What are the characteristics of the Wal-Mart business model?

Well, it's a retail operation which is more than retail. ... Really I think we should call Wal-Mart a kind of combination manufacturing and retail global corporation.

Wal-Mart has been successful in integrating back up the supply chain as it is to make sure that there's a kind of close, almost daily, even hourly, connection between what's being produced, even if it's as far away as China, and where it's being sold, even if it's in Peoria [Ill.]. There's, of course, a time difference between when it's produced and when it's sold, but in fact, they've made that integration very carefully, and they've done that with technology. They've done that with the new capacity of a computerized tracking system to make sure they connect with what's being produced, how much is being sold. That's one key element of the model.

The other, of course, is that beginning in Arkansas, beginning in the Ozarks, Wal-Mart came from a region of the country where a kind of low-wage, low-benefit, almost rural American world was the standard, was the norm. And they've been ... very successful in taking that to much of the rest of America, and now into urban America.

You could look back almost to the era when rural folk came off the farms, went to the textile mills of the Carolinas and Alabama and Mississippi, places like that. Well, Wal-Mart isn't operating textile mills, but they're operating large stores in rural areas, and they're getting much of their labor supply from underemployed rural people who see a job, even a minimum-wage [job], as a kind of step up from rural poverty. That's where they began, and I think they may well be running into some trouble in transposing that model to urban America, in California or Chicago or someplace like that.

When does Wal-Mart sort of appear on the horizon for economic historians of the last half-century? ...

Well, Wal-Mart, like any great successful firm, takes the best technology, the best organizational techniques from its competitors and from its forebears and puts them all together. We've had shopping centers, we've had chain stores, we've had big-box stores, in fact, since the 1950s, and chain stores since way before that. What Wal-Mart did was to take some elements from JCPenney, elements from Sears, elements from various other successful mass merchandisers, put them together, begin in the rural South, and expand -- someone called it expanding like molasses; that is, not leapfrogging to urban areas but expanding regionally, one region after another, saturating those areas to get economies of scale to become very efficient, and along the way ... adopting and adapting from other competitors important aspects of the business, including the telecommunications infrastructure which is so important now in coordinating supply, manufacturing and what's [ultimately] going to the consumer. So it really is a phenomenon.

The other thing that's important, by the way, about Wal-Mart ... is based upon what I would call the postwar New Deal state; that is, when you're building highways in the South [and] putting in military bases, you're sort of creating a more fluent population in rural America. When you're creating the capacity of driving 75 miles to shop, this makes the possibility for a Wal-Mart to be there in these rural areas.

And of course other competitors and just people in America were absolutely caught by surprise by the rise of Wal-Mart, because it didn't move to the big urban areas where you have high visibility, to L.A. or New York. It started in these rural, small towns. But of course, small-town America has been transformed in the last 30, 40 years. It's not really small-town America: It's not isolated; it's not parochial. It's connected by everything from TV to highways to the computer to metropolitan [areas] to the world. So Wal-Mart has been very successful in adapting itself to this sort of modern infrastructure we have.

And when do you see the quantum jump? I was amazed at the annual meeting that we attended to find out that Wal-Mart's gross sales in 1984 -- just 20 years ago -- were $4.7 billion, and today we're talking $250 billion and upwards. That's a staggering jump in 20 years. ... When does Wal-Mart become a really big phenomenon, and what puts Wal-Mart on the map?

Well, the '70s and the '80s are the kind of exponential growth, early '90s as well, and [Wal-Mart's] growth is coterminous with the rise of the Sunbelt. [Historians] talk about the Sunbelt. ... The insight of ... [founder Sam] Walton himself or other executives was to see that what we once thought about America, that there was a kind of metropolitan center and a rural periphery, that's no longer the case. Modern America doesn't have that tremendous difference. The incomes, in fact, in Mississippi have been rising vis-à-vis those of Illinois. And within states, rural incomes have certainly been rising vis-à-vis urban [incomes].

So Wal-Mart understood that. They went where the customers were, and there was a kind of vast demand for cheap goods, inexpensive goods, and those were possible because of the global nature of manufacturing. ...

