Apple, America and a Squeezed Middle-Class: How the U.S. Lost Out on iPhone Work

[lcjjdnh]

Interesting NYTimes article making the rounds of the political and economic blogosphere:

Apple, America and a Squeezed Middle Class - NYTimes.com

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.

But while Apple is far from alone, it offers a window into why the success of some prominent companies has not translated into large numbers of domestic jobs. What’s more, the company’s decisions pose broader questions about what corporate America owes Americans as the global and national economies are increasingly intertwined.

“Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice,” said Betsey Stevenson, the chief economist at the Labor Department until last September. “That’s disappeared. Profits and efficiency have trumped generosity.”

Companies and other economists say that notion is naïve. Though Americans are among the most educated workers in the world, the nation has stopped training enough people in the mid-level skills that factories need, executives say.

To thrive, companies argue they need to move work where it can generate enough profits to keep paying for innovation. Doing otherwise risks losing even more American jobs over time, as evidenced by the legions of once-proud domestic manufacturers — including G.M. and others — that have shrunk as nimble competitors have emerged.

[Blackadar]

This just in: slave labor is profitable. News at 11:00.

The facility has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day. When one Apple executive arrived during a shift change, his car was stuck in a river of employees streaming past. “The scale is unimaginable,” he said.

The company disputed some details of the former Apple executive’s account, and wrote that a midnight shift, such as the one described, was impossible “because we have strict regulations regarding the working hours of our employees based on their designated shifts, and every employee has computerized timecards that would bar them from working at any facility at a time outside of their approved shift.” The company said that all shifts began at either 7 a.m. or 7 p.m., and that employees receive at least 12 hours’ notice of any schedule changes.

Foxconn employees, in interviews, have challenged those assertions.

[sterlingice]

Next thing you're going to tell me is that slave labor working 12 hours a day for $17 might also be forced to work off the clock.

SI

[Blackadar]

Originally Posted by sterlingice

Next thing you're going to tell me is that slave labor working 12 hours a day for $17 might also be forced to work off the clock.

SI

You can always be replaced by a Chinese prisoner, so keep working!

[CraigSca]

So when does the backlash against Apple begin?

[JPhillips]

Yeah, this is something we should condemn, not praise. Waking people up, giving them a biscuit and tea and forcing them to work 12 hour shifts is reprehensible.

[Ksyrup]

You prefer a scone?

[miked]

But Rick Santorum tells me that the best way to bring these jobs back to America is to set the corporate tax rate to 0. Those savings should outdo the costs of doing business in this country, like paying people wages and having workplace laws.

[sterlingice]

I knew nothing about Foxconn City but it's a fascinating read.

Here are a couple of other articles I read from Googling:
Inside Foxconn City: A Vast Electronics Factory Under Suicide Scrutiny | Raw File | Wired.com
The fate of a generation of workers: Foxconn undercover fully translated (update: videos added) -- Engadget

The part about the isolation of individuals from the Wired story is very interesting to me. The translation's a bit rough on the engadget story but it's a good read.

SI

[molson]

I wish my employer would bring me a biscuit.

[JPhillips]

According to WantChinaTimes, Terry Gou, the head of Hon Hai (Foxconn), the largest contract manufacturer in the world, had this to say at a recent meeting with his senior managers:
“Hon Hai has a workforce of over one million worldwide and as human beings are also animals, to manage one million animals gives me a headache,” said Hon Hai chairman Terry Gou at a recent year-end party, adding that he wants to learn from Chin Shih-chien, director of Taipei Zoo, regarding how animals should be managed.

Lovely boss there.

[Ksyrup]

"It's like herding cats!"

[sterlingice]

Originally Posted by Ksyrup

"It's like herding cats!"

To be fair, some of us have probably said similar things about our jobs. Just not to the press. As a corporate leader. For 1M people.

SI

[molson]

Originally Posted by CraigSca

So when does the backlash against Apple begin?

I think people like their products too much. It would require a personal sacrifice of some type.

[JediKooter]

Slave labor for the win!!! Is there an app for that?

