By Mitch Gurney
April 6, 2010
Following recent announcements by Apple and their manufacturing partner Foxconn to improve wages and working conditions at the Foxconn factories, Foxconn Chairman Terry Gou pledges to keep increasing factory wages for its 1.2 million workers.
Curiously this latest news release as with most others reported by the corporate media neglects mentioning the actual wages. However tycoon Chairman Gou acknowledges that even “salaries in Brazil are higher” than in China.
These announcements are in response to a Fair Labor Association (FLA) audit report that confirmed “serious and pressing” violations of China labor laws that labor activist have known about for some time. However, according to SACOM, while the FLA report is welcomed news, it ignored numerous other violations, noting in Apple Concedes Problems in Supply Chain:
In the report, FLA pointed out several pressing issues at Foxconn, including, working hours, health and safety, industrial relations, compensation and interns. Foxconn is notorious for its harsh management methods, which is one of the factors [that] triggered the spate of suicides in the company in 2010. Yet, the problem of hash management and work pressure has been tactfully omitted in the report. And the gross violation of forced internship was not addressed at all.
Relative to their cost of living, wages in China today are equivalent to wages in the U.S during the Depression era of the 1920’s and 30’s. Foxconn has 1.2 million workers that earn a basic hourly rate ranging from $1.20 to $1.45. The workers at the Chengdu Foxconn factory, that mostly assemble iPads, earn a basic salary of $207 month. The iPad3 sells on Amazon for about $540. At these wages it requires over 2 and half months of wages for a Chinese worker to afford one. But these Depression era wages are not isolated to just China’s electronics industry. China has 4000 toy manufacturers that subcontracted with U.S firms like Disney and Mattel and employ 4 million workers earning a basic hourly rate of about $1.20. All of these factories primarily manufacture American brands for American companies.
ABC News is owned by Disney. Announced in November 2011, Disney’s CEO Bob Iger joined Apples Board of Directors following Steve Job’s passing. ABC News oddly enough has an ongoing investigative report Made in America that encourages American consumers to buy American made products, claiming doing so will employ more Americans. During the reporting Diane Sawyer and her staff expressed shock to learn just how much of our branded products are produced in China. How many jobs could Disney create here in America if it brought its manufacturing back home?
The threat to American workers doesn’t end with unskilled blue-collar workers either. Western companies are also attracted to China’s huge reservoir of cheap, highly skilled engineers with master’s degrees that can be hired for about $8k per year.
Meanwhile National Salary data for the U.S indicates that engineer’s annual wages range from $44k to $87k. Clearly the American workforce as a whole faces tough competition in the global race for jobs.
Obviously when MNC’s outsource their manufacturing they not only save on labor cost but also eliminate direct infrastructure related cost. I respect that corporations must have profit growth. The decisions they make are business ones driven to achieve that growth and meet or exceed investors’ expectations. Investors often don’t view jobs growth as a positive indicator in relation to corporate profits in an economy that is not growing. To maintain profit margins the current market conditions leave cost cutting as the only alternative. How many more iPads could Apple sell if their Chinese laborers could actually afford one?
Globalization has changed everything. U.S MNCs and the world’s other leading MNCs have moved beyond their respective national interest and so have the jobs. U.S MNCs are not as vulnerable to the globalization competition, but American workers are. We find ourselves competing on a global level for a finite number of jobs. As long as the wage disparities of 5 -1, 6 -1, or greater continue to provide profit enrichment’s for multinational firms outsourcing will remain a fact of life for every American worker and for workers around the world. No worker regardless of location is immune if their job today can be done cheaper by some else tomorrow in another part of the world. As if these wage disparities is not enough we must also factor in the negative impact on human laborers through automation and robotics.
