like General Electric. Wal-Mart has a reach that none of these other companies had, both domestically and globally. ...