Apple, America and the ‘China Problem’

The secret is out: Apple has a worm inching its way through its corporate flesh. January was a tough month on the Cupertino, California company venerated for its innovation and vision.

The controversy emerged when an Apple contractor in China, a manufacturing facility known as Foxconn where many brand-name electronics are assembled largely by hand, made headlines when dozens of workers threatened to jump to their deaths over a labor dispute. Foxconn’s solution? Erect netting beneath roofs and windows.

It doesn’t end there. For 12-hour shifts, six-days-per week and a live-in lifestyle workers allegedly earn just $17, the New York Times reports. Forbes and PC Magazine added their own angle to the news. One such detail described a high-level manager who, at a Chinese zoo, asked a zookeeper to provide advice on how to deal with his workers, drawing a direct comparison between factory workers and undomesticated animals. It gets worse. A NYT piece, “In China, Human Costs are Built into iPad“, refers to two dozen accidental worker deaths that have occurred as a result of unsafe working conditions. Finally, in “This American Life” the narrator of “Mr. Daisey and the Apple Factory” recounts a first-hand meetup with underage Chinese workers, among scores of others who suffer permanent neurological tremors and ticks as a consequence of over-exposure to a chemical toxin.

For all the outrage, many argue such are the inescapable growing pains of a Third World labor force “coming up”. At one time, the United States, too, was known for worker exploitation, a chief reason child labor laws gained traction and unions became a bulwark against corrupt and abusive management practices. And yet, even at the height of the union movement in the US such organizations represented only a fraction of the workforce. Nonetheless, what began as labor negotiating with management to build a viable American middle class has transformed in recent decades to its polar opposite: a perception that unions destroy American prosperity.

Let’s turn these assumptions on their head for a moment. It may very well be in our best interest to support unionization movements in the Third World because only then will we stem the tide of human rights abuses and, at the same time, diminish the massive inequalities that allow US companies to do the math and abandon American soil —- our workforce — in favor of nations that are institutionally in conflict to American democracy, liberty and justice. Rather than live down to a Third World “race to the bottom” standard, we who have already been down the road to civil rights in the First World ought to raise the international bar: mentor up-and-coming industrial nations in “best practices”.

Our choice is clear: In the absence of such a push Third World manufacturing will remain attractive in much the same way the American South benefited from plantation slave labor. In the US we fought a bloody Civil War to become a civil society. For all the doom-and-gloom of the incensed Southern plantation owner, certain the loss of low-cost labor represented a death-knell, the United States thrived in the post-Civil War era, particularly so after World War II.

Why tolerate and excuse “separate and unequal” practices overseas?

Blind-eyed consumerism turns us into self-serving hypocrites. And yet the shame we bring upon ourselves is far from the only reason to care about what goes on on the other side of the globe. We, too, suffer at our own hand in a less overt but equally-destructive manner: wage stagnation, loss of social mobility and growing deficits that, in the years to come, will increasingly link to tax revenue losses associated with declining (taxable) American affluence. What began some 25 years ago as an offshoring, outsourcing rush sparked the rise of the “too good to pass up” Chinese-made bargain at Walmart and has culminated in a high price indeed. Today, unlike then, economic necessity drives many Americans to purchase Third World goods because our buying power has slipped in direct proportion to the wholesale acceptance of patently unfair “free trade agreements”.

Ross Perot was right when he warned of the “giant sucking sound” of jobs leaving North American soil.

There’s nothing wrong with free trade in the true sense of free-market intent. There is, however, something very wrong with the negative notion that the widening gap between the “haves” and the “have nots” represents a valid manifestation of such a market. Globalization isn’t the problem per se: bad policy is. At the international trade table our “partners” aren’t playing the same free-market game — and therein lies the problem. The United States is increasingly bested by communists, socialists and managed market capitalists! Will we ever come out of economic decline if we don’t perceive the need for a course correction? Take a long, hard look at our 2012 presidential candidates: How many of them propose a viable industrial policy, speak of a solution to the trade deficits or call-out the perverse tax incentives that are shooting America’s economic interests in the foot?