Because our nation’s manufacturers outsourced their manufacturing it stands to reason the following conditions manifest and worsen as the outsourcing continues:
- National manufacturing output relative to our GDP declines and shifts elsewhere, like to China
- Our trade imbalance increases year over year (except during recessions, but resumes the trend as recovery begins
- The trade imbalance is concentrated in countries where the labor is cheapest – like China
- A GDP – less recovery while trade imbalance increases
- U.S jobs lag behind corporate production
- Jobs within our national borders shrink – workers taking part-time work skyrockets, earning less income
- Wages on a national average stagnate, and decline
A recent report by The Information Technology & Innovation Foundation (ITIT) substantiates this. The report, Worse than the Great Depression, What Experts Are Missing about American Manufacturing Decline published in March 2012 is an in-depth analysis of the decline of manufacturing in the U.S over the past decade. Their findings are alarming, especially in terms of the massive loss of manufacturing jobs in the U.S.
Take a look at this chart and observe the decline in factory jobs across the full spectrum of manufacturing in the U.S. As seen in the chart the steepest job loss is in the apparel and textiles industry sector, one of the earliest industries to outsource for cheaper labor. Today U.S consumers are extremely hard pressed to find any leading American clothing brands made in the USA. Along with the loss in jobs comes a loss in factories. According to a recent study of BLS data over 56,000 factories have shut down since 2001 alone. Currently there are an estimated 27 million people unemployed in the U.S.
Often, productivity growth is cited as an explanation for the decline in national output. But the reports analysis demonstrates something other than productivity growth is at work in driving the loss of one-third of the manufacturing jobs and the decline in national manufacturing output relative to GDP.
Their analysis is based on an old world paradigm that measures the nation’s GDP in terms of the productivity of its manufacturers within its borders. In a globalized economy that paradigm is outdated. The ITIT report is correct in concluding that the U.S economy is in serious trouble as a result of our nation’s decline in productivity. The U.S is producing less, as a nation, because most of our manufacturing is no longer done here. However, American companies are still producing. While they may have achieved some productivity efficiencies, as in automation, they have also substantially reduced production cost by outsourcing for cheaper labor and other savings thus either growing or maintaining profits. But this increased corporate performance produces less benefit to the U.S economy as it did before globalization.
It is true the U.S as a nation is falling behind in manufacturing output that’s placing downward pressure on its GDP. This shift in manufacturing’s contribution to the GDP is seen in these statistics cited in the ITIT report:
From 1970 to 2010, manufacturing’s share of GDP fell from 22.7 percent to 11.7 percent
It also points out:
Today, direct manufacturing [within] the U.S [still] contributes $1.7 trillion to GDP and employs 12 million workers.
Goldman Sachs in March lowered its Q1 GDP forecast to 1.8% stating:
First, imports increased more than expected, and because this occurred early in the quarter it had an outsized impact on the quarterly average growth rate.
Other findings of the ITIT report:
- From 2000 to 2011 manufacturing lost 5.4 million jobs for a decline of 31.4 percent, with manufacturing jobs shrinking at a rate nearly six times faster than the rate in the prior two decades.
- On average, 1,276 manufacturing jobs were lost every day for the past 12 years.
- A net of 66,486 manufacturing establishments closed, from 404,758 in 2000 down to 338,273 in 2011.
- Each day since 2000, America had, on average, 17 fewer manufacturing establishments than it had the previous day.
- The sectors most affected by globalization that have seen the steepest job losses, with almost seven in 10 jobs in apparel disappearing, six in 10 in textiles, and almost five in 10 in furniture. Two industries least impacted by globalization—food products and petroleum refining—experienced the lowest job loss: less than 10 percent each.
- Every lost manufacturing job means the loss of around 2.3 other jobs in the economy. As such, the anemic overall job performance in the last decade was directly related to the 32 percent loss of manufacturing jobs.
- Between 2002 and 2006, while the United States was losing manufacturing jobs at an unprecedented rate, China’s manufacturing employment rose by an astounding 11 million workers. In four short years China created as many manufacturing jobs as exist in the United States today.