What is it that transforms Wal-Mart from a really good-sized regional merchandiser into a national and then a global economic power?

Wal-Mart is successful in the '80s and '90s in really becoming a mega-corporation, a template firm; that is, a kind of firm that sets the standard for many other firms. ...

On the one hand, technology has exploded, and it adopts this new, very efficient infrastructure which means that China, Arkansas, New York -- there's no difference in terms of real time and communications and ordering things. That's one thing.

Second, it takes advantage of the move to the Sunbelt and the population dispersal. And third -- and Sam Walton always said this -- he said: "I pay low wages. I can take advantage of that. We're going to be successful, but the basis is a very low-wage, low-benefit model of employment." And well, their competitors -- whether they're the Sears or even Woolworth's or even Kmarts of this world, and Costco certainly -- those firms ... had a sense that they couldn't really get away with a minimum-wage workforce, which had a 50 or 75 percent turnover. That was thought to be inefficient.

But Wal-Mart, I think, showed that they could do that. And partly you can have a workforce which rapidly turns over if you have the technology there, which means you can just slot one person into the job with no training and no sort of background. And that's what's happened. Wal-Mart has to hire something on the order of half a million workers every year just to maintain its current workforce. And they understood that. And that's been true, not just at Wal-Mart, of course, [but in] the whole fast-food world, the whole world of contingent workers. I mean, this is sort of a new American model for labor, for workforce, and Wal-Mart has been right there at the forefront of that, partly forging the way, partly being a vanguard firm, but partly just taking advantage of that.

You used the word "template." In what sense is Wal-Mart a template? ...

As an historian, I began to think about when it was that large firms were not just large but were influential, that they were the kind of the model ... that would set the standard. In the 19th century it was the Pennsylvania Railroad, which called itself "the standard of the world." Early 20th century, it might have been U.S. Steel; ... General Motors, of course, in the mid-20th century. ...

But clearly Wal-Mart, the largest and, according to Fortune, the most emulated and respected firm in the nation today, is setting a new standard that other firms have to follow if they hope to compete. And more than just other firms, it's setting standards for the nation as a whole. It's almost legislating social policy, not in terms of votes and lobbying, but when it does something, it's so large, it's so influential, others follow it. ....

We can see that right now in terms of Wal-Mart's employment policy, which is the de facto employment policy of vast ranges of people in America ... who don't work for the firm, but their employer sets their wage standards, their benefits standards according to the standard that Wal-Mart has put in place. ...

And that was true, for example, with General Motors in the mid-1950s and decades around that when the idea of a high-wage, difficult job -- the one with the lifetime employment, [where] you expected a pension, you expected perhaps health care later on -- became the model. And so non-union firms, competitors like IBM or Ford or Chrysler, they emulated General Motors. That was viewed as the model that we should [follow]. ...

And so if Wal-Mart is the model now ... what's the direction?

Well, the Wal-Mart model today is basically low-wage, low-benefit, rapid turnover: the idea that people are not attached to the job in any kind of permanent fashion. I think the turnover costs Wal-Mart a lot of money to train, even minimally, new people, but the advantage is [that] people don't feel they have a stake in the firm, and therefore can't have a claim on the firm.

Even though there's all this hoopla and enthusiasm of some Wal-Mart employees, when you look at all 1.2 million, you find, in fact, that the rapid turnover means people view this as an almost temporary job. And all the Wal-Mart advertising you see, in fact, is designed to counter that. It's a model for employment, which is sort of taking McDonald's and the hamburger-flipping [model] and bringing that right into the center of what we think of as lower middle class or the working class.

So Wal-Mart establishes that; then all its competitors do. And we have a vast [stratum] of the American working population who basically [have] the kind of jobs that are inferior and don't provide the basis ... [to] live a middle-class, or solid working-class, life.

Raise a family, buy a home, educate your kids.

That's right, that's right. And one of the things we find, for example, in the United States today is you have to work a lot. When you have low-wage jobs, you have to work a lot. ... When Wal-Mart offers jobs that it calls full-time work, which is something like 28 to 35 hours a week, what that means is that many people can't get along with that; they have to have a second job. And it means at various times of the year, Christmas or rush seasons, they're working enormous amounts.

