Monday, January 23, 2012

Apple and the Middle Class Squeeze

This New York Times article investigating why so much manufacturing is happening in China and so little in the United States is really wonderful.  I had two reactions.

First, the issue with the labor force in China is that it can provide a steady or scalable amount of "technical" workers:
Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days.

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.
We spend so much on primary and secondary education in the United States, and yet so many of our high school graduates cannot compete at this level or complete college to compete at a higher level.

Second, there is agglomeration in manufacturing -- the presence of one link in the supply chain makes it more advantageous for other links in the supply chain to locate nearby.  The story is reminiscent of the rise and fall of cities over the last century.  Treat yourself to this book, Triumph of the City, by Ed Glaeser. He provides many examples of how cities rise or fall depending on whether they provide valuable connections and proximity to other productive people or assets.  The electronics supply chain is such an asset in China.  Trying to compete with that would be like competing with Silicon Valley in technological product design and marketing -- or, as Glaeser illustrates, with Detroit a hundred years ago in automobile design and manufacture.

Read the whole thing.


mike shupp said...

I wonder a bit about the 8700 industrial engineers who could be found in 15 days. Also the 200,000 production workers.

If China really has those kinds of unemployed people sitting around, it sounds like a tremendous waste of resources.

Anonymous said...

What is absolutely--absolutely--ridiculous here is the notion that there aren't many Americans who have some college. That has to the majority or plurality classification of Americans in the work force and Americans in their 20s.

About 70% of Americans finish high school and about 70% of that number go on to higher education. That means you have 50% of people in their 20s with some college. The notion that there is a catastrophic shortage of these people is laughable.

There is a shortage of companies who are willing to take these people on and train them (most education needed industrially usually needs to be done on-site: learn how to program this factory equipment).

There is also a shortage of companies that are willing to pay competitive middle class-conducive wages to these Americans. This is actually more significant than the unwillingness to invest in and train workers.

Vindictively enough, there happens to be a glut of corporate profits as a direct result of the deliberate action of shafting American workers and refusing to invest in them or employ them at middle class wages. Only by efforts like the Times article will people be able to see that Apple could have diverted with half of its record profit haul into sustaining an American supply chain. Apple is a high-end brand. The right industrial policy could keep those jobs in the US easily.

The problem: Apple is charging premium rates to produce things cheaply in China and padding its own pockets with undeserved profits. It would be as if Whole Foods sold conventional milk with an organic label and at the organic price. That extra money redounds to them as outsize profit. If they had any corporate social responsibility or indeed held to the model that a corporation benefits its stakeholders and profits most in the long-term if its customers have well-paying jobs that enable them to afford its products, Apple would do what companies like GM and Boeing are being forced to do: pay wages that build the middle class and look on in horror as the knock-on effects of millions of jobs in a well-functioning supply chain afford the company positive vibes as an American company that is proudly "made in America". Apple is currently coasting on its laurels since its products win over fanboys. But if things like deaf ears to Foxconn suicides show they are just as evil as any other corporation, they might want to look at other ways to charge luxury prices even though labor are treated like slaves and paid not much better.

Tom said...

Wow, where to start...Anonymous claims that 50% of people in their twenties have some college. This is true, but immaterial -- they didn't study the right subjects to get these jobs. You are not going to turn a business major into an industrial engineer who oversees other less qualified employees through OJT.

The Chinese happened to decide to focus on this kind of education, and in this case it paid off for them. Apple has the right to source their labor wherever they want. In this case, it seems to have worked out very well for their shareholders. Ireland has focused for decades on multi-lingual training; half of their high-tech jobs are cross-border tech support and sales. Even if we wanted to, we couldn't find that many people trained in 3 or more languages who live in the same time zone as Europe. Ireland wins.

Corporations are no more evil than a poisonous snake is evil. The are creatures designed to do one thing: deliver profits to shareholders and large salaries to their managers. Period. No other mission is allowed by law. We can change this, but until we do, we have to handle a poisonous animal like it's poisonous -- don't blame the animal, blame ourselves.

What does this mean? Strip away the silly notion that corporations have free speech rights; limit cash on hand by forcing a company to pay dividends if management compensation is more than 20x the lowest paid employee in their company -- even if that person works in China; the fines for any corporate wrongdoing comes from top 20 management salaries first, with 10 year clawbacks; any company, or top 20 compensated manager, who makes a donation to any elected official disqualifies their corporation from any commercial dealings with that level of government for 10 years...I'm sure you can think of more.

My point is that we need to put the poisonous animal in a glass cage, not beg it to be less poisonous, or even morally condemn it for following its nature.

Barry said...

Andrew: "Second, there is agglomeration in manufacturing -- the presence of one link in the supply chain makes it more advantageous for other links in the supply chain to locate nearby. The story is reminiscent of the rise and fall of cities over the last century. "

This suggests that government intervention to maintain such agglomerations are desirable; the individual parties, of course, don't have such an incentive.

And it's obvious from reading the original article that the Chinese government was making massive efforts here.