How the U.S. Lost Out on iPhone Work

[Doktor]

even fewer people realize how high-tech industries as a whole tend to not generate a lot of jobs-- and that in the chinese exception, a lot of this has to do with chinese population density and government industrial policy.

And they also fix wages ;)

[JAD_333]

JAD,



i know we discussed this earlier, but i still don't see why this counts as "incredible ignorance"; they seem to be fairly industry-specific questions.

the two questions asked were:

-What would it take to make iPhones in the United States?
-Why can’t that work come home?

i am pretty sure obama knows that yes, labor costs are cheaper in china. however, the US is still a high-tech manufacturing leader in terms of output-- we've still seen year-on-year productivity/efficiency increases even as the # of jobs decreases. so it's a fair question to ask why despite the infrastructure we have, it still would not pay for iPhones to be built here. not a lot of people are well-versed in the specific nodes of the global industry (before fukushima, how many people knew the oft-repeated media tidbit that japan produced 20% of the world's semiconductors?).

even fewer people realize how high-tech industries as a whole tend to not generate a lot of jobs-- and that in the chinese exception, a lot of this has to do with chinese population density and government industrial policy.

a true demonstration of ignorance would be to ignore the expert advice, or to offer as a rebuttal a single-tracked economic response...

Asty:

You're a Washington savvy guy. You know that appearances are what count. Whether or not Obama was asking questions to which he knew the answers, he appeared ignorant.

[RollingWave]

I think i've read that Apple essentially gets 30% of the profit of a Iphone, where as Foxconn gets like 2-3% of it at best.

[JAD_333]

I think i've read that Apple essentially gets 30% of the profit of a Iphone, where as Foxconn gets like 2-3% of it at best.

Who gets the rest of the profit? lol, I think you mean they earn 30% profit on the sale price. That's about right.

[RollingWave]

Who gets the rest of the profit? lol, I think you mean they earn 30% profit on the sale price. That's about right.

It's in an recent economist article I think, but I need to look it up (can't seem to find it online) IIRC it had a pie chart that says something like 2 % for Taiwan 5% for Korea 3% for Japan and like 5% for other non Apple USA . and then a lot of other bits and pieces.

But yeah, thing like that reflect part of the problem, the USA got most of the profit, but the profit of the rest of the world is spread far more evenly amongst their employees. Foxconn obviously does get a lot of irk for it's spartan practices but if they go bust China (and Taiwan) would be utterly devastated. not to meantion Brazil too (since they and Apple begged Foxconn to setup new factories there.)

[Chunder]

Asty:

You're a Washington savvy guy. You know that appearances are what count. Whether or not Obama was asking questions to which he knew the answers, he appeared ignorant.

For a former Republican staffer, you are probably also aware that there are other 'savvy' explanations for posing a question. Easy to ridicule if you pass unsavoury Judgement. IIRC, certain Nafta disapproval was a significant part of the Obama presidential campaign, and nobody saw it as anything other than politicking then...

[citanon]

Guys, is it just me, or is the US, by far, getting the better end of this deal?

We have Apple engineers, designers and executives earning good pay by extracting the lion's share of the profits, and consumers who benefit from steeply discounted prices on their wonder-gadgets due to use of discounted labor. China gets a small slice of the profits that go to a few executives plus a work force that can barely make ends meet, that can not save for retirement, and that is destroying their own health by working endless hours in awful conditions. What meager wages the employees do earn is eroded by high domestic inflation and currency manipulation, currency controls and high taxes. This just seems like the devil's bargain. It's sacrificing these workers' lives on the altar of economic growth.

It really makes you wonder how much longer they can keep going like this. What happens in 5 or 10 years when it becomes painfully (literally) apparent to the bulk of these workers that they can no longer sustain this type of a life? Or in 20 years when they realize that they have nothing to show for a life time of suffering?

[USSWisconsin]

Guys, is it just me, or is the US, by far, getting the better end of this deal?

We have Apple engineers, designers and executives earning good pay by extracting the lion's share of the profits, and consumers who benefit from steeply discounted prices on their wonder-gadgets due to use of discounted labor. China gets a small slice of the profits that go to a few executives plus a work force that can barely make ends meet, that can not save for retirement, and that is destroying their own health by working endless hours in awful conditions. What meager wages the employees do earn is eroded by high domestic inflation and currency manipulation, currency controls and high taxes. This just seems like the devil's bargain. It's sacrificing these workers' lives on the altar of economic growth.