[sterlingice]

The really depressing part of this whole story is that these workers take this life because it's better than the alternatives. How do you fix that short of a couple of generations of global wealth shifting?

SI

[Blackadar]

Foxconn City is nothing more than a modern-day version of the Chicago meatpacking plants in Upton Sinclair's The Jungle.

Sterlingice, you asked how that gets solved short of global wealth shifting? That's exactly what is happening now - the largest wealth transfer in human history is currently happening from the US to China. Fair trade with China is anything but fair.

[mckerney]

Originally Posted by miked

But Rick Santorum tells me that the best way to bring these jobs back to America is to set the corporate tax rate to 0. Those savings should outdo the costs of doing business in this country, like paying people wages and having workplace laws.

Don't forget that those companies need to be free of burdensome government regulations too, including the job killing minimum wage. And they need tort reform to free them from frivolous lawsuits that may arise from customers or employees. Then those companies will be able to create good jobs with low pay, no benefits and a 72 hour work week.

[sterlingice]

Originally Posted by Blackadar

Sterlingice, you asked how that gets solved short of global wealth shifting? That's exactly what is happening now - the largest wealth transfer in human history is currently happening from the US to China. Fair trade with China is anything but fair.

I'm aware of it and I've even mentioned it quite a few times on this board. It's not just US to China, it's US to everywhere else in the world. China just happens to be the largest participant. It's just not feasible, when you start "global trade" to expect one country with only about 1/20th of the globe's people to control 1/4th of the world's wealth for more than a couple of generations without some built-in advantage (geographical, resource-wise, etc). We're still living off of borrowed time of being the only remaining 1st world economy after WW2.

It's going to keep getting worse and there's nothing we can really do about it except work together to slow the bleed. Sure, we control $15T of the ~$60T world economy. And in 20 years, that will probably be a $100T world economy (back of napkin calculations) but barring something crazy, our piece will only be $18-20T not 25+. For our best case scenario, our proportion will shrink but we should still advance. It just won't be as fast as we are used to in our lifetimes.

SI

[ISiddiqui]

Which, btw, is fine by me. I am hoping that increased wealth leads to increased agitation for political freedoms in China (the theory is a fairly well off middle class tends to want more political freedom to go with its economic freedom).

[JediKooter]

Honest question: So is Apple the only phone provider that uses a company that uses slave labor to produce their phones?

I have a feeling all the phone manufacturers do. Or at least most of them.

[CraigSca]

Originally Posted by sterlingice

I'm aware of it and I've even mentioned it quite a few times on this board. It's not just US to China, it's US to everywhere else in the world. China just happens to be the largest participant. It's just not feasible, when you start "global trade" to expect one country with only about 1/20th of the globe's people to control 1/4th of the world's wealth for more than a couple of generations without some built-in advantage (geographical, resource-wise, etc). We're still living off of borrowed time of being the only remaining 1st world economy after WW2.

It's going to keep getting worse and there's nothing we can really do about it except work together to slow the bleed. Sure, we control $15T of the ~$60T world economy. And in 20 years, that will probably be a $100T world economy (back of napkin calculations) but barring something crazy, our piece will only be $18-20T not 25+. For our best case scenario, our proportion will shrink but we should still advance. It just won't be as fast as we are used to in our lifetimes.

SI

And isn't this re-distribution of wealth what the occupiers want?

[NorvTurnerOverdrive]

Originally Posted by JediKooter

Honest question: So is Apple the only phone provider that uses a company that uses slave labor to produce their phones?

I have a feeling all the phone manufacturers do. Or at least most of them.

they all do. it's why shit's so cheap.

even so, the basic components are all made of stuff from mineral conflict countries in africa.

[JediKooter]

Originally Posted by NorvTurnerOverdrive

they all do. it's why shit's so cheap.

even so, the basic components are all made of stuff from mineral conflict countries in africa.

That's kind of what I figured. I don't think the phones are all that cheap, for the consumer that is. An iphone without a contract, you're paying close to 800 dollars for it. I'm sure they don't cost nearly that much to actually manufacture the phone though.

Ok, had to look up what mineral conflict was. Sounds like a perfect partner for a communist regime that uses slave labor.

