Tuesday, April 22, 2008

Sam Walton and the death of the American Dream.

When you hear the same message coming from several directions at once, you need to pay attention. Yesterday was one of those days, as I encountered the phrase "breaking America's social contract" throughout the day.

I can't even recall the first impression -- something I read on the web in the morning, I believe. The second was a clip on a mid-day financial news segment. The third was a news comment at the close of the day in relation to the shift of super delegates' support to Obama.

As the words reverberated in my head, and I thought of the macroeconomic forces at play, a very distinct memory came to mind. It was 1992 or '93, I think. I was working as Creative Director at the time, and one of my key clients was a manufacturer of small household appliances. They had made the move to aligning with Wal-Mart as their future. I remember the company CEO referring to it as a pact with the devil. I didn't give the comment all that much thought initially, but within a year, I could see and fully appreciate what he meant.

Until you've been on the inside of a manufacturer relationship with Wal-Mart, it's hard to comprehend the sheer force of leverage that Wal-Mart wielded. Describing this phenomenon could easily fill a book. The extreme short version is, if you wanted shelf space at Wal-Mart, you had to bring in the lowest price of any competitor. In an open warfare system, where any competitor can knock you off, Walton used this leverage to force manufacturers to drive out all cost. When no additional cost could be wrung out of a product at its current manufacturing location, off-shoring became the last answer. And Walton saw that as acceptable to meet his goals. So manufacturing went overseas, jobs went overseas, and Wal-Mart grew at the expense of the social contract upon which America was built.

But that was just a beginning. Because once this new model of big box retailing was proven, the concept of the Category Killer quickly stormed out of Bentonville and onto the beaches of office supplies, consumer electronics, autoparts, housewares, entertainment, you name it. The balance of power shifted. Retail went from service industry to gatekeeper, from merchant of goods to consumers, to merchant of consumer wallets to manufacturers. And if the only way to wring out that last half-penny per product was to shift manufacturing to Vietnam or China, so be it.

Just needed to get that out while I was thinking about it. The future will be different. But we must write a new social contract. And figure out how to honor it. Or we will not surive as a compassionate society.

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