Now, that is a way of eroding what we had thought of as sort of the standard of living of Americans which had been achieved in the mid-20th century and afterwards. People forget what life was like in another moment, and they see that as normal, and I think it's been normalized. The idea of two jobs, of temporary employment, of a very weak relationship to the employer -- that is, you may get fired at any moment or just quit -- that becomes the norm, and there are lots of social pathologies which are generated by that.

... I want you to put side by side the GM model [and] the Wal-Mart model. ... So we're looking at two great templates of American capitalism, one in the second half of the 20th century, the other in the beginning of the 21st century, all right? Just describe [to] me these two models. ...

Well, General Motors was the largest firm in the United States -- in fact, it actually produced a somewhat larger proportion of the entire gross national product than does Wal-Mart today, about 3 percent at its heyday in the 1950s and '60s. When you had a job at General Motors, it was a lifetime job, it was a high-wage job, and there were often many, many benefits attached to it. This was not because General Motors managers were beneficent, charitable figures. They were not. But it was because there would have been a trade union there and also because the norm for industrial work, really since the early 20th century, had been full-time, male employment -- granted, male employment.

Wal-Mart has been developing a different kind of model -- low wages, maybe a dollar or two above the minimum wage; relatively temporary employment; lots of turnover; very low benefits in terms of what we think of as health and retirement; and a kind of very low-skill [work] that Wal-Mart has been pioneering to take [out] any kind of skill and responsibility and transferring it to this vast telecommunications and computerized world of management. And they've been successful in doing that. So we have these two different models.

It seems almost a reversal of the other.

Yes, I think so. I think it is. ... Unlike General Motors, Wal-Mart does not hesitate to hire new employees. And the projections are you'll have 2 million employees at some time in the next decade or two. So it doesn't hesitate to do that, but it can do that because it never pays overtime -- that's a complete no-no at Wal-Mart -- and because the wages and the benefits are so low.

General Motors, because people were working 40 or even 45 hours a week, it hesitated, and eventually, by the '50s and '60s, it would never hire new employees, didn't want to do that, because they got overtime; they got union benefits; they had this sense of a stake in the firm.

Talk about Wal-Mart and globalization, because part of Wal-Mart's success, certainly in the last decade and particularly in the last six or seven years, has been very closely tied to something that is certainly contrary to what Sam Walton began with. Sam Walton was a big believer in "Buy American." You've got people at Wal-Mart who can tell you stories about the factory down in Birmingham [Ala.] he revived because the guy went out of business, and Walton said, "If you'll produce all your shirts for us for three years, we'll help stake you," and there are stories like that. And now we're talking about Wal-Mart with $15 billion of imports from China just in one year, and maybe leasing entire container ships with 3,000 30-ton containers on it. What is the transformation here that you see with Wal-Mart, again, as a template, as a model?

The market both for the goods it buys and increasingly for the labor that it employs is now not a continental U.S. market, which was the case in the earlier part of the 20th century, but it's a world market. And in fact, the borders between the U.S. and Mexico or the U.S. and China, these have sort of disintegrated with the free-trade agreements we have, and so it's now completely open, both buying goods and, increasingly, getting labor.

If you look at the Wal-Mart workforce, much of it is immigrant labor. This means that the wage standards and the production standards of China are in effect being imported into the United States, and since it's one single market, this makes it very difficult -- even if you have a minimum-wage law, even if you have a law on product quality or health or air quality, it makes it very, very difficult to enforce those laws when the market itself is international, is global.

And we now really do have that. And firms like Wal-Mart are pioneers in that. Obviously, the "Buy America" idea of 20 years ago was a temporary, empty phenomenon. It was just a marketing ploy for a while, I think, based on a kind of jingoistic view. Chevrolet once had a slogan: "Buy a Chevrolet, see the USA America is the greatest land of all." That was a slogan in the '50s and '60s. Well, [with] Wal-Mart, we're beyond that now, and everyone recognizes these are international institutions in which the entire world is their oyster.