[sterlingice]

Originally Posted by ISiddiqui

Which, btw, is fine by me. I am hoping that increased wealth leads to increased agitation for political freedoms in China (the theory is a fairly well off middle class tends to want more political freedom to go with its economic freedom).

Yeah, ultimately, we're part of the greatest charity job in the history of mankind, or would be if we were giving it freely. I'm ok with it, to a point- it sucks for those of us who grew up with Baby Boomer parents, by comparison. And it certainly won't stop me from agitating for a smaller not larger wealth distribution curve here. We should all feel this pain fairly equally- the rich shouldn't live like rich in America while the poor live like poor in China.

SI

[NorvTurnerOverdrive]

Originally Posted by JediKooter

That's kind of what I figured. I don't think the phones are all that cheap, for the consumer that is. An iphone without a contract, you're paying close to 800 dollars for it. I'm sure they don't cost nearly that much to actually manufacture the phone though.

Ok, had to look up what mineral conflict was. Sounds like a perfect partner for a communist regime that uses slave labor.

to be fair, i think certain blackberry's are assembled in canada. and some nokia's are assembled in brazil. but the components, boards and whatnot all still come from china.

cheap is relative i guess. but most phones are mind bogglingly powerful nowadays.

[lungs]

Not defending any practices here, but attitudes toward work can differ by culture. I sat my shift workers down one day and gave them the option of hiring another person or two and everybody could have 40 hour weeks or keep staff at current levels where everybody works 60-70 hours a week. Unanimously they chose longer work weeks because they want bigger paychecks.

[JPhillips]

How would they feel about longer work weeks and no increase in pay? That's the problem with a lot of these factories.

[JediKooter]

Originally Posted by NorvTurnerOverdrive

to be fair, i think certain blackberry's are assembled in canada. and some nokia's are assembled in brazil. but the components, boards and whatnot all still come from china.

cheap is relative i guess. but most phones are mind bogglingly powerful nowadays.

Ah that's cool. Oh yes for sure, I don't think anyone is 100% 'clean' so to speak.

They are ridiculously powerful for how much we do pay for them. It's hand held computer that is more powerful than the Commodore 64 I had growing up. Now if I can just get MicroLeague Baseball on my phone...

[lungs]

Originally Posted by JPhillips

How would they feel about longer work weeks and no increase in pay? That's the problem with a lot of these factories.

Honestly, some probably wouldn't complain. They can be a little too subservient at times. I brought an employee into my office with the intention of giving him a raise but instead told him I had to cut his wages to $3.00/hour but he was free to look for another job. And he told me he would stay! Obviously he got the raise, but still.

Are you talking overtime pay or simply working a longer work week and getting the same salary? I don't pay overtime, it's by the shift and they can simply choose how many shifts they want to work per week.

[DanGarion]

If only they went to University.

[molson]

Originally Posted by CraigSca

And isn't this re-distribution of wealth what the occupiers want?

I've always been confused by that too. Companies are always criticized for taking jobs away from the U.S, but that's a part of the re-distribution process. I wish Apple and others treated their overseas workers better, but we have seen an enormous growth in the global economy, and something like half a billion people dropping out of poverty since 2005, and these free markets and global trade and opening to capitalism is causing it. It's not a pure redistribution thing, obviously money and wealth and standard of living isn't a zero sum game, they can all be increased across the board, but the U.S. standard of living and global domination will at least modestly decline as some poorer countries continue to improve. We simply aren't as important as we used to be, and many others now have the opportunity to do the same stuff we've been doing. I don't see that as a terrible thing, even if the stats show a wider income gap here. I think you have to look at it globally. Why should our middle and lower class continue to do so much better as people doing the same work somewhere else? I get why our elite are making more, because more and more, they have this whole planet to make money from. We are the 1%, and we do get pissed off when the 99% starts to do a little better.

[SportsDino]

Economies are not zero sum, the greatest generation of wealth comes from creating a middle class (domestic market growth is a major component of the China story, just like it was in America).

The race to the bottom is not the direction to go, not for us, not for China either. It serves the reactionary conservative interests that only see a cut of a shrinking pie, and no longer have the talent to grow the pie.

