Tea and Biscuits

Our Outrage Over America’s Inability to Compete with Cheap Foreign Labor Is Misplaced

The New York Times recently ran a story about globalization that focused on the use of factories in China by Apple Corporation. Today, the Times followed up with a story about unsafe working conditions in those factories.  As recently as ten years ago, Apple based most of its manufacturing in the U.S. Today, most of its manufacturing takes place overseas. For example, Apple does not produce a single iPhone domestically. At a business summit last year, President Obama asked the late Steve Jobs, “What would it take to make iPhones in the United States?” Jobs’s reply was candid to the point of brusque – “Those jobs aren't coming back.”

Many conservative economists and politicians blame two factors for the permanent exodus of manufacturing jobs. First is the high wages paid to U.S. workers, as demanded by labor unions. Second is the excessive regulation of industry by the federal government. These twin pressures drive Apple’s costs too high, forcing them to seek relief elsewhere. There is truth to these charges but they oversimplify why Chinese factories meet Apple’s needs so much better than American ones.

Rural workers rescued from an unsafe

factory in the village of Linfen in N.E.

China.  They might have gotten tea

and bisuits (insert) at an Apple factory.

While wages for Chinese factory workers are only ten percent of their U.S. counterparts, Jordan Weissmann, financial editor for The Atlantic, points out that direct labor costs represent only ten percent of the full retail price for the cheapest iPhone 4S. He quotes a former high-ranking Apple executive that factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what's in the U.S.” It is as much about flexibility as it is cheapness. And the chief product savings come from removing all those pesky worker benefits and protections.

In an example that Apple executives love to cite, the company made a sudden, last minute iPhone design change. Their Chinese factory received the new plans in the middle of the night. It immediately roused more than eight thousand workers from their dormitories, giving each worker a cup of tea and a biscuit, and set them to work retooling to meet the new specs. Within four days, the factory was producing over ten thousand iPhones per day.

Tea and biscuits? Dormitories? Yes, dormitories.

China builds multiple factories, each complementing the other, to create large industrial complexes that become cities unto themselves. Rather than have homes, workers are housed in dormitories. The factory provides food, shelter, and medical attention for workers. The Chinese government underwrites the construction of these factory cities.

We celebrate the rise of free market capitalism in China. Yet if the U.S. did what China has done in order to compete, most Americans – and certainly most conservatives – would revile the practice as socialism and the intrusion of big government into private enterprise. The idea of workers as citizens within their company/factory has a creepy Orwelian quality to it.

The federal regulations cited as excessive in this country are largely missing with the Chinese government. However, keep in mind the intent behind most U.S. regulations is ensuring worker safety and generally providing a decent, dignified working environment that is often lacking in Chinese factories.

When confronted with conditions at Apple’s Chinese factories in 2010, Jobs feigned bewildered innocence. “It’s a factory, but, my gosh, I mean, they’ve got restaurants and movie theaters and hospitals and swimming pools, and I mean, for a factory, it’s a pretty nice factory.” In spite of this, “Most people would still be really disturbed if they saw where their iPhone comes from,” contends one former one former Apple executive.

Chinese workers who will talk to reporters say they routinely work under harsh conditions, including excessive overtime, in some cases seven days a week. Their jobs require them to stand so long that their legs swell until they can hardly walk. Under-age workers are common. All activity takes place under wall banners that warn, “Work hard on the job today or work hard to find a job tomorrow.” Oh, and factory dormitories sometimes contain as many as twenty people stuffed into a three-room apartment.

Worse still, Chinese factories display systematic disregard for workers’ health. Improper disposal of hazardous waste and falsified records have resulted in serious injuries and death from poisoning and fires/explosions. Apple insists that it conducts audits and requires corrections when it finds problems. However, a consultant at Business for Social Responsibility, which Apple has retained twice for advice on labor issues, finds that claim disingenuous. “They don’t want to pre-empt problems, they just want to avoid embarrassments.”

That may be too harsh. Some former Apple executives insist management would genuinely like to improve conditions within oversea factories but faces constant push back for fast delivery of new products and maximizing profits. Then again, Apple just reported one of the most lucrative quarters of any corporation in history, with over $13 billion in profits. It could have made even more, executives said, if its overseas factories had been able to produce more. Could Apple not use a little more of it to ensure livable working conditions for Chinese laborers?

The amoral nature of capitalism and free markets is exactly what makes them so efficient at producing the highest quality products at the lowest cost. It also has caused many to realize that government regulation of them is necessary and just. Sometimes consumers are the ones demanding improvements, as they did against Nike and The Gap, when western media exposed appalling conditions at those companies’ Chinese factories.