There are people that will say point-blank: "In Wal-Mart we're simply seeing globalization. This is inevitable. This is the law of comparative advantage, that ... we'll seek the lowest possible cost, and if wages are the determinant, they'll go to a low-wage area. If transportation costs become horrendous, then they won't go there; they'll have to stay closer to home." What's your response to [the idea that] this is kind of the inevitable dynamics of globalization?

Well, global markets are not just natural things; they are created politically, legally, ideologically. And at various moments in the history of the United States, we've shaped the market and we've structured it in such a way that you can't have slavery, or you have to have certain wage, and standards apply to all the states in the nation, not just some. And so for markets to function, it isn't just a state of nature; they have to be shaped politically, and that's what's happened. ...

So you're saying we have a choice. ... We're creating the rules.

Well, right. The United States and other major countries are creating the rules that corporations both help to shape, of course -- they have a stake in certain rules -- but also, ultimately, follow. And I think the power of the government and governments throughout the world still is, in fact, greater than that of these global corporations. They have to exercise those powers, and that's a question of politics.

We heard in the 1990s that if we made trade agreements with China and brought China into the World Trade Organization that we were going to be able to market American goods to a billion-plus Chinese; that this was going to be a tremendous bonanza for American industry. … What happened to the idea [that] we were going to sell a lot of American goods to the Chinese?

Well, that idea, of course, has been around for more than 100 years, since the middle of the 19th century. Everyone wanted to sell a pair of shoes to 500 million Chinese people. The problem is, of course, the Chinese are poor. The standard of living there is still very, very low despite this tremendous boom that's taking place on coastal China. It's still a poor country. And one thing we know is the greatest market for American industry is Americans, is in the United States, and when you raise the standard of living here, then you get just an explosion of demand. ...

So did we miscalculate in our policy? ...

Well, certainly we miscalculated insofar as we did not add to the idea of open-trade criteria, which would enable trade to take place in a fairer and I would actually even say a slower fashion, because what you need to do is equalize and make complementary these two societies that are trading with each other. If they're radically different, then you're going to get radical kinds of things that are wrong with that trading relationship. ...

If they're radically different societies, you're going to get tremendous job loss in the United States, and you're going to get tremendous pressure for immigration from the other society, and that's what we've had.

Immigration or import?

Immigration of people who want to come to the U.S., because the wages are still very, very low in China. And you're going to get a wave of imports, which is going to overwhelm American manufacturing, certainly at the bottom, low end of that. ...

And when we see Wal-Mart and the huge imports it's bringing in from China, we're kind of looking at Wal-Mart, and they're the bogeyman. But are they really the bogeyman, or are they the actors for something that went awry partly because of them but partly because policy wasn't well conceived?

Well, yeah. Wal-Mart alone cannot transform global economics, but it takes advantage of this world that is very advantageous to American retail giants most effectively. I think in the '90s and before that, in opening up China without any restrictions in terms of labor or environmental standards, it made it possible to get a radically inequitable relationship, which is certainly hurting a lot of American ordinary people and whose benefits go to a relatively few in China.

You talk, and other economists and historians talk, about moving from one economic era to another. Schumpeter used the phrase "creative destruction." Tell me about that. ...

Well, Joseph Schumpeter, who was an Austrian economist, famous, used the phrase "creative destruction." What he meant was that one mode of production, one form of capitalist economics comes to the fore, [and] it's more efficient; it's more powerful; it destroys, literally, other forms of production, other firms. And that's what Wal-Mart has done. It has discovered with this low-wage model, technologically efficient, its global reach is a sort of new model of world capitalism really, beginning in America and [reaching] the rest of the world. And it is destroying -- creatively, but nevertheless destroying -- competitors and really other ways of thinking about the way the world works.

Is it destroying suppliers? ... Is part of the destruction the American manufacturing [industry]?

Well, Wal-Mart's potency is that it brings the standards of manufacturing in China, and it puts them in the United States and measures American manufacturers against them, and if they don't measure up, then it says, "Do it, or we're going to China," and so they go to China. And that's a tremendously new thing, because before this, manufacturers in one company, one country would compete, and they would have tariff barriers and whatnot against another. But here it's going across the entire globe, finding the cheapest manufacturer, and then using that as a standard that it measures all of its other suppliers [against].

