The New York Times had a long, and very interesting article on why Apple moved pretty much all of their manufacturing business over to China this morning. I definitely urge you to read the whole thing.
There are many interesting things about it. One thing is glaringly clear: what the GOP is advocating as a remedy isn’t addressing the problems at hand. The solutions to the problems are hard and long term, and even if the US is able to solve the problems we can solve, Apple (and other companies like them) may choose to stay in nations like China anyway.
I’m sure some in the GOP will grab this article as an instrument to try to bash Obama as being out of touch in creating jobs. Doing so will merely prove that they didn’t bother reading the article. There was little to none in the article about burdensome taxes or constraining regulations. The big explanation for why Apple (and others) have moved plants to China and other places overseas: Labor. And I’m not talking about big labor here.
There are two parts to the labor problem where China is beating the United States according to the article. One of them is potentially solvable. However, the other one is much more problematic.
First, the more solvable problem can be summed up by this quote:
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. Americans at that skill level are hard to find, executives contend. “They’re good jobs, but the country doesn’t have enough to feed the demand,” Mr. Schmidt said.
Creating a workforce with more technical workers is certainly something the US can work on, though the US is challenged by the fact that China has so many more workers than we do, and the fact that, in China, taking a step to be such a worker is a step up, while to many in the US, it may be seen as a step down. However, these are potentially problems we can overcome.
Here is the problem: even if the US is able to, one day, compete with China on the size and quality of our technical workforce, there are other factors that may still keep Apple and other companies in China. Here are a few quotes to illustrate why this is the case:
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 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….
“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?”
For Mr. Cook, the focus on Asia “came down to two things,” said one former high-ranking Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.” The result is that “we can’t compete at this point,” the executive said.
Mrs. Lin earns a bit less than what Mr. Saragoza was paid by Apple. She speaks fluent English, learned from watching television and in a Chinese university. She and her husband put a quarter of their salaries in the bank every month. They live in a 1,080-square-foot apartment, which they share with their in-laws and son.
Apple may be right in claiming that “labor costs” aren’t the biggest driver in moving jobs from the US to China, but the core problem is still labor. Apple, and companies like them, like having a source of cheap, docile labor that is almost literally willing to live for the company: work 60 to 80 hours a week for barely more than $1 an hour, and able – and willing – to be on call to go to work at a moment’s notice, mainly because they are literally living at the factory.
These are labor practices that the United States swept away 100 years ago, but Apple, and companies like them, are taking advantage of those working conditions in China today. And it’s hard to see the US going back to allowing those working conditions here, and even if we did, how does that improve the lives of every day Americans who would be forced to work almost every waking hour in the factory, at the cost of their family and having a life?
The other problem is the supply-chain problem: Apple moved most of their manufacturing overseas because most of the parts used to build their products were already overseas. Many, many years ago, manufacturing hit a sort of critical mass where enough things were made overseas that it became cheaper, just due to the supply-chain, to move assembly plants overseas, closer to where the parts were made, than to keep them in the US. That’s what Apple realized as well. The problem is, how do you bring those plants back?
Even if you could train workers with the requisite skills, and those workers were willing to work in the same conditions as their Chinese counterparts – those plants are already in China, and they have little incentive to move them back to the US. As the article notes, Apple likes where their facility is because it is literally blocks away from the factories producing the parts for their products. Why should they move back to the US and have to ship those parts back here, even if there are the workers here available to do the work?
Finally, if getting government out of the way is the answer, then why is China kicking our ass in this area? One of the things that makes China so attractive is the fact the government is willing to subsidize much of the work. Note the quote in the article where Apple was looking for pieces of scrap glass to do tests on for their new screen. The Chinese were willing to give them the scrap glass for free. If that wouldn’t be derided as government corporate welfare here, I’m not sure what would. On top of that, it’s the Chinese government, not the free market that produces manufacturing plants just like what Apple needs sitting next door to each other, and hundreds of thousands of people that just happen to be trained just for the jobs Apple and other companies need.
Think of it as a marriage of Socialism and Capitalism. United State’s capitalism is using of China’s socialism to provide them with everything they ever wanted or needed – namely cheap and docile labor and huge economies of scale. It’s a marriage made in heaven, at least for companies like Apple. Companies end up getting the best of both worlds while minimizing the problems with both systems. And it’s the workers in both systems that end up paying the price for this marriage.