Jobs vs consumer benefit

2011-03-15 22:30

"THE American experience tells us that they (Walmart) don't treat workers well. They are vampires. We must stop them."

That's the fighting talk coming from Cosatu general secretary Zwelinzima Vavi about Walmart's proposed R16.5bn takeover of 51% of Massmart.

The Competition Tribunal is to decide on the takeover after hearings on March 22 to March 24. This follows the competition authorities' investigating arm, the Competition Commission, recommending the transaction to the tribunal without conditions attached.

Minister Ebrahim Patel's department of economic development recently sent a submission to the Competition Tribunal on the Walmart/Massmart deal. The submission claimed that Walmart and Massmart weren't making tangible commitments to SA on public interest issues.

The Competition Tribunal has the right to take into account public interest as well as purely competitive issues when deciding on a merger or acquisition.

Is the merger in the public interest, or can SA do without the hugely controversial Walmart?

The department of economic development, which was joined in its submission by the department of trade and industry and the department of agriculture, said: "The Competition Commission, in recommending the approval of the Walmart-Massmart merger, made its recommendation on the premise and expectation that the merging parties would make commitments with respect to a number of public interest considerations."

Massmart and Walmart had delayed making solid commitments about issues such as labour matters and job losses, local procurement and food security, the department said. The timing of the response and the inadequacy of the information provided by Massmart and Walmart on some of the issues were of concern.

The department said Massmart and Walmart had painted the merger in a more positive light than was the case. The original information referred to direct imports of only 3.35%, whereas a full reading of the document suggests the total import content in fact amounted to a possible 64% for general merchandise and 10% for food.

Although Massmart had said it wouldn't switch procurement from locally manufactured to imported products, it later said it wasn't open to negotiating the matter. The department said it had appointed a facilitator to engage interested parties.

What the Walmart issue boils down to is whether labour should be protected in an environment of cheap imports. Added to that is the effect on industry and small business of a mega-operator like Walmart. When the department talks of food security, it's expressing its concern that by importing food on a large scale, the new Massmart will knock local agriculture, thus harming SA's food security.

Large-scale imports shock

The key is that one has to balance the benefit to the consumer from the new Massmart's very low prices with the job losses that might result from the merger. Does the benefit to consumers outweigh the job losses?

It's a difficult question to answer.

Vavi's fighting words were spoken at a recent conference of the SA Clothing and Textile Workers' Union (Sactwu). The union most affected by the merger is the SA Commercial, Catering and Allied Workers' Union (Saccawu).

Saccawu launched an anti-Walmart coalition last year and said: "We should be worried, very worried, not only as workers and trade unions in the retail sector, not only as workers and trade unions in general, but as a country and citizens, if we really care about our developmental agenda and the stubborn legacy of apartheid that still lingers on and remains with us today."

Sactwu said it was "deeply disappointed" that the Competition Commission had recommended the unconditional approval of the Walmart/Massmart merger.

Sactwu said it had made submissions to the commission and provided international examples of Walmart's past practices and business methodologies to show that, if the merger was approved, it would reduce competition in the retail and manufacturing sectors, cause retrenchments and factory closures at Massmart's SA suppliers and its competitors' suppliers, and negatively affect broad-based black economic empowerment.

Vavi said at the Sactwu conference that Walmart's advent would have far-reaching implications for the local clothing industry. "If it (Walmart) comes here, it will spend millions a day on advertisements. This means that local stores such as Woolworths will suffer a serious knock and that will lead to retrenchments."

The SA government would eventually collect smaller revenue in the form of taxes because many people would be laid off by retail shops that couldn't compete with Walmart, he said.

Vavi is overstating the case, but in balancing the consumers' benefit from lower prices with the jobs to be lost, one has to bear in mind that the retrenched workers are consumers too. Their consumer spending will be affected negatively by job losses. However, since the lower prices can benefit potentially millions of consumers, this should by far outweigh the negative of some job losses.
Still, Walmart shouldn't be allowed to act unchecked. It should give the department of economic development the assurances it needs, because the shocks to some industries of large-scale imports may be too large.

Globally, according to Wikipedia, if Walmart were an individual economy, it would rank as China's eighth-largest trading partner.

That's a scary thought.  

 - Fin24   

  • Freddie - 2011-03-16 23:26

    Just what is scary about it? To me it appears that Wallmart are a very successful company with a very good track record. I wish I was a shareholder.

      honky - 2011-03-18 08:28

      Shareholders view such problems differently than the paublic that may suffer.

  • Nasdaq7 - 2011-03-17 17:19

    Zwelinzima Vavi, Cyril Ramaphosa is taking over all of McDonald's 145 restaurants in South Africa... while your striking and running amok over what Walmart may or may not do in future.

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