And the power of Wal-Mart is such, it's reversed a 100-year history in which the manufacturer was powerful and the retailer was sort of the vassal. It's changed that. It turned that around entirely. Now the retailer, the mass global retailer, that's the center, that's ... the power, and the manufacturer becomes the serf, the vassal, the underling who has to do the bidding of the retailer. That's a new thing. ...

... When you say Wal-Mart's got the power in this paradigm shift, what's the dialogue, then, between Wal-Mart and its suppliers?

Because Wal-Mart is now a global corporation, and it has something [like], I don't know, 20 million Americans [who] shop there every day, it means that the suppliers now have to do its bidding. It can tell them what it wants; it can continually whittle away at the costs. It really, de facto, makes the suppliers part of Wal-Mart. Even though they're ostensibly independent companies, the [management] control that a supplier has becomes less and less and less. That's why I think Wal-Mart is not simply a retail firm; it's actually a combination retail and manufacturing firm because, de facto, they've been merged together. ...

What is it that vaults Wal-Mart from being a big, regional, powerful, muscular, multibillion-dollar company into being the giant leading retailer? What does that?

Well, I think Wal-Mart becomes the biggest company in the world, the model retailer in the world, [by taking] technological innovations, which it is best at implementing. ... It brings it all to Bentonville [Ark., Wal-Mart's headquarters]. That enables it to make its supplier firms, I call them vassals to Wal-Mart.

And secondly, it is, in fact, ruthless in terms of labor costs. That cannot be underestimated. It is ruthless there, and it takes advantage of the new social landscape of America in the period after the 1970s, the period [when] we have deindustrialization of the North and higher levels of unemployment. ... It's a business advantage to have a high level of unemployment and a vast pool of underpaid workers.

And that's the picture in China?

That's in the United States. In the United States, real wages and minimum levels of unemployment have then gone up since the 1970s. ... That's just become the norm, and Wal-Mart takes advantage of that. It shapes its entire institutional model around the capacity to do that. And therefore, it can hire tremendous numbers of people at these lower wages and ... consider it full-time work at 28 to 35 hours a week. That's something that could not be done in the 1950s. …

You've talked about General Motors as a driving [force] through the '50s, '60s, '70s, which essentially was lifting the living standard of the American middle class. And you've described Wal-Mart as driving a dynamic process which is lowering the living standard of the American middle class. Is this inevitable? Is there any way to reverse this? ... You said early on something very interesting: "Markets don't just happen; they're created, they're shaped." Bring us up to the moment. Here we are in a market -- can we shape it?

Well, markets are shaped by politics. They are not natural institutions. And we can, as a nation, tell Wal-Mart, "Legislate in such a way that Wal-Mart has to adhere to certain standards," whether it's the production of the goods in China, whether it's the character of the transportation or how it treats its workers. ...

Right now, Wal-Mart has zero members of the trade union in its employ. Whether or not that will change is difficult to say, but certainly you can create conditions under which wages and benefits and the entire lifestyle of Wal-Mart workers is improved dramatically. That will reshape the corporation, because once you have permanent employees at Wal-Mart, they will have a claim on the corporation, and the corporation will have to, in turn, deal with that claim if it expects to have efficient and loyal workers.

Let me ask you whether or not you buy the Wal-Mart argument and the analysis of some economists that Wal-Mart, in fact, is effectively holding down the American cost of living and the rate of inflation.

I think Wal-Mart is, in fact, playing a role in reducing the rate of inflation ... because it's able to so effectively import inexpensive goods from abroad and have them manufactured here in the United States. And because it has a very low-cost system of distribution, economists estimate that upwards of 20, even 25 percent of the reduction in the level of inflation [in the '90s], Wal-Mart is responsible for that.

Is that good?

Yes, I think that is. And it does, of course, have an impact all across the society. Lots of people benefit from that. And that's a good thing. It's not the only good thing.

But you're also arguing if Wal-Mart lowers the cost of living, then you're saying it also lowers the standard of living?