It really makes you wonder how much longer they can keep going like this. What happens in 5 or 10 years when it becomes painfully (literally) apparent to the bulk of these workers that they can no longer sustain this type of a life? Or in 20 years when they realize that they have nothing to show for a life time of suffering?

They pull up with execution vans and silence the problem - then replace the dead complainers with a fresh crop of unskilled workers - and suffer from a high defect rate for a couple years, apple looses its market share to someone who will build a reliable device, the Chinese dig mass graves - poluting the water that the surviving workers drink and killing them too...
Sounds like sustainable behavior to me - and then they dig up Jobs and hang the SOB's corpse - that will really fix everything - but the corpse drips in the congressional water supply and kills all of them - now we're cooking with gas - but additional gas may be required , mustard, for the congress people who drink only alcohol...

[Chunder]

It really makes you wonder how much longer they can keep going like this. What happens in 5 or 10 years when it becomes painfully (literally) apparent to the bulk of these workers that they can no longer sustain this type of a life? Or in 20 years when they realize that they have nothing to show for a life time of suffering?

My sentiments are roughly the same.

An employee gets working conditions handed to them on a plate. An employer has to take risk to serve that plate to the worker. The very nature of employing people passes through a survival of the marketplace concept. If the business is sound, it gets the gong. If it isn't - it goes belly up.

Nobody starts a business hoping that it will be heavily subsidised by the government to make it viable. Conversely the opposite is true. People hope to stay in business through subsidies (if they are big enough) through changing conditions - often which are dynamic. An employer can be proactive & dynamic in establishing a lucrative business, selling and moving on - yet on the other hand, the worker is static - as if completely removed from the nature of business. What a paradox. Then we complain about the nature of large sectors of industry ceasing to become viable.

Then again - we have a further education system which offers education in areas where a return on the investment is by no means certain because of the murky nature of demand.

I have no doubt, that the U.S market will find another piece of paper worth speculating on. One might look at the banking sector and others for how they are able to repeatedly find new areas in which to become lucrative.

[JAD_333]

Guys, is it just me, or is the US, by far, getting the better end of this deal?

The US, or rather Apple, is getting the deal it bargained for. So is Foxconn.
Both sides entered into the deal because they believed they would benefit from it. They knew what they're doing. Neither got the better end of the deal.

We have Apple engineers, designers and executives earning good pay by extracting the lion's share of the profits, and consumers who benefit from steeply discounted prices on their wonder-gadgets due to use of discounted labor.

That picture is barely accurate.

First of all, the product was developed from top to bottom by Apple. Apple then hired a company to assemble it. It also hired a lot of other companies to make parts for it. And then it took the finished product to market. Classic business operation.

Second, there is no discount in the price of a product simply because it is made in a country with lower labor cost. The product may be less expensive, but that is all.

Price always reflects cost of development, parts, assembly, shipping, advertising, marketing, distribution, management, retailer markup, and finally profit for Apple. The essence of competition is keeping each of those price points as low as possible. I don't understand how anyone can find that so wrong.

Third, cost of Chinese labor is not discounted. It reflects the going rate particular to that country, and every cent paid for labor is reflected in the price of the product.

China gets a small slice of the profits that go to a few executives plus a work force that can barely make ends meet, that can not save for retirement, and that is destroying their own health by working endless hours in awful conditions. What meager wages the employees do earn is eroded by high domestic inflation and currency manipulation, currency controls and high taxes. This just seems like the devil's bargain. It's sacrificing these workers' lives on the altar of economic growth.

China gets what it bargained for and is happy for it. Chinese workers get a living wage out of it. Otherwise, they wouldn't take the jobs. No question, the Chinese laborers are abused. One reason is that the supply of laborers in China is seemingly endless. Today, the Chinese are competing for jobs. Tomorrow, factories may be competing for labor. When that happens, wages and working conditions will improve. This is elementary stuff.

We are easily blinded by our modern western standards and tend to forget
that our better working conditions were not always with us.

It really makes you wonder how much longer they can keep going like this. What happens in 5 or 10 years when it becomes painfully (literally) apparent to the bulk of these workers that they can no longer sustain this type of a life? Or in 20 years when they realize that they have nothing to show for a life time of suffering?

It's hard to say. I expect the manufacturing sector will evolve for the better as it ages. The domestic market will certainly grow. Internal demand for goods and services will force companies to bid up the wages of experienced workers. It will be post WWII Japan all over again.

