22 January 2012

Apples and Americans

If you read the New York Times, you might be led to believe that some experts think that Apple represents a lot that is wrong with the modern innovation economy. Here is an excerpt from yesterday's lengthy article on Apple:
Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas. . .

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple’s contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. Instead, they work for foreign companies in Asia, Europe and elsewhere, at factories that almost all electronics designers rely upon to build their wares.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.
Let me just say – No it's not.

What kind of jobs does Apple and its suppliers have overseas? The NYT investigated and described a facility in China:
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.

Foxconn employs nearly 300 guards to direct foot traffic so workers are not crushed in doorway bottlenecks. The facility’s central kitchen cooks an average of three tons of pork and 13 tons of rice a day. While factories are spotless, the air inside nearby teahouses is hazy with the smoke and stench of cigarettes.

Foxconn Technology has dozens of facilities in Asia and Eastern Europe, and in Mexico and Brazil, and it assembles an estimated 40 percent of the world’s consumer electronics for customers like Amazon, Dell, Hewlett-Packard, Motorola, Nintendo, Nokia, Samsung and Sony.

“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?”
What indeed? These are not “middle class jobs.”

Kraemer at al. (2011, here in PDF), by researchers at California-Irvine, Berkeley and Syracuse who have studied Apple’s supply chains, first for the iPod and then the iPhone and iPad, conclude:
Those who decry the decline of U.S. manufacturing too often point at the offshoring of assembly for electronics goods like the iPhone. Our analysis here and elsewhere makes clear that there is simply little value in electronics assembly. The gradual concentration of electronics manufacturing in Asia over the past 30 years cannot be reversed in the short- to medium-term without undermining the relatively free flow of goods, capital, and people that provides the basis for the global economy. And even if high-volume assembly expands in North America, this will likely take place in Mexico where there is already a relatively low-cost electronics assembly infrastructure.
What has Apple done?

It has captured a significant fraction of the global market for mobile phones, as shown by the figure below from The Economist.
More importantly, Apple has created jobs in the United States. In 2006, before the iPhone was even on the market Apple as a company had less than 18,000 employees. In 2010, according to the NYT, Apple had 63,000 employees, with 43,000 in the United States. Even if we assume that all of its 2006 employees were in the US (they weren’t) Apple has created more than 25,000 jobs in the US. To put this data into perspective, at a time when the number employed in the US dropped by more than 5% Apple increased its US-based employment by more than 150%.

Rather than calling out Apple as an example of what is wrong in the innovation economy, we should be pointing to Apple as an example to emulate. The question that we should be asking is not how can we get Apple to hire more Americans, but rather, how do we get America to create more Apples?

10 comments:

  1. Roger,

    What does this story say about the "Business Model" of American enterprize..?

    1. Innovate/Invent a product using an employment workforce of technical, specialized, and entrepreneurially minded Americants.
    2. Manufacture and market this new product (and increase employment to facilitate this).
    3. Production becomes streamlined and the employment nexxus shifts overseas for better labor / regulatory conditions.
    4. Rinse-repeat.

    Even the service industry is taking hits because of cheaper "virtual" labor by receptionists and customer service call centers located off-shore.

    If we are primarily going to be a service economy, aided in bursts by innovators who bring in the next must-have product (which is only good for a few years in the cycle before the jobs go overseas)...are there models for this?

    I know around these parts there are local economies based wholly on service (year-round tourism industry supplanted by the schools/hospitals/service, etc. hubs that serve the local employees of said location. It's not really that self-sufficient: The retirement pensions are not what they were, so the aging population is starting to consume less because they are not 'earning' (the balance becomes broader).

    I suspect even Apple's example of increased employment locally even with the offshoring may be unique, because future centers of innovation may simply elect to do e-commerce rather than have their own stores.

    How can the business-model succeed if innovations do not occur in such rapid succession?

    ReplyDelete
  2. .

    The Apple store at the local mall has more employees per square foot by a factor of about ten than any other store. Not only are there a lot of jobs at that Apple store, more importantly those are all wealth producing jobs.

    .

    ReplyDelete
  3. A small comment: even if these iPhones had been assembled in America, they would have been assembled by robots, not humans earning $50 an hour. Chinese workers are currently cheaper than robots; Americans would not be. So the 'middle class jobs' are even more of a chimera than they seem.

    ReplyDelete
  4. Gerard - 3

    "Chinese workers are currently cheaper than robots; Americans would not be. So the 'middle class jobs' are even more of a chimera than they seem."

    So you're saying that innovation (in manufacturing) eliminates jobs? Roger would not approve.

    ReplyDelete
  5. Mark B.

    I'm saying it's likely to eliminate Chinese jobs. The American jobs which might have been eliminated by robots have mostly instead been offshored.

    If it weren't for companies like Foxcomm, we might have more innovation (and high-paying jobs) in robotics. As of now, it's hard to undercut the workers who assemble iPhones.

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  6. And all those Chinese workers that have productive employment because of Apple now have income to buy products that they couldn't buy before. Some of those products are produced in the USA or in other countries (whose workers can then afford to buy some American products). Increasing wealth and income of workers around the world helps increase American influence around the world.

    Why is this terrible?

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  7. In Job's biography there is section discussing a meeting with Obama on what would be needed to stimulate the manufacturing sector in the US. That is, to bring jobs back on shore. According to the biography the advice he gave fell on deaf ears and Job's was unimpressed with Obama, who he saw as focused on 'political realities'.

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  8. Consider that back in 1980 a whole host of business sectors and employment options boasted membership in "middle class", but now it is apparent that the 'value' of manufacturing and customer service sectors (from these posts) are not sufficient to warrant continued presence in that number.

    From what is left...are there enough sectors remaining to encourage an extension of the 'middle class' working population, or can it only be kept alive artificially through regulation? Public sector employees are certainly middle-class participants, but only through heavy political/judicial participation.

    It's easier to determine the sectors that comprise the upper-class and the lower-class. Is it not disconcerting that "middle class" seems both harder to indentify AND populate?

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  9. Frankly this article is thoroughly dishonest.

    Yes, the Apple jobs in China are primarily assembly.

    However, the majority of the parts being assembled are not made in the USA either.

    Thus focusing on the China assembly as poster child for Apple jobs being of no benefit to US employment is disingenuous.

    Very little physical component of any Apple product is created in the United States. These parts come from Taiwan, from Malaysia, from China, and a host of other nations as well as some few US parts.

    The jobs associated with making these components are definitely higher skilled, though still manufacturing.

    As for Apple's job growth - more dishonesty.

    More than half of Apple's employees are pure retail - retail represents 36000 out of 64000 total Apple employees.

    Why is a $10/hour Apple store retail employee somehow better than a $20/hour manufacturing line employee?

    This ongoing neoliberal campaign against manufacturing is simply political justification for outsourcing.

    ReplyDelete
  10. -9-c1ue

    Thanks ... According to PC Mag the average salary of an Apple retail employee is more like $19 per hour (but there are really two types, one that makes more and one that makes less):

    http://www.pcmag.com/article2/0,2817,2397421,00.asp

    And according to this source the average production line salary nationwide is $14/hour:
    http://www.mymajors.com/careers-and-jobs/Production-Line-Worker

    Thanks

    ReplyDelete