Central Pension Fund

Lockheed Martin Joins the Wal-Mart Economy

America’s largest employer, Wal-Mart, has created a business model that has successfully buried its competition: buy products produced in third-world countries by foreign workers who are paid minimal wages and benefits, and sell those products to your customers with American workers who are also paid minimal wages and benefits. This model has worked splendidly, allowing consumers to buy cheaper products, while sweeping aside competitors, large and small, like dry leaves.

In desperation, large competitors of Wal-Mart have been forced to reduce wages and benefits of their workers. Most notably large grocery chains, such as Safeway, Albertsons and Kroger, have demanded wage and benefit concessions from their union workers to fend off Wal-Mart.

Increasingly, however, all across America companies that have nothing to do with Wal-Mart are adopting the Wal-Mart employment model. The most recent example is the Lockheed Martin Corporation.

In October of this year, Lockheed Martin announced that, for all employees hired after January 1, 2006, the Company would no longer provide defined benefit pensions or retiree healthcare. Earlier this year, both IBM and the Hewlett-Packard Corporation had made similar announcements.

Clearly, Lockheed Martin, IBM and Hewlett-Packard were not forced to cut benefits to compete with Wal-Mart. No, they adopted the Wal-Mart model only because it has become perfectly acceptable for corporations across America to abandon the employment-based system of health and retirement benefits --- the system that made possible the tremendous growth of America’s middle class over the last 70 years.

Both defined benefit pension plans and group health plans rely upon a simple fact for their success: better and lower-cost benefits can be obtained when the costs are spread across large groups rather than purchased individually. This is why defined benefit pensions provide better benefits than individual retirement accounts, and why group health insurance benefits are much cheaper than the same benefits purchased individually.

It was this simple fact that led the federal government, through national tax policies begun in the 1930s, to create incentives for employers to adopt group retirement and health programs --- and employers at all levels of the economy did so.

The federal government then added to this foundation of employment-based retirement and health benefits, two tax-based national programs of retirement and health benefits to supplement the employment-based system. Those programs, Social Security and Medicare, both took advantage of group-purchasing power to provide benefits at a cost far below individually purchased benefits.

Now, however, the advantages of group purchasing are being completely lost as the employment-based system of benefits disappears. And there appears to be absolutely no political will at the national level to encourage and maintain that system. Wal-Mart, not the federal government, is now setting our nation’s retirement and health policy. And that policy is: “Every man for himself.”

That is a policy that works perfectly well for the rich. And the poor continue to have at least a minimal social safety net. It is the middle class for which this new policy is a disaster --- and it will continue to be so until the voters demand that their elected leaders retake control of our national retirement and health policies from Wal-Mart.

Until then, only that portion of the middle class that continues to have the protection of a union contract will have a fighting chance.

October 14, 2005