[Doktor]

May I ask why nobody feels sad for HP?

I think end of the summer 2011 HP announced they will stop producing Touch Pads, dropped the value to <$100 to clear the stocks.

Wonder if (Chinese) suppliers discounted the production for 50%.

Who got the "better" part of the deal?

[Chunder]

It's hard to say. I expect the manufacturing sector will evolve for the better as it ages. The domestic market will certainly grow. Internal demand for goods and services will force companies to bid up the wages of experienced workers. It will be post WWII Japan all over again.

This has been a point of some pretty interesting debate here in years past. What will be interesting is as these larger economies consumer and industrial development start to resemble ours more closely - that the consumer base of 3 billion odd people may well be roughly the same (if you'll excuse the liberties made with ignoring the poor). Except the time spans of industry leadership will be markedly shrunk.

[RollingWave]

Guys, is it just me, or is the US, by far, getting the better end of this deal?

We have Apple engineers, designers and executives earning good pay by extracting the lion's share of the profits, and consumers who benefit from steeply discounted prices on their wonder-gadgets due to use of discounted labor. China gets a small slice of the profits that go to a few executives plus a work force that can barely make ends meet, that can not save for retirement, and that is destroying their own health by working endless hours in awful conditions. What meager wages the employees do earn is eroded by high domestic inflation and currency manipulation, currency controls and high taxes. This just seems like the devil's bargain. It's sacrificing these workers' lives on the altar of economic growth.

It really makes you wonder how much longer they can keep going like this. What happens in 5 or 10 years when it becomes painfully (literally) apparent to the bulk of these workers that they can no longer sustain this type of a life? Or in 20 years when they realize that they have nothing to show for a life time of suffering?

The problem is that:

A. your assuming this is static, it's not, basic wages in China have grown by an average of something like 15% a year for the last decade even after factoring in inflation (but is still low because they were starting from one of the very poorest country in the world), the reason why the folks at Foxconn put up with that sort of shite (it's Spartan even by Chinese factory standards) is because they do pay more than other similar jobs.

B. Chinese wages are already higher than say.. Vietnam's or plenty of other countries and the reality on the ground is that most factory can't get enough folks to fill their operation, however while some factory are indeed migrating elsewhere (or further inland) because that China generally still have better infrastructure / relatively reliable government (at least to something like say.. Haiti or most of Africa) and perphaps more importantly they have the total manpower needed for such type or operations that many factory still choose to stay, and would likely still stay for quite awhile longer. Even Taiwan still have such type of factories (though it is mostly manned by SE Asian labors)

C. Since WW2, these type of jobs have essentially migrated from the West to Japan / Taiwan / Korea/ Hong Kong to China, condition and relative pay today for Chinese worker is no worse (actually it's probably better than) say... the USA... in the 1920s. not to meantion England in the later 19th century. It's the simple fact that China today is still on a much earlier stage of industrialization development than the west, just look at it's Urbanization statistics, which just cracked 50% lately, that's again, USA territory in the early 20th century. if you compare to the situation then to China now, similarities are extreme. It's a process that basically every country went through at some stage , just that from the western POV that stage is already out of living memory, where as for other folks in Asia it's completely within their living memory when hey.. we were just like that.

D. most of the folks working at Foxconn or similar that gets very low pay essentially only have education up to Junior highschool , and are almost always very young, my sister went to a similar factory in China (not Foxconn but they do similar stuff) and she said that none of the assembly line worker could possibly be even 20 years old. most of them don't do that sort of work for too long, and they move on to other stuff later on in life that is more rewarding as a whole. You can ask yourself if a guy in the US doesn't even graduate from H.S, what sort of job can he realistically expect? probably nothing (legal at least)

When my grandparents fled to Taiwan, they worked several years rolling cigaretts at a local factory (and they were already in their later 30s at that point), that obviously paid close to nothing, but by the time they died 40 years later they were millionares that owned one of the largest unlisted private paper factory in Taiwan with operations in SE Asia and China as well. such things happen. It's a story that's repeated widely in Taiwan, Souh Korea, Japan, Hong Kong... and indeed the USA, just in a further time back. There's not much reason to expect China to be the exception to the rule when almost every indicator suggest they're not.

The problem of China and USA are almost entirely seperated, China is just the latest in the line of East Asian counry that's marching the path of modern industrialization (albeit at the largest scale ), the USA (and indeed most of Europe as well) is trying to figure out what to do after they reach the end of that road. Even if China had remained a Norh Korean like country today most of the problem and US and Europe face would still be the same.