[RainMaker]

Originally Posted by SportsDino

Economies are not zero sum, the greatest generation of wealth comes from creating a middle class (domestic market growth is a major component of the China story, just like it was in America).

The race to the bottom is not the direction to go, not for us, not for China either. It serves the reactionary conservative interests that only see a cut of a shrinking pie, and no longer have the talent to grow the pie.

At the same time, doesn't it hurt the middle class in this country if a TV or computer costs $300 more? I mean you're able to buy a good laptop for under $1000 because of this.

[Passacaglia]

What exactly are "mid-level skill factories need"?

[SportsDino]

Most of the $300 goes to profit margin, making the product in the US and keeping margin equal would probably run a max of $400, and I think that is an overestimate. Most of that profit margin goes to over-priced executives and board room games, and rarely into any real investment for future growth.

And if anything Americans buy too much crap and then just throw it away way too early. Higher priced but more durable goods might be of surprising value to our economy.

[JonInMiddleGA]

Originally Posted by SportsDino

Higher priced but more durable goods might be of surprising value to our economy.

LOL ... you grossly overestimate the interests of vast amounts of our population.

More durable, yeah I can see that being popular. Higher priced? Respectfully, you're out of your fucking tree.

[SportsDino]

Originally Posted by Passacaglia

What exactly are "mid-level skill factories need"?

Men with sticks to whip the workers assembling junk by hand at high rates of speed with few breaks. Occaisonally skills at intimidating people when they are off the clock will be very useful.

Also, if you are there to actually work, the ability to work at many times less than a comparable worker in the first world and then walk away back into poverty when the job is taken away from you to keep wage pressures down.

[SportsDino]

Originally Posted by JonInMiddleGA

LOL ... you grossly overestimate the interests of vast amounts of our population.

More durable, yeah I can see that being popular. Higher priced? Respectfully, you're out of your fucking tree.

I know, everyone wants the latest, trendiest thing. Throwing away smart phones more powerful than computers before this century started every two years for the latest model, cars that are flashy but have lifespans far shorter than vehicles achieved decades ago, and just about every other cheap ass thing I use every day that breaks long before it should have.

Economically it would make sense to buy products over longer intervals that deliver more value for the cash invested in them. Does it match our dumb-ass culture which I'm sure you are an enthusiastic part of? Of course not.

1 product at a 50% higher price over 5 years is still better than 2 or 3 products over 5 years.

Besides the price sensitivity of the people is a bit overhyped, these are the people that spend many times more than anyone else in the world for just about everything, throw it away for a newer version the next day, and are willing to take out credit cards to the maximum to do it. Of course, I think it may just be that we have the most mathematically stupid populace that could possibly exist... and marketing, those guys are just plain useless.

If people paid attention to prices beyond one day they wouldn't act the way they do, but like you say they don't, so you are right, I withdraw my point that an American economy can actually work.

[RainMaker]

Originally Posted by SportsDino

Most of the $300 goes to profit margin, making the product in the US and keeping margin equal would probably run a max of $400, and I think that is an overestimate. Most of that profit margin goes to over-priced executives and board room games, and rarely into any real investment for future growth.

And if anything Americans buy too much crap and then just throw it away way too early. Higher priced but more durable goods might be of surprising value to our economy.

No it doesn't. Apple has a nice profit margin, but that's because people will pay more money because it has their logo etched on the device. But otherwise, most electronics have extremely small margins. A company like Acer for instance is at like 2%.

[Autumn]

Reading their denial about the midnight shifts, I wonder if that might not be true. I know it's a unspoken fact that a lot of the factories in China spend the "off hours" producing counterfeit knock-offs. Given how many knock-off iPhones come out of China, makes sense they may be using the same factory.

[Crapshoot]

Originally Posted by JPhillips

Yeah, this is something we should condemn, not praise. Waking people up, giving them a biscuit and tea and forcing them to work 12 hour shifts is reprehensible.