Unfortunately, American appetite for evermore innovative and cheap shiny electronic gadgets has not placed the same pressure on Apple or other high tech companies employing overseas workers, such as Dell, Hewlett-Packard, I.B.M., Lenovo, Motorola, Nokia, Sony, and Toshiba.

As one Apple executive cynically summed up, “You can either manufacture in comfortable, worker-friendly factories or you can reinvent the product every year, and make it better and faster and cheaper, which requires factories that seem harsh by American standards. And right now, customers care more about a new iPhone than working conditions in China.”

The twin forces for globalizations and technological advancement demand changes to the U.S. model if we are to regain competitiveness. Nevertheless, the Chinese model is no basis for a return to American exceptionalism. Rather it represents a descent to an infamous era that authors like Sinclair Lewis and Theodore Dreiser once chronicled.

“If Apple was warned [about Chinese factory conditions], and didn’t act, that’s reprehensible,” fumes Nicholas Ashford, a former chairman of the National Advisory Committee on Occupational Safety and Health. I agree. For all his innovative brilliance, I once noted that Steve Jobs was also noteworthy for being something of an asshole.

Many wish the U.S. would do more to condemn the Chinese government for its human rights abuses. It seems quite a few U.S. companies deserve the same scorn for their business practices. Instead, we condemn U.S. workers as too fat, lazy, and pampered as well as unions and government for acting as their advocates. If we follow the Chinese model, our grandchildren may have jobs but ones without dignity, decent working conditions, or healthcare. On the other hand, there will be no shortage of iPhones . . . or tea and biscuits.

Vultures In Quiet Rooms

Romney Won’t Convince Voters He Isn’t One by Refusing to Talk About It

Republican Presidential candidate Mitt Romney scored a striking precedent by co-winning the Iowa Caucuses and then winning the New Hampshire Primary by a substantial margin. Romney’s fellow candidates continue looking for barbs to jab at him and the somewhat hapless Rick Perry seems to have found one that sticks. It has to do with Romney’s tenure as CEO at the venture capital firm Bain Capital.

“I understand the difference between venture capitalism and vulture capitalism,” Perry told a crowd in South Carolina. “I happen to think companies like Bain Capital could have come in and helped these companies if they were truly venture capitalists, but they're not. They're vulture capitalists . . . They’re vultures that are sitting out there on the tree limb waiting for the company to get sick, and then they swoop in, they eat the carcass, they leave with that and they leave the skeleton.”

Vulture Capitalists – watercolor
by Canadian-born artist and
illustrator Anita Kunz, 2001

Newt Gingrich, still holding a vendetta against Romney attack ads that sank his chances in Iowa, was quick to agree. “I think there’s a real difference between people who believed in the free market and people who go around, take financial advantage, loot companies, leave behind broken families, broken towns, people on unemployment.” A super PAC backing Gingrich plans to spend $3.4 million in South Carolina airing a documentary that rips Romney as “more ruthless than Wall Street.”

Romney’s initial reaction to such criticisms has been to condemn them as unfair to him personally but also for placing “free enterprise on trial.” Other conservatives are equally uncomfortable with the larger implications behind this line of attack against Romney and jumped to his defense. “It is bad enough for Barack Obama to blame folks in business for causing problems in this country,” bemoaned Rick Santorum. “It’s one other thing for Republicans to join him.”

“That is the miracle of free-market capitalism,” explains Washington Post conservative columnist Jennifer Rubin. “The pursuit of profits – by creating real value – benefits the rest of society through better products and services . . . and jobs and higher incomes.” Her colleague Kathleen Parker asks, “Since when in a free, capitalist nation is it a sin to buy a company and turn a profit?”

It is true that some of the criticisms against Romney on this score have been over-the-top and even dishonest. In particular, the much cited Romney quote, “I like being able to fire people” was taken completely out of context. The candidate was clearly not expressing his economic/business preferences but rather advocating choice in selecting healthcare providers. The Obama campaign will come to rue any attempts to make mileage out of this quote in the general election.

However, Romney has also been over-the-top at times about his business acumen, particularly as a job creator. During his 2008 candidacy, Romney tended to focus on his tenure as Governor of Massachusetts. However, that period of Romney’s career is verboten in 2012 because it invites unwanted comparisons between Obamacare and Romneycare. Therefore, Romney has chosen to stress his private sector experience, including his time at Bain, this time around.

By doing so, Romney “invited voters to look at what he did there and determine if they believe it was both (a) admirable and (b) germane to the Presidency,” as Jonathan Last points out in the Weekly Standard.

