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April 27, 2004

Subcontracting: Big Lie of the Economy

Continuing the Justice at Work series, Andy Stern is focusing on strategies, a key one being today's post on how subcontracting is leaving a whole class of workers in an underground economy of exploitation. As Stern asks:

But how do we help people understand the connection between the problems created by subcontracting and the things they care about in their lives?
Obviously, SEIU cares about subcontracting. As a union that organizes janitors, who are overwhelmingly not employed directly by the companies whose buildings they clean, the union has to care.

But why should the rest of us even think about small fry like the subcontractors when the big targets like Wal-Mart are the real problem?

Because those small fry don't really exist, not as real companies. It's all a big lie. If a subcontracting company lives and dies based on the commands of a giant corporation, they aren't an independent company, they're a division. General Motors used to call their divisions Pontiac, Chevrolet, Cadillac, etc., and they were each managed semi-autonomously day-to-day. But any ultimate decision-making was made by the General Motors board of directors.

Today, those divisions are labelled "subcontractors" and are incorporated separately, which has all sorts of legal, labor and tax advantages for the main corporation. (Think Enron and its "special-purpose vehicles") But they are all the same company in reality as long as they take orders from Wal-Mart or any other mega-corporation head office.

Which is Lie One: However scary large Wal-Mart may seem, it's an even larger employer than you usually hear. The 1.1 million workers they have on payroll is only a portion of the people whose employment is dependent on the decisions Wal-Mart management makes every day.

Along with janitors, exploited across the country in anonymous little companies slaving for Wal-Mart, there are delivery companies, advertising agencies, and any other manner of service firms that live and die on Wal-Mart orders and business. This article gives some taste of the real sprawling Wal-Mart empire, an estimated 20,000 separate companies supplying the behemoth's needs.

Assume just a few hundred people at each of those suppliers working on behalf of Wal-Mart and that's additional millions of people de facto on Wal-Mart's payroll.

Lie Two- Small Business Creates Jobs: Which gets us to the main point, which is the often worshipful descriptions of "small business", when the reality is that a large portion of small companies are short-lived sweatshops living and dying at the whims of big corporations like Wal-Mart.

As analysts have described, the biggest hoax in economics is that small business drives job creation in this country, since while lots of jobs at small business appear each year-- usually at the demand of large corporations -- an equal number are destroyed as those same large corporations switch between an ever changing musical chairs of captive suppliers.

The toxic effect of the myth of small business job creation is that "pro-business" politicans then call for lighter regulation of "entrepreneurial firms", meaning those underregulated firms become a safe haven for exploitation.

Which is incredibly convenient for big companies like Wal-Mart or Intel which can unload their dirtiest jobs on their small contractors, knowing they can get away with often illegal exploitation that the bigger firms could not pull off. When janitorial subcontractors were raided last year, the wage and overtime violations pervasive in those cleaning firms were just the tip of the iceberg of the subcontracted exploitation in the small business subcontractor sector.

Big Lie Three: And the problem is only clearer at the global level of manufacturing, as this Fast Company article details, manufacturing contractors dance to Wal-Mart's tune or they are out of the game. Or as this article notes:

From its headquarters in Bentonville, Ark., the company has established a network of 10,000 suppliers and constantly pressures them to lower prices. At the same time, Wal-Mart buyers continually search the globe for still-cheaper sources of supply. The competition pits vendor against vendor, country against country.

"They control so much of retail that they can put someone into business or take someone out of business if they choose to," said Pat Danahy, a former chief executive at Cone Mills in Greensboro, N.C., one of the few surviving U.S. textile producers.

So how many employees does Wal-Mart have? Well, check out some calculations I did last month on overall US trade with China, where I estimated that the $168 billion in Chinese imports to the US overall represented tens of millions of jobs in that country. Well, 10% of all US imports from China are brought in by Wal-Mart, so that means additional MILLIONS of Chinese workers are de facto on Wal-Mart's payroll.

So between domestic and overseas contractors, it's a pretty fair estimate that Wal-Mart essentially employs five to ten million people worldwide.

So what's the strategy? Which brings us to why a campaign against Wal-Mart and other corps needs to concentrate on subcontractors, both domestic and overseas.

First, those subcontractors are where the worst labor abuses happen. However pathetic the pay and the violations of the law for core Wal-Mart employees, workers in these underground contractor jobs and in slave labor jobs in China face even greater hardships.

But the very fact that Wal-Mart's profits depends on squeezing its suppliers means that this is a pressure point on the company. Exposing those abuses and supporting those workers means that Wal-Mart will get a big black eye in public relations and lose its easy way to outsource exploitation.

Taking on the subcontractors will need a combination of lawsuits on behalf of the workers, changing the law to strengthen their rights (which can often be done with local regulation), supporting union campaigns across the country, and mounting major public education campaigns to highlight these abuses. This can then be combined with a serious campaign to bring labor issues into trade negotiations with China and other countries where Wal-Mart exploits workers.

And the advantage of targetting the Wal-Mart subcontractors globally is that concrete victories can be won for workers at the various subcontractor companies without having to defeat Wal-Mart first at its core stores. It won't solve the problem overall, but it will put continual pressure on Wal-Mart, as organizing proceeds forward on organizing the core of the company's workforce.

If we want to put it in military terms, it's a campaign of encirclement. Embarass Wal-Mart with the most obvious abuses that it promotes, then use those abuses to educate the public about the broader social ills Wal-Mart's business practices breed in our economy. Organize subcontractor companies, then pressure Wal-Mart not to abandon them merely because their workers choose to unionize-- a tactic SEIU has practiced repeatedly across the country. (Read about this campaign example in Silicon Valley)

It's not the only strategy we need to take on Wal-Mart and its ilk, but it's one that SEIU and community allies can take on as a concrete first step in reining in this corporate race to the bottom.

Posted by Nathan at April 27, 2004 09:30 PM