Is it any wonder that our anti-liberty competitors — nations, like China, where government puts to death anyone who attempts to unionize — successfully defend their competitive advantage through currency manipulation, taxes on US-made goods and government-backed “private enterprise”? How nonsensical is it that we Americans glibly say it is “protectionist” to fight fire with fire!? Let’s call it what it is: a leveling of the playing field. It’s a necessary evil lest we become impoverished to a Third World degree!

This much is true: We can’t keep sitting complacently on the wrong end of the see-saw with the flat-earth expectation that we will maintain a fighting chance to compete through pure creativity or educational prowess. Now that our productive capacity exists primarily overseas, engineers, skilled machinists, prototype builders, and venture capitalists will increasingly take up residence there, too. That doesn’t leave much room for even the most highly-educated American student to succeed short of relocating to greener pastures. And therein lies the second problem: what we take for granted here — freedom of speech, religion and association — are criminal offenses in much of the world.

For all our romanticizing, the mobile, global “citizen of the world” is not one who can take the pursuit of life, liberty and justice for granted.

Change may be inevitable but it need not be an all-or-nothing proposition fraught with quasi-religious political dogmas. A large part of the solution lies in bringing Third World manufacturers into the 21st Century so that working conditions are not so dissimilar from our own. To do anything less than revisit and renegotiate the world’s FTAs is akin to running a hockey or football game with one set of rules for the home team and another set of rules for the visiting team. Nonsense! It’s time we got over our apparent death wish, stopped parroting the usual partisan talking points and rallied the courage to institute pragmatic trade reforms. In the long term, that reform needs to include incentives — if not sanctions — for “world citizens” (multinational corporations) that exploit vulnerable populations. Another crucial aspect to such reform is the diversification and development of affordable energy resources that will trim the cost of doing business: here, there and everywhere.

For any real improvement in the quality of workers’ lives we can’t simply point to economic opportunity in isolation. The individuals who live and work in China and elsewhere in the Third World must have some basic assurances in addition to their material needs: namely, that they are innocent until proven guilty and endowed with certain rights. Without the backbone we in the United States take for granted, the potential for such individuals to enjoy social equality, and therefore social mobility, are limited at best.

All too often, the Western view is that China and much of the Third World will go through a wayward period of industrialization and human rights abuses, to emerge one day with the same protections and freedoms enjoyed by Americans. And yet, in an increasingly connected world, making change within one’s borders is becoming more difficult as globalization exerts greater external pressures. When the United States made its greatest strides we were separated by entire oceans — a buffer that was instrumental to our independence but increasingly nonexistent today. In the US, moreover, we had a values system in place to sustain and uplift what would ultimately promote civil rights: namely, the concept that “all men are created equally” with the right to freedom of assembly and association. These precepts allowed early-American workers to unionize in order to further represent their interests. Gradually we have come to see unions as an overreaching force, but at the time they were a much-needed countervailing influence in a period of our history when worker abuses were far too common.

Without an existing framework of liberty, the social gains Americans achieved would scarcely have been realized as early or as completely. If we think that a repressive regime with whom we freely trade on the global market can be altered through the sheer force of modernization and economic progress — which apparently was the hope when Nixon opened up relations with China — we may have another thing coming. If and when that evolution or revolution comes to the Third World, it may come through such a degree of unrest, if not civil war, that it will come to look painfully short-sighted to stow so many of our manufacturing “eggs” in a single regional basket. In fact, the over-specialization and concentration of manufacturing capacity, in general, may come back to haunt us in a manner never before seen in human history. (A war or natural disaster concentrated in or near where the developed world manufacturers most of its critical products from prescription medications to electric grid components could have the same effect.)

If and when the Chinese people revolt against working 12-hour shifts, six days a week and living and eating in the factory barracks, change may come in the form of such disruptions to the supply chain that the world economy will feel pressured to aid the Chinese government in a return to the status quo for the sake of minimizing mass economic disruption and lost profits. Perhaps it is too late but it still needs to be said: Unless we successfully export democratic liberties and fair-trade principles to our trading partners and their labor forces before we come to rely on said nation for our own economic cohesiveness, we will be beholden to a ticking human-labor time bomb. Should the Chinese say “Enough!”, only for the government to react in a heavy-handed Tiananmen Square manner, it is entirely possible that China’s globalized trade partners will be so overly concerned for their respective strategic interests and losses that support for a human rights uprising, past overdue though it may be, will be found lacking. Cries for better compensation and treatment will go largely ignored, and any instability in those regions of the world will be minimized in the American media so that we can go on telling ourselves that globalization has lifted more people out of misery and poverty than not.