The presumption that experience as a CEO translates to Presidential competency is questionable. Robert Samuelson of the Washington Post believes “Romney better understands – and identifies with – business” than President Obama.” However, he concedes, “Whether this becomes a political advantage is unclear.” New York Times columnist David Brooks concurs. “If you look back over history . . . there’s little correlation between business success and political success.”

Brooks’s colleague, Paul Krugman, attempts to define the crucial difference. “Even giant corporations sell the great bulk of what they produce to other people, not to their own employees – whereas even small countries sell most of what they produce to themselves.”

While Romney misleads by portraying himself at Bain as some superhuman job creator, his critics equally overstep categorizing him as a job-killing vulture. “Private equity doesn’t consciously strive to create jobs,” admits Samuelson. “But it’s also true that employment practices at companies backed by private equity don’t differ dramatically from other similar non-private-equity-owned companies.”

The intensity of the pushback against criticisms of Romney’s time at Bain derives from recognition by Republicans that this charge could come to haunt their likely nominee. Conservative blogger Erick Erickson at RedState acknowledges far-left liberals are not the only ones who view venture capitalism as a colossus of greed “There are, frankly, a lot of Republican primary voters who view it that way too.” The Wall Street Journal’s Fred Barnes calls the attacks “an explosive issue . . . the greatest threat to [Romney’s] quest for the Presidency.”

Free markets are, by their nature, messy things. There will always be room in their margins for venture capital firms, like Bain, to perform necessary and useful cleanup. The key term here is “margins.” In the recent past, such firms have moved out of the margins to become center stage players. They generate vast amounts of wealth not by creating products (and value) but often by gaming around the rules under which markets operate – rules often put in place by the federal government they claim to want to shrink and whose regulations they wish to curtail.

As E.J. Dionne observes in the Washington Post, “Capitalists of Romney’s sort never want to acknowledge how much their ability to make money depends on what government does.”

In many ways, Romney is lucky to have this issue raised now and by his fellow conservatives. It should blunt the force of the charge when Democrats raise it again in the general election. However, this assumes he uses the opportunity to develop a politically viable defense. His initial efforts at condemning critics as anti-capitalist are unimpressive.

During an interview on NBC’s Today Show, host Matt Lauer challenged Romney whether he genuinely felt any questioning of Wall Street and financial institutions, as well as the growing U.S. wealth gap, were out of bound. What about basic fairness?, Lauer questioned. Romney refused to budge. “You know, I think it is about envy. I think it’s about class warfare,” he replied. “I think it’s fine to talk about those things in quiet rooms and tax policy and the like. But the President made it part of his campaign rally.”

Quiet rooms?

During the height of the Iraq War and its counter-protests, many argued that dissenters should get off the streets and into quiet rooms. They insisted that criticizing the war was tantamount to a lack of patriotism, dishonoring the troops, and providing aid and comfort to terrorists. The latest mantra from conservatives seems to be that calling bad capitalist practices into question is synonymous to questioning capitalism. It is the politics of fear and jingoism all over again.  Personally, I do not think Romney is a vulture. Romney’s practices at Bain bother me far less than his current contention that they are not legitimate topics for discussion and raising them is essentially un-American in nature.

Perry has backed off the term “vulture.” However, he refuses to concede the matter as a non-topic. He told FOX News, “This process is about winnowing out individuals and testing whether or not they're a flawed candidate or not. And I will tell you when people can point to where you made a quick profit and kicked people out of their jobs, that is an issue that has got to be addressed.” Gingrich adds, “Criticizing specific actions in specific places is not being anti-free-enterprise. And raising questions about that is not wrong.”

As Romney’s defenders point out, capitalism is not a pretty thing sometime. Neither is democracy, for that matter. So what is the harm in discussing them frankly? American exceptionalism holds little value if gained by sweeping its limitations and weaknesses under a rug or by hiding its vultures in quiet rooms.

The Candidate Who's Near

Mitt Romney Can Win Iowa But Not Republican Hearts

My heart's in a pickle,
It's constantly fickle
And not too partickle, I fear.
When I'm not near the girl I love,
I love the girl I'm near.

One of the characters in the whimsical Broadway musical Finian’s Rainbow is a leprechaun named Og, whose pot of gold is stolen by the show’s title character. Og is anxious to get his gold back because its absence is transformational, literally changing him from magical creature to mortal being. He fears losing his powers and identity. Unfortunately for Og, his burgeoning humanity stirs romantic impulses and he falls hopelessly in love with Finian’s vivacious daughter, Sharon.

