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.