Honestly? Its not slave labor - its what a middle class workday consists of outside the US and Europe (and did in the US and Europe a 100 years ago). People are aspirational, and this is a good job that allows them a path to being middle class - and people who have been in real poverty do not sneer at middle class paths, no matter what well-of-Americans may say. If you've ever seen what poverty is like in India and China and Africa, I promise you, you'll understand what the issues are here. And again, no one here is willing to pay $50 for the $20 wrangler jeans that WalMart makes, or pay $3,000 for that new Apple MacBook that you can get for $1,499.

Btw, not a rant - economics background yes, but also having lived in India and Africa.

[sterlingice]

Originally Posted by Crapshoot

And again, no one here is willing to pay $50 for the $20 wrangler jeans that WalMart makes, or pay $3,000 for that new Apple MacBook that you can get for $1,499.

Most of the rant, I'll agree with. I made a similar point above (this is their best alternative and how damning is that statement).

However, if you told me we had a lot better manufacturing base that guaranteed better jobs for everyone here and all I had to do was not have as many material possessions, I think I'd take that in a heartbeat. Then again, I'm a filthy risk-averse socialist who doesn't have to be materialistic. That said, there aren't a lot of us in this country.

SI

[Crapshoot]

Originally Posted by sterlingice

Most of the rant, I'll agree with. I made a similar point above (this is their best alternative and how damning is that statement).

However, if you told me we had a lot better manufacturing base that guaranteed better jobs for everyone here and all I had to do was not have as many material possessions, I think I'd take that in a heartbeat. Then again, I'm a filthy risk-averse socialist who doesn't have to be materialistic. That said, there aren't a lot of us in this country.

SI

Hey, I sympathize with the fears here and I think there is some validity to them. I think there's a great line I read somewhere that said "Republicans want to live in the 1950's; Democrats only want to work in them." While this arguements tend to leave out the benefits (ie, the costs of air travel if it wasn't deregulated; the cost of electronics, etc etc), there is a legitimate globalization going on. America';s advantage will not lie in cost; it will lie in its ability to be more productive, and more innovative (for example, being in the business, the list of would-be Silicon Valley's is a mile long; none have succeded because culturally, you can't replicate what has been built out here with top-down initiatives).

I think China fears are sometime overstated (I'll start worrying when they show the ability to create, and not just to optimize the engineering / outright steal), but I fully understand where they are coming from.

[RainMaker]

Originally Posted by SportsDino

I know, everyone wants the latest, trendiest thing. Throwing away smart phones more powerful than computers before this century started every two years for the latest model, cars that are flashy but have lifespans far shorter than vehicles achieved decades ago, and just about every other cheap ass thing I use every day that breaks long before it should have.

But it's not about the "latest, trendiest" thing. A smartphone now is vastly more powerful than one from 2-3 years ago. I had my old iPhone sitting around and started playing with it the other day. It's sort of amazing how slow it is compared to the new one. The camera is nothing on it and the battery life is worse. When it comes to technology, the reason we are throwing things away in 2-3 years is because they become incredibly outdated. You just can't hang on to a computer for 10 years these days.

You can argue that we should be spending more on other stuff. But I think people choose flexibility and cost over a long term acquisition. Take Ikea for example. I can buy a dresser that is 1/5th the cost of a high end one. Sure it won't last me 50 years like the high end one, but it will last me 10 and is cheap enough that I can dump it if I decide to change around my home or move.

[Neon_Chaos]

Might I also say, as a foreigner, that cost-of-living is drastically lower, and is more of a factor than the type of government in determining the lower wages.

The average salary of an IT graduate in the Philippines is roughly equivalent to gross income of $500 / month.

Anyone having a monthly gross income of $2000 could already be considered rich.

There is absolutely no way the US can compete with foreigners willing, ready, and able to work more hours for far cheaper than their US counterparts, unless they change laws to punish outsourcing (highly unlikely, as America's consumer base heavily relies on products and services that are routinely outsourced)

US average salaries:
U.S. Average Salary Income - Job Comparison

Average salaries for communist China and capitalist Philippines:
China Average Salary Income - Job Comparison
Philippines Average Salary Income - Job Comparison

If you take at the annual gross income tables towards the bottom... a company could essentially hire ten Filipinos abroad for the price of one American worker.

