Saturday, June 2, 2007


Forget the World Bank, Try Wal-Mart
By Michael Strong

Between 1990 and 2002 more than 174 million people escaped poverty in China, about 1.2 million per month.[1] With an estimated $23 billion in Chinese exports in 2005 (out of a total of $713 billion in manufacturing exports),[2] Wal-Mart might well be single-handedly responsible for bringing about 38,000 people out of poverty in China each month, about 460,000 per year.

There are estimates that 70 percent of Wal-Mart's products are made in China.[3] One writer vividly suggests that "One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market." [4] Even without considering the $263 billion in consumer savings that Wal-Mart provides for low-income Americans, or the millions lifted out of poverty by Wal-Mart in other developing nations, it is unlikely that there is any single organization on the planet that alleviates poverty so effectively for so many people.[5] Moreover, insofar as China's rapid manufacturing growth has been associated with a decline in its status as a global arms dealer, Wal-Mart has also done more than its share in contributing to global peace.[6]

How can this be, given the vast and growing literature documenting Wal-Mart's faults? We have seen workers in the factories of Wal-Mart's suppliers complain on tape about being forced to work long hours under terrible conditions. Certainly no one should be forced at any workplace. And yet even articles documenting Wal-Mart's faults often mention other facts that ought to be considered before coming to too quick a judgment concerning the overall impact of the corporation. In a Washington Post story titled "Chinese Workers Pay for Wal-Mart's Low Prices," documenting abuses of workers at Wal-Mart suppliers in China, the authors point out that:

"China is the most populous country, with 1.3 billion people, most still poor enough to willingly move hundreds of miles from home for jobs that would be shunned by anyone with better prospects."

If we care about alleviating global poverty we need to take this fact seriously. Without Wal-Mart, about half a million of these people each year would be stuck in rural poverty that is, for most of them, far worse than sweatshop labor.

D. Gale Johnson, an economist who studied regional inequality within China, described the enormous disparity between urban and rural workers as "the great injustice."[7] Urban workers earn about 2.5 times as much as rural workers.[8] Even after counting the higher cost of living in urban areas, urban workers make about twice as much.[9] Not surprisingly, massive numbers of people are moving to the city to work in factories. In 1990, 71 percent of China's labor force was in agriculture, whereas by 2000 that percentage had dropped to 63 percent: this great migration represents roughly 100 million people leaving rural areas to earn, on average, twice as much as they had on the farm.[10]

Other than economic growth, there is no way to double the salaries of a 100 million people (and growing). After the 2004 Asian Tsunami, more than one-third of Americans gave more than $400 million in charitable aid, an extraordinary outburst of giving by any standard. And yet there are more than 630 million rural Chinese remaining, many of whom are living on less than a dollar per day. While each would welcome a charitable dollar if we could get it to them, that charitable dollar, representing one good day's worth of income, would not do them nearly as much good as would a job in the city paying twice as much day in, day out. Charity cannot take place on an adequate scale to solve global poverty.

Despite Jeff Sachs' enthusiasm for foreign aid, Bill Easterly makes a compelling case that government-to-government aid damages economies as often as it helps them.[11] Does anyone think the World Bank raises more people out of poverty than does Wal-Mart?

What about social entrepreneurship? Ashoka, the highly regarded social entrepreneurship organization certified as among the "Best in America" charities, highlights among its hundreds of projects a worker's cooperative in Brazil that is growing rapidly:

Each member contracts individually with Coopa-Roca, but the collective meets weekly. Membership in the cooperative grew from eight members in 1982 to 16 in 2000, and has surged to 70 steady members today.[12]

Is it heroic to raise one person up out of poverty each month, but merely a statistic to raise a million up?[13]

Grameen Bank, the granddaddy of the social entrepreneurship movement, has now served 5 million borrowers. Over a period of twenty-five years, their five million served is thus of the same order of magnitude as the five million or so brought out of poverty by Wal-Mart in the last fifteen years. Micro-finance has become a hit with global development experts because it is the only poverty alleviation initiative, other than economic growth, that appears to be scalable.

That said; there is a thatched-ceiling to poverty alleviation through micro-finance.[14] It may well be the case that the vast majority of Grameen Bank micro-entrepreneurs experience considerably greater pride and happiness in their work than do the factory workers hired by Wal-Mart suppliers. But most of these micro-entrepreneurs, who borrow less than $100 each and then repay the loan, do not experience as large an increase in standard of living as do those rural Chinese who move to urban areas and thereby earn an extra $1 or so per day, $365 or so dollars per year. Poor, rural micro-entrepreneurs selling eggs to other poor rural peasants simply do not have access to the vast pipeline of wealth from the developed world.

Moreover, most of the sweatshops workers in Japan in the 1950s and 60s, as well as the most of the sweatshop workers in Taiwan and South Korea in the 1970s and 80s, are now middle class retirees in developed nations. Likewise most of the "underpaid" Chinese workers of today will retire in a state of comfort and luxury unimaginable to them in their rural youth, as average Chinese wages will gradually rise just as they have risen in every other nation that has experienced long-term economic growth. At present rates of economic growth, China will reach a U.S. standard of living in 2031.

Paul Krugman, one of the most aggressively left-liberal economists writing today, understands how economic growth helps the poor:

"These improvements ... [are] the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better."[15]

The Nobel laureate economist Robert Lucas once said "Once you start thinking about economic growth, it is hard to think about anything else." Non-economists, especially those associated with the environmental movement, regard this as evidence that economics is a form of brain damage, a cancer on our earth. But rural Chinese peasants surviving on less than a dollar per day do not regard economic growth, or Wal-Mart factory jobs, as a cancer. When a Mongolian student at a U.S. workshop on globalization heard U.S. college students denounce sweatshops, he shouted: "Please give us your sweatshops!

An unreflective passion for social justice may be one of the biggest obstacles to creating peace and prosperity in the 21st century. While there are most certainly factory owners in China whom we would rightly regard as criminal in their treatment of their workers, it is very important not to confuse these incidents with the phenomenon of globalization. It is a good thing that Wal-Mart is encouraging more humane standards in its supplier's factories. And yet it is also important to remember that Wal-Mart's "vast pipeline that gives non-U.S. companies direct access to the American market" is a vast pipeline of prosperity for the hundreds of millions of rural Chinese whose lives are more difficult than we can imagine.

Act locally, think globally: Shop Wal-Mart.

Michael Strong is CEO and co-founder (with John Mackey) of FLOW.

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