For Wal-Mart, cost is the sole determinant of their purchasing policy. In terms of production costs, other countries have a competitive advantage over the United States. China, for example, has a technology level almost equivalent to the United States, which enables it to produce reasonable-quality goods. Their advantage, however, lies in labor costs. The average Chinese worker makes $100 per month. American factories simply cannot compete with that in terms of price. Those wages work in China, where a person can live comfortably on two dollars a day. That is not possible in the United States. We have built an economic model not on low cost, but on high quality of life. This used to drive our manufacturing sector. Firms such as Rubbermaid used to compete on quality, but Wal-Mart and other large discount chains have made cost a more important determinant in their purchasing practices.
The shift towards low-cost production has other implications as well. Wal-Mart does upwards of $30 billion per year in business with China. Between Wal-Mart and the big box stores that imitate them, this makes a significant contribution to America's trade deficit. The United States had a trade deficit with China of $256 billion last year. This contributes to weakness in the American dollar, reduced international purchasing power, and represents a real transfer of wealth from the United States to China. If the trend continues, it will erode our status as the largest economy, and as the most powerful nation.
Proponents of Wal-Mart's economic model point to the benefits of lower prices. Yet, those prices are often of inferior quality. Wal-Mart's inflexibility with their suppliers means...
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