Passage of the Day: Barone Compares Wal-Mart to General Motors (Who Do You Think Comes Out Better?)

I don’t think anyone can fairly accuse Mr. Barone of being a Reagan-Bush Republican hack. But the more sense he makes, as in this column, the more likely it is he’ll get the tag, especially as he is comparing liberal hate object Wal-Mart with unionized General Motors:

The Wal-Mart model

….. A quarter century ago, many economic commentators said that the era of low-inflation, high-job-creation economic growth was over. In the ensuing 25 years, it has come to be the norm.

The negative bias of economic coverage can be seen in stories about the current No. 1 private sector employer in America, Wal-Mart, and the No. 1 private sector employer back in the 1970s, General Motors. The GM story is genuinely grim: The company is laying off thousands of workers and closing plants, and is threatened with bankruptcy. Stories about Wal-Mart tend to focus on allegedly low wages and healthcare benefits, and say less about the company’s continual profitability and the low prices that benefit consumers. These companies are not entirely comparable — they’re in different businesses. But some of the differences between them illustrate why the American economy, which seemed to have run out of gas 25 years ago, is now doing so well.

One big difference is this: General Motors’ business model was designed for a static economy; Wal-Mart’s is for a dynamic economy. From the 1930s, GM — as one of only three major automakers — was able to pass along to consumers the high costs imposed by wages, pensions and health benefits negotiated with the United Auto Workers. When emerging foreign competition started to make life tougher for Detroit executives in the 1970s, they tried to insulate themselves with government tariffs and domestic-content requirements. More recently, they’ve tried to offload their high healthcare costs onto the government. Wal-Mart, in contrast, started off with many retail competitors and has sought more, by taking on supermarkets. It competes by holding down costs and prices for consumers.

Wal-Mart has been much more skilled at adapting to market conditions. Its computers keep it instantly apprised of sales, and its distribution system keeps stores stocked with items consumers want. Someone making a 3-ton car cannot adapt so quickly, but even so it still takes GM years to get new models on the market — and often they’re not what consumers turn out to want.

Then there are employment costs. Yes, Wal-Mart does not pay high wages or provide healthcare benefits to all employees. But not all workers today want full-time jobs (they may want to be home when kids return from school) or health insurance (many are covered by a spouse’s policy or Medicare). And Wal-Mart promotes from within: You can work your way up from the store floor to management ranks. GM and the UAW, in contrast, insist on a sharp line between labor and management, with all employees working full-time and getting full benefits. That made sense when almost all workers were men supporting families. But it is a poor fit with a labor market in which many workers are women, teenagers or retirees seeking extra income.

In retrospect, it’s not so surprising that 25 years ago, when GM was deemed the prototypical firm, experts were pessimistic about the American economy. They failed to foresee that more nimble firms like Wal-Mart would rise and supply the amazing resilience that has enabled the American economy to thrive, as (Alan) Greenspan has observed, even when hit by calamities like Sept. 11 and Katrina.

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Previous relevant auto-industry posts:

• Dec. 7 — AM Coffee Biz-Econ Links (3rd Item: “As If Needed: Two More Reasons to Oppose Any Kind of GM-Ford Adjustment Assistance Bailout”)
• Oct. 22 — This Weekend’s Unanswered Questions (Third Item–”Guess Who’s Paying?“)
• Oct. 15 — Excerpt of the Day: Barone on the Domestic Auto Industry
• June 21 — Biz Links of the Day (2nd Item: “The Big Two respond very differently to difficult times”)
• Apr. 26 — General Motors on the Ropes (Maybe Ford, Too)