Fair trade is in our best strategic and economic interest. It’s not a matter of “if” but “when”. Therefore, the sooner we get to the “when”, the sooner we minimize the harm — to all concerned.

If you are inclined to feel pessimistic, don’t. Consider the growing market for fair-trade coffee, non-GMO and organic foods. A growing number of consumers are willing to pay a premium for health and the satisfaction of being on the right side of the fence when it comes to labor practices. Scores of Americans, too, are more than willing to fork over a premium for a Chinese-made Coach handbag at no real cost savings for its origin simply because the brand carries a perception of value even though it is no longer domestically produced. I am arguing that the same market potential exists here. The assumption that Americans won’t pay for peace of mind or premium-branded US-made products remains largely untested in today’s climate of “conscious consumerism”. Anyone who prefers name-brand over store-brand pays a markup willingly, regardless of country of origin. It stands to reason there is a broader market for products created under fair trade conditions that remains largely untapped. It’s time to invest in symbiotic international relationships that actually work — not the dysfunctional thinking that crudely passes for globalized free trade.

In the spirit of thinking differently it is time to challenge the myth that US-made merchandise corresponds to massive price hikes. A modest 20-35 percent increase for the satisfaction of owning a few more US-made goods is likely to receive greater acceptance as the “jobless recovery” lingers, consumers become more quality conscious, and news of foreign-worker abuses in our hyper-connected small world begin to hit closer to home. There’s reason to believe that the competitive advantage of Third World manufacturing is itself unsustainable.

Why might the affordability gap between foreign-made goods and US-made alternatives narrow despite cut-rate overseas labor costs? Because gasoline and transport prices are on the rise. As energy prices increase, it becomes less cost effective to manufacture products thousands of miles away from their intended market. A push to “go local” and “manufacture Green” will mean that more First World consumers will value products that help their own communities in the perception that this is also the environmentally-responsible way to rebuild the social contract.

To manufacture products closer to one’s target market is not infeasible: one need only look to foreign auto manufacturers that have set up US plants to see that such arrangements are workable. Volkswagen, Honda and Toyota, among others, provide the proof that taking one’s manufacturing plants to your market — in this case to manufacture foreign automobiles with US labor — does not harm the bottom line. In fact, the decentralization of production may very well be a security investment against assembly-line disruptions that might otherwise occur when productive capacity is concentrated in a single geographical region where war or natural disaster can prove disastrous. Make no mistake: This is not an argument to move all production to the US. Rather, I argue equally that products destined for the Asian or European markets should be assembled closer to their respective consumers. In so doing, consumer electronics and appliances that are destined for the US consumer can and should be made here for reasons of economy, environment and quality control. After all, when more Americans are gainfully employed, upwardly mobile and fully equipped to participate in the global economy the more likely it is to benefit the profitability of manufacturers.

This argument comes down to a simple truth that the policymakers, CEOs and MBAs apparently overlooked in their haste to go global: What’s good for the goose is good for the gander. Corporations have a responsibility: to understand that an investment in their market is an investment in their bottom line. If this isn’t the quintessential definition of “rational self-interest” I don’t know what is.

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RESOURCES

Making It In America | The Atlantic

Globalization’s Achilles’ Heel | The Daily Beast

Reporter’s Roundtable: Apple’s China Problem | CNET

Apple Wrestles with its China Problem | MarketWatch

Are Walmart’s Chinese Factories As Bad As Apple’s | Mother Jones

Globalization, Inequality and the State | Thomas Pogge

Is China a Threat to the US Economy? | Congressional Research Service PDF

America’s Got Product

The Price of Cheap: The Hidden Cost of E-Commerce

For years “energy independence” has been the catch-all solution promoted by politicians, talk radio hosts, newspaper columnists and others who point out that the U.S. is short on oil refining capacity. Nonetheless, petroleum production facilities are not only in the process of downsizing in response to a weak economy, but permanently so the Los Angeles Times reports in “Oil companies look at permanent refinery cutbacks” [March 11, 2010].

