What Wal-Mart Could Learn From Henry Ford

This post first appeared on Robert Reich’s blog.

Wal-Mart just reported shrinking sales for a third straight quarter. What’s going on? Explained William S. Simon, the CEO of Wal-Mart, referring to the company’s customers, “their income is going down while food costs are not. Gas and energy prices, while they’re abating, I think they’re still eating up a big piece of the customer’s budget.”

Wal-Mart’s CEO gets it. Most of Walmart’s customers are still in the Great Recession, grappling with stagnant or declining pay. So, naturally, Wal-Mart’s sales are dropping.

But what Wal-Mart’s CEO doesn’t get is that a large portion of Walmart’s customers are lower-wage workers who are working at places like … Walmart. And Walmart, not incidentally, refuses to raise its median wage (including its army of part-timers) of $8.80 an hour.

Wal-Mart isn’t your average mom-and-pop operation. It’s the largest employer in America. As such, it’s the trendsetter for millions of other employers of low-wage workers. As long as Walmart keeps its wages at or near the bottom, other low-wage employers keep wages there, too. All they need do is offer $8.85 an hour to have their pick.

On the other hand, if Wal-Mart were to boost its wages, other employers of low-wage workers would have to follow suit in order to attract the employees they need.

Get it? Wal-Mart is so huge that a wage boost at Wal-Mart would ripple through the entire economy, putting more money in the pockets of low-wage workers. This would help boost the entire economy — including Wal-Mart’s own sales. (This is also an argument for a substantial hike in the minimum wage.)

Wal-Mart could learn a thing or two from Henry Ford, who almost exactly a century ago decided to pay his workers three times the typical factory wage at the time. The Wall Street Journal called Ford a traitor to his class but he proved to be a cunning businessman.

Ford’s decision helped boost factory wages across the board — enabling so many working people to buy Model Ts that Ford’s revenues soared far ahead of his increased payrolls and he made a fortune.

So why can’t Wal-Mart learn from Ford? Because Wal-Mart’s business model is static, depending on cheap labor rather than increased sales and it doesn’t account for Wal-Mart’s impact on the rest of the economy.

You can help teach Walmart how much power its consumers have: Stand with its workers who deserve a raise, and boycott Walmart on the most important sales day of the year, November 29.

Robert B. Reich is the chancellor’s professor of public policy at UC-Berkeley and former secretary of labor under the Clinton administration. Time Magazine named him one of the 10 most effective cabinet secretaries of the twentieth century. He is also a founding editor of the American Prospect magazine and chairman of Common Cause. His new film, Inequality for All, opened in September.