[lcjjdnh]

Originally Posted by sterlingice

Yeah, ultimately, we're part of the greatest charity job in the history of mankind, or would be if we were giving it freely. I'm ok with it, to a point- it sucks for those of us who grew up with Baby Boomer parents, by comparison. And it certainly won't stop me from agitating for a smaller not larger wealth distribution curve here. We should all feel this pain fairly equally- the rich shouldn't live like rich in America while the poor live like poor in China.

SI

I think this is a key point. Globalization may increase the size of the total pie, but that, in and of itself, is not a strong enough justification if most of the gains go to a smaller and smaller sliver of people. It doesn't seem unfair to ask those that benefit the most to compensate those that lose from it. Net gain isn't enough--distribution matters, too. Increased inequality in America leads to decreased social mobility. Thus the same small group will continue to reap the gains, only further widening the gap between the rich and poor.

Certainly admirable that we help people all over the world improve their standard of living, but that doesn't explain why it should be the "99%" in America that subsidizes that rather than the "1%". Although these policies may nominally benefit consumers, that doesn't help if their own wages fall lower and lower. Most of these policies leads to a widely dispersed, but small gain (that is, each consumer only benefits slightly from increased trade) and a highly concentrated, large loss (that is, workers in this industry take a beating). It seems like fairness dictates these policies only make sense if, for the majority of voters, their gains as consumers (or by compensation for loss of jobs) outweighs the chance their job, too, might one day be marginalized. Veil of ignorance and all.

[JonInMiddleGA]

I'll just skip the snide parts & jump to the most glaring mistake in your line of reasoning.

Originally Posted by SportsDino

1 product at a 50% higher price over 5 years is still better than 2 or 3 products over 5 years.

Not when the time it takes to replace that product with a newer & better (or more featured) model is about, oh, 15 minutes. But I thought the whole innovation cycle was a big part of your economic philosophy.

And frankly, this country sucks at making anything that's going to last five years, we're too lazy, too careless, and in many cases simply too stupid on the whole to do that sort of thing very well. If such products were to become the new standard, they'd be made overseas too. Might be in countries other than the ones that get the bulk of the business now, but it wouldn't be here, not anytime soon at least.

[RainMaker]

It's also worth asking about the alternative for these people. Take factory workers in China. Would their lives be better without these jobs? Or would they be living in even worse poverty? Potentially starving to death? Sure these are shitty jobs for us, but are they for them?

The article on the suicides is a bit misleading too. The rate of suicides for workers at that factory are HALF that of the national average. You are less likely to kill yourself working at them. Doctors in the United States have one of the highest rates of suicide here. I don't consider their work conditions horrible.

Honestly, if we're going to stop suffering in many of these countries and raise their quality of life, the best hope is to start passing out rubbers and birth control. Their populations are growing too rapidly and there is just no way to support it.

[JPhillips]

Originally Posted by Crapshoot

Honestly? Its not slave labor - its what a middle class workday consists of outside the US and Europe (and did in the US and Europe a 100 years ago). People are aspirational, and this is a good job that allows them a path to being middle class - and people who have been in real poverty do not sneer at middle class paths, no matter what well-of-Americans may say. If you've ever seen what poverty is like in India and China and Africa, I promise you, you'll understand what the issues are here. And again, no one here is willing to pay $50 for the $20 wrangler jeans that WalMart makes, or pay $3,000 for that new Apple MacBook that you can get for $1,499.

Btw, not a rant - economics background yes, but also having lived in India and Africa.

I don't mind people working in factories for wages above what they could make elsewhere, but there need to be protections for the workers. These workers shouldn't be forced to work 12 hour shifts with no notice, shouldn't be forced to pay the company for room and board(I'm only guessing here, but they obviously live in a dorm owned by the company), should have a weekly maximum for hours worked, should get regular overtime, should be given regular breaks, etc.

Most of these people will never break out of poverty because the company will garnish wages for necessities and then fire the worker when their body breaks down from extended hours. These kinds of factories aren't stepping stones to the middle class as much as bastions of indentured servitude. Apple could pay each employee ten dollars a day more and it would barely make a dent in their profits.