Well, the two go together. ... [There] is the general wage level and also what many people call the social wage; that is, the nature of communities, the public education, health benefits, etc. If [the social wage] is ratcheted down, it's going to have a demoralizing and degrading effect on millions and millions of Americans, those who work for Wal-Mart and those who don't. And we can see that in the United States today. …

... You seem nostalgic for an era gone by, and as you yourself said quoting Schumpeter, "Capitalism, time marches on." How do you respond to that? I mean, we can't get back to that earlier period.

I don't want to be nostalgic for an era in which, 50 or 60 years ago, I don't think things were simpler or better or more innocent then. And of course capitalism is always revolutionizing itself, but capitalism is, in fact, a political phenomenon. Markets are structured. The rules by which capitalists play are political. You could not have markets or you could not have a capital formation without laws which establish the nature and the character of property and what employers can do with their employees. This is all a product of the American political system and other systems which are like it.

What I think is the road forward here is we want to take the efficiencies that have been generated by Wal-Mart -- and they are real efficiencies -- and we want to shape them and control them and regulate them in such a way that the benefits of these are distributed widely throughout the society, within the firm between its managers and its employees, and then in the rest of the United States as well.

But Wal-Mart makes the point -- and it seems to me you agree with them in some of your analysis -- that if they go raise their wages and they get a more permanent workforce, they aren't going to be able to offer the same low prices that they could offer at the present time. So you're talking about if you change the Wal-Mart model, then some of the goodies you get from the Wal-Mart model at least are going to be diminished, if not disappear.

One of the things we've learned in the 20th century, since Henry Ford doubled factory wages with the $5 day, is that America is a high-wage economy. That is what you can find every president and every executive lauding over the last 100 years. It's a high-wage economy. High wages mean high consumption. That's a beneficial, virtuous circle which we want to continue and make work.

That may be what they're saying rhetorically, but [you are saying] that's not what they're doing.

Well, it's not to be done by managers, by capitalists, by executives by themselves. That requires a push, a pressure, sometimes a strike, sometimes all sorts of manifestations to make that happen. Capitalists don't always know what's best for them.

Can we replace the high-wage manufacturing economy with a high-wage, high-cost service economy?

I think we can replace the high-wage manufacturing economy with a high-wage service economy. It's already taken place in some places. Health care, for example: We have a lot of well-paid health care professionals in this country. And people come to America to have their operations and all sorts of things. It's one of the great things about American modern life.

We can do the same thing with the minimum-wage cashiers that we find in the millions in all of the big-box stores. These people can have a higher standard of living. Yes, it would reduce some of the profitability of some of these firms, but the result would be an explosion of consumer demand in the American economy itself.

You've sort of taken Wal-Mart to task for not offering what you would call decent full-time jobs that would sustain a middle-class living standard. Raise that question with Wal-Mart, and Wal-Mart comes back and says to you: "Look, we're not out to do that. ... We're not trying to create the same kind of jobs General Motors was creating."

Well, my response to that, to the idea that the typical entry-level Wal-Mart job is in fact a sort of a training job or not designed to be a good job, is that if you look at the course of American history, you can see lots of examples of jobs, of conditions for people that were just rotten. ...

[But] jobs can be transformed. That's the nature of politics. That's the nature of social policy, whether it's a simple thing like raising minimum wage or whether it's a much more complex thing [like] restructuring the nature of work, substituting technology for low-wage work and then reskilling and having higher wage work. This is what most of American domestic politics is all about. That's why we fight these things in a Congress and why we have elections.

And Wal-Mart is subject to that as well, and I think that that's part of what we're fighting about in the United States today: What is going to be the future of millions and millions of people who work in this new global retail industry? …

So what you're saying is that if we as a society emulate our template, Wal-Mart, that in the end it's going to be very, very painful?

I think it will [be], because this kind of transfer of wealth, this kind of a stagnation in American living standards cannot continue indefinitely. ... You'll end up with an economy which, although it is technologically innovative, and new products [are] coming out ... what's really happening is a kind of stagnation. ... And whether that ends up as a political crisis or social crisis, I don't know, but that, in fact, will be the result of this kind of imbalance.