The front page of the April 21st New York Times carried a long investigative report detailing allegations of widespread bribery at Wal-Mart’s Mexican subsidiary. According to documents obtained by the Times, Wal-Mart de Mexico orchestrated a multi-year campaign of bribery to win market dominance, paying off officials in “virtually every corner of the country” in its rush to build stores. After being alerted of the pattern of wrongdoing in 2005, reports the Times, Wal-Mart’s leaders ordered that the internal investigation be shut down. The Times characterizes the entire affair as a prolonged struggle at Wal-Mart’s highest levels, pitting “the company’s much publicized commitment to the highest moral and ethical standards against its relentless pursuit of growth.”
With the company now in full damage control mode and watching its stock price fall, it’s worth reflecting on the origins of Wal-Mart’s expansion into Mexico, currently home to one in five Wal-Mart stores. In the text below, excerpted from her 2009 book To Serve God and Wal-Mart: The Making of Christian Free Enterprise, Bethany Moreton details the crucial role that the company’s expansion into Mexico played in the U.S. debate over the North American Free Trade Agreement (NAFTA). “For a brief but decisive moment in U.S. politics,” she writes, “the key to imagining free trade was Wal-Mart in Mexico.” What follows is an early ’90s story of globalization, market deregulation, and what’s now alleged to be systematic law-breaking, with cameos from the likes of the Clintons, Ross Perot, Al Gore, and Newt Gingrich.
In 1965, Mexico had begun experimenting with export-oriented maquiladoras [manufacturing operations] along its northern border, where some areas enjoyed duty-free status to entice manufacturers. Such efforts, however, did not attract much attention initially, nor were they meant to: Mexican policy from the 1940s to the 1980s remained committed to developing native industry for domestic consumption behind protective tariff walls, just as the United States and Britain had done in the nineteenth century.
Between 1940 and 1980, this strategy produced annual growth rates of over 6 percent and a steady rise in real wages. But the “Mexican Miracle” came at a price, one increasingly met through high-interest loans from American banks. In 1982, the Mexican finance minister was forced to go to Washington, hat in hand: the country could not honor its foreign payment schedule. In return for emergency loans, Mexico submitted to free-market restructuring, cutting social services, privatizing hundreds of state-owned enterprises, and joining the Uruguay Round of the General Agreement on Tariffs and Trade. The buying power of the Mexican minimum wage dropped by almost 70 percent between 1982 and 1991. Industrial wages fell by almost half; per capita basic food consumption dropped 30 percent.
In early 1991, following announcements of negotiations for NAFTA, American investment in Mexico jumped to two and a half times its previous rate. In this context, then, Wal-Mart’s decision to enter Mexico’s retail market represented part of a larger shift underway to realign the post–Cold War global geography from NATO and the Warsaw Pact into competing free-trade areas. President George H. W. Bush negotiated the agreement with the help of the business-heavy Advisory Committee for Trade Policy and Negotiations. A business coalition of more than 500 corporations—“a virtual lobbying Who’s Who”—helped the administration secure Congressional approval for fast-tracking the treaty, or requiring an up-or-down vote without the possibility of amendments. The constitutional division of labor that had often stymied free traders—commercial regulation to Congress, but foreign policy to the executive branch—could thus be short-circuited: It was to be the trade agreement hammered out by President Bush, or no trade agreement at all.
But the old Cold Warrior was not the visionary who could see it through to ratification. That job fell to Arkansan Bill Clinton, whose wife resigned from Wal-Mart’s board to help her husband’s presidential campaign in 1992. Despite his party’s resolution against NAFTA in 1991 and his own ambivalence toward it during the campaign, the new president threw his support to the treaty in 1993. The key for business under the new administration was now to see the trade agreement through a scheduled vote in the House in mid-November. If they lost, and a new round of negotiations opened up, it might be years before they could muster the political will to pass another version, what with the recession and climbing unemployment.