- From 1999 to 2008 …manufacturing employment [in China] has increased every year from 1998 to 2006 with a rising trend from 2007 through year-end 2008 [during which] employment increased by 1.1 million.
- Their data supports a quote made by Floyd Norris of the New York Times who wrote, “Until last year, there has not been a single year when manufacturing employment rose since 1997.”
- For every 12 manufacturing jobs lost during the Great Recession, only one had returned by February of 2012.
- The Boston Consulting Group (BCG) claimed that, “within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world.” Never mind that BCG came to the exact opposite conclusion a few years earlier, stating, and “We maintain, in contrast, that the cost gap [between China and the United States] not only is unlikely to close within the next 20 years, but in some cases may actually increase. The fact is that the cost differential is still quite high. Moreover, as China opens up its interior regions to development it is tapping into new, large pools of low-wage labor.
- 13 manufacturing sectors that employed 55 percent of manufacturing workers all produced less in 2010 than in 2000, at a time when the overall economy grew 17 percent.
- If from 2000 to 2010 manufacturing output had grown [within the U.S and not outsourced] at the same rate as that of the rest of the business sector, the United States would currently have some 13.8 million more jobs.
- Most economists agree that jobs in manufacturing have a large multiplier effect. For instance, the Economic Policy Institute finds that manufacturing jobs have an employment multiplier of 2.91, compared to 1.63 in business services or 1.66 in transportation (meaning that one manufacturing job supports the creation of 2.91 other jobs in the economy). Similarly, the Public Policy Institute of New York State has found a national average job multiplier of one manufacturing job creating 2.34 jobs in other sectors. Averaging these two figures and applying this multiplier yields striking results; if manufacturing output [within the U.S] had grown at the rate of the private business sector growth, it would have lost just 2 million jobs in the past decade, as opposed to 5.8 million jobs. In other words, there would be 3.8 million manufacturing jobs saved. Using a manufacturing employment multiplier of 2.34, 12.7 million jobs would have been saved in the economy over the past decade—a figure very close to the number of unemployed Americans today.
Please note that despite the Great Recession, U.S manufacturers earned record profits in 2011:
- U.S. manufacturing corporations are on track to earn record profits in 2011: about $600 billion, up from profits of nearly $500 billion in 2010 and approximately $360 billion in 2000. However, while manufacturing profits have indeed increased by 52 percent between 2000 and 2010, overall corporate profits are up much more at 135 percent.
So clearly, corporate manufacturing output and profits are not at risk but our national economy is. The national manufacturing output, as a share of our GDP, has indeed fallen because U.S manufacturers are shifting production overseas:
- From 1997 to 2007 imports of manufactured goods rose by more than 100 percent
This shift is obvious in the accumulating negative trade balance of goods and services the U.S has with the rest of the world:
- Over the last decade, the United States has accumulated an aggregate $5.5 trillion negative trade balance in goods and services with the rest of the world. In no year in the last decade did the United States have a negative global trade balance of less than $360 billion, and in five of those years it had negative trade balances of at least $600 billion. But the story is even worse with regard to the U.S. balance of trade in goods: from 2006 to 2011, the United States accrued a trade deficit in goods of at least $729 billion annually.
- In 2011, the trade deficit was $558 billion—11 percent higher than in 2010 and 46 percent higher than in 2009. The trade deficit was smallest in 2009 after the height of the recession, but it has grown since then, approaching 2006 levels.
- In 2000, Chinese manufacturing exports were one-third the size of U.S. manufacturing exports, but by 2011 Chinese exports were larger than those of the United States by $651 billion.
While on the campaign trail, when politicians promise to “bring America back” and “bring jobs back to America” they are making old world promises that no longer apply in a globalized one world economy. And they know it. Globalization has been and continues to be a corporate and bipartisan project. Regardless how you vote, the outcome will be the same.
It remains to be seen whether Apple and Foxconn actually deliver on their promises but the reality is efforts to improve working conditions and standardize global wages will be a long uphill battle.