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BY ROY NERSESIAN

COMMENTARY

In previous articles, we explored the reasons why we are in the present mess: a government law (still on the books by the way) mandating that banks make bad mortgage loans, do-gooders like Barney Frank who honestly believe that all Americans are entitled their own home regardless of their financial circumstances, mortgage brokers and Wall Streeters who learned that real bonuses can be made on pseudo profits by issuing toxic waste to the global investment community, and Main Streeters who wanted to become mini-Trumps through house-flipping. We also had a President (Bush II) who actually believed that prosperity is within the grasp of every home owner by their borrowing on continually inflated housing values and a Federal Reserve chairman (Greenspan), who fell asleep, actually was comatose, at the switch.

So we are suffering from a financial hangover from an economic bust, which we are at fault by thinking that we can get something for nothing. Now we are focused on when things will turn around — which for millions of Americans means when will I get a job?

Let us repeat what we all know: unemployment is not 9.5% of the population. Besides those actually receiving unemployment benefits, there are those who have exhausted their unemployment benefits, those that have given up looking for a job, and those who had a good paying job now working part time mowing lawns or flipping hamburgers. There are actually a lot more: how about owners of businesses who were forced to close their doors? They don't show up in the unemployment statistics, although their employees do. How about consultants with no paying customers? Believe it or not, there are unemployed lawyers — what are we talking about — 20 or more percent of the population? The President is convinced that things are getting better when companies that had previously laid off 50,000 workers are now hiring back 5 because they laid off too many. He is missing (or ignoring) the point that the workforce is still shrinking from municipal and state layoffs.

This unemployment situation hits all classes, but the ultra-rich. A $200,000 a year senior executive at a leading bank loses her job. Her life is banking. Banks are not hiring. Companies do not hire at a lesser position and at a lesser pay that an individual previously held. They think the employee will only stay until something better comes along — even if the chances are nil that this would happen. What is the chance of her ever being reemployed other than as a maid for one of her co-executives or a part-time bank teller? People like this are forever locked out of the employment market and they may not realize it.

There is another group is the same sinking boat: everyone else. The reason for this can be summed up in one word: Walmart. Sam Walton was a natural-born retailer and after some experience with an established chain retailer, bought his first store in 1950. He decided success can be achieved by profits based on a low profit margin and high volume — something Henry Ford discovered a half-century before. Sam transformed Walton's Five and Dime into today's Walmart, the company whose revenue is the highest in the nation (beating Exxon and everybody else) with the distinction of not making a single thing. He accomplished this feat in a mature industry. Sears & Roebuck and a host of other companies dominated retailing. How one individual can move into a mature industry like retailing and gut it for his and his company's benefit is truly an amazing story.

Some things Walmart originated and some were copied from other retailers like Target and K-Mart. Walton's Five and Dime actually had to purchase its merchandise from suppliers usually by borrowing money and paying interest. If Walton's Five and Dime bought something that could not be sold, Sam would have to lower the price and perhaps sell at a loss or even trash the item if it couldn't be sold. These are called inventory carrying costs. Walmart, quite unlike Walton's Five and Dime, has no inventory carrying costs. Vendors (suppliers) are paid as their products are sold so all risk of having to reduce prices to move an article or trashing an article is borne by the vendors, not Walmart. Walmart, like other major retailers, act more as sales brokers than retailers. Walmart has little in warehouse costs because they practice cross-docking where a carefully orchestrated fleet of trucks with vendor merchandise show up at an unloading dock of a warehouse and another fleet of empty trucks show up at the loading dock. The empty trucks are going to Walmart stores after they are loaded with pallets of goods from the vendors' trucks across the dock. Only mismatches between what has arrived and what are shipped out actually goes into the warehouse. Moreover Walmart uses containers filled with goods as warehouses obviating the need to unload the merchandise for storage in warehouses. I mention these details just to show how efficient Walmart is as a retailer: the means by which an upstart can wreck an established mature business.

The first thing that happens when Walmart builds a new store is the closing of all the Mom and Pop department stores in its vicinity. Walmart has wiped out untold thousands of Walton's Five and Dimes' by its efficient operation. But none of this has any bearing on the unemployment problem. What does was Sam Walton's insistence of low prices and low prices can be achieved by manufacturing in China and other low-cost Asian nations. Walmart told its American suppliers that the next shipment must come from China if they expect to keep Walmart's business. Then Walmart developed the world's best managed global logistics supply chain for the smooth flow of containers filled with Chinese made goods across the Pacific Ocean and across America to feed its stores with low priced goods delivered in the most efficient manner. This was great for the consumer, it was great for Walmart, but America lost thousands upon thousands of jobs as manufacturing switched locales.

Of course, Walmart was not the only company moving jobs to China. American executives learned that they could earn rich bonuses for themselves by firing Americans and hiring Chinese at a tiny fraction of U.S. labor costs. Outsourcing is one of the major reasons why there is an emerging class of the super rich and a ballooning third world nation of unemployed workers within heartland America.

So what are the prospects for the unemployed? The factories are gone. They are not coming back — China will make sure of that. To be fair, there has been a counter flow of jobs back to the United States best exemplified by German, Korean and Japanese automobile manufacturers opening up factories in America to serve our market. As the dollar continues to depreciate, there is a growing incentive to move manufacturing back to our shores. Moreover "Made in America" labels are attracting consumer attention. But it ain't enough to provide the millions of jobs necessary to relieve the unemployment situation.

The loss of manufacturing jobs are affecting sacrosanct government jobs because unemployed workers cannot pay the taxes necessary to keep school teachers, firemen, policemen, and God-forbid bureaucratic pencil-pushers employed. As people exhaust their cash reserves, more homes go into foreclosure (yes, the number of foreclosures is still rising). High unemployment may become part of the economic infrastructure of our society, which means we can join the ranks of other economically-backward deadbeat, derelict, third world nations. The only good news is that unemployment checks will go further at Walmart's than anywhere else. And even better news: there may be an opening for a greeter at a Walmart store near you.

Roy Nersesian, a resident of Maplewood, teaches at the Leon Hess School of Business at Monmouth University in West Long Branch and also at the Center for Energy and Marine Transportation at Columbia University. He has authored several books, the last on Energy for the 21st Century published by M.E. Sharpe.

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