The Business Roundtable swung into action. It organized 2,300 corporations into USA-NAFTA and assigned state captaincies to Roundtable members. The captains—all but four of whom had participated in the treaty negotiations through seats on the Bush-era advisory boards— mobilized unprecedented business unity in campaigning for public opinion through every conceivable media outlet, from op-eds to talking heads. “You may also want to consider involving employees in a company-wide letter-writing campaign,” suggested the Illinois NAFTA Coalition in a July 1993 memo to its members. Procter & Gamble, a major Wal-Mart vendor, promoted the treaty’s potential to double the company’s export market in a quarterly report to its 170,000 stockholders. Wal-Mart made early appearances as a symbol for this export potential. “Here’s a country with 86 million people, trying to grow and needing access to the kind of products we have here,” said a USA-NAFTA council member. “I’ve been told by the leadership of Wal-Mart that they can’t get enough American-made product into their stores they are now building in Mexico.”
Yet the fish weren’t biting. Public support for NAFTA had been dropping steadily since the original fast-track vote. The lingering recession that had begun in 1990 and an unemployment rate holding at 7 percent raised middle-class fears about job loss. In the autumn of 1993, the proportion of Americans favoring NAFTA fell to less than half, according to the Gallup polls.
It was at this juncture that Wal-Mart took the media limelight. The maquiladoras along the border, built for a generation by U.S. manufacturers in search of cheap labor, were not a camera-ready advertisement for economic integration. If this was what a free-trade zone looked like, American voters could hardly be blamed for opposing it. But U.S. retailers along the border provided another vision of life under NAFTA. It was precisely Wal-Mart’s experience in South Texas that retail analysts cited in the early 1990s as a sign of good things to come in the company’s Mexico expansion.
Wal-Mart’s 1991 joint venture with Mexican retail giant Grupo CIFRA S.A. was about more than retail homesteading on the other side of the Rio Grande. Rather, it coincided with three other acquisitions that together found new markets for the company at home and abroad. In the early 1990s Wal-Mart took its first big step toward incorporating food operations into the now-ubiquitous supercenters with the acquisition of the Texas grocery distributor McLane Company, as well as the purchase of a twenty-store Bentonville grocery chain and Western Merchandisers, a distributor of books, music, and videos. Wal-Mart assured its internal audience that the four-part acquisition did not mean a wholesale remaking of the company’s core: “Common corporate culture,” explained Wal-Mart World, “is the framework that all four companies share with Wal-Mart.” That shared culture included the “down-home values” that kept Western Merchandisers “humble”; the “honesty, integrity, and Christian principles” of McLane; and the Mexican enthusiasm for free trade. In deference to potential national feeling, Mexico’s first taste of Wal-Mart came under CIFRA’s Aurrerá brand. It was not until the fall of 1993 that a Wal-Mart Supercenter opened with that name in the working-class Mexico City neighborhood of Ixtapalapa.
By that time, the debate over free trade had heated to a fever pitch. Congressional opponents of NAFTA argued that the experiment on the border had produced not a new, stable middle class of Mexicans but that hybrid haunting globalization, the peasant with the laser. On both sides of the border, asserted Democratic whip Dick Gephardt, he had seen Mexicans who were working in space-age automated factories, then going home to hovels without running water. It was hard to imagine many customers for a Maytag dishwasher in the shanty towns.
By far the most robust line of defense against NAFTA came from labor, galvanized by the ten-to-one wage differential between the United States and Mexico. The AFL-CIO began organizing against the fast-track status back in 1990, even before business coalesced around supporting it. The unions gained high-profile help from an unexpected quarter when Ross Perot, a third-party presidential candidate in 1992, made his opposition to NAFTA a cornerstone of his campaign. A year after the election, as debate over NAFTA heated up in the House of Representatives, the Texas billionaire’s warning of the “giant sucking sound” from the south was reinvigorated. Thus by the fall of 1993, when the new Wal-Mart opened in Mexico City, the two major camps had staked out their positions: Was Mexico a vast reservoir of low-wage workers, willing to sell themselves to American companies for pennies on the dollar? Or was it an enormous untapped market, full of the same shop-happy rubes who roamed discount aisles in Arkansas and Texas?
Wal-Mart discovered which notes to hit for free trade’s domestic American audience. Late in the summer of 1993, the company had sent representatives to Washington for the International Mass Retailers Association lobbying trip. The trip had been intended to reiterate the industry’s support in terms long familiar to the hosts. “NAFTA is a real key opportunity to bolster U.S. manufacturing,” explained Bobby Martin, executive vice president and Wal-Mart’s man on the NAFTA excursion. The Clinton administration, of course, was receptive to this line of argument. The White House arranged meetings for the delegation with Secretary of the Treasury Lloyd Bentsen and U.S. trade representative Mickey Kantor that a participant described as “something of a pep rally.”
