September 28, 2012

The Real Cost of Cheap Consumer Electronics

So the iPhone 5 sold only five million units on debut, significantly less than the 6-8 million some analysts forecasted. The culprit? Production—the supply chain simply could not keep up with the astronomical demand. At least that’s the official story.

So, we can put that behind us, right? Next time a massive product rollout takes place we simply increase production capacity. It’s so easy, especially given cheap outsourced labor. At least this is the remedy that Apple and its suppliers would have us believe. Behind this Silicon Valley rhetoric, however, there is a human story—one that speaks to consequences of “cheap labor” and the limits of capitalism as exemplified by modern US business practices.

I want to share two thoughts:

(1) On September 24, workers at the Taiyuan, China plant (the primary iPhone 5 plant) broke ranks and rioted, requiring more than 5,000 police to control 2,000 employees. It took several hours to bring the uprising under control. At least 10 are dead, many more injured.

(2) Apple was fully aware of the human “productive” capacity at Foxconn to prepare for the iPhone 5 launch (yes, the much maligned Foxconn facilities upon which Apple depends on to feed its $600+ share price). This is known, accepted, endorsed, and “entered” as a variable in every production calculation. And we, the consumers, are complicit.

On September 11, Cyrus Chang of Micgadget.com posted an undercover story on how the iPhone 5 was “made” inside the Foxconn factory. The original story was published on August 27, and it is believed the under-cover work was conducted in July 2012.

I’ll briefly share the investigatory setting: The Shanghai Evening Post sent an undercover journalist into the Foxconn’s Tai Yuan factory. Posing as a new applicant, the journalist used a diary to record his experience during a 10-day work period in the process of manufacturing the iPhone 5. Yes, this is the same Tai Yuan factory that experienced a massive strike in March 2012 related directly to the conditions they endured during early iPhone 5 production.

Here’s a summary of his 10 days of experience. The first seven were training-related, days 8-10 were factory-line work. After the 10th day, he quit because of “poor working conditions.”

  • Day 1: Recruitment
    • Asked to pay an extra 100-200 yuan to “expedite” the HR process (corruption) to get a job without waiting weeks for a response. He rejected the offer.
    • Mental health test. Standard. Passed the test, then transported to Foxconn facility. Had to spend the night in Foxconn dorms before process could continue.
    • These dorms were a “nightmare”: “overnight garbage smell plus dirty sweat and foam smell.” “lots of cockroaches” “bedsheets…are full of dirts and ashes.”
  • Day 2: Signing Contract
    • Asked to sign the employment contract in the canteen during breakfast.
    • Contract emphasized four areas of confidentiality, (which seem pretty standard by US specs:) technical information, sales figures, human resource data, and production stats were proprietary.
    • Strange but not the slightest mention of overtime (what it means, what it pays, etc.)
    • Under the section titled “Possible harmful effects that may cause to worker during product,” including “noise pollution” and “toxic pollution”, management asks him to check “No” to all. Not demanded, simply a “request.”
  • Day 3-6: Training Session
    • Once the contract is signed, he is briefed about the Foxconn’s corporate history as well as “policy and safety measures.” He is given a list of 13 activities considered “rewards” and 70 considered “penalties.”
    • Strangely—and definitely worth quoting—the instructor said “You might feel uncomfortable of how we treat you, but this is all for own good.”
    • He immediately starts to work, resting during the afternoon (split shifts).
    • There was a lack of basic amenities for any live-in facility, even decent places to hang your clothes to dry (clothes you must wear to work).
  • Day 7: Break Time
    • Over the weekends, there’s a social gathering where all Foxconn workers gather and dance. The host of the party speaks through the mic: “We are all over stressed everyday and we are not allowed to shout on the production floor. Over here you can shout as loud as you want to release your stress.”

Worker’s dormitories have been framed behind safety wire that looks like bars.
(Photo Credit: Daily Mail)

  • Day 8-10
    • He’s now earned his way into the “Top Security” area and assembles the iPhone 5 units. If he enters or leaves the building with any “questionable” item not approved by Foxconn, he could be immediately fired (much like top-secret facilities in the US).
    • Supervisor says “Once you sit down, you only do what you are told.”
    • Supper at 11 PM, back to work at midnight.
    • His line is in charge of using masking tape and plastic stoppers to cover up the exterior ports prior to painting. He and his coworkers are constantly reprimanded for inadequate coverage.
    • He estimates he gets three seconds to properly cover each iPhone 5 back-plate before painting. Workers on this line are frequently exhausted, with supervisors making them “stand in the corner for 10 minutes” as punishment.
    • At 7 AM, supervisor says “We are all here to earn money! Let’s work harder!” “inspiring” the staff to work overtime (which means 27 yuan or $4).

Keep in mind that I own an iPhone, an iPad, and a Mac Air. I am the definition of complicit in this entire scenario, I’m feeling a bit shameful…in fact, seriously shameful. Yes, I’m familiar with the counter arguments: you’d have to pay $900 for an iPhone if it was produced in the US, etc.

My response: so what? We are “enjoying” the benefits of advanced technologies (brought to you by an iconic American company) broken on the backs of outsourced labor working in slave conditions for sub-human wages. Is this the “efficiency” of which Greenspan (and Friedman before him) spoke?

If US workers produced the iPhone 5—so goes the argument—it would cost $900 or more, as would TVs, computers, pads, etc. Is that acceptable to middle class Americans barely able to scrap by?

On the other hand, maybe it means that I don’t need an iPhone – that would be scary, right? Could I live without one? If so, then who does that hurt?

1. Apple shareholders, a small privileged 1% group when compared to the general US working population;

2. Chinese workers, paid less than $2 an hour but nonetheless desperately dependent on these pathetic wages; and

3. Tax havens like Ireland, the Netherlands, Luxembourg, and the British Virgin Islands – not to mention Nevada, which many US states are looking to mirror (as if that’s the way to gain decent middle-class jobs).

So at best case Nevada gets the Apple jobs but tax free, meaning the state suffers even as its workforce grows. The deficit in corporate tax revenue means less money for schools, public works, etc. even as the population grows (especially in tough times, citizens move to where the jobs are).

We all love to hate “government expenses” until it comes to our local police, teachers, and firemen. And guess what suffers when states and localities play “tax exempt” to draw in big business? Civic budgets. All American corporations want less taxes, so they create loopholes to keep from shouldering their burden. Funny thing: the profits they earn from paying less taxes do not go to the community but to the owners (the 1%) and the consequences are spread out across the rest of us (the 99%).

This formula is as old as Aristotle—central to who we are and how we think about work and its contribution to not only the “economy” but to humanity. Funny these concepts are fundamental to democracy yet foreign to modern capitalist sentiments.

Are Chinese workers being exploited so that you and I can have cheap iPhones or Droids? Absolutely. Can we do anything about it? Sure, if you care enough. Are you willing to pay extra for a device produced by American workers who get a reasonable wage and whose families have health insurance? If not, then quit complaining about outsourcing or caring about the woes of foreign workers. If so, this simple decision will bring back to America millions of decent jobs. It may mean higher prices for gadgets we take for granted, but are we not already paying higher fees by exporting our jobs to foreign countries and dismantling our manufacturing industry and in essence destroying our middle class?

Further reading: Foxconn Riot Much Worse than First Thought: 10 Reported Dead

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