Free Custom «Long-run Effect of Wal-Mart Technique» Essay Paper

Free Custom «Long-run Effect of Wal-Mart Technique» Essay Paper

With the rapid development of globalization trends and under the growing pressure of financial crises, global companies seek the means to reduce their costs and to increase their profit margins. When it comes to Wal-Mart, the fact that it uses labor-intensive techniques in China is no longer a secret; nor is it a secret that these techniques work to manufacture products that are later sold to and used by U.S. citizens. Objectively, the use of labor-intensive techniques in countries that are still on their way to becoming developed and prosperous can speed up the process of integrating with the rest of the world?s economies and set the basis for continuous and steady economic growth. In case of China and Wal-Mart, however, the use of labor-intensive techniques has resulted in the growing trade deficit between these two countries, which in its turn leads to the displacement of jobs in the U.S., and negatively impacts the productive capacity of the U.S. in the long run. It should be noted, that using labor-intensive techniques and developing labor-intensive industries is not as bad as it may seem. Labor intensive techniques are those, which require using substantial amounts of human labor to manufacture products (World Bank 38). As such, the proportion of human labor in such industries is much higher than that of capital.

Given that the majority of Wal-Mart products heavily depend on the cost and the amount of labor invested in their production, it is natural that the company seeks effective means to reduce these costs. Bearing in mind that ?labor intensive industries usually do not carry high fixed cost, but on the contrary, have higher percentage of variable costs? (World Bank 38), it is natural that by using cheaper labor force from China Wal-Mart guarantees profitability of all its business operations. Objectively, the use of labor-intensive techniques in developing countries is more desirable than investing significant resources in capital: in such countries, labor intensive approaches usually bring economic prosperity and better industrial growth. In case of China and the U.S., however, the use of labor-intensive techniques has led to the growing trade deficit, which in its turn significantly contributes in long-term unemployment in the U.S. and reduces its production capacity. Statistical research suggests that between 2001 and 2006, Wal-Mart accounted for almost 10% of total U.S. imports from China; during this period, Wal-Mart?s increase of imports from China grew 181% (Scott). As a result, Wal-Mart also became responsible for the $17 billion increase of trade deficit between the U.

S. and China (Scott). From the viewpoint of Wal-Mart, these statistical figures are understandable: the current level of global competition is too fierce to restrain companies from developing rigid and at times unfair practices as the means of lowering prices. With Wal-Mart, these competitive solutions, and especially, the company?s continuous search for cheap labor have already become the matters of the primary economic concern, for the already mentioned Wal-Mart?s $17 billion contribution to the U.S. trade deficit has also led to the loss of 1.5 million manufacturing jobs in the U.S. (Holland, 2005). This joblessness is the direct product of labor-intensive techniques Wal-Mart uses in other countries, simultaneously displacing millions of jobs in the U.S. That is why it would be fair to say that under the impact of labor-intensive techniques, Wal-Mart has created a threat for long-term unemployment in the U.S., with 111,400 jobs lost in 2001, and 308,100 jobs lost in 2006 (Scott). Statistically, ?each of the 4,022 stores Wal-Mart operated in the United States was responsible for the loss of about 77 jobs due to Wal-Mart?s trade deficit with China in 2006? (Scott). Needless to say that in global contexts, unemployment in the U.S. does not resolve but only aggravates the overall economic situation and makes it more difficult to overcome the current financial and economic barriers. It is obvious that evaluating the impact of labor-intensive techniques on economy in short and long run is impossible without having crucial and comprehensive understanding of all factors in the relationship between Wal-Mart, trade deficit, and global economy. For many years the U.S. hoped it could preserve stability in its labor markets and could hold its own labor-intensive areas (Anonymous), but Wal-Mart has proved that beyond unemployment, its labor-intensive techniques in China lead to the rapid shrinking or productive capacity in the major industries. Production capacity is probably the most significant long-term result of trade deficit in the U.S. ?With the U.S. production decline, there is less need for investment in that productive capacity. Investment, which is the basis for future growth, has moved to Asia? (Conrad). In this situation, the U.S. is facing a kind of a vicious circle: under the negative impact of the current financial crisis firms try to reduce their costs and transfer their labor-intensive manufacturing facilities to countries with cheaper labor; at the same time, the lack of investment in labor and capital does not leave the U.

S. a single chance to grow in short and long run. Such approaches to business and manufacturing leave U.S. citizens without jobs; the country does not have enough capacity to manufacture goods for import, and customers do not have sufficient resources to spend on purchases. In this context, Wal-Mart?s use of labor-intensive techniques in other countries, including China, looks like a slow process of murdering the American, and as a result, the global economy. It leads to the gradual death American production and gradually reducing opportunities for wealth creation in the U.S. Conclusion In some developing countries, the use of labor-intensive techniques shapes the basis for continuous growth and economic prosperity. In case of Wal-Mart, its emphasis on the use of labor-intensive techniques in China has resulted in the growing trade deficit in the U.S. Displacement of jobs, the growing long-term unemployment, and the reduction of production capacities are just some out of many negative impacts these techniques produce on the American economy. Needless to say, that as the U.S. is struggling to recover from the current financial crisis, Wal-Mart makes it even more difficult for the U.S. to restore it wealth generation capacities and to give the global economy another push for growth.



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