- By Clyde Prestowitz
Clyde Prestowitz is the founder and president of the Economic Strategy Institute (ESI), where he has become one of the world's leading writers and strategists on globalization and competitiveness, and an influential advisor to the U.S. and other governments. He has also advised a number of global corporations such as Intel, FormFactor, and Fedex and serves on the advisory board of Indonesia's Center for International and Strategic Studies.
Did you happen to read the story in Sunday’s Financial Times headlined, in the print edition: Apple Listens to the Factory Floor in China?
The working hours survey said it all. Average working hours per week in the Foxconn/Hon Hai factories in China that make Apple products were put at 56.1 hours. Maximum hours worked in the last three months were 61.1 hours per week. And the longest consecutive work period without a rest day during the last three months was 11.6 days. These figures were released by the Fair Labor Association (FLA) as Apple Chief Tim Cook last week toured the factories where his company’s products are made.
This Cook’s tour was not for sightseeing purposes or for showing the flag. The FLA report had been commissioned to investigate complaints of inhuman work place treatment that were feeding a brush fire of charges that Apple is making enormous, obscene profits on the backs of poorly paid and badly treated assembly line workers in China. It was to put out this fire that the FLA report release was timed to coincide with Cook’s visit.
Now, in case you didn’t know, let me explain that China does not have the world’s highest labor standards or most powerful labor unions. Indeed, indeed, it has among the lowest and the weakest. Nevertheless, the FLA found at least 50 "serious and pressing non-compliances" with China’s cream puff workplace code of conduct and labor law. In addition, labor rights organizations from India, Indonesia, and Poland as well as from the United States wrote an open letter calling upon Apple to provide a living wage so that Chinese workers do not have to work excessive overtime and also calling for an end to use of involuntary labor.
Well, would you believe it? Apple and its factory operating contractor, Foxconn/Hon Hai, accepted each and every one of the FLA’s recommendations. So now, working hours will actually be reduced to the legal limits while pay will be protected and conditions will be improved. FLA President Auret van Heerden said this would really improve the lives of more than 1.2 million Foxconn employees and set a new standard for Chinese factories. I mean, can you imagine. These factories will now be working no more than the legal maximum of working hours. That will be a new standard. I guess China’s factories must have been working far above the legal limit until now. But now with this new standard they’ll finally meet the old standard. If, that is, these commitments are implemented, van Heerden was careful to stipulate. Do you think maybe she’s been here before? But how could she harbor any doubts that a class act like Apple wouldn’t implement its commitments? Well, maybe the problem is not Apple but Foxconn. But would Foxconn really do things to which Apple objects? Well, you just never know about these kinds of things I guess. Shows you why these global supply chains are so tricky.
Course, this is going to cost Apple big time. I mean the manufacturing labor content of an iPhone or iPad is now about 5 percent of the total cost. By accepting every one of those recommendations, Apple might push this to 6 percent, meaning that its 30 percent operating profit margin might drop to 29.5 percent (if Foxconn shares part of the hit with Apple) or even to 29 percent.
Just think of the implications of that. Instead of $100 billion lying around the Apple headquarters in cash waiting to be invested, there might in the future only be $99.5 or $99 billion. But that’s only if the deal is actually fully implemented. So I guess we’ll have to wait and see.
All right, let me stop with the sarcasm and just ask straight forwardly, why does Apple have to do it this way? Making iPads is not war. Why does anyone have to work 60 hours a week? Why does anyone have to work eleven and a half days without a break day? Apple would be the world’s most profitable company even it its gross profit margins dropped by a few percent.
I mean, here’s Apple who’s biggest problem is figuring out what to do with all the cash, and its executives take home really rich bundles of cash, stock grants, long term options, and all the rest of it which is taxed at only 14 or 15 percent while they agree to only make their Chinese workers work the legal maximum number of hours. Could you ask for a better more soulful bunch of guys and gals? I mean, really!
This is what’s wrong with globalization. The big gains go to the one percent who need them the least. Developed world workers take a big hit, Chinese workers gain, but not nearly as much or as fast as they should, and First World consumers don’t get very much of the benefit of the cheap Chinese labor because the bulk of the wage arbitrage between west and east is going into the coffers of the top executives and the middlemen between producers and consumers. It’s not a sustainable way to run the world.