But in meetings with congressional representatives, the discount delegation awoke to the very real danger of NAFTA’s failure. Congressmen told the merchants that their constituent mail ran nine-to-one against ratification. NAFTA, the retailers learned, was “in deep trouble.” The message from Capitol Hill was clear: If the retailers wanted to see NAFTA passed, it was up to them to persuade the Americans in their stores. “We’ll have to fight every step of the way,” warned Democratic senator Bill Bradley, the upper house’s quarterback for NAFTA. “You will have to let everyone you employ know why this is important and get them involved in the process too.” But these efforts alone would not be enough. In contrast to all other trade agreements since World War II, the NAFTA fight was being carried out in public, with significant grassroots involvement—mostly against its passage. Convincing employees had always been part of business’s contribution. Now it would need to mobilize its customers, too.
Back in Bentonville, the company wasted no time. CEO David Glass wrote to all of Wal-Mart’s suppliers—the manufacturers of its products—encouraging them to “write or visit your member of Congress” and “become involved” in the fight to secure NAFTA’s passage. Glass offered his assistance and asked to be updated on their activities. Now the pro-NAFTA forces were back in the game. In mid-September, President Clinton himself reopened the offensive with a fiery speech that convened most of the state governors and three former presidents to demonstrate the bipartisan support for free trade. With the Cold War won, Americans faced a changing geography of “blocs.” Asia and Europe would consolidate, so Americans needed to act fast to secure their leadership of the Western hemisphere. NAFTA had the potential to put Americans in the driver’s seat of “a free trade zone stretching from the Arctic to the tropics, the largest in the world.”
A week later the International Mass Retail Association was back in Washington. Wal-Mart’s corporate counsel Ralph Carter, under the title “director of Wal-Mart trade policy,” spoke for the entire retail group in its testimony before the Trade Subcommittee of the House Ways and Means Committee on September 21, 1993. NAFTA, he assured the congressional panel, was “right for America and especially right for American workers.”
In making his industry’s case, the Wal-Mart trade policy director dismissed NAFTA’s naysayers as nervous protectionists. The very mass consumption that had fueled the American century could not continue without moving into new territory, he explained to his congressional audience. In support, he pointed to Wal-Mart’s experiences on the Texas-Mexico border, where eager consumers from the south pointed the way to a vast new market.
Even better proof of his testimony was the Mexico City Wal-Mart Supercenter, which opened in early October to rave reviews. It did not take long for Bentonville and its pro-NAFTA allies to recognize a PR gold mine when they saw one. “Servando Infante, 39, a bank employee, said he doesn’t know much about the NAFTA debate,” reported a typical account. “But if the agreement means there will be more stores like Wal-Mart in Mexico, he’s all for it.”
The opening day of the world’s largest Wal-Mart was appropriate to the historical moment. Mariachi musicians and scantily clad spokesmodels were just the beginning, reported an Associated Press account that was widely carried in the United States. “Someone in a penguin costume does the cha-cha across the slippery tile floor of the 244,000-square-foot Wal-Mart Supercenter while amused customers watch. ‘This place is enormous. You can get anything you want,’ shopper Julieta Rodriguez said, ‘Free trade has arrived.’” These same high notes were to be reiterated constantly in the commentary flowing out of Ixtapalapa: the manic enthusiasm of newly globalized Mexican shoppers and their humble consumer naiveté. Their attitude toward this little slice of Norte americana bordered on religious devotion, the reports implied. One reporter followed a woman on her “pilgrimage” to “this country’s newest shrine: Wal-Mart.” “It rises like a gleaming mirage,” rhapsodized another account, where many came to gaze upon “such exotic made-in-the-U.S. wonders as Rollerblades, microwave popcorn and upholstered cat perches.” The moral of the story, it turned out, was that the marveling Mexicans bought for the sheer joy of consuming. “‘You Americans sell, we Mexicans buy,’” the article quoted a female shopper. “‘It is good for both of us, no?’”
This vision of free trade—Americans selling, people in poorer countries gratefully buying—beat out its shantytown rivals in the fall of 1993 to secure congressional ratification of NAFTA. Some of the most active companies in promoting NAFTA were precisely the manufacturing and financial giants whose interest in Mexico was suspect to many Americans: the more Westinghouse and American Express spoke of their abstract, high-minded allegiance to free trade, the less convincing they sounded. But the Rollerblades in the Wal-Mart shopping cart were something else again. Images of Wal-Mart’s Mexican customers flooded the press. And the audience that mattered most got a firsthand look.
