Today’s must-read article in the New York Times is Charles Duhigg and Keith Bradsher’s piece on why the iPhone isn’t manufactured in America. The article starts off lamenting the relatively few jobs that Apple has created in America compared to, for example, the 400,000 employed by GM in the 50’s, especially when Apple’s employing hundreds of thousands in China. I don’t want to downplay the weaknesses with America’s workforce, factories and manufacturing clusters that the article highlights, but there are a lot of reasons why Apple’s reliance on China rather than America isn’t as big a deal as it seems.
To state the obvious, a lot of China’s advantage lies in its relatively lax regulations related to workers’ rights, and the ineffective enforcement of these regulations–a weakness which in this article becomes a strength. Factories in China have dormitories so that workers are “available 24 hours a day,” Duhigg and Bradsher write, so that when last-minute new iPhone screens arrived at one factory in the middle of the night, the factory woke up thousands of its workers to begin producing the new iPhones immediately. It’s hard to imagine that happening in the US; indeed, it’s even illegal in China, though that didn’t seem to make much of a difference.
According to Apple’s 2012 Supplier Responsibility Progress Report (pdf), only 38% of the factories it audited were in compliance with working hours regulation. Only 69% of its factories were in compliance with wages and benefits regulations. And, most shockingly to me, only 78% were in compliance with “prevention of involuntary labor” regulations, which makes it sound like a fifth of Apple’s factories rely on something akin to slavery. In short, this isn’t really an area in which America should be competing with China. The difference in regulations and enforcement of regulations between China and the US is the reason why, contra Ygelsias, even if Apple’s Chinese workers came to America, they wouldn’t be as efficient and productive as they are in China.
Duhigg and Bradsher write that, if America had the same manufacturing capabilities as China, “paying American wages would add up to $65 to each iPhone’s expense. Since Apple’s profits are often hundreds of dollars per phone, building domestically, in theory, would still give the company a healthy reward.” I’m not sure what constitutes a “healthy reward,” but regardless, Apple’s goal is to maximize profits for its shareholders, not the number of Americans it employs. $65 per iPhone works out to about $4.7 billion in 2011, over 15% of Apple’s annual profits. The article seems to imply that this wouldn’t be that bad an outcome, which sounds reasonable when you’re focusing on how America benefits from the jobs Apple creates rather than the shareholder value it creates. But that’s not a great metric to judge a corporation by. Here’s what the article has to say about Apple’s stock:
Since 2005, when the company’s stock split, share prices have risen from about $45 to more than $427.
Some of that wealth has gone to shareholders. Apple is among the most widely held stocks, and the rising share price has benefited millions of individual investors, 401(k)’s and pension plans. The bounty has also enriched Apple workers. Last fiscal year, in addition to their salaries, Apple’s employees and directors received stock worth $2 billion and exercised or vested stock and options worth an added $1.4 billion.
The biggest rewards, however, have often gone to Apple’s top employees.
Say what you will about Tim Cook’s compensation–and there’s a pretty strong case to be made that it’s excessive–but it’s certainly not larger than the tens of billions of dollars in wealth that Apple has created for its shareholders in the past decade. Certainly, that money has disproportionately gone to the upper class in America, to the extent that wealthier people are more likely to own stocks than the less wealthy. And it’s not a good thing when that wealth is a result of human rights abuses, although Apple seems to be making a strong effort to promote sound practices in its factories. Overall, though, we shouldn’t downplay the extent to which Apple has created an incredible amount of wealth for this country even if it’s been in the form of capital gains rather than jobs for the middle class.