“Those jobs aren’t coming back”

by Alek Davis

A few days ago, I read the New York Times’ article How the U.S. Lost Out on iPhone Work and still cannot get it out of my mind. In the article, the authors — Charles Duhigg and Keith Bradsher — try to explain why Apple (and other manufacturers) prefer to produce goods in China. If you work in high tech or have interest in economics or global trade, take a few minutes to read it. It’s a fascinating story. But before (or after) you do, also listen to this episode of This American Life (at least, Act One): Mr. Daisey and the Apple Factory  (or read the transcript). It will give you a complementing perspective on the issue.


Here are a few observation that keep bugging me (in no particular order).

Excessive regulation and high corporate taxes – two reasons conservatives most often link to job losses – were never mentioned in the story as the reason for job outsourcing.

The “Designed in California” label on the back of the iPhone is not 100% accurate.

Regarding the government subsidies:

“The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost.[...]  The Chinese plant got the job.”

Doesn’t U.S. government give tax subsidies for R&D? If the Chinese government does more,  good for them. Now, would our esteemed government bashers please step up and scream: “Solyndra.” 1, 2, 3…

Interesting point about agglomeration that Paul Krugman bought:

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

But in the same story, you learn that

“iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.”

So is the “entire supply chain” really in China?

About “tax holiday”:

“At dinner [with President Obama], [...] some [executives] had urged the president to give companies a “tax holiday” so they could bring back overseas profits which, they argued, would be used to create work.”

Would someone (say, the above mentioned executives) be willing to provide a (rough) number of U.S. jobs created with the help of the profits brought in during the foreign profit tax break of 2004? Anyone?

On the insignificance of the low pay of Chinese workers:

“In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.”

Really? Then why do technology companies outsource non-manufacturing jobs, like software development and customer support?

On the skills of American workers (or lack of thereof):

“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.”

Hmm… I can’t quite wrap my mind around the meaning of “most educated workers in the world” who do not quite make (in quantities?) for “the mid-level skills that factories need.” What does this mean? Let’s find out:

“Companies like Apple “say the challenge in setting up U.S. plants is finding a technical work force,” said Martin Schmidt, associate provost at the Massachusetts Institute of Technology. In particular, companies say they need engineers with more than high school, but not necessarily a bachelor’s degree.”

Let’s assume that the argument is correct and in the middle of recession and high unemployment, companies are struggling to fill technical positions. What kind of education American workforce lacks?  What kind of training the nation has been offering before and now stopped? What is this mythical “more than high school” but less than bachelor’s degree program Martin Schmidt refers to? Is this an associate degree? Vocational school? On-the-job training? What type of education targeting “technical work force” China offers and the the U.S.A. do not?  Who should provide it? The government? The industry? Philanthropists?

Normally, in a capitalist society, if an industry experiences lack of job applicants, it raises salaries, but as economist and co-founder of the Center for Economic and Policy Research Dean Baker observes, this does not seem to be the case in the high tech field.

If lagging technical skills of American workers is a problem that leads to outsourcing, as executives often complain, how come you rarely — if ever — hear praise of technical skill overseas. If you hear praise addressing Chinese workers (as illustrated in the article), it normally evolves around the quantity, not quality, of people. Although, some skills are mentioned:

“”“We shouldn’t be criticized for using Chinese workers,” a current Apple executive said. “The U.S. has stopped producing people with the skills we need.”

Can you guess what skills distinguishes Chinese workers from their American counterparts? The skills Apple executives found in China and could not find back home:

“An eight-hour drive from that glass factory is a complex, known informally as Foxconn City, where the iPhone is assembled. To Apple executives, Foxconn City was further evidence that China could deliver workers — and diligence — that outpaced their American counterparts.”

So in which skill — other than sheer number of capable bodies — do Chinese workers outpace Americans?

“Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.”

American workers lacking “diligence and industrial skills”? Give me a break. But you really do need flexible work force to perform stunts like this one:

“The first truckloads of cut glass [for iPhone screens] arrived at Foxconn City [factory] in the dead of night, according to the former Apple executive. That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones. Within three months, Apple had sold one million iPhones. Since then, Foxconn has assembled over 200 million more.”

So here it goes: the only skills that distinguishes Chinese workers from Americans are numbers and flexibility. Yes, numbers and flexibility are the skills executives and others interviewed by the authors kept marveling about:

““They could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”

And it’s not just the “live in dorms” type of flexibility. It’s the 15 people living in the 12×12 feet room under 24-hour surveillance and ready to be shipped to a factory floor 24×7 so that they can breath N-hexane 12 hours per day six days per week type of flexibility:

” They had built on-site dormitories so employees would be available 24 hours a day. [...] 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.”

It’s the flexibility to perform the same minutiae, day after day, until the “joints in [your] hands have disintegrated from working on the line, doing the same motion hundreds and hundreds of thousands of times.” The flexibility of being hired at 13. The flexibility of being fired when you complain about poor working conditions to the government union or go to jail when you join a non-government one.  Yep, you can’t find this type of flexibility in the U.S.A.:

“That’s because nothing like Foxconn City exists in the United States.”

At least, not yet. But if labor unions keep getting undermined at the rate the do now, or we get more governors and politicians who believe in the evils of regulations, who knows, maybe we’ll get one soon.

Now, how does one invest in the dorms?

P.S. Apple’s record earnings, in one chart

UPDATE:
‘This American Life’ Retracts Mike Daisey’s Apple Factory Story
The Sad and Infuriating Mike Daisey Case

See also:
A Trip to The iFactory: ‘Nightline’ Gets an Unprecedented Glimpse Inside Apple’s Chinese Core
Foxconn Plans to Lift Pay Sharply at Factories in China
An open letter on labor rights to Apple C.E.O. Tim Cook