The National Retail Federation selected fifty lawmakers to target with the full force of its lobbying muscle, pushing members to pressure their employees to write and fax Congress in support of the treaty. And prominent among the undecided was Northwest Arkansas’s own representative, a Bentonville native. This obstructionism from Republican Tim Hutchinson—alumnus of the evangelical Bob Jones University, ordained Southern Baptist pastor, and former history instructor at the evangelical, Walton-supported John Brown University—was a thorn in the side of his fellow Arkansans, both in Wal-Mart headquarters and in the White House. Hutchinson’s chief concern was job loss. Many businesses, after all, had recently relocated to Arkansas for precisely the same attractions that Mexico now might be offering—low wages and a nonunion workforce straight off the farm. In the first week in November, with the vote looming on the 18th, administration officials pleaded with the International Mass Retailers Association and Wal-Mart to “work on” the reluctant Hutchinson.
The solution was a field trip to Ixtapalapa, to the world’s largest Wal-Mart, where Hutchinson experienced an epiphany. There in the furthest outpost of the Bentonville retail empire, a store manager pointed out to Hutchinson a customer carrying a Skil saw, produced in a factory in Walnut Ridge, Arkansas. Over half of the products, in fact, came from the United States, and every day they were perused by over 35,000 Mexican shoppers. Hutchinson returned to Washington with his mind made up. “One of the real lasting impressions was the appetite for American products that exists in Mexico,” he told fellow Arkansans. And if the United States wasn’t interested in feeding that appetite, he pointed out, surely Asia or Europe would be.
With little more than a week to go before the vote, lobbying moved into overdrive. Hutchinson’s conversion was interpreted as a triumph for Wal-Mart, and half a dozen hold-outs flipped. Democrat John Pratt, representing part of South Carolina’s textile region, reported that his trip to Mexico with the U.S. State Department had included a stop at the world’s largest Wal-Mart. There he saw shelves stocked with South Carolina’s own Springmaid sheets and Fruit of the Loom socks and tee-shirts, he explained to a constituent audience of union and environmental leaders firmly opposed to the treaty. Pratt pledged his support to NAFTA. This line of reasoning also worked for New Jersey’s representative Robert Franks, who visited the Mexico City Wal-Mart and watched excited middle-class consumers loading up their carts with children’s toys, disposable baby wipes, soap—all made in the U.S.A. Three weeks later, he was off the fence, on the administration’s side.
Some of these last-minute congressional attitude adjustments were helped along by another key deployment of the Ixtapalapa Wal-Mart, this one by Vice President Al Gore. The White House had been looking for a splashy event to galvanize public opinion right before the House vote, and hit upon the idea of a televised debate between the urbane veep and the jug-eared Ross Perot, NAFTA’s most high-profile opponent. Polls suggested that the twangy Texan annoyed many people so much that public support for NAFTA actually rose when poll responders discovered Perot opposed it. The strategy was to remind constituents what the anti-NAFTA forces looked like, and counter that vision with expert testimony.
Perot fell for the bait. On November 9th, he went mano a mano with Gore on Larry King Live, and as one observer put it, “the vice president undressed Ross Perot.” “Did you see the Wal-Mart that opened in Mexico City on the news?” Gore asked his opponent. “It’s the largest one in the world, if I understand it. They have seventy-two cash registers ringing constantly with people in that country—in Mexico—taking American products out of that store.” If the United States would seize the day, that success could be replicated by countless other businesses. The volume of constituent calls, which had been running heavily against the treaty, suddenly shifted.
Here, then, was the image that sold NAFTA: Mexico was not a backward reservoir of resentful toilers, but rather an incipient consumer behemoth. It had a lot in common with, say, Arkansas—who would have thought poor rural people could make such good shoppers? Outside the Mexican Wal-Mart store, a pair of bewildered reporters conceded, the city looked suspiciously like the Third World. But inside was “a First-World oasis of consumer goods.”