At least somebody loves him –
GOP Presidential candidate Mitt
Romney is hugged by his wife
after co-winning the Iowa Caucuses

Yet by the end of the story, Og has settled down with Susan, a mute girl so reserved and bland she was largely unnoticed by all. The reason for the switch is that Sharon does not reciprocate Og’s feelings. Caught up in her own problems, she pays him little heed. That leaves no eligible girl around but “Susan the Silent.” Therefore, in a combination of pragmatism and desperation, Og forsakes the girl he loves in order to love the girl who is available and marriageable. He explains his predicament and adopted solution in the song, When I'm Not Near the Girl I Love.

Og seems a fine metaphor for Republican voters. They want to regain the White House after losing it in 2008. They see this as a transformational moment, with America’s descent from a world power into socialism hanging in the balance. In order to do so, they must commit to a GOP candidate as their nominee. Much like Og, they keep falling in love only to find rejection.

Republicans have just completed the Iowa Caucuses, the first formal step in their 2012 Presidential Primary season. The result was a virtual tie between erstwhile frontrunner Mitt Romney and a surging Rick Santorum, with a surging Ron Paul a close second. Actually, Santorum and Paul are but the latest is a long line of GOP surgers.

The first sweetheart was Michele Bachmann, who GOP voters hoped could work a little Sarah Palin north woods magic again. Alas, she was all nowhere and no bridge. Then voters swooned over Rick Perry’s executive experience, Christian values, and big hair. Sadly, he proved unable to defend his own positions among his peers and had too many “senior moments” for a man of only sixty-one years.

Next, voters flirted with Herman Cain, drawn to his bad-boy outsider status and CEO experience. They left in droves when he proved better cast in Felini’s 8½ than his own 9-9-9. He just wasn’t the kind of candidate you brought home to meet mother . . . unless you wanted him to date her. Finally, voters returned to an old flame in Newt Gingrich. He was a legitimate GOP elephant, rather than a RINO, but he had too much trunk (i.e. baggage).

Given all this, one might think Santorum and/or Paul are the “candidate who’s near” – a fickle Republican electorate’s latest passion. However, the key is the key here is that Santorum and Paul, like the others before them, inspire actual passion in voters’ breasts. It is actually the lackluster but omnipresent Romney cast in this role. Voters like him, they just don’t “like” like him. Even his Mormonism is un-exotic – he is Donny Osmond with less charisma (if that is imaginable).

Voter polling by NBC News and other groups confirms this phenomenon. Romney did best among affluent non-Evangelical moderates over forty-five years old, especially senior citizens. In short, he appealed to the same traditional Republican establishment that long has been his base. He did not make necessary in-roads among other Republicans. Santorum took the far right and social conservatives. Paul won young Republicans, poor Republicans, and libertarians.

Washington Post columnist Ruth Marcus got similar results when informally talking with voters in Johnston Iowa. Those backing Santorum, Paul, and Gingrich used words like “prefer,” “heart,” “excitement,” and “change” when describing reasons for backing their candidates. Romney supporters were more likely to mention “most electable” and “most likely to win” for their reasons.

There is some good news for Romney out of Iowa. In 2008, he invested huge amounts of time and money in the state, only to finish a disappointing second that virtually knocked him out of the race. In 2012, he gave it far less attention and drew the same percentage of the vote for a first place tie. This suggests he has created a well-established brand among voters if not necessarily a growing one.

The other good news for Romney is that if he prevails in the primaries, he will face a candidate in the general election who is far less beloved by his Democratic base than in 2008. Obama is also the “candidate who’s near” for many liberals. This is even truer for Independent voters, likely to play a key role once again in choosing a Presidential victor.

However, this is where Iowa has bad news for Romney again. Paul was the big winner among self-described Independents and first-time voters (including Democrats participating in Republican caucuses), garnering forty-three percent of this group. Romney is never going to win the Republican nomination and the Presidency by being a consensus candidate about whom everybody is apathetic.

Romney picked up an endorsement yesterday from 2008 Republican candidate Senator John McCain of Arizona. This seems a mixed blessing at best. For many archconservatives, McCain is the poster boy for what can go wrong when they place electability above purity and principles. In today’s Wall Street Journal, columnist Daniel Henninger declares, “The Republican divider is the Party's frontrunner, Mitt Romney.” It cannot be a pleasant position for Romney and it cannot be a pleasant situation for Republican voters either.

Og the leprechaun ultimately gave up attempting to retrieve his gold, deciding that being human is not so bad after all. Of course, that is because he was willing to settle. Republicans seem poised to settle too. They just do not seem to be especially willing.  And Romney waits quietly in the wings as the candidate who's near.

For Sharon I'm carin',
But Susan I'm choosin'
I'm faithful to whos'n is here.
When I'm not near the girl I love,

I love the girl I'm near.