[citanon]

The US, or rather Apple, is getting the deal it bargained for. So is Foxconn.
Both sides entered into the deal because they believed they would benefit from it. They knew what they're doing. Neither got the better end of the deal.

.....That picture is barely accurate.

First of all, the product was developed from top to bottom by Apple. Apple then hired a company to assemble it. It also hired a lot of other companies to make parts for it. And then it took the finished product to market. Classic business operation.

Second, there is no discount in the price of a product simply because it is made in a country with lower labor cost. The product may be less expensive, but that is all.

Price always reflects cost of development, parts, assembly, shipping, advertising, marketing, distribution, management, retailer markup, and finally profit for Apple. The essence of competition is keeping each of those price points as low as possible. I don't understand how anyone can find that so wrong.


Third, cost of Chinese labor is not discounted. It reflects the going rate particular to that country, and every cent paid for labor is reflected in the price of the product.

JAD,

I do not believe that Apple should not keep the bulk of the profits under current market conditions, and when I say discounted, I mean discounted vs US labor market prices. Furthermore, I make no judgement on whether it is right or wrong for this to happen, morally, economically or otherwise. Clearly both parties believe that they are benefiting from this contract. I believe that we in the US continue to benefit from this arrangement. However, I am no longer so sure regarding the Chinese side, because...

China gets what it bargained for and is happy for it. Chinese workers get a living wage out of it. Otherwise, they wouldn't take the jobs. No question, the Chinese laborers are abused. One reason is that the supply of laborers in China is seemingly endless.

Today, the Chinese are competing for jobs. Tomorrow, factories may be competing for labor. When that happens, wages and working conditions will improve. This is elementary stuff.

This is the part that I am no longer certain about. One of the particularly striking things that has happened in China over the past few years is a rapid increase in cost of living. Certainly in portions of China I have been to recently (Shanghai, Hangzhou and Beijing), those prices are reaching US midwest levels. I earn quite a bit more than the average Chinese white collar worker and many times more than a factory laborer, and yet I found my dollar did not stretch nearly as far as I would like, and whereas in years past I saw only the optimism towards the future, today in Shanghai I perceive a general sense of distress. I think there is now a gradual but steady shift in Chinese society where the realities of the wage situation and the inability to save due to state banking policies is tilting outlooks towards the negative. One sign of this is a prodigious efflux of wealth by any means amongst the newly moneyed classes. Another is a general gloominess and cynicism amongst the blue collar class.

A third is widespread labor unrest, surely a sign that a) workers no longer feel replaceable, and b) no longer feel that they have a living wage.

This also goes for Rolling Wave's points - while the "real wage" vs. inflation growth looks good on paper, it no longer feels right on the ground, at least in the more expensive cities.

We are easily blinded by our modern western standards and tend to forget
that our better working conditions were not always with us.

It's hard to say. I expect the manufacturing sector will evolve for the better as it ages. The domestic market will certainly grow. Internal demand for goods and services will force companies to bid up the wages of experienced workers. It will be post WWII Japan all over again.

It will but to what extent can it go before any further advances require moves up the value chain (and how hard will that move be for China)? In the US widespread automation and labor saving manufacturing techniques are driving down demand for blue collar labor. As the Chinese worker seeks to advance his lot, surely he will run into competition from machines and competition from cheaper labor markets. Furthermore, the labor intensive assembly processes used to manufacture many of today's products may not be intrinsically necessary. IF labor costs rise, there may be a tipping point where a combination of automation and better design for manufacturability may lead to a shift of product assembly to automated processes. In other words, there seems to be a renaissance in manufacturing technology that is playing out today. Its pace, impact, and the awareness of its effects has been blunted by outsourcing, but when foreign labor costs increase, they may come to the fore.

Thus, my question remains: who is getting the better deal and is someone getting screwed? I don't know the answer anymore.

[Repatriated Canuck]

But we are living in the 21st century, why putting 18th century morals?

What's good for European or Americans should be good for Chinese as well, especially when we talk about kids labor.

Those kids should go to school, not to work. Period. By buying items produced that way, we support that behavior.

Some kids are not cut out for school. There should be early options for trades training with classes on some business skills.

I have a high school diploma but no one has ever asked for it. If I knew then what I know now I would have dropped school early and got myself a trade earlier. At my age now I'd have two certificates under my belt and years of experience or have 17 or 18 years of experience in one trade if I started young.