For some, Mexico’s inner Wal-Mart even became the symbol for America’s changed relationship not just to its southern neighbor, but to a world realigned by the end of the Cold War. “Failure to ratify the North American Free Trade Agreement could—I say could, not necessarily would—trigger a global economic collapse,” warned David Nyhan, a liberal columnist for the Boston Globe. Nyhan reminded his readers that win or lose, the NAFTA vote would be followed immediately by a presidential trip to Seattle to talk trade with representatives from the rising economic powerhouses in Asia. Meanwhile, the clock was running down for official U.S. action to sign onto the Uruguay Round of the General Agreement on Tariffs and Trade, the big daddy of all economic integration treaties. Not just NAFTA, but free trade itself was up for a vote. “Do we go forward, into the future, and the interconnected world, stitched together by threads of trade into a tapestry of economic security? Or do we retreat, fall back into the sinkhole of protectionism, hiding behind tariff regulations, clinging to our dwindling oasis while the camel caravans of free trade divert to other routes?” America had a rendezvous with destiny, and the accompanying photo showed where: in the world’s biggest Wal-Mart, in Ixtapalapa.
The treaty passed the House on the night of November 17, 1993, in a vote that split more by geography than by party. The Sun Belt stood proudly and optimistically for a free-trade future against the anxious naysayers of Detroit. Clinton’s mirror image, Georgia congressman Newt Gingrich, rallied his fellow Republicans and proclaimed, “This is a vote for history, larger than politics, larger than reelection, larger than personal ego.” The momentum of corporate support mobilized behind NAFTA and behind the symbol of the Mexico City Wal-Mart carried over into the successful campaign to ratify the Uruguay Round of the General Agreement on Tariffs and Trade less than a year after NAFTA went into effect. Ten thousand corporations organized into GATT-NOW, on the model of USA-NAFTA. Not one major business or industry association was left behind.
As for Wal-Mart, NAFTA’s new geography provided the proving ground for its international expansion. Two weeks after NAFTA took effect on January 1, 1994, Wal-Mart announced its acquisition of 122 Woolco stores across Canada, and went to work “Walmartizing” them. In 1997, Wal-Mart signaled confidence in its Mexico operations by buying up the controlling interest in the Mexican company CIFRA and adding its CEO Jerónimo Arango to the board of directors. The board also added a highly placed voice for free trade in its appointment of Paula Stern, the veteran chairwoman of the Reagan-era International Trade Commission and member of the Advisory Committee on Trade Policy and Negotiations under Clinton and later George W. Bush. Tours of duty abroad became an exciting new field for stateside employees like Texans Erlinda and Chris Garza, who took their expertise to Monterrey after years spent managing stores in Texas and Arkansas. The company was pleasantly surprised to find that in fact its culture traveled well and even gained from its association with “Latin passion,” as Fortune put it. “I have never seen a Wal-Mart so rowdy,” the head of the international division observed approvingly of a new store opening in Monterrey. Once Mexico and Canada showed staying power, Wal-Mart took a much bolder approach to overseas ventures. The strategy of buying into established chains was replicated with Asda in the United Kingdom, Interspar in Germany, Seiyu in Japan, and Bompreco in Brazil. By 2006, if Wal-Mart’s international arm had established itself as an independent chain, it could have ended the year as the world’s fourth largest retailer. The same year, Wal-Mart’s CEO Lee Scott joined Bill Gates and James Wolfensohn, former president of the World Bank, on a panel convened by the United Kingdom’s Chancellor of the Exchequer to counsel that country on the best path to globalization.
Through the 1990s, Wal-Mart’s global vision shifted focus as it struggled to square its flag-waving patriotism and Christian entrepreneurial spirit with the demands of corporate globalism. It hearkened back to missionary internationalism, the free-trade faith that had seen American consumer goods as an opening wedge for Christian conversion and free-market democracy around the world. Jack Shewmaker recommended that all Wal-Mart executives make at least one trip abroad every year. “The world is getting smaller, and our stores are starting to look more and more alike,” he explained. “The world is hungry for knowledge, information, freedom and our products. Everywhere I go I encounter people who want what we already have.” Despite language differences, the company explained in 1994, “Wal-Mart’s concepts translate well.”
(Electronically reproduced from To Serve God and Wal-Mart: The Making of Christian Free Enterprise, by Bethany Moreton, Cambridge, Mass.: Harvard University Press. Copyright © 2009 by the President and Fellows of Harvard College. All rights reserved.)