The oil industry, which as recently as 2007 broke so many profit records that allegations of collusion and price-gouging surfaced, is singing a different tune: Limiting supply to increase sagging profit margins is the solution, analysts say, for losses induced by everything from fuel efficient cars to retiring baby boomers who no longer commute to and from work.

And to think: Just a few years ago SUVs, with their paltry ~13 mpg, were the rage from Coast to Coast. Could it be that Cash for Clunkers, unintentionally so, was a little too effective — or are oil industry insiders selling Americans up the river when they can least afford it? Whatever the case may be, nothing says Green like fuel-efficient automobiles and the beginnings of an alternative energy infrastructure. Even so, the picture the LAT paints is far from complete. The Perfect Storm of tightening supply, increasing commodity prices, rising taxes and further job losses looms on the horizon.

Hang on to your hat! The price of life is going up.

Cutbacks and closures of community services nationwide are not cited as a reason for oil refinery cutbacks, but they are egging on these emergent economic norms: Sales tax revenues are down nationwide, and for an increasing number of locals that can only mean an unpalatable combination of higher taxes and limited services. The upshot? Even less incentive for our consumer-driven economy to spread the money around. Local and state governments from California to Michigan are banking on the hope that when the economy rebounds the Red Ink will stop flowing.

Will it?

Even if the demographic shifts associated with baby boomers retiring en masse were not inevitable, a grossly underestimated component to this trend looms larger by the day: e-commerce.

It’s no secret to Internet-savvy folks transversing state lines in search of tax-free online bargains that virtual shopping can be a real moneysaver — and a timesaver to boot. Amazon, for instance, is a leading go-to place for everything from books to home and garden products. Not only are purchases tax-free for many shoppers but free shipping offers often seal the deal.

Never before has the oft-repeated refrain “Shop locally!” encountered so many challengers.

Macintosh computers aren’t cheap now, but they were downright expensive when I purchased my first Apple computer nearly 20 years ago. Back then, it was not unusual to spend $4-10K on hardware alone (CPU, monitor, printer, scanner). The solution? Peruse ads in the back of nationally-distributed computer magazines. There I located a tax-free bargain on the opposite side of the country. Even with the cost of shipping factored in, I saved several hundred dollars foregoing traditional “brick & mortar” retailers. And it wasn’t for lack of local buying options, either: There were plenty of places vying for a slice of the personal computing revolution: Computer City, CompUSA, Circuit City, Fry’s Electronics and Best Buy, just to name a few. Notice what happened, however: All but the latter two succumbed to market forces. Is this because our collective appetite for new and improved technology has diminished? Absolutely not. Americans are more likely to own a personal computer hooked up to a high-speed Internet connection than ever before.

So what changed?

Competition amongst conventional retailers has diminished as more and more players drop out of the market. This makes comparison shopping on the Internet — where a greater number of competitors are in reach — more attractive by the day. Just as Big Box Retailers threatened mom & pop establishments, the Internet is the newest bull in the china shop. To cite just one example, antique stores in downtown areas nationwide have increasingly succumbed to online venues, and bars and restaurants — among the few types of businesses that rely on irreplaceable foot traffic — have sprung up in their wake.

Just how many bars and eateries can a local economy support?

The profound yet oddly imperceptible economic influences wrought by the Digital New Age are numerous: Even as more people embrace Internet shopping, surviving B&M retailers have responded by limiting their in-store selection in favor of just-in-time inventory, of which an increasing percentage is available exclusively online. Shopping at the click of a mouse is both novel and convenient, to be sure, but nonetheless a form of “special ordering” reminiscent of the old-time General Store method of awaiting out-of-town deliveries.

Except that most of us aren’t living in remote outposts.

The Green side of the coin is that fewer and fewer products for which there is inadequate demand are oversupplied to the market, thereby limiting the so-called carbon footprint associated with building and transporting more widgets than there are consumers willing to purchase them. But the environment is not the sole beneficiary. By limiting supply, prices and profit margins are maintained throughout the supply chains. What this means for the rest of us is that the “red tag sales” retailers offer to move an oversupply of product are likely to become increasingly few and far between. Prices between the remaining chain stores are generally pennies apart, and sales leaflets that would appear to advertise discounted deals are increasingly listing regular prices.

