Prison Labor Boosts Wal-Mart’s Profits Despite Pledge

by Derek Gilna

The supplier pledge for America’s largest retailer states: “Forced or prison labor will not be tolerated by Wal-Mart. Wal-Mart will not accept products from Vendor Partners who utilize in any manner forced labor or prison labor in the manufacture or in their contracting, subcontracting or other relationships for the manufacture of their products.”

However, the company has become a retailing behemoth in the United States and abroad by carefully watching its bottom line and squeezing every ounce of profit out of each component in its supply chain. Recent developments, which include reports concerning the use of prison labor and alleged abuses in labor practices by its suppliers, have called into question whether Wal-Mart is the good corporate citizen it claims to be.

One area in which Wal-Mart has profited through the use of prison labor is in “demanufacturing.” That term refers to the disposal of millions of dollars’ worth of “customer returns, buy-backs, over-stocks, shelf-pulls, scratch-and-dent, and excess inventories” that all large retailers must contend with, according to Al Norman, the founder of Sprawl Busters. What separates Wal-Mart from other retailers is its use of what amounts to taxpayer-subsidized prison labor in the demanufacturing process.

Of course, Wal-Mart is not directly involved in that process. Rather, it relies on sub-contractors; the company just reaps the bottom-line benefits. Suppliers and sub-contractors, eager to expand their sales and increase their profits, are only too willing to contract with Wal-Mart. Before long, they are virtual “captives” of the mammoth retailer, dependent on their contracts with the company for their economic survival and willing to cut corners to preserve their profit margins.

In fairness, Wal-Mart did not originate this practice. When the firm was in its infancy, Sears Roebuck & Company was accused of a similar strategy – becoming the primary purchaser of a supplier’s products, then threatening to discontinue purchases unless they received various concessions such as lower prices. Suppliers were sometimes even absorbed into the company. But while Sears may have pioneered the process for becoming a powerhouse retailer, Wal-Mart has greatly refined it.

According to the Huffington Post, one of Wal-Mart’s demanufacturing partners is Minnesota-based Jacobs Trading Company, or JTC – which, based on its confidential agreement with Wal-Mart, “remove(s) all of the identifying marks, including, but not limited to, manufacturer’s or retailer’s names, logos, serial number, UPC numbers, RA numbers, and other identifying marks ... from the packaging, or to clearly and conspicuously mark the packaging so that it is readily apparent and obvious that the Merchandise has been through a salvage process.”

JTC has made a great deal of money by selling customer returns, overstock and close-out merchandise from nine distribution centers, including in Taft, Oklahoma. There, around 25 female prisoners at the Eddie Warrior Correctional Center process semi-loads of merchandise from JTC, remove any identifying marks, bar codes and labels, and palletize and reship the goods nationwide for resale, according to the Oklahoma Department of Corrections.

In Nevada, around 60 prisoners perform similar tasks for JTC. The work is “physically demanding and requires cognitive and motor skills and problem-solving abilities,” according to one prisoner worker. The products being demanufactured and processed include not only clothing but also compressors, ceiling fans, yard lights and other items from various retailers.

JTC has reportedly operated demanufacturing programs using prison labor in other states, too.

Unfortunately, the U.S. Department of Justice is a willing accomplice in this exploitative practice. The Prison Industry Enhancement Certification Program (PIECP), passed by Congress in 1979, authorizes the DOJ “to establish employment opportunities for offenders that approximate private-sector work ... to place inmates in a realistic work environment, pay them the prevailing local wage for similar work, and enable them to acquire marketable skills....” [See: PLN, March 2010, p.1].

However, prisoners in PIECP programs typically do not receive the “prevailing wage” – only the federal minimum wage, which is subject to deductions of up to 80% for room and board, victim restitution, taxes, etc. Further, prisoners engaged in “service” work, as opposed to manufacturing goods, are not paid the minimum wage. JTC’s prison program in Oklahoma isn’t even classified as a PIECP program.

It is not only in the area of “demanufacturing” that Wal-Mart benefits from prison labor to boost its profits. Several large agri-business companies, such as Martori Farms in Arizona, have used prisoner workers to supply their corporate buyers – including Wal-Mart – in spite of the company’s supplier pledge.

According to the Arizona Department of Corrections, the state has supplied prison labor for private agricultural businesses for almost 20 years. Since Arizona fines farmers who use undocumented workers, there was pressure on state officials to make up the labor shortfall by utilizing prisoners to perform farm work. [See: PLN, May 2012, p.1; Feb. 2008, p.16].

TruthOut, an independent online news site, reported that Martori Farms employed female prisoners in Arizona and paid them around $2.00 per hour in net wages. Martori, which has supplied Wal-Mart with fruits and vegetables for over two decades, bussed the women from the Perryville Unit early in the morning to the company’s fields, where they worked in all kinds of conditions and weather.

Prisoners complained of abusive supervisors, difficult working conditions and substandard medical care. Complaints about these conditions often brought threats of retaliation, incident reports that could lead to loss of privileges such as commissary and phone calls, and possible loss of “good time” credits that reduce a prisoner’s sentence for good behavior.

According to Martori representative Joe Oddo, the company discontinued using prison labor in 2012 due to “negative press” by the news media, among other concerns. Martori had employed approximately 100 Arizona prisoners to pick crops.

Outside the prison context, the labor practices of Wal-Mart’s suppliers have drawn scrutiny in California, Illinois and New Jersey. Over $1 million in fines was levied in connection with wage and hour violations at a California warehouse operated by a Wal-Mart sub-contractor, Schneider Logistics. Illinois workers employed by a Wal-Mart contractor filed a class-action suit alleging wage violations, while New Jersey workers have been fired for complaining about a lack of safety equipment.

However, Wal-Mart’s connection with prison labor has gone largely unnoticed even though prisoners typically work in substandard conditions for low pay, and lack the benefits and safeguards afforded non-incarcerated employees. Prisoners whose labor is exploited have few advocates despite the fact that similar behavior by companies like Wal-Mart in the freeworld employment market, whether domestically or overseas, would result in public outrage.

Not that Wal-Mart is the only major retailer that has benefitted from prison labor. Kmart and Saks Fifth Avenue have been linked to goods produced by prisoners in China, as has Primark, a British-owned company that sells clothing in Europe.

For example, in 2012 an Oregon resident, Julie Keith, found a letter written by a prisoner at a Chinese forced labor camp tucked inside a box of Halloween decorations she had purchased at Kmart. Also in 2012, Stephanie Wilson, a shopper at Saks, found a letter from a Chinese prisoner in a paper shopping bag. “We are ill-treated and work like slaves for 13 hours every day producing these bags in bulk in the prison factory,” the letter stated. And in 2014, a woman in Northern Ireland found a plea for help written in Chinese, wrapped around a prison identification card, hidden in a pair of pants she had purchased at Primark.

Sources: www.huffingtonpost.com, Wall Street Journal, www.ok.gov, www.npr.org, www.nationalcia.org, www.dailykos.com, www.walmart.com, www.prospect.org, CNN, www1.umn.edu, www.financialcontent.com, www.warehouseworker.org

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