Looting Wal-Mart

To those of you who wished me good luck in the New Year, let me tell you how grateful I am. Since January 1, I have won 42 lotteries in five different countries, for a total of $31.6 million, plus 20.5 million in Euros.

While waiting for my prize money to be transferred last week, I also received numerous offers to launder money for prospective business partners (written all in CAPITALS), discount deals from Internet pharmacies, pitches from cut-rate software salesmen, and even the occasional offer to purchase a fake college degree.

I thought this was all going to end when Congress passed the CAN-SPAM Act in 2003. But it didn’t — the offenders have gotten around the law by sending their e-mails from foreign IP addresses, demonstrating that it is futile for the government to regulate any small thing that happens to irk people.

CAN-SPAM does relatively little harm as government regulations go. A better example of the perverse incentives and absurd results of government micro-management came to light last week in Maryland, where a few well-placed geniuses decided they were going to endanger thousands of jobs in their state in order to make a point. Democrats, who completely dominate the state House and Senate in Annapolis, overrode Gov. Bob Ehrlich’s (R) veto of a bill requiring any business with more than 10,000 employees in the state to spend on health care an amount equal to 8% of its payroll.

Wal-Mart has 16,988 employees in Maryland, and it is the only private corporation that meets the 10,000 threshold. For that reason, the bill is widely known as “the Wal-Mart bill.”

Regardless of how you feel about Wal-Mart, this bill is just plain stupid, and in too many ways even to explain in a 1,000 word column. But here are just a few of the absurdities that could result:

• If Wal-Mart fires or relocates 6,989 Maryland employees, it will immediately be in compliance with this law. Maryland is a small state with lots of border, and a few stores just across the Delaware line could continue to serve many Maryland customers, without the burden of Maryland’s sales tax.
• Likewise, if Wal-Mart dismisses 6,989 employees and hires them back as independent contractors, it could skirt the new law and, in fact, avoid paying those workers any health benefits whatsoever or even payroll taxes.
• Wal-Mart could also comply with this law by reducing its employees’ salaries, but spending the same amount it does now on health care, as long as the latter number comes out to 8% of the former.

The stated reason for this bill is that Wal-Mart pays its workers so little that they cannot afford the company health plan, which is inexpensive if minimal. This ends up costing the state when Wal-Mart workers sign up for Medicaid.

Entirely aside from the fact that this is a problem of Maryland’s welfare generosity more than Wal-Mart’s stinginess, Maryland is getting the better end of this deal. According to its web site, Wal-Mart paid $112.2 million in Maryland sales taxes and $13.2 million in other state and local taxes in 2004. It also employs thousands of Marylanders directly and tens of thousands of others indirectly through its dealings with in-state vendors — and they all pay state taxes too.

Wal-Mart’s full-time associates in Maryland make an average of $9.97 per hour, plus a four percent contribution to their 401k. It’s not a great package — it comes out to about $21,000, plus an occasional bonus — but there’s more to the story than that number alone.

The lower-paying Wal-Mart jobs attract those who would have trouble getting a job that pays more — young people getting a first job, poor and unskilled workers, and recent immigrants (including illegal ones, as the government discovered last spring). Moreover, Wal-Mart says that 220,000 of its 1.3 million workers in the U.S. are older than 55, suggesting that many employees are looking to supplement their retirement. The workforce is also disproportionately female (775,000 women work for Wal-Mart), suggesting that a Wal-Mart income may be a second income for many families.

If Wal-Mart scales back its presence in Maryland because of the state legislature’s hostility toward businesses, it is the workers and the unemployed who will suffer. Until this bill passed, Wal-Mart had been planning to build a distribution center in economically depressed Somerset County, on Maryland’s Eastern Shore. The facility would have brought 800 jobs to the area. The company may now decide to relocate a few miles in either direction, either to Delaware or to peninsular Virginia, both of which are nearby.

It’s All About the Unions

So you might say that this law hurts those it is intended to help. But you would be wrong. The Wal-Mart bill was never intended to help the workers at Wal-Mart. It is intended to help Democrats and labor unions.

This bill is part of a nationwide campaign by labor unions to recover their rapidly declining share of the U.S. labor market. In 1945, unions represented 35% of the labor force. Today they have fallen to 12.5%. In the private sector, unions represent a mere 7.8%, and they have become desperate for more members. In recent years, they have tried, in vain, to find fresh blood by opening into new sectors of the economy.

Wal-Mart is big enough to qualify as its own sector of the economy, meaning that if the unions can get a toe-hold in its stores, they will have an excellent crack at the company’s million-plus employees, plus a good shot at creating closed shops in some states.

Most Democratic politicians would lose their jobs if unions stopped contributing millions of dollars for political campaigns and thousands of bodies on Election Day. The decline of unionism has been disastrous for the Democrats, and its resurrection would be a political boon. For that and no other reason did the Maryland legislature pass this bill, and for the same reason they will try it in other states as well. The United Food and Commercial Workers Union, which has been unsuccessful in unionizing any Wal-Mart workers to date, will continue to harass Wal-Mart until it capitulates.

There are plenty of legitimate objections to Wal-Mart — the China issue, the poor quality of their merchandise, the gaudiness of their stores — and the unionization campaign has adopted many of them in its rhetoric. But you can bet your last dime that the minute the union campaigners descend upon the Wal-Mart host organism, you will never again hear their heart-rending paeans to the disappearing Mom-and-Pop stores of old.

In the meantime, union-friendly state legislatures can take a cheap shot at helping their political allies by preventing their citizens from taking jobs. Perhaps those 800 unemployed Marylanders in Somerset County will find some other way to survive, such as going on welfare or laundering money for my Nigerian business partner.

David Freddoso, a native of Indiana, is a political reporter for Evans and Novak Inside Report.