This trend presents both an irony and a threat to bargain hunters: B&M retailers that have grown in popularity as consequence of recession-induced thrift include Ross, TJ Maxx and Marshalls — retailers that specialize in discontinued, overstock and out-of-season merchandise offloaded by department stores and boutiques. As mainstream retailers par down inventory, the number and quality of inventory available to discount retailers and Internet shopping sites alike are likely to diminish for the foreseeable future. Consequently, just as demand for bargain bin deals heats up, supplies may be harder to come by. Similarly, as consumers become conditioned to shop for “everything else” online, the convenience, expediency and tax revenue benefits of shopping locally are lost. Eventually, the advantages of web-based commerce — what with United States Postal Service cutbacks, shipping cost increases and the inevitable legislative move to tax online shopping — suggests that this bargain hunters’ paradise may amount to little more than a tool of necessity in the years to come.

Even the Internet cannot overcome a fundamentally flawed economy.

So how do our novel new shopping habits dovetail with the news that oil refiners may permanently shutter facilities? For one, less incentive to drive to the mall. Or to go antiquing in a nearby community. And if you do? Fewer places to shop, fewer products and brands in stock, and fewer still mom & pop establishments. The list of nationally-recognized retailers to meet their demise in the Globalized Era is staggering: Broadway, Fedco, May Company, Woolworth’s, Best, Service Merchandise and Marshall Fields; Circuit City, Linens ‘N Things, The Sharper Image and The Good Guys — to name but a few.

To be clear, traditional retail in some shape or form will never be eliminated. But the trend of online shopping at the expense of local sustainability seems likely to accelerate as retailers respond by narrowing their shelf offerings to match lessening in-store demands. In the even longer term, conventional shopping may again become a destination — traveling long distances to reach large, diverse retail centers that are fewer and further between. The town-by-town, city-by-city retail landscape of today may become a thing of the past, not unlike the drive-in movie theater whose heyday has come and gone. Movie rental stores seem to be the next in the obsolescence line, edged out by inexpensive DVDs sold in discount stores, video-on-demand services and novel new competitors such as Netflix. How much more “local color” will fade from our towns, cities and communities until there are few signs of life outside the ‘net — but for the cookie-cutter ubiquity of fast food joints, liquor stores and dry cleaners?

Be careful what you wish for.

The shift in the way we shop not only impacts our gasoline consumption but just about everything we take for granted close to home: from schools, parks and public safety to the ability to find a suitable last-minute gift in a mass market environment increasingly lacking in diversity. This trend, in turn, suggests an increasing number of commercial real estate vacancies and even fewer sales tax revenues for local municipalities. As retail and warehouse job opportunities erode in much the same way manufacturing jobs did in the 1980s and 1990s, even low-skill service sector jobs are likely to dwindle — all of which adds up to a torrent of Red Ink.

Is it possible to become too good of a bargain hunter? Victims, if you will, of our own success?

As a “starving student” I never would have given it any thought, yet we do, indeed, have the power to harm our communities simply by making a habit of shopping online. It’s not that making a few online purchases here or there will topple the economy, but it is fundamentally shifting the game just as surely as the trend of paperless electronic bill paying has sent the USPS into a tailspin. More ironic still, online shopping — to the extent that it is powered by coal — isn’t much Greener than the conventional sort. According to a CNN report, the more energy efficient consumers perceive their electronics, products, services and transportation sources to be the more resources we consume.

Our entire landscape, physical and economic, is in the midst of gargantuan change. Whether such change represents the evolution of a new, Green economy remains to be seen. It could just as easily represent another largely unanticipated wrinkle in the lockstep march of globalization: Economic “desertification” wherein those who live adjacent to an oasis of innovative upstarts, manufacturing plants and retailers will thrive, whereas the vast majority of Americans, even those who live in highly populated areas, will find it increasingly necessary to shop online because it is no longer profitable for retailers to maintain local operations and/or no longer feasible — as gasoline supplies contract and crude prices increase — to transport durable goods great distances from port to shelf.

Perhaps we’ll save the planet. But will we save ourselves?

Economic experts would likely argue that this is the free market at its finest — and to point out, rightfully so, that such shakeups have occurred with every major technological advance. But such observations do not get at the crux of the question: Are we entering a time in this Globalized Era at which the rate and scope of change may exceed our ability to fully appreciate the ramifications? Will a collective deer-in-the-headlights reaction render legislatures unable or unwilling to craft economic policy conducive to a successful transition?

Put another way, we can’t predict where we are headed because we have never before been there. Consequently, our best attempts to plan for the future are likely to come up short — and all the more so when motivated by the desire not to shake fragile consumer confidence. Conventional wisdom, after all, views the phenomena known as market concentration — a diminishing number of viable businesses competing for our dollar under increasingly deregulated conditions — as the hallmark of “efficiency“. Prices are lower and demands are met so no harm, no foul the argument goes. But the more apt question, the one too few of us appear to be asking — not unlike the way in which financial firms and economists alike underestimated the phenomena of “irrational exuberance” prior to the Great Recession — is whether we’ll fumble the transition because we have failed to appreciate that it is possible to take a “good idea” too far.

Call it wrong and we not only risk a double-dip recession but a generational lifestyle realignment in which a college education, white picket fence, an automobile in the garage, a chicken in the pot, and 2.5 children in the home move increasingly out of reach.

By some counts, the time to have invested in an alternative economy is some 30+ years overdue. By a more conservative measure, we’re nearly 15 years behind the 8-ball both in terms of minimizing harm to human welfare and the climactic shifts associated with the over-use of fossil-fuels. By other accounts, the solutions proposed thus far are recklessly unworthy of widespread adoption.

And that’s why a benign practice so seemingly unrelated to the permanent loss of petroleum refining capacity — shopping online — may evolve into the straw that breaks the camel’s back. The desertification of our consumer-driven economy in the absence of a fully viable way to fill the economic vacuum may very well be a phenomena we do not come to appreciate until the list of “usual suspects” no longer explains a still-lagging outlook years from now.

Of course, there will be oases in this Brave New economic landscape. But the increasing concentration of those jobs in fewer areas of the country nonetheless portends harm to communities that rely upon traditional manufacturing and retail access. And that’s not the only casualty of our worship of all things economically efficient. The otherwise worthy aim of Greening the planet may lose its luster if it comes to mean the absence of opportunity: Restricted access to goods and services. Restricted markets. Restricted tax revenues. Restricted growth. Quite possibly even the best and most innovative entrepreneurial ventures will be forced to settle for a mediocre definition of success in the event that consumers, lacking in discretionary incomespurn new products and services in reaction to lost or stagnating wages.

Will we realize the “price of cheap” before the solution to state and local tax revenue losses shows up in the form of massive tax hikes? That is the question. None of this, of course, even begins to account for the tax hike incentives that exist as a result of a decade-plus worth of war-driven Federal deficits, TARP bailouts, unsustainable trade deficits, and the empty coffers long-predicted of Social Security, among other entitlements — just as baby boomers begin to draw them down.

Even as the storm clouds gather over a still-ailing economy, a recent TIME magazine article echos a common refrain: American innovation, writes Barbara Kiviat in “The Workforce: Where Will the New Jobs Come From?” [March 19, 2010], will offset job losses in time. Let’s hope the Green 21st Century jobs we’ve been told to bank on aren’t a case of too little, too late.

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Resources

All About: ‘Green’ Shopping | CNN

The Fight Over Who Sets Prices at the Online Mall | StarNewsOnline

The Death of Retail | The Entrepreneur Network

New Tack for Taxing Online Sales | Durango Herald News

Killing America’s Jobs Machine | Roanoke Times

The Recession could Reshape State Governments in Lasting Ways | Stateline.org

Comparing Online to “Brick and Mortar” Shopping | Buzzle.com

The Broken Society | New York Times

Customers Want it Cheap, Workers Pay Heavy Price | China Daily

The Price of Cheap Imports: What does America Make besides Policies? | WaterWorld

The Slippery Slope of Price Fixing | E-Commerce News

Sales Tax on the Internet: Who Pays, Who Doesn’t | Yahoo!